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 March 31, 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 March 31, 2001
----- --------------
Common Stock, Par Value $.01 1,023,838
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
Consolidated Balance Sheets
March 31, 2001 and September 30, 2000 1
Consolidated Statements of Income
For Three and Six Months Ended March 31, 2001 and 2000 2
Consolidated Statements of Changes in Stockholders' Equity
For Six Months Ended March 31, 2001 and 2000 3
Consolidated Statements of Cash Flows
For Six Months Ended March 31, 2001 and 2000 4
Notes to Unaudited Consolidated Financial Statements 5-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Operating Results 8-12
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
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and September 30, 2000
(unaudited)
March 31, September 30,
2001 2000
--------- -------------
ASSETS
Cash and due from banks $ 3,508,722 $ 3,450,297
Federal funds sold 1,546,016 3,380,176
------------------------------
Total cash and cash equivalents 5,054,738 6,830,473
Investments in available-for-sale
securities (at fair value) 9,262,351 7,807,742
Investments in held-to-maturity securities
(fair values of $8,435,455 as of
March 31, 2001 and $10,781,002 as of
September 30, 2000) 8,397,157 10,776,000
Federal Home Loan Bank stock, at cost 878,000 720,700
Loans, net 111,361,645 105,731,509
Premises and equipment 1,938,934 1,991,077
Accrued interest receivable 821,610 750,690
Cooperative Central Bank Reserve Fund
Deposit 395,395 395,395
Other assets 627,262 460,301
------------------------------
Total Assets $138,737,092 $135,463,887
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 13,630,411 $ 14,243,255
Interest-bearing 97,632,984 98,130,985
------------------------------
Total deposits 111,263,395 112,374,240
Securities sold under agreements to
repurchase 761,276 863,943
Advances from Federal Home Loan Bank of
Boston 8,310,201 3,851,961
Other liabilities 184,446 327,680
------------------------------
Total Liabilities 120,519,318 117,417,824
------------------------------
Minority preferred stockholders' equity
in a subsidiary company 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 13,825,289 13,901,452
Retained earnings 12,135,982 11,669,877
Unallocated Employee Stock Ownership
Plan shares (433,576) (477,668)
Treasury stock (430,912 shares as of
March 31, 2001; 418,912 shares as of
September 30, 2000) (7,021,473) (6,850,722)
Unearned compensation (140,541) (291,097)
Accumulated other comprehensive income
(loss) (216,454) 25,674
------------------------------
Total stockholders' equity 18,163,774 17,992,063
------------------------------
Total liabilities and stockholders'
equity $138,737,092 $135,463,887
==============================
The accompanying notes are an integral part of these consolidated financial
statements.
1
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Interest and dividend income:
Interest and fees on loans $2,089,807 $1,616,717 $4,149,246 $3,149,589
Interest and dividends on securities:
Taxable 218,700 245,232 464,374 528,227
Dividends on marketable equity securities 26,418 25,802 57,163 50,247
Dividends on Cooperative Bank Investment
and Liquidity Funds 7,672 7,717 15,417 20,065
Other interest 42,491 54,636 95,049 119,062
----------------------------------------------------------
Total interest and dividend income 2,385,088 1,950,104 4,781,249 3,867,190
----------------------------------------------------------
Interest expense:
Interest on deposits 1,050,147 787,216 2,111,729 1,552,183
Interest on securities sold under
agreement to repurchase 11,003 13,373 24,175 24,519
Interest on FHLB advances 91,541 73,237 142,925 158,892
----------------------------------------------------------
Total interest expense 1,152,691 873,826 2,278,829 1,735,594
----------------------------------------------------------
Net interest and dividend income 1,232,397 1,076,278 2,502,420 2,131,596
Provision for loan losses 30,000 18,000 115,000 30,000
----------------------------------------------------------
Net interest income after provision
for loan losses 1,202,397 1,058,278 2,387,420 2,101,596
----------------------------------------------------------
Other income:
Service charges on deposit accounts 34,964 28,940 72,859 65,779
