1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997 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 2-77519-LA
SARATOGA BANCORP
(Exact name of registrant as specified in its charter)
California 94-2817587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12000 Saratoga-Sunnyvale Road
Saratoga, California 95070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (408) 973-1111
NONE
(Former name, former address and former fiscal year, if changed
since 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 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
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.
CLASS SHARES OUTSTANDING AT OCTOBER 29, 1996
Common Stock 1,063,302
The Index to Exhibits appears on Page 19
Page 1 of 20 pages
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1997 1996*
(Unaudited)
ASSETS
Cash and due from banks $ 4,428,000 $ 4,543,000
Federal funds sold 10,700,000 18,300,000
Total cash and equivalents 15,128,000 22,843,000
Interest-bearing
deposits in other banks 1,489,000 -
Securities available for sale 15,132,000 17,949,000
Securities held to maturity 35,088,000 24,111,000
Loans, net 55,115,000 52,033,000
Other real estate owned - 1,252,000
Premises and equipment 2,025,000 2,135,000
Other assets 1,575,000 1,461,000
TOTAL ASSETS $125,552,000 $121,784,000
============ ============
LIABILITIES
Deposits:
Non-interest bearing $ 20,756,000 $ 22,823,000
Interest bearing 67,318,000 66,621,000
Total deposits 88,074,000 89,444,000
Federal funds purchased - 1,500,000
Other borrowings 23,039,000 18,201,000
Accrued expenses and
other liabilities 1,495,000 687,000
TOTAL LIABILITIES 112,608,000 109,832,000
SHAREHOLDERS' EQUITY
Common stock, no par value;
Authorized: 20,000,000 shares;
Issued and outstanding:
1,063,302 and 1,036,392 shares 4,531,000 4,461,000
Retained earnings 8,576,000 7,717,000
Net unrealized loss on securities
available for sale (163,000) (226,000)
TOTAL SHAREHOLDERS' EQUITY 12,944,000 11,952,000
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $125,552,000 $121,784,000
============ ============
*Derived from the December 31, 1996 audited balance sheet included
in the Company's 1996 Annual Report on Form 10-K.
See notes to consolidated condensed financial statements.
3
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED INCOME STATEMENTS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
INTEREST INCOME:
Loans $1,388,000 $1,179,000 $4,022,000 $3,151,000
Investment securities 872,000 655,000 2,317,000 1,982,000
Federal funds sold 167,000 232,000 498,000 518,000
Total interest income 2,427,000 2,066,000 6,837,000 5,651,000
INTEREST EXPENSE:
Deposits 748,000 714,000 2,176,000 1,982,000
Other 356,000 218,000 994,000 603,000
Total interest expense 1,104,000 932,000 3,170,000 2,585,000
NET INTEREST INCOME BEFORE
CREDIT FOR CREDIT LOSSES 1,323,000 1,134,000 3,667,000 3,066,000
Credit for credit losses - - - (50,000)
Net interest income after
credit for credit losses 1,323,000 1,134,000 3,667,000 3,116,000
Other income 175,000 88,000 408,000 239,000
Other expenses 745,000 735,000 2,349,000 2,184,000
INCOME BEFORE INCOME TAXES 753,000 487,000 1,726,000 1,171,000
Provision for income taxes 286,000 185,000 656,000 445,000
NET INCOME $467,000 $302,000 $1,070,000 $726,000
========== ========== ========== ==========
NET INCOME PER COMMON
AND EQUIVALENT SHARE $0.39 $0.26 $0.91 $0.63
========== ========== ========== ==========
See notes to consolidated condensed financial statements.
