SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
------------------------------------
- or -
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------------- -----------------
Commission Number: 0-27010
LITTLE FALLS BANCORP, INC.
-----------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
New Jersey 22-3402073
- --------------------------------------------- --------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
86 Main Street 07424
- ------------------------------------------ -------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (201) 256-6100
--------------
Securities registered pursuant to Section 12(b) of the Act: None
-----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value per share
---------------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the Nasdaq Stock Market, on March 25, 1997, was $30.8 million
(2,237,207 shares at $13.75 per share).
As of March 25, 1997 there were issued 3,041,750 and outstanding 2,749,180
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1996. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III)
INDEX
PART I Page
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 29
Item 3. Legal Proceedings.................................................. 29
Item 4. Submission of Matters to a Vote of Security-Holders................ 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ......................................................... 29
Item 6. Selected Financial Data............................................ 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 29
Item 8. Financial Statements and Supplementary Data........................ 29
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 29
.
PART III
Item 10. Directors and Executive Officers of the Registrant................. 30
Item 11. Executive Compensation............................................. 30
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 30
Item 13. Certain Relationships and Related Transactions..................... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 30
PART I
Item 1. Business
- -----------------
General
Little Falls Bancorp, Inc. (the "Company") is a New Jersey corporation
organized in August 1995 at the direction of Little Falls Bank (the "Bank") for
the purpose of becoming a savings and loan holding company and to acquire all of
the capital stock issued by the Bank in its conversion from the mutual to stock
form of ownership (the "Conversion"). On January 5, 1996, the Registrant sold
3,041,750 shares of its common stock, par value $0.10 per share (the "Common
Stock") in a subscription offering as part of the Conversion. The Company is a
unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided that the Bank retains a specified amount of its assets in
housing-related investments. References to the "Bank" herein, unless the context
required otherwise, refer to the Company on a consolidated basis. The net
conversion proceeds totaled approximately $26.8 million of which $14.6 million
was invested in the Bank.
The Bank is a federally chartered stock savings bank headquartered in
Little Falls, New Jersey. The Bank was originally chartered in 1887 as the
Little Falls Building and Loan Association. On December 2, 1993, the Bank
converted its mutual charter from a federally chartered savings association to a
New Jersey chartered savings bank, changing its name to Little Falls Savings
Bank. Effective October 1995, the Bank converted its New Jersey mutual charter
to a federal mutual charter and changed its name to "Little Falls Bank." The
Bank's deposits are federally insured and the Bank is a member of the Federal
Home Loan Bank ("FHLB") System. At December 31, 1996, the Bank had total assets
of $303.5 million, deposits of $228.3 million, and retained earnings of $40.4
million or 13.3% of total assets as calculated under generally accepted
accounting principles.
The Company and the Bank are subject to regulation by the Office of Thrift
Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and the
Securities and Exchange Commission ("SEC").
The Bank is a community oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank
conducts its business from its main office in Little Falls, New Jersey and ___
branch offices located in Passaic, Hunterdon and Burlington Counties, New
Jersey. The Bank attracts deposits from the general public and has historically
used such deposits primarily to originate loans secured by first mortgages on
owner-occupied one- to four-family residences in its market area and to purchase
mortgage-backed securities. Such loans totaled $108.4 million, or 91.45% of the
Bank's loan portfolio and 35.70% of total assets at December 31, 1996.
To a lesser extent, the Bank also originates a limited number of
commercial real estate, residential construction and consumer loans, which
mainly consist of home equity lines of credit. Further, at December 31, 1996,
the Bank had $112.5 million and $51.4 million or 37.1% and 16.9% of total assets
in its mortgage-backed securities portfolio and investment securities portfolio,
respectively.
1
The principal sources of funds for the Bank's lending activities are
deposits, the amortization, repayment and maturity of loans, mortgage-backed
securities and investment securities. Principal sources of income are interest
and fees on loans, mortgage-backed securities and investment securities. The
Bank's principal expense is interest paid on deposits.
Because the Bank did not convert to stock form (including the initial sale
of Common Stock by the Company) until January 5, 1996, a part of the
presentation herein is that of the Bank in mutual form.
Market Area and Competition
The Bank focuses on serving its customers located in the New Jersey
community of Little Falls and surrounding communities in Passaic and Hunterdon
Counties, New Jersey. Economic growth in the Bank's market area remains
dependent upon the local economy. The economy of the greater New York - New
Jersey market has historically benefitted from having a large number of
corporate headquarters and concentration of financial services-related
industries. It also has a well-educated employment base and a large number of
industrial, service and high technology businesses. Over the past few years, New
Jersey's economy has slowly begun to recover from the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations. Employment levels and real estate markets in
the Bank's market area have stabilized and in some instances begun to improve.