Securities gains, net 77,953 125,564 153,677 220,708
Gains (losses) on mortgages sold, net (1,532) - 16,330 1,711
Other income 59,854 45,451 135,897 111,882
----------------------------------------------------------
Total other income 171,239 199,955 378,763 400,080
----------------------------------------------------------
Other expense:
Salaries and employee benefits 464,938 425,531 902,200 831,138
Occupancy expense 50,349 49,385 97,391 97,663
Equipment expense 42,568 41,727 86,700 80,842
Data processing expense 76,676 63,949 148,181 122,237
Directors' fees 13,650 12,050 28,550 25,300
Legal and professional fees 64,704 66,770 135,306 132,243
Other expenses 164,602 200,536 339,958 345,630
----------------------------------------------------------
Total other expenses 877,487 859,948 1,738,286 1,635,053
----------------------------------------------------------
Income before income taxes 496,149 398,285 1,027,897 866,623
Income taxes 178,475 136,903 367,038 328,785
----------------------------------------------------------
Net income $ 317,674 $ 261,382 $ 660,859 $ 537,838
==========================================================
Comprehensive income $ 208,996 $ 350,305 $ 418,731 $ 619,902
==========================================================
Earnings per common share $ 0.33 $ 0.26 $ 0.67 $ 0.52
==========================================================
Earnings per common share, assuming dilution $ 0.32 $ 0.25 $ 0.67 $ 0.52
==========================================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Six months ended March 31, 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 20,449 20,449
ESOP shares released 44,092 44,092
Recognition and retention plan 57,457 57,457
Distribution of RRP shares (150,556) 150,556 0
Purchase of treasury stock (180,532) (180,532)
Exercise of stock options and
related tax benefit (3,513) 9,781 6,268
Dividends declared ($0.19 per
share) (194,754) (194,754)
Comprehensive income:
Net income 660,859
Net change in unrealized
holding gain on available-
for-sale securities (242,128)
Comprehensive Income 418,731
--------------------------------------------------------------------------------------------------
Balance, March 31, 2001 $14,547 $13,825,289 $12,135,982 $(433,576) $(7,021,473) $(140,541) $(216,454) $18,163,774
=================================================================================================
Six months ended March 31, 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 20,663 60 20,723
ESOP shares released 44,092 44,092
Recognition and retention plan 57,483 57,483
Distribution of RRP shares (156,587) 156,587
Tax benefit from RRP
Purchase of treasury stock (2,112,473) (2,112,473)
Exercise of stock options and
related tax benefit (1,526) 13,078 11,552
Dividends declared ($0.15
per share) (163,074) (163,074)
Comprehensive income:
Net income 537,838
Net change in unrealized
holding gain on available-
for-sale securities 82,064
Comprehensive Income 619,902
--------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $14,547 $13,827,845 $11,193,280 $(521,761) $(6,700,066) $(286,697) $210,510 $17,737,658
=================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------------------
March 31, March 31,
2001 2000
--------- ---------
Cash flows from operating activities
Net income $ 660,859 $ 537,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of investment securities, net (153,677) (220,708)
Accretion of investment securities, net (1,582) (29,906)
Provision for loan loss 115,000 30,000
Change in unearned income 8,652 (27,407)
Gain on sales of loans (16,330) (1,711)
Depreciation and amortization 89,432 87,322
(Increase) decrease in accrued interest
receivable (70,920) 117,444
Increase in other assets (5,542) (4,491)
Recognition and retention plan (RRP) 57,457 57,483
Decrease in other liabilities (143,234) (49,592)
Minority interest in subsidiary - 54,000
----------------------------
Net cash provided by operating activities 540,115 550,272
----------------------------
Cash flows from investing activities:
Purchase of available-for-sale securities (2,789,641) (1,127,633)
Proceeds from sales of available-for-sale securities 517,651 1,156,351
Proceeds from maturities of available-for-sale
securities 550,717 6,432,052
Purchase of held-to-maturity securities (4,636,256) (2,986,154)