4
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
1997 1996
OPERATIONS:
Net income $ 1,070,000 $ 726,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Credit for credit losses - (50,000)
Depreciation and amortization 134,000 125,000
Other, net 648,000 (283,000)
Net cash provided by operating
activities 1,852,000 518,000
INVESTING ACTIVITIES:
Proceeds from sale of securities
available for sale 18,084,000 2,496,000
Proceeds from maturities of securities
available for sale 1,434,000 6,558,000
Proceeds from maturities of securities
held to maturity 7,072,000 3,411,000
Purchase of securities available for sale (16,814,000) (9,913,000)
Purchase of securities held to maturity (17,886,000) (4,136,000)
Net increase in loans (3,082,000) (7,228,000)
Purchases of premises and equipment (24,000) (433,000)
Sale of premises and equipment - 133,000
Proceeds from sale of OREO 1,311,000 652,000
Purchase of interest bearing deposits (1,489,000) -
Net cash used in investing activities (11,394,000) (8,460,000)
FINANCING ACTIVITIES:
Net (decrease)increase in deposits (1,370,000) 8,286,000
Exercise of stock options 70,000 -
Payment of dividends (211,000) (181,000)
Increase in other borrowings 4,838,000 1,975,000
Decrease in federal funds purchased (1,500,000) (1,500,000)
Net cash provided by financing
activities 1,827,000 8,580,000
NET (DECREASE)INCREASE IN CASH AND EQUIVALENTS (7,715,000) 638,000
Cash and equivalents, beginning of period 22,843,000 22,939,000
Cash and equivalents, end of period $15,128,000 $23,577,000
=========== ===========
See notes to consolidated condensed financial statements.
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SARATOGA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
1. The unaudited consolidated condensed financial statements
reflect all adjustments (which include only normal recurring
adjustments) which are, in the opinion of management, necessary
to fairly state the results for the periods presented. The
results for the periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. Per share amounts are calculated using the weighted average
shares outstanding plus the dilutive effect of shares issuable
under stock options. The number of shares used to compute income
per share was 1,189,657 shares and 1,177,275 shares for the
three- and nine-month periods ended September 30, 1997 (1,158,932
shares and 1,157,060 shares for the comparable three- and nine-
month periods in 1996). In February 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards SFAS No. 128, "Earnings per Share". The
Company is required to adpot SFAS 128 in the fourth quarter of
1997 and will restate at that time earnings per share (EPS) data
for prior periods to conform with SFAS 128. Earlier application
is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires
a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $0.44 and $1.02 for the three
and nine month periods ended September 30, 1997, respectively
($0.29 and $0.70 for the comparable prior year periods). Diluted
EPS under SFAS 128 would not have been significantly different
than EPS currently reported for the periods.
3. For the nine months ended September 30, 1997 and 1996, cash
paid for taxes was $317,000 and $636,000, respectively. For the
nine months ended September 30, 1997 and 1996, cash paid for
interest was $3,108,000 and $3,112,000, respectively.
4. In June 1997, the Financial Accounting Standards Board
adopted SFAS No. 130 "Reporting Comprehensive Income", which
requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from
nonowner sources; and SFAS No. 131 "Disclosures about Segmentsof
an Enterprise and Related Information", which establishes annual
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and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these
statements will not impact the Company's concolidated financial
position, results of operations or cash flows. Both statements
are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
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SARATOGA BANCORP AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Certain matters discussed or incorporated by reference in this
Quarterly Report on Form 10-Q are forward-looking statements that
are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks
and uncertainties include, but are not limited to, matters
described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Changes to such risks and
uncertainties, which could impact future financial performance,
include, among others, (1) Competitive pressures in the banking
industry; (2) changes in interest rate environment; (3) General
economic conditions, either nationally or regionally; (4) changes
in the regulatory environment; (5) changes in business conditions
and inflation; and (6) changes in securities markets. Therefore,
the information set forth therein should be carefully considered
when evaluating the business prospects of the Company and the
Bank.
SUMMARY OF FINANCIAL RESULTS
At September 30, 1997, total assets were $125,552,000, a 3.1%
increase from $121,784,000 at December 31, 1996. Net loans
increased $3,082,000 (5.9%) from $52,033,000 at December 31, 1996
to $55,115,000 at September 30, 1997. The increase was primarily
in the longer term real estate loan portfolio. Total deposits
decreased $1,370,000 (1.5%) from $89,444,000 at December 31, 1996
to $88,074,000 at September 30, 1997.
Net income for the third quarter of 1997 was $467,000 or $.39 per
share compared to $302,000 ($.26 per share) for the comparable
period in 1996. Net income for the first nine months of 1997 was
$1,070,000 or $.91 per share compared to $726,000 or $.63 per
share for the comparable period in 1996.
