SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from 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 June 30, 2001
---- --------------
Common Stock, Par Value $.01 1,012,807
Transitional small business disclosure format:
Yes [ ] No [X]
FALMOUTH BANCORP, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2001 and September 30, 2000 1
Condensed Consolidated Statements of Income
For Three and Nine Months Ended June 30, 2001 and 2000 2
Condensed Consolidated Statements of Changes in Stockholders'
Equity For Nine Months Ended June 30, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows
For Nine Months Ended June 30, 2001 and 2000 4
Notes to Unaudited Condensed Consolidated Financial
Statements 5-7
Item 2 Management's Discussion and Analysis of Financial Condition
and Operating Results 7-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
===============================================================================
FORWARD LOOKING STATEMENTS
This Form 10-QSB 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, but are not limited to: general and local economic
conditions; changes in interest rates, deposit flows, demand for mortgages
and other loans, real estate values, and competition; changes in accounting
principles, policies, or guidelines; changes in legislation or regulation;
and other economic, competitive, governmental, regulatory, and technological
factors affecting our operations, pricing, products and services.
Any or all of our forward-looking statements in this Form 10-QSB and in any
other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Consequently, no forward-looking statement can be
guaranteed.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise.
============================================================================
Part I. Item I. FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
June 30, 2001 and September 30, 2000
------------------------------------
June 31, September 30,
2001 2000
-------- -------------
(unaudited)
ASSETS
------
Cash, due from banks, and interest bearing deposits $ 5,052,285 $ 3,450,297
Federal funds sold 4,436,545 3,380,176
------------ ------------
Total cash and cash equivalents 9,488,830 6,830,473
Investments in available-for-sale
securities (at fair value) 8,655,533 7,807,742
Investments in held-to-maturity securities
(fair values of $8,441,115 as of
June 30, 2001 and $10,781,002 as of
September 30, 2000) 8,407,279 10,776,000
Federal Home Loan Bank stock, at cost 878,000 720,700
Loans, net 115,949,684 105,731,509
Premises and equipment 1,943,486 1,991,077
Accrued interest receivable 774,056 750,690
Cooperative Central Bank Reserve Fund
Deposit 395,395 395,395
Other assets 634,487 460,301
------------ ------------
Total Assets $147,126,750 $135,463,887
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing $ 15,893,656 $ 14,243,255
Interest-bearing 104,097,134 98,130,985
------------ ------------
Total deposits 119,990,790 112,374,240
Securities sold under agreements to
repurchase 685,811 863,943
Advances from Federal Home Loan Bank of
Boston 7,789,045 3,851,961
Other liabilities 328,741 327,680
------------ ------------
Total Liabilities 128,794,387 117,417,824
------------ ------------
Minority preferred stockholders' equity
in a subsidiary company of
Falmouth Co-operative Bank 54,000 54,000
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per
share, authorized 500,000 shares;
none issued
Common stock, par value $.01 per
share, authorized 2,500,000 shares;
issued 1,454,750 shares 14,547 14,547
Paid-in capital 13,856,322 13,901,452
Retained earnings 12,399,236 11,669,877
Unallocated Employee Stock Ownership
Plan shares (411,530) (477,668)
Treasury stock (441,943 shares as of
June 30, 2001; 418,912 shares as of
September 30, 2000) (7,203,701) (6,850,722)
Unearned compensation (137,429) (291,097)
Accumulated other comprehensive income
(loss) (239,082) 25,674
------------ ------------
Total stockholders' equity 18,278,363 17,992,063
------------ ------------
Total liabilities and stockholders' equity $147,126,750 $135,463,887
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(unaudited)
Three Months Ended Nine Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest and dividend income:
Interest and fees on loans $2,147,048 $1,789,684 $6,296,294 $4,939,273