Proceeds from maturities of held-to-maturity
securities 7,033,475 4,515,409
Purchase of Federal Home Loan Bank stock (157,300) -
Net increase in loans (8,387,853) (9,495,084)
Proceeds from the sale of loans 2,650,396 166,534
Capital expenditures (37,290) (87,317)
----------------------------
Net cash used in investing activities (5,256,101) (1,425,842)
----------------------------
Cash flows from financing activities:
Net (decrease) increase in demand deposits,
NOW and savings accounts (4,569,271) 2,920,522
Net increase in time deposits 3,458,426 3,188,258
Net (decrease) increase in securities sold under
agreements to repurchase (102,667) 246,496
Proceeds from Federal Home Loan Bank long-term
advances 4,500,000 1,000,000
Repayments of Federal Home Loan Bank long-term
advances (2,041,760) (3,039,214)
Net change in Federal Home Loan Bank short-term
advances 2,000,000 87,000
Proceeds from exercise of stock options 6,268 11,552
Dividends paid (194,754) (163,074)
Employee Stock Ownership Plan 20,449 20,663
Unallocated ESOP shares released 44,092 44,092
Purchase of treasury stock (180,532) (2,112,473)
----------------------------
Net cash provided by financing activities 2,940,251 2,203,822
----------------------------
(Decrease) increase in cash and cash equivalents (1,775,735) 1,328,252
Cash and cash equivalents at beginning of period 6.830,473 7,277,360
----------------------------
Cash and cash equivalents at end of period $ 5,054,738 $ 8,605,612
============================
Supplemental disclosures
Interest paid $ 2,278,829 $ 1,735,594
============================
Income taxes paid $ 434,470 $ 256,838
============================
The accompanying notes are an integral part of these consolidated financial
statements.
4
FALMOUTH BANCORP, INC.
AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
The 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 six month periods ended March 31, 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 consolidated financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of results for the interim
periods.
Note 2 - Accounting Policies
The accounting and reporting policies of the Company conform to
generally accepted accounting principles 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 financial statements. Actual results could differ
significantly from those estimates.
Note 3 - Impact of New Accounting Standard
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 March 31, 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
Note 4 - Earnings per Share
EPS for the three months and six months ended March 31, 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 per share are as follows:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Three Months Ended March 31, 2001
Basic EPS
Net income and income available to common stockholders $317,674 975,829 $0.33
Effect of dilutive securities options and warrants 22,532
-----------------------
Diluted EPS
Income available to common stockholders $317,674 998,361 $0.32
=======================
Three Months Ended March 31, 2000
Basic EPS
Net income and income available to common stockholders $261,382 996,525 $0.26
Effect of dilutive securities options and warrants 58,416
-----------------------
Diluted EPS
Income available to common stockholders $261,382 1,054,941 $0.25
=======================
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Six Months ended March 31, 2001
Basic EPS
Net income and income available to common stockholders $660,859 979,304 $0.67
Effect of dilutive securities options and warrants 14,081
-----------------------
Diluted EPS
Income available to common stockholders $660,859 993,385 $0.67
=======================
Six Months Ended March 31, 2000
Basic EPS
Net income and income available to common stockholders $537,838 1,034,951 $0.52
Effect of dilutive securities options and warrants 7,792
-----------------------
Diluted EPS
Income available to common stockholders $537,838 1,042,743 $0.52
=======================
Note 5 - Dividends
On February 26, 2001, the Board of Directors of the Company declared a
quarterly cash dividend of $0.10 per share of common stock, which was paid
on March 21, 2001 to stockholders of record on March 7, 2001.
6
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
March 31, 2001, 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.
