SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-QSB/A
Amendment No.1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to________to___________
Commission file number 01-13465
Falmouth Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3337685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Davis Straits, Falmouth, MA 02540
(Address of principal executive offices)
(Zip Code)
(508) 548-3500
(Registrant's telephone number including area code)
NA
(Former name, former address and former fiscal year,
if changed from last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes X No-----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
Class December 31. 2000
----- -----------------
Common Stock, Par Value $.01 1,023,838
Transitional small business disclosure format:
Yes No X
Explanatory Note
----------------
This Form 10-QSB/A for the quarter ended December 31, 2000 is being amended
to update the discussion for the provision for loan losses in Management's
Discussion and Analysis of Financial Conditions and Operating Results. No
other changes have been made to this Form 10-QSB.
Forward Looking Statements
--------------------------
This report contains certain forward looking statements consisting of
estimates with respect to the financial condition, results of operations and
business of the Company and the Bank that are subject to various factors
which could cause actual results to differ materially from these estimates.
These factors include: changes in general, economic and market conditions,
or the development of an adverse interest rate environment that adversely
affects the interest rate spread or other income anticipated from the Bank's
operations and investments. We undertake no obligation to publicly update
forward-looking statements, whether as a result of new information, future
events or otherwise.
Part I. Item 2. Management's Discussion and Analysis of Financial Condition
and Operating Results
General
Falmouth Bancorp, Inc. (the "Company" or "Bancorp"), a Delaware
corporation, is the holding company for Falmouth Co-operative Bank (the
"Bank" or "Falmouth"), a Massachusetts chartered stock co-operative bank. At
December 31, 2000, there were 1,023,838 shares outstanding. The Company's
stock trades on the American Stock Exchange under the symbol "FCB".
The Company's sole business activity is ownership of the Bank. The
Company also makes investments in long and short-term marketable securities
and other liquid investments. The business of the Bank consists of
attracting deposits from the general public and local businesses and using
these funds to originate primarily residential and commercial real estate
loans located in Falmouth, Massachusetts and surrounding areas and to invest
in United States Government and Agency securities. To a lesser extent, the
Bank engages in various forms of consumer and home equity lending. The
Bank's business strategy is to operate as a profitable community bank
dedicated to financing home ownership, small business, and consumer needs in
its market area and to provide personal, high quality service to its
customers. The Bank has two subsidiaries, Falmouth Securities Corporation, a
Massachusetts corporation, which was established solely for the purpose of
acquiring and holding investments that are permissible for banks to hold
under Massachusetts law and Falmouth Capital Corporation, a real estate
investment trust.
Comparison of Financial Condition at December 31, 2000 and September 30, 2000.
The Company's total assets decreased by $280,000 or 0.2% for the three
months ended December 31, 2000, from $135.5 million at September 30, 2000 to
$135.2 million at December 31, 2000. Total deposits decreased $2.9 million
or 2.6%, from $112.4 million at September 30, 2000 to $109.5 million at
December 31, 2000. This decrease was due, in part to withdrawals from retail
checking, commercial checking, and regular savings accounts during the
period. Total net loans were $107.2 million or 97.9% of total deposits at
December 31, 2000, as compared to $105.7 million or 94.1% of total deposits
at September 30, 2000, representing an increase of $1.4 million for the
quarter. This increase is due, in part, to the continued strong local real
estate market driving single-family loan originations and the Bank's
commitment to increase market share. Investment securities were $17.2
million or 12.7% of total assets at December 31, 2000, as compared to $19.3
million or 14.3% of total assets at September 30, 2000. Investment
securities decreased $2.1 million due, in part, to cash flows to fund loans,
as well as retail checking, commercial checking, and regular savings account
withdrawals.
Borrowed funds from the Federal Home Loan Bank of Boston increased
from $3.9 million at September 30, 2000 to $6.8 million at December 31,
2000. The increase of $2.9 million was utilized, primarily to fund
residential loan originations, and to a certain extent to fund savings
withdrawals, while allowing several securities maturities to be reinvested.