Interest and dividends on securities:
Taxable 210,129 248,477 674,503 776,704
Dividends on marketable equity securities 24,200 26,779 81,363 77,026
Dividends on Cooperative Bank Investment
and Liquidity Funds 7,378 7,806 22,795 27,871
Other interest 51,228 54,426 146,277 173,488
---------- ---------- ---------- ----------
Total interest and dividend income 2,439,983 2,127,172 7,221,232 5,994,362
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 1,019,785 872,725 3,131,514 2,424,908
Interest on securities sold under
agreement to repurchase 7,193 14,948 31,368 39,467
Interest on FHLB advances 116,095 47,493 259,020 206,385
---------- ---------- ---------- ----------
Total interest expense 1,143,073 935,166 3,421,902 2,670,760
---------- ---------- ---------- ----------
Net interest and dividend income 1,296,910 1,192,006 3,799,330 3,323,602
Provision for loan losses 30,000 74,000 145,000 104,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,266,910 1,118,006 3,654,330 3,219,602
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts 39,084 30,898 111,943 96,677
Securities gains, net 39,340 81,103 193,017 301,811
Gains (losses) on mortgages sold, net 1,116 -- 17,446 1,711
Other income 75,205 52,474 211,102 164,356
---------- ---------- ---------- ----------
Total other income 154,745 164,475 533,508 564,555
---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits 423,892 391,176 1,326,092 1,222,314
Occupancy expense 51,124 58,280 148,515 155,943
Equipment expense 47,305 46,206 134,005 127,048
Data processing expense 87,832 58,446 236,013 180,683
Directors' fees 12,900 12,450 41,450 37,750
Legal and professional fees 49,849 79,481 185,155 211,724
Other expenses 171,445 160,177 511,403 505,807
---------- ---------- ---------- ----------
Total other expenses 844,347 806,216 2,582,633 2,441,269
---------- ---------- ---------- ----------
Income before income taxes 577,308 476,265 1,605,205 1,342,888
Income taxes 202,645 160,190 569,683 488,975
---------- ---------- ---------- ----------
Net income $ 374,663 $ 316,075 $1,035,522 $ 853,913
========== ========== ========== ==========
Comprehensive income $ 352,035 $ 139,396 $ 770,766 $ 759,298
========== ========== ========== ==========
Earnings per common share $ 0.39 $ 0.32 $ 1.06 $ 0.84
========== ========== ========== ==========
Earnings per common share, assuming dilution $ 0.38 $ 0.30 $ 1.05 $ 0.80
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------
(unaudited)
Nine months ended June 30, 2001
-------------------------------
Unallocated Accumulated
Employee Other
Stock Compre-
Ownership hensive
Common Paid-In Retained Plan Treasury Unearned Income
Stock Capital Earnings Shares Stock Compensation (Loss) Total
------ ------- -------- ----------- -------- ------------ ----------- -----
Balance, September 30, 2000 $14,547 $13,901,452 $11,669,877 $(477,668) $(6,850,722) $(291,097) $ 25,674 $17,992,063
Employee Stock Ownership Plan 34,300 34,300
ESOP shares released 66,138 66,138
Recognition and retention plan 82,759 82,759
Distribution of RRP shares (153,668) 153,668
Purchase of treasury stock (427,432) (427,432)
Exercise of stock options and
related tax benefit (8,521) 74,453 65,932
Dividends declared (306,163) (306,163)
Comprehensive income:
Net income 1,035,522
Net change in unrealized
holding gain on available-
for-sale securities (264,756)
Comprehensive Income 770,766
------- ----------- ----------- --------- ----------- --------- --------- -----------
Balance, June 30, 2001 $14,547 $13,856,322 $12,399,236 $(411,530) $(7,203,701) $(137,429) $(239,082) $18,278,363
======= =========== =========== ========= =========== ========= ========= ===========
Nine Months ended June 30, 2000
-------------------------------
Unallocated Accumulated
Employee Other
Stock Compre-
Ownership hensive
Common Paid-In Retained Plan Treasury Unearned Income
Stock Capital Earnings Shares Stock Compensation (Loss) Total
------ ------- -------- ----------- -------- ------------ ----------- -----
Balance, September 30, 1999 $14,547 $13,907,812 $10,818,456 $(565,853) $(4,600,671) $(443,284) $128,446 $19,259,453
Employee Stock Ownership Plan 27,835 60 27,895
ESOP shares released 66,139 66,139
Recognition and retention plan 89,240 89,240
Distribution of RRP shares (156,587) 156,587