The Company had average shares outstanding of 975,829 at March 31,
2001, as compared to 996,525 average shares outstanding at March 31, 2000.
The Company has continued with its stock buy-back programs. At March 31,
2001, the Company had repurchased a total of 430,912 shares, or 29.62% of
its common stock, leaving 1,023,838 shares issued and outstanding.
Comparison of Financial Condition at March 31, 2001 and September 30, 2000.
The Company's total assets increased by $3.3 million or 2.4% for the
six months ended March 31, 2001, from $135.5 million at September 30, 2000
to $138.7 million at March 31, 2001. Total deposits decreased $1.1 million
or 1.0%, from $112.4 million at September 30, 2000 to $111.3 million at
March 31, 2001. This decrease was due, in part to a general slow-down in the
economy and to seasonal withdrawals from retail checking, commercial
checking, and regular savings accounts during the period. Total net loans
were $111.4 million or 100.0% of total deposits at March 31, 2001, as
compared to $105.7 million or 94.1% of total deposits at September 30, 2000,
representing an increase of $5.6 million for the period. This increase is
due, in part, to existing lower mortgage rates and to the continued strong
local real estate market driving single-family loan originations, as well as
the Bank's commitment to increase market share. Investment securities were
$18.5 million or 13.4% of total assets at March 31, 2001, as compared to
$19.3 million or 14.3% of total assets at September 30, 2000. Investment
securities decreased $767,000 due, in part, to cash flows to fund loans, as
well as net retail checking, commercial checking, and regular savings
account withdrawals.
Borrowed funds from the Federal Home Loan Bank of Boston have
increased from $3.9 million at September 30, 2000 to $8.3 million at March
31, 2001. The increase of $4.6 million was utilized to fund loans and
savings withdrawals. Maturing securities, for the most part, were re-
invested to maintain an adequate securities portfolio while using lower cost
FHLB borrowings for current liquidity needs.
7
Securities sold under an agreement to repurchase (sweep accounts for
commercial depositors) decreased from $864,000 at September 30, 2000 to
$761,000 at March 31, 2001. The decrease was attributed to the seasonal
needs of our commercial demand deposit customers.
Stockholders' equity was $18.2 million at March 31, 2001, as compared
to $18.0 million at September 30, 2000, an increase of $172,000. This change
was primarily the result of an increase in retained earnings of $466,000,
which was off-set by additional treasury shares purchased of $171,000 under
the Company's stock repurchase programs and a reduction in accumulated other
comprehensive income of $242,000. The ratio of stockholders' equity to
total assets was 13.10% at March 31, 2001, and the book value per share of
common stock was $17.74, 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
March 31, 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 $115,000 to the allowance during the six month period ended March 31,
2001. The Bank plans to continue to set aside additional specific reserves
for commercial loans and large residential mortgages.
Three Months Ended March 31, 2001 and 2000
Net Income. The Company's net income for the three months ended March
31, 2001 was $318,000 as compared to $261,000 for the three months ended
March 31, 2000. The increase in net income of $57,000 was primarily due to
an increase in interest and dividend income of $435,000, off-set by an
increase in interest expense of $279,000, an increase in the provision for
loan losses of $12,000, a decrease in other income of $29,000, an increase
in other expenses of $17,000 and an increase in income taxes of $42,000.
The annualized return on average assets (ROA) for the three months ended
March 31, 2001 was 0.94%, an increase of 4 basis points, as compared to
0.90% 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 an $12.3 million growth in savings deposits for the twelve months ended
March 31, 2001, as well as an increase in Federal Home Loan Bank advances of
$4.8 million for the same period.
Interest and Dividend Income. Total interest and dividend income for
the three months ended March 31, 2001 was $2.4 million, an increase of
$435,000 as compared to $2.0 million for the three-month period ended March
31, 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 $473,000, which was off-set by a decrease in interest on
debt securities and dividends on marketable equity securities of $26,000 and
a decrease in other interest of $12,000.