Securities sold under an agreement to repurchase (sweep accounts for
commercial depositors) decreased from $864,000 at September 30, 2000 to
$531,000 at December 31, 2000. The decrease was attributed to the increased
seasonal liquidity needs of selected commercial deposit accounts at December
31, 2000.
Stockholders' equity was $18.0 million at December 31, 2000, and
September 30, 2000. The components of stockholders equity changed as a
result of an increase in retained earnings of $251,000, which was offset, in
part, by an increase in treasury shares purchased of $170,000 under the
Company's stock repurchase programs and an increase in the unrealized
accumulated comprehensive loss in securities of $134,000. The ratio of
stockholders equity to total assets was 13.31% at December 31, 2000, and the
book value per share of common stock was $17.58, compared to 13.28% and
$17.37, respectively, at September 30, 2000.
The ratio of the allowance for loan losses to total loans was .78% at
December 31, 2000. Management believes the allowance will be adequate based
upon, among other things, past loss experience, prevailing economic
conditions, and the level of credit risk in the loan portfolio. However, the
Bank may periodically provide additional provisions as deemed necessary to
maintain a sufficient allowance for the loan loss to total loan ratio. The
Bank added $85,000 to the allowance during the three month period ended
December 31, 2000. The Bank plans to continue to set aside additional
specific reserves for commercial loans and large residential mortgages.
Net Income. The Company's net income for the three months ended
December 31, 2000 was $343,000 as compared to $276,000 on December 31, 1999.
The increase in net income of $67,000 was primarily due to an increase in
other income of $8,000, a decrease in income taxes of $3,000, and an
increase in interest and dividend income of $479,000, offset, in part, with
an increase in the provision for loan losses of $73,000, an increase in
other expenses of $86,000 and an increase in interest expense of $264,000.
The annualized return on average assets (ROA) for the three months ended
December 31, 2000 was 1.02%, an increase of 8 basis points, as compared to
0.94% for the same period of the prior year. Interest and dividend income
increased, primarily, as the result of increased residential lending
activity during the year.
Interest and Dividend Income. Total interest and dividend income for
the three months ended December 31, 2000 was $2.4 million, an increase of
$479,000, as compared to $1.9 million for the three month period ended
December 31,1999. The increase was attributable to an increase in interest
and fees on loans of $527,000, which was offset, in part, by a decrease in
dividends on securities and other interest of $48,000.
Interest Expense. Total interest expense for the three months ended
December 31, 2000 was $1.1 million, as compared to $862,000 for the same
period of the prior year, an increase if $264,000. The increase in interest
expense is primarily due to an $18.0 million growth in savings deposits for
the twelve months ended December 31, 2000.
Net Interest and Dividend Income. Net interest and dividend income
for the three-month period ended December 31, 2000 was $1.3 million as
compared to $1.1 million for the three months ended December 31, 1999. The
increase of $215,000 was the result of a $479,000 increase in interest and
dividend income, offset by a $264,000 increase in interest expense. The net
interest margin for the three months ended December 31, 2000 was 4.01%, an
increase of 17 basis points, as compared to 3.84% for the three months ended
December 31, 1999. The increase in net interest margin was primarily the
result of an increase in interest income.
Provision for Loan Losses. The Bank added $85,000 to its allowance
for loan losses during the quarter ended December 31, 2000, as compared to
$12,000 for the quarter ended December 31, 1999. Management believes that,
although the allowance is deemed adequate based on its delinquency and loan
loss record, additional provisions may be added from time to time as the
loan portfolio expands by loan type and volume, including expansion in the
commercial loan portfolio. The portfolio expanded from $83.7 million at
December 31, 1999, to $107.2 million at December 31, 2000, an increase of
28.1%. The allowance for loan losses at December 31, 1999 was $581,000 as
compared to $840,000 at December 31, 2000, an increase of $259,000 or 44.6%.