Adjust average balance of stock in RRP (4,400) (4,400)
Purchase of treasury stock (2,202,713) (2,202,713)
Exercise of stock options and
related tax benefit (1,526) 13,078 11,552
Dividends declared (246,317) (246,317)
Comprehensive income:
Net income 853,913
Net change in unrealized
holding gain on available-
for-sale securities (94,615)
Comprehensive Income 759,298
------- ----------- ----------- --------- ----------- --------- -------- -----------
Balance, June 30, 2000 $14,547 $13,866,774 $11,426,112 $(499,714) $(6,790,306) $(291,097) $ 33,831 $17,760,147
======= =========== =========== ========= =========== ========= ======== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
(Unaudited)
Nine Months Ended
----------------------------
June 30, June 30,
2001 2000
-------- --------
Cash flows from operating activities
Net income $ 1,035,522 $ 853,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of investment securities, net (193,017) (301,811)
Amortization (accretion) of investment securities, net 8,527 (31,383)
Provision for loan loss 145,000 104,000
Change in unearned income 80,206 (115,566)
Gain on sales of loans (17,446) (1,711)
Depreciation and amortization 139,253 138,119
(Increase) decrease in accrued interest receivable (23,366) 67,791
Decrease (increase) in other assets 2,318 (36,985)
Recognition and retention plan (RRP) 82,759 84,840
Increase in other liabilities 1,061 144,161
Minority interest in subsidiary -- 54,000
------------ ------------
Net cash provided by operating activities 1,260,817 959,368
------------ ------------
Cash flows from investing activities:
Purchase of available-for-sale securities (4,165,129) (1,311,029)
Proceeds from sales of available-for-sale securities 841,009 1,350,993
Proceeds from maturities of available-for-sale
securities 2,200,569 9,456,690
Purchase of held-to-maturity securities (9,160,046) (5,981,471)
Proceeds from maturities of held-to-maturity
securities 11,547,756 4,849,625
Purchase of Federal Home Loan Bank stock (157,300) --
Net increase in loans (13,159,446) (17,699,287)
Proceeds from the sale of loans 2,733,511 166,534
Capital expenditures (91,661) (113,344)
------------ ------------
Net cash used in investing activities (9,410,737) (9,281,289)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits,
NOW and savings accounts 1,719,498 10,950,471
Net increase in time deposits 5,897,052 5,927,123
Net (decrease) increase in securities sold under
agreements to repurchase (178,132) 161,442
Proceeds from Federal Home Loan Bank long-term
advances 6,500,000 1,000,000
Repayments of Federal Home Loan Bank long-term
advances (4,562,916) (3,059,119)
Net change in Federal Home Loan Bank short-term
advances 2,000,000 --
Proceeds from exercise of stock options 65,932 11,552
Dividends paid (306,163) (246,317)
Employee Stock Ownership Plan 34,300 27,895
Unallocated ESOP shares released 66,138 66,139
Purchase of treasury stock (427,432) (2,202,713)
------------ ------------
Net cash provided by financing activities 10,808,277 12,636,473
------------ ------------
Increase in cash and cash equivalents 2,658,357 4,314,552
Cash and cash equivalents at beginning of period 6,830,473 7,277,360
------------ ------------
Cash and cash equivalents at end of period $ 9,488,830 $ 11,591,912
============ ============
Supplemental disclosures
Interest paid $ 3,421,902 $ 2,670,760
============ ============
Income taxes paid $ 628,220 $ 256,838
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
FALMOUTH BANCORP, INC.
----------------------
AND SUBSIDIARIES
----------------
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The condensed consolidated financial statements of Falmouth Bancorp,
Inc. (the "Company") and its subsidiaries presented herein are unaudited and
should be read in conjunction with the consolidated financial statements of
the Company for the year ended September 30, 2000. The results of operations
for the three-month and nine month periods ended June 30, 2001 are not
necessarily indicative of the results to be expected for the full year. All
material intercompany balances and transactions have been eliminated in
consolidation. In the opinion of management, the condensed consolidated
financial statements reflect all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of results for the
interim periods.