Interest Expense. Total interest expense for the three months ended
March 31, 2001 was $1.2 million, as compared to $874,000 for the same period
of the prior year, an increase of $279,000. This was the result of
increased FHLB borrowings as well as slightly higher average interest rates
during the period.
Net Interest and Dividend Income. Net interest and dividend income
for the three-month period ended March 31, 2001 was $1.2 million as compared
to $1.1 million for the three months ended March 31, 2000. The increase of
$156,000 was the result of a $435,000 increase in interest and dividend
income, offset by a $279,000 increase in interest expense. The net interest
margin for the three months ended March 31, 2001 was 3.84%, an increase of
12 basis points, as compared to 3.72% for the three months ended March 31,
2000. The increase in net interest margin was primarily the result of an
increase in interest income.
8
Provision for Loan Losses. The Bank added $30,000 to its allowance
for loan losses during the quarter ended March 31, 2001, as compared to
$18,000 for the quarter ended March 31, 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 $89.8 million at March
31, 2000, to $111.4 million at March 31, 2001, an increase of 24.1%. The
allowance for loan losses at March 31, 2001 was $870,000 as compared to
$598,000 at March 31, 2000, an increase of $272,000 or 45.5%. The increase
of the allowance was disproportionate to the increase in total loans due to
an increase in commercial loans that totaled $4.4 million and $3.7 million
at March 31, 2001 and March 31, 2000 respectively, an increase of 18.9%, 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 March 31, 2001, the Bank had no loans classified doubtful
or loss and its allowance for loan losses was 0.78% of total loans.
Other Income. Other income for the three-month period ended March 31,
2001 was $171,000, as compared to $200,000 for the three months ended March
31, 2000. The $29,000 decrease was primarily the result of a decrease in
net gains on the sale of mortgages of $2,000 and a decrease in net gains
realized from the sale of investment securities of $48,000. The decrease
was offset, in part, by an increase in service charge income of $6,000 and
an increase in other income of $15,000.
Operating Expenses. Operating expenses for the three months ended
March 31, 2001 were $877,000, as compared to $860,000 for the three months
ended March 31, 2000. The $17,000 increase was primarily due to the
combination of an increase in salaries and employee benefits of $38,000, an
increase in occupancy expense of $1,000, an increase in equipment expense of
$1,000, an increase in data processing expense of $13,000, and an increase
in Directors' fees of $2,000, offset by a decrease in legal and professional
costs of $2,000 and a decrease in other expenses of $36,000. The annualized
ratio of operating expenses to average total assets for the three months
ended March 31, 2001 was 2.58%, as compared to 2.95% for the three-month
period ended March 31, 2000, a decrease of 37 basis points. Data Processing
expense increased as a result of the addition of two ATMs to the Bank's
electronic financial services networks as well as other internal upgrades
incurred. Other expenses decreased, in part, due to the up front cost
related to the formation of the Real Estate Investment Trust, which was
formed during the three months ended March 31, 2000.
Six Months Ended March 31, 2001 and 2000
Net Income. The Company's net income for the six months ended March
31, 2001 was $661,000 as compared to $538,000 at March 31, 2000, an increase
of 22.9% or $123,000. Total interest and dividend income increased $914,000,
or 23.6% due, primarily, to increased loan activity. This increase was off-
set, in part, by increases in interest expense and operating costs. Security
gains net, amounted to $154,000 for the six months ended March 31, 2001, as
compared to $221,000 for six months ended March 31, 2000, a decrease of
$67,000. The current economic environment has facilitated Bank management's
goal to increase mortgage loans funded by investment securities and FHLB
borrowings.
Interest and Dividend Income. Total interest and dividend income for
the six months ended March 31, 2001 was $4.8 million, an increase of $914,000
as compared to $3.9 million for the six-month period ended March 31, 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
$1.0 million. This was offset by a decrease in income on investment
securities of $57,000, a $5,000 decrease in dividends on the Co-operative
Bank Investment Fund, and a decrease in other interest of $24,000. 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.