The increase in income resulted primarily from an increase in the
volume of earning assets, offset in part by a decrease in the
yield on earning assets and an increase in interest expense due
to the increased volume of interest-bearing liabilities.
<PAGE > 8
RESULTS OF OPERATIONS
THIRD QUARTER OF 1997 AND 1996
An analysis of the results of operations of the Company for the
third quarter of 1997 compared to the third quarter of 1996 is
presented below:
Net interest income
Net interest income, the difference between interest earned on
loans and investments and interest paid on deposits, is the
principal component of the Bank's earnings. The components of
net interest income are as follows:
Three months ended September 30,
1997 1996
Average Average Average Average
Balance Interest Yield(1) Balance Interest Yield(1)
(In thousands, except percentages)
Assets:
Earning assets:
Loans (2) $54,842 $1,388 10.1% $43,291 $1,179 10.9%
Investment
securities 52,877 872 6.6% 39,535 655 6.6%
Federal funds sold 11,980 167 5.6% 17,636 232 5.3%
Total interest
earning assets 119,699 2,427 8.1% 100,462 2,066 8.2%
Cash and due from
banks 4,764 4,088
Other assets (3) 2,795 3,798
$127,258 $108,348
======= =======
Liabilities and
Shareholders'
Equity:
Interest-bearing
liabilities:
Demand deposits $34,777 297 3.4% $34,212 281 3.3%
Time deposits 34,128 451 5.3% 29,920 433 5.8%
Other borrowings 23,075 356 6.2% 14,024 218 6.2%
Total interest-
bearing
liabilities 91,980 1,104 4.8% 78,156 932 4.8%
Demand deposits 21,131 18,042
Other liabilities 1,272 896
Total liabilities 114,383 97,094
Shareholders' equity 12,875 11,254
$127,258 $108,348
======= =======
Net interest income and margin $1,323 4.4% $1,134 4.5%
====== ======
(1) Annualized.
(2) Loan interest income includes loan fee income of $85,000
and $122,000 for the quarters ended September 30, 1997 and
1996, respectively.
(3) Includes the average allowance for credit losses of $601,000
and $716,000 and deferred loan fees of $360,000 and $344,000
for the quarters ended September 30, 1997 and 1996,
respectively.
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PROVISION FOR CREDIT LOSSES
The Bank maintains an allowance for possible credit losses which
is based, in part, on the Bank's historical loss experience, the
impact of forecasted economic conditions within the Bank's market
area, and, as applicable, the State of California, the value of
the underlying collateral, loan performance and inherent risks in
the loan portfolio. The allowance is reduced by charge-offs and
increased by provisions for credit losses charged to operating
expense and recoveries of previously charged-off loans. During
the third quarter of 1997 and 1996 the Bank did not record a
provision for credit losses. There were $92,000 in loans
charged-off and $10,000 in recoveries in the third quarter of
1997. There were no loans charged-off and $9,000 in recoveries in
the third quarter of 1996.
At September 30, 1997, the allowance for credit losses was
$543,000 or 1.0% of total loans, compared to $628,000 or 1.2% at
December 31, 1996. Nonaccrual loans totalled $365,000 at
September 30, 1997 (none at December 31, 1996).
At September 30, 1997 and December 31, 1996, there were no loans
past due 90 days or more as to principal or interest and still
accruing interest. At September 30, 1996 there were no loans
which were troubled debt restructurings as defined in Statement
of Financial Accounting Standards No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructuring." At September 30,
1997, there were two potential problem loans having a combined
principal balance of $331,000 ($1,140,000 at December 31, 1996).
Potential problem loans are loans which are generally current as
to principal and interest but have been identified by the Company
as potential problem loans due either to a decrease in the
underlying value of the property securing the credit or some
other deterioration in the creditworthiness of the borrower. All
of the two loans identified as potential problem loans are
secured by real estate and personal property. At September 30,
1997, there were no loan concentrations other than Real Estate
loans which represents approximately 60% of the portfolio.
At September 30, 1997, there was no Other Real Estate Owned
("OREO")($1,252,000 at December 31, 1996).