The year end condensed balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles in the United States of America.
Note 2 - Accounting Policies
The accounting and reporting policies of the Company conform to
generally accepted accounting principles in the United States of America and
prevailing practices within the banking industry. The interim financial
information should be read in conjunction with the Company's 2000 Annual
Report contained on Form 10-KSB.
Management is required to make estimates and assumptions that affect
amounts reported in the consolidated financial statements. Actual results
could differ significantly from those estimates.
Note 3 - Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133, as amended by SFAS
No. 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company adopted the statement as
of October 1, 2000. The Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133, does not have a
material effect on the Company's consolidated financial statements.
FASB has issued SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. This replaces SFAS
No, 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and rescinds SFAS Statement No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 140 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after June 30, 2001; however,
the disclosure provisions are effective for fiscal years ending after
December 15, 2000. The Company has not yet quantified the remaining
provisions effective in 2001; however, the Company does not expect that the
adoption of this statement will have a material impact on its financial
position or results of operations.
5
Statement of Financial Accounting Standards No. 141 improves the
consistency of the accounting and reporting for business combinations by
requiring that all business combinations be accounted for under a single
method - the purchase method. Use of the pooling-of-interests method is no
longer permitted. Statement No. 141 requires that the purchase method be
used for business combinations initiated after June 30, 2001. Management
does not anticipate any impact on the consolidated financial statements upon
adoption of this statement.
Statement of Financial Accounting Standards No. 142 requires that
goodwill no longer be amortized to earnings, but instead be reviewed for
impairment. The amortization of goodwill ceases upon adoption of the
Statement, which for most companies, will be January 1, 2002. Management
does not anticipate any impact on the consolidated financial statements upon
adoption of this statement.
Note 4 - Earnings per Share
EPS for the three months and nine months ended June 30, 2001 and 2000
have been calculated according to the guidelines of Statement 128. ESOP
shares are only considered outstanding for earnings per share calculations
when they are committed to be released.
Reconciliation of the numerators and the denominators in the
calculation of basic and diluted earnings per share are as follows:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Three Months Ended June 30, 2001
Basic EPS
---------
Net income and income available to common stockholders $ 374,663 964,798 $0.39
Effect of dilutive securities options and warrants 21,633
---------- ---------
Diluted EPS
-----------
Income available to common stockholders $ 374,663 986,431 $0.38
========== =========
Three Months Ended June 30, 2000
Basic EPS
---------
Net income and income available to common stockholders $ 316,075 986,336 $0.32
Effect of dilutive securities options and warrants 54,685
---------- ---------
Diluted EPS
-----------
Income available to common stockholders $ 316,075 1,041,021 $0.30
========== =========
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Nine Months ended June 30, 2001
Basic EPS
---------
Net income and income available to common stockholders $1,035,522 974,468 $1.06
Effect of dilutive securities options and warrants 15,547
---------- ---------
Diluted EPS
-----------
Income available to common stockholders $1,035,522 990,015 $1.05
========== =========
6
Nine Months Ended June 30, 2000
Basic EPS
---------
Net income and income available to common stockholders $ 853,913 1,018,746 $0.84
Effect of dilutive securities options and warrants 45,356
---------- ---------
Diluted EPS
-----------
Income available to common stockholders $ 853,913 1,064,102 $0.80
========== =========
Note 5 - Dividends
On May 15, 2001, the Board of Directors of the Company declared a
quarterly cash dividend of $0.11 per share of common stock, which was paid
on June 20, 2001 to stockholders of record on June 6, 2001.
7
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
June 30, 2001, there were 1,012,807 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.
The Company had average shares outstanding of 964,798 at June 30,
2001, as compared to 986,336 average shares outstanding at June 30, 2000.
The Company has continued with its stock buy-back programs. At June 30,
2001, the Company had repurchased a total of 441,943 shares, or 30.38% of
its common stock, leaving 1,012,807 shares issued and outstanding.
Comparison of Financial Condition at June 30, 2001 and September 30, 2000.