9
Interest Expense. Interest expense for the six months ended March 31,
2001 was $2.3 million, including $143,000 in interest on FHLB advances, which
is an increase of $543,000 from $1.7 million for the six months ended March
31, 2000. There was a $560,000 increase in interest on deposits and a
$16,000 decrease in interest on borrowed funds. 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 six-month period ended March 31, 2001 was $2.5 million as compared to
$2.1 million for the six months ended March 31, 2000. The net interest
margin for the six months ended March 31, 2001 was 3.93%, an increase of 15
basis points as compared to 3.78% for the six months ended March 31, 2000.
The annualized return on average assets (ROA) for the six-month period ended
March 31, 2001 was 0.98%, an increase of 6 basis points, as compared to 0.92%
for the same period of the prior year. The reason for the increase in the
ROA was primarily due to the growth of the loan portfolio during the period.
Provision for Loan Losses. The Bank added $115,000 to its allowance
for loan loss account for the six months ended March 31, 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 six-month period ended March 31,
2001 was $379,000 as compared to $400,000 for the six months ended March 31,
2000. The $21,000 decrease is primarily the result of a decrease of $67,000
in securities gains net, on the sale of investment securities taken during
the six months ended March 31, 2001, as compared to $221,000 for the six
months ended March 31, 2000. The period ended March 31, 2001 also showed
$16,000 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 $24,000 during the same six-month comparative periods.
Operating Expenses. Operating expenses for the six months ended March
31, 2001 were $1.7 million as compared to $1.6 million for the six months
ended March 31, 2000. The $103,000 increase was primarily due to an increase
in salaries and employee benefits of $71,000, an increase in equipment
expense of $6,000, and an increase in data processing expense of $26,000.
The ratio of annualized operating expenses to average total assets for the
six months ended March 31, 2001 was 2.58% as compared to 2.79% for the six-
month period ended March 31, 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.
10
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 March
31, 2001 was 18.27%.
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 March 31, 2001, regulatory liquidity totaled $21.4
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 March 31, 2001, the Bank had
outstanding advances from the FHLB of Boston in the amount of $8.3 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 March 31, 2001, the Bank had $4.0 million in outstanding
residential and commercial commitments to originate loans, as well as $16.3
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 March 31, 2000, certificates of deposit that are scheduled to
mature in one year or less totaled $46.9 million. Based on historical
experience, management believes that a significant portion of such deposits
will remain with the Bank.
At March 31, 2001 the Bank exceeded all of its regulatory capital
requirements.
11
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
The Company held its Annual Meeting of Stockholders ("Meeting") on
January 16, 2001. All of the proposals submitted to stockholders and the
tabulation of votes for each proposal is as
follows:
1. Election of two candidates to the Board of Directors to
serve for a three-year term.
The number of votes cast with respect to this matter were as
follows:
,CAPTION>
Nominee For % Withhold %
------- --- - -------- -
John J. Lynch 845,832 93.7 51,116 6.3
William E. Newton 848,995 94.0 48,953 6.0
Santo P. Pasqualucci 847,908 93.8 50,040 6.2
2. Ratification of the appointment of Shatswell, MacLeod &
Company, P.C. as independent public accountants for the
fiscal year ending September 30, 2001.
For % Against % Abstain %
--- - ------- - ------- -
891,898 78.3 2,700 0.3 3,350 0.3
There were no broker non-votes with respect to the above proposals.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
12
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: May 3, 2001 By: /s/ Santo P. Pasqualucci
-------------------------------
Santo P. Pasqualucci
President and Chief Executive
Officer
Date: May 3, 2001 By: /s/ George E. Young, III
-------------------------------
George E. Young, III
Vice President and Chief
Financial Officer
13