Nonperforming loans and other real estate owned are summarized
below:
September 30, 1997 December 31, 1996
Nonperforming loans:
Past due 90 days or more $ - $ -
Nonaccrual 365,000 -
Total - -
Other real estate owned - 1,252,000
Total nonperforming loans and
other real estate owned $ 365,000 $1,252,000
========== ==========
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Management is of the opinion that the allowance for credit losses
is maintained at an adequate level for known and currently
anticipated future risks inherent in the loan portfolio.
However, the Bank's loan portfolio, which includes approximately
$34,000,000 in real estate loans representing approximately 60%
of the portfolio, could be adversely affected if California
economic conditions and the real estate market in the Bank's
market area were to weaken. The effect of such events, although
uncertain at this time, could result in an increase in the level
of nonperforming loans and OREO and the level of the allowance
for loan losses which could adversely affect the Company's and
the Bank's future growth and profitability.
NONINTEREST INCOME
Other income consists of service charges on deposit accounts,
income from assets acquired for lease and fees for other
miscellaneous services. Total other income increased from
$88,000 in the third quarter of 1996 to $176,000 in the third
quarter of 1997. This increase is primarily attributable to a
gain on sale of securities of $68,000 realized in the third
quarter of 1997 and an increase of $22,000 in service charges
assessed on deposit accounts.
NONINTEREST EXPENSES
Other expenses increased from $735,000 in the third quarter of
1996 to $745,000 in the third quarter of 1997. This increase is
primarily attributable to an increase in legal expense and
advertising expense. As a percentage of average earning assets,
other expenses for the third quarter, on an annualized basis,
decreased from 2.9% in 1996 to 2.5% in 1997.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
An analysis of the results of operations of the Company for the
nine month period ended September 30, 1997 compared to the
comparable period in 1996 is as follows:
NET INTEREST INCOME
Net interest income, the difference between interest earned on
loans and investments and interest paid on deposits, is the
principal component of the Bank's earnings. The components of
net interest income are as follows:
Nine months ended September 30,
1997 1996
Average Average Average Average
Balance Interest Yield(1) Balance Interest Yield(1)
(In thousands, except percentages)
Assets:
Earning assets:
Loans (2) $53,677 $4,022 10.0% $39,495 $3,151 10.6
Investment
securities 49,660 2,317 6.2% 40,751 1,982 6.5%
Federal funds sold 12,344 498 5.4% 13,239 518 5.2%
Total interest
earning assets 115,681 6,837 7.9% 93,485 5,651 8.1%
Cash and due from
banks 4,637 4,094
Other assets (3) 3,600 4,007
$123,918 $101,586
======= =======
Liabilities and
Shareholders'
Equity:
Interest-bearing
liabilities:
Demand deposits $ 36,287 923 3.4% $30,756 748 3.2%
Time deposits 31,617 1,253 5.3% 28,505 1,234 5.8%
Other borrowings 21,340 994 6.2% 12,557 603 6.4%
Total interest-
bearing
liabilities 89,244 3,170 4.7% 71,818 2,585 4.8%
Demand deposits 21,283 17,678
Other liabilities 1,022 852
Total liabilities 111,549 90,348
Shareholders' equity 12,369 11,238
$123,918 $101,586
======== =======
Net interest income and margin $3,667 4.2% $3,066 4.4%
====== ======
(1) Annualized.
(2) Loan interest income included loan fee income of $252,000
and $268,000 for the nine months ended September 30, 1997
and 1996, respectively.
(3) Includes the average allowance for loan losses of $616,000
and $730,000, and deferred loan fees of $337,000 and
$309,000 for the nine months ended September 30, 1997 and
1996, respectively.
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PROVISION FOR CREDIT LOSSES
During the first nine months of 1997, the Bank did not record a
provision for credit losses. During the first nine months of
1996, the Bank reversed $50,000 from the allowance for credit
losses. There were $120,000 in loans charged off and $28,000 in
recoveries for the nine months ending September 30, 1997,
compared to $38,000 charged off and $45,000 in recoveries for the
first nine months of 1996.
NONINTEREST INCOME
Other income consists of service charges on deposit accounts,
income on assets acquired for lease and fees for other
miscellaneous services. Total other income increased from
$239,000 in the first nine months of 1996 to $408,000 in the
first nine months of 1997. The increase is primarily attributable
to a gain on sale of securities of $69,000, a gain on sale of
loans of $12,000 and an increase in service charges assessed on
deposit accounts of $70,000.