The Company's total assets increased by $11.6 million or 8.6% for the
nine months ended June 30, 2001, from $135.5 million at September 30, 2000
to $147.1 million at June 30, 2001. Total deposits increased $7.6 million or
6.78%, from $112.4 million at September 30, 2000 to $120.0 million at June
30, 2001. This increase was due, in part, to consumers seeking safer havens
with insured deposits as a result of the downturn in the stock markets, as
well as a seasonal increase in deposits to retail checking, commercial
checking, and regular savings accounts during the period. Total net loans
were $116.0 million or 96.6% of total deposits at June 30, 2001, as compared
to $105.7 million or 94.1% of total deposits at September 30, 2000,
representing an increase of $10.3 million for the period. This increase is
due, in part, to existing lower mortgage rates and to the moderately active
local real estate market driving single-family loan originations, as well as
the Bank's commitment to increase market share. Investment securities were
$17.9 million or 12.2% of total assets at June 30, 2001, as compared to
$19.3 million or 14.3% of total assets at September 30, 2000. Investment
securities decreased $1.4 million due, in part, to fund loans.
Borrowed funds from the Federal Home Loan Bank of Boston have
increased from $3.9 million at September 30, 2000 to $7.8 million at June
30, 2001. The increase of $3.9 million was utilized to fund savings
withdrawals in prior periods and to fund loans. During the period ended June
30, 2001, the Bank was active in refinancing maturing advances at lower
rates, or paying them off. Maturing securities, for the most part, were re-
invested to maintain an adequate securities portfolio while using lower cost
FHLB borrowings for current
8
liquidity needs.
Securities sold under agreements to repurchase (sweep accounts for
commercial depositors) decreased from $864,000 at September 30, 2000 to
$686,000 at June 30, 2001. The decrease was attributed to the seasonal needs
of our commercial demand deposit customers.
Stockholders' equity was $18.3 million at June 30, 2001, as compared
to $18.0 million at September 30, 2000, an increase of $286,000. This change
was primarily the result of an increase in retained earnings of $729,000,
which was off-set by additional treasury shares purchased of $353,000 under
the Company's stock repurchase programs and a reduction in accumulated other
comprehensive income of $265,000. The ratio of stockholders' equity to
total assets was 12.42% at June 30, 2001, and the book value per share of
common stock was $18.05, compared to 13.28% and $17.37, respectively, at
September 30, 2000.
The ratio of the allowance for loan losses to total loans was .77% at
June 30, 2001. Management believes the allowance will be adequate based
upon, among other things, past loss experience, prevailing economic
conditions, and the level of credit risk within the portfolio. However, the
Bank may periodically provide additional provisions as deemed necessary to
maintain a sufficient allowance for loan loss to total loan ratio. The Bank
added $145,000 to the allowance during the nine month period ended June 30,
2001. The Bank plans to continue to set aside additional specific reserves
for commercial loans and large residential mortgages.
Three Months Ended June 30, 2001 and 2000
Net Income. The Company's net income for the three months ended June
30, 2001 was $375,000 as compared to $316,000 for the three months ended
June 30, 2000. The increase in net income of $59,000 was primarily due to an
increase in interest and dividend income of $313,000, offset by an increase
in interest expense of $208,000, a decrease in the provision for loan losses
of $44,000, a decrease in other income of $10,000, an increase in other
expenses of $38,000 and an increase in income taxes of $42,000. The
annualized return on average assets (ROA) for the three months ended June
30, 2001 was 1.05%, a decrease of 3 basis points, as compared to 1.08% 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. The increase in interest expense is primarily due to a $10.2
million growth in savings deposits for the twelve months ended June 30,
2001, as well as an increase in Federal Home Loan Bank advances of $4.4
million for the same period.
Interest and Dividend Income. Total interest and dividend income for
the three months ended June 30, 2001 was $2.4 million, an increase of
$313,000 as compared to $2.1 million for the three-month period ended June
30, 2000. The increase in interest and dividend income was attributable to
the increase in the loan portfolio that provided an increase in interest and
fees on loans of $357,000, which was offset by a decrease in interest on
debt securities and dividends on marketable equity securities of $41,000 and
a decrease in other interest of $3,000.