Whether such improvement will continue is dependent, in large part, upon the
general economic health of the United States and other factors beyond the Bank's
control and, therefore, cannot be estimated. In addition, the deposit and loan
activity of the Bank is significantly affected by economic conditions in its
market area. The Bank's principal competitors are financial institutions and
mortgage banking companies, many of which are significantly larger and have
greater financial resources than the Bank. The Bank's competition for loans on a
retail and wholesale basis comes principally from commercial banks, mortgage
brokers, banking and insurance companies. The Bank's competition for deposits
has historically come from commercial banks, thrift institutions and credit
unions. In addition, the Bank faces increasing competition for deposits from
non-bank institutions, such as brokerage firms and insurance companies in such
areas as short-term money market funds, corporate and government securities
funds, mutual funds and annuities.
Lending Activities
General. The Bank's loan portfolio primarily consists of first mortgage
loans secured by owner- occupied one- to four-family residences. To a lesser
extent, the Bank's loan portfolio also consists of a number of commercial real
estate, residential construction and consumer loans.
2
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the loan portfolio as of the dates indicated.
At December 31,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
Percent of Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ---------- ------ ---------- ------ ---------- ------ ---------- -------- ----------
(Dolllars in Thousands)
Type of Loans:
One- to four-family .....$ 108,367 92.53 $ 88,828 92.31% $ 87,851 92.71% $ 95,278 93.62% $124,792 96.92%
Commercial real estate... 3,659 3.13 4,639 4.82 4,463 4.71 3,614 3.54 467 .36
Residential construction. 525 0.45 1,098 1.14 521 0.55 -- -- -- --
Consumer:
Savings account ......... 889 0.76 824 0.86 866 .91 1,015 1.00 945 .73
Second mortgages ........ 5,028 4.29 2,540 2.64 2,694 2.84 3,007 2.95 3,696 2.87
Other ................... 25 0.02 42 0.04 52 .05 87 .09 127 .10
-------- ------ ------ ------ --------- ------ --------- ------ -------- ------
Total loans receivable
(gross) ................. 118,493 101.18 97,971 101.81 96,447 101.77 103,001 101.20 130,027 100.98
Less:
Loans in process ...... 150 (0.13) 450 (0.47) 186 (.18) -- -- -- --
Deferred loan
origination.......... (0.12)
fees and costs ....... 138 333 (0.35) 338 (.36) 408 (.40) 548 (.43)
Allowance for loan
losses.............. 1,090 (0.93) 958 (0.99) 1,169 (1.23) 818 (.80) 731 (.55)
-------- ------ ------ ------ --------- ------ --------- ------ -------- ------
Total loans, net ........ $117,115 100.00 96,230 100.00 % $ 94,754 100.00% $ 101,775 100.00 % $128,748 100.00 %
======== ====== ====== ====== ========= ====== ========= ====== ======== ======
3
Origination and Repayment of Loans. The following table sets forth the
Bank's loan originations and principal repayments for the periods indicated. The
Bank originates loans primarily for retention in its portfolio and did not sell
or purchase loans during the periods indicated.
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- ---------- ---------
(In Thousands)
Total gross loans receivable at
beginning of period ............. $ 97,971 $ 96,447 $ 103,001
--------- --------- ---------
Loans originated:
One- to four-family .............. 29,525 10,812 10,632
Commercial real estate ........... -- -- 821
Residential construction ......... 697 700 --
Consumer ......................... 3,864 1,868 559
--------- --------- ---------
Total loans originated ............. 34,086 13,380 12,012
Loan principal repayments .......... 13,107 10,842 17,690
Loans transferred to foreclosed real
estate ......................... 406 672 871
Loans charged off .................. 51 342 5
--------- --------- ---------
Net loan activity .................. 20,522 1,524 (6,554)
--------- --------- ---------
Total gross loans receivable at
end of period .................. $ 118,493 $ 97,971 $ 96,447
========= ========= =========
4
Loan Maturity Tables
The following table sets forth the contractual maturity of the Bank's loan
portfolio at December 31, 1996. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totaled $13.1 million for the year ended December 31, 1996.
Adjustable-rate mortgage loans are shown as maturing based on contractual
maturities rather than the period in which interest rates are next scheduled to
adjust.