NONINTEREST EXPENSES
Other expenses increased from $2,184,000 in the first nine months
of 1996 to $2,349,000 in the first nine months of 1997. The
increase is primarily attributable to an increase in advertising
and marketing expense, legal expense and a loss on sale of
securities of $35,000. As a percentage of average earning
assets, other expenses, on an annualized basis, decreased from
3.1% in 1996 to 2.7% in 1997.
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LIQUIDITY AND CAPITAL RESOURCES
The Bank manages its liquidity to provide adequate funds at an
acceptable cost to support borrowing requirements and deposit
flows of its customers. At September 30, 1997 liquid assets as a
percentage of deposits were 34% (46% at December 31, 1996). In
addition to cash and due from banks, liquid assets include short-
term time deposits with other banks, Federal funds sold and
investment securities available for sale. The Bank has $11.0
million in Federal funds lines of credit available with
correspondent banks to meet liquidity needs.
Management regularly reviews general economic and financial
conditions, both external and internal, and determines whether
the positions taken with respect to liquidity and interest rate
sensitivity continue to be appropriate. The Bank also utilizes a
monthly "Gap" report which identifies rate sensitivity over the
short- and long-term.
The following table sets forth the distribution of repricing
opportunities, based on contractual terms, of the Company's
earning assets and interest-bearing liabilities at September 30,
1996, the interest rate sensitivity gap (i.e. interest rate
sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate
sensitivity gap ratio (i.e. interest rate sensitive assets
divided by interest rate sensitive liabilities) and the
cumulative interest rate sensitivity gap ratio.
Based on the contractual terms of its assets and liabilities, the
Bank is currently liability sensitive in terms of its short-term
exposure to interest rates. In other words, the Bank's
liabilities reprice faster than its assets in the short-term.
14
DISTRIBUTION OF REPRICING OPPORTUNITIES
At September 30, 1997
(Dollars in thousands)
After Three After Six After One
Within Months But Months But Year But After
Three Within Six Within One Within Five
Months Months Year Five Years Years Total
Federal
funds sold $10,700 $ - $ - $ - $ - $10,700
Interest
bearing
deposits in
other banks - - - 1,489 - 1,489
Municipal
securities - - 862 2,218 1,908 4,988
U.S. Treasury
and agency
securities 3,067 1,997 1,728 12,821 21,244 40,857
FRB stock - - - - 4,375 4,375
Loans 31,623 2,181 1,163 8,427 12,639 56,033
Total
earning
assets $45,390 $ 4,178 $ 3,753 $24,955 $40,166 $118,442
Interest
bearing
demand
deposits $32,358 $ - $ - $ - $ - $ 32,358
Savings
accounts 7,688 - - - - 7,688
Time certif-
icates of
deposit of
$100,000
or more 5,585 1,968 2,739 2,669 - 12,961
Other time
deposits 5,136 1,909 5,318 2,233 - 14,596
Other
borrowings - - 5,000 6,301 11,738 23,039
Total
interest-
bearing
liabilities $50,767 $3,877 $13,057 $11,203 $11,738 $90,642
Interest
rate
sensitivity
gap $(5,377) $ 301 $(9,304) $13,752 $28,428 $27,800
======= ======= ======= ======= ======= =======
Cumulative
interest
rate
sensitivity
gap $(5,377) $(5,076) $(14,380) $ (628) $27,800
======= ======= ======== ======= =======
Interest
rate
sensitivity
gap ratio 0.89% 1.08% 0.29% 2.23% N/A
Cumulative
interest
rate
sensitivity
gap ratio 0.89% 0.91% 0.79% 0.99% 1.31%
15
The Company and the Bank are subject to capital adequacy
guidelines issued by the Board of Governors of the Federal
Reserve System (the "BGFRS") and the Office of the Comptroller of
the Currency ("OCC"). The Company and the Bank are required to
maintain total capital equal to at least 8% of assets and
commitments to extend credit, weighted by risk, of which at least
4% must consist primarily of common equity including retained
earnings (Tier 1 capital) and the remainder may consist of
subordinated debt, cumulative preferred stock or a limited amount
of loan loss reserves. Certain assets and commitments to extend
credit present less risk than others and will be assigned to
lower risk-weighted categories requiring less capital allocation
than the 8% total ratio. For example, cash and government
securities are assigned to a 0% risk-weighted category, most home
mortgage loans are assigned to a 50% risk-weighted category
requiring a 4% capital allocation and commercial loans are
assigned to a 100% risk-weighted category requiring an 8% capital
allocation. As of September 30, 1997, the Company's total risk-
based capital ratio was approximately 19.2% (approximately 18.4%
for the Bank) compared to approximately 18.0% (approximately
17.1% for the Bank) at December 31, 1996.