The increase of the allowance was disportionate to the increase in total
loans due to an increase in commercial loans totaled $2.7 million and $3.7
million at December 31, 1999 and December 31, 2000 respectively, an increase
of 37.0%,and management's desire increase the loan loss allowance as a
percentage of total loans. This increase will better align the Bank's
allowance with its peer group. As of December 30, 2000, the Bank had no
loans classified doubtful or loss and its allowance for loan losses was
0.78% of total loans. At December 31, 1999 the allowance to total
loans was 0.70%.
Other Income. Other income for the three-month period ended December
31, 2000 was $208,000, as compared to $200,000 for the three months ended
December 31, 1999. The $8,000 increase was primarily the result of an
increase in service charge income of $1,000, an increase in net gains on the
sale of mortgages of $16,000 and an increase in other income of $10,000.
This was offset, in part, by a decrease in net gains realized from the sale
of investment securities of $19,000.
Operating Expenses. Operating expenses for the three months ended
December 31, 2000 were $861,000, as compared to $775,000 for the three
months ended December 31, 1999. The $86,000 increase was primarily due to
the combination of an increase in salaries and employee benefits of $32,000,
an increase in equipment expense of $5,000, an increase in data processing
expense of $13,000, an increase in directors' fees of $2,000, an increase in
legal and professional costs of $5,000, and an increase in other expenses of
$30,000, combined with a decrease in occupancy expense of $1,000. The
annualized ratio of operating expenses to average total assets for the three
months ended December 31, 2000 was 2.57, as compared to 2.63% for the three-
month period ended December 31, 1999, a decrease of 6 basis points. Data
processing expense increased as a result of the addition of two ATMs to the
Bank's electronic financial services network. Other operating expenses
increased, in part, due to the formation of the Bank's subsidiary, Falmouth
Capital Corporation, a Real Estate Investment Trust.
Liquidity and Capital Resources
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgaged-backed securities, maturities of
investments and interest-bearing deposits, and funds provided from
operations. While scheduled repayments of loans and mortgage-backed
securities and maturities of investment securities are predictable sources
of funds, deposit flows and loan prepayments are greatly influenced by the
general level of interest rates, economic conditions and competition. The
Bank uses its liquidity resources principally to fund existing and future
loan commitments, to fund net deposit outflows, to invest in other interest-
earning assets, to maintain liquidity, and to meet operating expenses.
The Bank is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Bank has historically maintained a level of liquid assets in
excess of regulatory requirements. The Bank's liquidity ratio at December
31, 2000 was 20.02%.
A major portion of the Bank's liquidity consists of short-term
securities obligations. The level of these assets is dependent on the Bank's
operating, investing, lending and financing activities during any given
period. At December 31, 2000, regulatory liquidity totaled $23.1 million.
The primary investing activities of the Bank include origination of loans
and the purchase of investment securities.
Liquidity management is both a daily and long-term function of
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow additional funds from the
Federal Home Loan Bank of Boston (FHLB). At December 31, 2000, the Bank had
outstanding advances from the FHLB of Boston in the amount of $6.8 million
in short and long-term borrowings. As these advances mature, they will be
repaid or re-written as longer term matched borrowings which will assist the
match of rate sensitive assets to rate sensitive liabilities.
At December 31, 2000, the Bank had $3.2 million in outstanding
residential and commercial commitments to originate loans, as well as $17.2
million in unadvanced loan commitments. If the Bank anticipates that it may
not have sufficient funds available to meet its current loan commitments it
may commence further matched borrowing from the Federal Home Loan Bank of
Boston. Certificates of deposit that are scheduled to mature in one year or
less totaled $45.8 million at December 31, 2000. Based on historical
experience, management believes that a significant portion of such deposits
will remain with the Bank.
At December 31, 2000 the Bank exceeded all of its regulatory capital
requirements.
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FALMOUTH BANCORP, INC.
By: /s/ George E. Young, III
------------------------
George E. Young, III
Vice President and Chief Financial
Officer
Date: March 9, 2001