Interest Expense. Total interest expense for the three months ended
June 30, 2001 was $1.1 million, as compared to $935,000 for the same period
of the prior year, an increase of $208,000. This was the result of increased
FHLB borrowings as well as interest payments on increased deposit volume
during the period.
Net Interest and Dividend Income. Net interest and dividend income for
the three-month period ended June 30, 2001 was $1.3 million as compared to
$1.2 million for the three months ended June 30, 2000. The increase of
$105,000 was the result of a $313,000 increase in interest and dividend
income, offset by a $208,000 increase in interest expense. The net interest
margin for the three months ended June 30, 2001 was
9
3.87%, an increase of 9 basis points, as compared to 3.78% for the three
months ended June 30, 2000. The increase in net interest margin was
primarily the result of an increase in interest income.
Provision for Loan Losses. The Bank added $30,000 to its allowance for
loan losses during the quarter ended June 30, 2001, as compared to $74,000
for the quarter ended June 30, 2000. 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. Net loans expanded from $98.0 million at June 30, 2000, to $116.0
million at June 30, 2001, an increase of 18.3%. The allowance for loan
losses at June 30, 2001 was $900,000 as compared to $672,000 at June 30,
2000, an increase of $228,000 or 33.9%. The increase of the allowance was
disproportionate to the increase in total loans due to increased commercial
loans, which are weighted more heavily, that totaled $14.9 million and $11.8
million at June 30, 2001 and 2000 respectively, an increase of 26.2%, and
management's desire to 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 June 30, 2001, the Bank had no loans classified doubtful
or loss and its allowance for loan losses was 0.77% of total loans.
Other Income. Other income for the three-month period ended June 30,
2001 was $155,000, as compared to $164,000 for the three months ended June
30, 2000. The $10,000 decrease was primarily the result of an increase in
net gains on the sale of mortgages of $1,000 and a decrease in net gains
realized from the sale of investment securities of $42,000. The decrease was
offset, in part, by an increase in service charge income of $8,000 and an
increase in other income of $23,000.
Operating Expenses. Operating expenses for the three months ended June
30, 2001 were $844,000, as compared to $806,000 for the three months ended
June 30, 2000. The $38,000 increase was primarily due to the combination of
an increase in salaries and employee benefits of $33,000, an increase in
equipment expense of $1,000, an increase in data processing expense of
$30,000, and an increase in other expenses of $11,000, offset by a decrease
in legal and professional costs of $30,000 and a decrease in occupancy
expense of $7,000. The annualized ratio of operating expenses to average
total assets for the three months ended June 30, 2001 was 2.36%, as compared
to 2.77% for the three-month period ended June 30, 2000, a decrease of 41
basis points. Data processing expense increased as a result of the upgrade
in the Bank's web site and the anticipated August 2001 introduction of its
Internet Banking and Bill Paying products. Other expenses increased, in
part, due to costs related to the Bank's compliance with the consumer
privacy provisions of the Gramm-Leach-Bliley Act.
Nine months Ended June 30, 2001 and 2000
Net Income. The Company's net income for the nine months ended June 30,
2001 was $1,036,000 as compared to $854,000 at June 30, 2000, an increase of
21.3% or $182,000. Total interest and dividend income increased $1.2 million,
or 20.5% due, primarily, to increased loan activity. This increase was
offset, in part, by increases in interest expense and operating costs.
Security gains net, amounted to $193,000 for the nine months ended June 30,
2001, as compared to $302,000 for nine months ended June 30, 2000, a decrease
of $109,000. The current economic environment has facilitated Bank
management's goal to increase mortgage loans funded by current cash flows,
deposits and FHLB borrowings.
Interest and Dividend Income. Total interest and dividend income for
the nine months ended June 30, 2001 was $7.2 million, an increase of $1.2
million as compared to $6.0 million for the nine-month period ended June 30,
2000. The increase in interest and dividend income is attributable to growth
in the loan portfolio that provided for an increase in interest and fee
income of $1.4 million. This was offset by a decrease in income on
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investment securities of $98,000, a $5,000 decrease in dividends on the Co-
operative Bank Investment Fund, and a decrease in other interest of $27,000.