The BGFRS adopted a 3% minimum leverage ratio for banking
organizations as a supplement to the risk-weighted capital
guidelines. The minimum leverage ratio is intended to limit the
ability of banking organizations to leverage their equity
capital base by increasing assets and liabilities without
increasing capital proportionately. The 3% minimum leverage
ratio constitutes a minimum ratio for well-run banking
organizations. Organizations experiencing or anticipating
significant growth or failing to meet certain BGFRS standards
will be required to maintain a minimum leverage ratio ranging
from 100 to 200 basis points in excess of the 3% ratio.
The following table reflects the Company's leverage, Tier 1 and
total risk-based capital ratios for the quarter ended September
30, 1997 and the year ended December 31, 1996.
September 30, 1997 December 31, 1996
Leverage ratio 10.5% 10.5%
Tier 1 capital ratio 18.5% 17.1%
Total risk-based capital ratio 19.2% 18.0%
On December 19, 1991, the President signed the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The
FDICIA, among other matters, substantially revised banking
regulations and established a framework for determination of
capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital
adequacy catagories as follows: (1) "Well capitalized" -
consisting of institutions with a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
16
greater and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive; (2)
"Adequately capitalized" - consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-
based capital ratio of 4% or greater and a leverage ratio of 4%
or greater, and the institution does not meet the definition of a
"well capitalized" institution; (3) "Undercapitalized" -
consisting of institutions with a total risk-based capital ratio
less than 8%, a Tier 1 risk-based capital ratio of less than 4%,
or a leverage ratio of less than 4%; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-
based capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%, or a leverage ratio of less than 3%; (5)
"Critically undercapitalized" - consisting of an institution with
a ratio of tangible equity to total assets that is equal to or
less than 2%.
Financial institutions classified as undercapitalized or below
are subject to various limitations including, among other
matters, certain supervisory actions by bank regulatory
authorities and restrictions related to (i) growth of assets,
(ii) payment of interest on subordinated indebtedness, (iii)
payment of dividends or other capital distributions, and (iv)
payment of management fees to a parent holding company. The
FDICIA requires bank regulatory authorities to initiate
corrective action regarding financial institutions which fail to
meet minimum capital requirements. Such action may result in
orders to, among other matters, augment capital and reduce total
assets. Critically undercapitalized financial institutions may
also be subject to appointment of a receiver or implementation of
a capitalization plan.
OTHER MATTERS
From time to time, the Company's Board of Directors reviews and
consults with advisors, including investment banking and legal
advisors, regarding banking industry trends and developments, as
well as internal and external opportunities to maximize
shareholder value. Such reviews and consultations include
evaluating and comparing internal results of operations
projections and external opportunities for mergers, acquisitions,
reorganizations, or other transactions with third parties which
may be in the interests of the Company's shareholders. The
Company's Board of Directors considers such periodic review and
consultation to be important as part of their analysis of the
Company's value and prospects in the changing banking environment
and in view of the current consolidation activity within the
banking industry.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) (3) Exhibits
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
On October 10, 1997, Registrant filed a Current
Report on Form 8-K, dated September 29, 1997
reporting under Item 5 (Other Events) a ten cent
($0.10) cash dividend on outstanding shares of
common stock of Saratoga Bancorp, to be payable
on November 14, 1997 to shareholders of record at
the close of business on October 31, 1997.
18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SARATOGA BANCORP
Date: November 3, 1997 -------------------------
Mary Page Rourke, Treasurer
(Principal Financial and
Accounting Officer)
19
INDEX TO EXHIBITS
Sequentially
Numbered
Number Exhibits Page
27.1 Financial Data Schedule 20