Management expects income derived from loan assets to continue to increase in
the form of interest and fees on loans, with interest on investments
remaining relatively constant as management strives to maintain its
securities portfolio at its current level.
Interest Expense. Interest expense for the nine months ended June 30,
2001 was $3.4 million, including $259,000 in interest on FHLB advances, which
is an increase of $751,000 from $2.7 million for the nine months ended June
30, 2000. There was a $707,000 increase in interest on deposits and a $44,000
decrease in interest on borrowed funds and securities sold under agreement to
repurchase. Additional FHLB borrowings may be utilized as an interim source
of loan funding, as interest expense on these funds remains low.
Net Interest and Dividend Income. Net interest and dividend income for
the nine-month period ended June 30, 2001 was $3.8 million as compared to
$3.3 million for the nine months ended June 30, 2000. The net interest margin
for the nine months ended June 30, 2001 was 3.91%, an increase of 13 basis
points as compared to 3.78% for the nine months ended June 30, 2000. The
annualized return on average assets (ROA) for the nine-month period ended
June 30, 2001 was 1.05%, a decrease of 3 basis points, as compared to 1.08%
for the same period of the prior year. The reason for the decrease in the ROA
was primarily due to the growth in deposits during the period.
Provision for Loan Losses. The Bank added $145,000 to its allowance for
loan loss account for the nine months ended June 30, 2001, to compensate for
the increase in the dollar growth of the loan portfolio. Management believes
the provision to be adequate and commensurate with the level of credit risk.
Other Income. Other income for the nine-month period ended June 30,
2001 was $534,000 as compared to $565,000 for the nine months ended June 30,
2000. The $31,000 decrease is primarily the result of a decrease of $109,000
in securities gains net, on the sale of investment securities taken during
the nine months ended June 30, 2001. The period ended June 30, 2001 also
showed $17,000 in gains on the sale of loans as compared to $2,000 in gains
on the sale of loans for the same period of the previous year. Other income
increased $47,000 during the same nine-month comparative period.
Operating Expenses. Operating expenses for the nine months ended June
30, 2001 were $2.6 million as compared to $2.4 million for the nine months
ended June 30, 2000. The $141,000 increase was primarily due to an increase
in salaries and employee benefits of $104,000, and an increase in data
processing expense of $55,000, offset, in part, by a decrease in legal and
professional fees of $27,000. The ratio of annualized operating expenses to
average total assets for the nine months ended June 30, 2001 was 2.36% as
compared to 2.77% for the nine-month period ended June 30, 2000.
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
11
borrowings. The Bank has historically maintained a level of liquid assets in
excess of regulatory requirements. The Bank's liquidity ratio at June 30,
2001 was 20.37%.
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 June 30, 2001, regulatory liquidity totaled $25.7 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 June 30, 2001, the Bank had
outstanding advances from the FHLB of Boston in the amount of $7.8 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 as well as
reduce interest expense.
At June 30, 2001, the Bank had $6.2 million in outstanding residential
and commercial commitments to originate loans, as well as $16.7 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. At June 30, 2001, certificates of deposit that are scheduled to
mature in one year or less totaled $46.8 million. Based on historical
experience, management believes that a significant portion of such deposits
will remain with the Bank.
At June 30, 2001 the Bank exceeded all of its regulatory capital
requirements.
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OTHER INFORMATION
Part II.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
13
Falmouth Bancorp, Inc. is a publicly owned bank holding company and
the parent corporation of Falmouth Co-operative Bank, a Massachusetts
chartered stock co-operative bank offering traditional products and
services. The Bank conducts business through its main office located at 20
Davis Straits, Falmouth, Massachusetts 02540, and its two branch locations
in North and East Falmouth. The telephone number is (508) 548-3500.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FALMOUTH BANCORP, INC.
(Registrant)
Date: August 13, 2001 By: /s/ Santo P. Pasqualucci
---------------------------------
Santo P. Pasqualucci
President and Chief Executive
Officer
Date: August 13, 2001 By: /s/ George E. Young, III
---------------------------------
George E. Young, III
Vice President and Chief
Financial Officer
14