One- to Four- Commercial Residential
Family Real Estate Construction Consumer Total
------------ ------------ ------------ -------- -----
(In Thousands)
Amounts Due:
Within 3 months....... $ 55 $ -- $ -- $ 505 $ 560
3 months to 1 Year.... 24 -- 525 374 923
-------- -------- ------- ------- --------
Total Due Within 1
Year................ 79 -- 525 879 1,483
-------- -------- ------- ------- --------
1 to 3 years........ 203 -- -- 26 229
3 to 5 years........ 1,481 300 -- -- 1,781
5 to 10 years....... 4,623 571 -- 1,635 6,829
10 to 20 years...... 18,319 1,008 -- 3,351 22,677
Over 20 years....... 82,673 920 -- -- 83,593
-------- -------- ------- ------- --------
Total due after one
year................ 107,299 2,799 -- 5,012 115,109
-------- -------- ------- ------- --------
Non-performing........ 989 860 -- 52 1,901
-------- -------- ------- ------- --------
Total amount due...... 108,367 3,659 525 5,943 118,494
Less:
Allowance for loan and
lease loss............ 863 184 16 27 1,090
Loans in process...... -- -- 150 -- 150
Deferred loan fees
(costs)............. 161 -- -- (23) 138
-------- -------- ------- ------- --------
Loans receivable, net $107,343 $ 3,475 $ 359 $ 5,939 $117,116
======== ======== ======= ======= ========
The following table sets forth the dollar amount at December 31, 1996 of
all loans due after December 31, 1997, which have pre-determined interest rates
and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
One- to four-family..... $ 71,934 $ 36,354 $ 108,288
Commercial real estate.. 1,779 1,880 3,659
Consumer................ 2,401 2,662 5,063
-------- -------- --------
Total................. $ 76,114 $ 40,896 $ 117,010
======= ======= =======
One- to Four-Family Residential Loans. The Bank's primary lending activity
consists of the origination of single-family residential mortgage loans secured
by owner-occupied property. The Bank
5
originates one- to four-family residential mortgage loans in amounts up to 80%
of the appraised value of the mortgaged property and in amounts up to 70% of the
appraised value on loans which exceed $200,000. No private mortgage insurance is
obtained since loan to value ratios do not exceed 80%. All loans are held in the
Bank's portfolio.
The Bank has an agreement with a mortgage solicitation firm pursuant to
which the Bank receives one- to four-family mortgage applications on a
state-wide basis. The Bank then submits bids on the mortgage applications on
which it is interested prior to making the final loan. The submission of a bid
to provide the mortgage loan is not a firm commitment on the Bank's part, as the
Bank applies its own underwriting standards before committing to the loan. All
loans must be documented, including an original appraisal. This agreement has
provided the majority of loan applications received by the Bank in the past
year.
Loan referrals are also obtained from local realtors or builders, existing
or past customers and members of the local community. Mortgage loans generally
include due-on sale clauses which provide the Bank with the contractual right to
deem the loan immediately due and payable in the event that the borrower
transfers ownership of the property without the Bank's consent.
The Bank primarily originates adjustable-rate mortgage loans with a
guaranteed renewal for a thirty-year term. These loans adjust after one, three,
five or ten years. The Bank's ARM loans are originated for its portfolio and do
not conform to FNMA or FHLMC standards. Although the Bank's ARM loans have a 6%
lifetime cap, at the adjustment period, interest rate changes are discretionary.
Generally, ARM loans pose credit risks somewhat greater than the risk inherent
in fixed-rate loans primarily because, as interest rates rise, the underlying
payments of the borrower rise, increasing the potential for default. The Bank
also offers fixed-rate loans with terms of 15 and 30 years. The Bank offers
various loan programs with varying interest rates and fees which are
competitively priced based on market conditions and the Bank's cost of funds.
The Bank has purchased and participated in a limited number of loans,
primarily in its market area. At December 31, 1996, the Bank had $3.0 million of
purchased loans and $4.9 million in loan participations. The Bank purchases and
participates in loans after applying its own underwriting standards. The Bank
typically does not service the loans that it purchases or participates in with
other financial institutions.
Commercial Real Estate. To a lesser extent, the Bank's policy has been to
originate commercial real estate loans. The loans are generally made in amounts
up to 65% of the appraised value of the property. The Bank's commercial real
estate loans primarily have rates equal to the prime rate plus a margin. In
making such loans, the Bank primarily considers the net operating income
generated by the real estate to support the debt service, the financial
resources and income level and managerial resources of the borrower, the
marketability of the property and the Bank's lending experience with the
borrower.
The Bank's commercial real estate loans typically are secured by
properties such as mixed-use properties, retail stores, office buildings and
strip shopping centers. The Bank's commercial real estate portfolio includes
multi-family loans. For a discussion of the Bank's largest commercial real
estate loan, see "- Loans to One Borrower."
6
Loans secured by commercial real estate generally involve a greater degree
of risk than one- to four-family residential mortgage loans and carry larger
loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by commercial real
estate is typically dependent upon the successful operation of the related real
estate. If the cash flow from the property is reduced, the borrower's ability to
repay the loan may be impaired.
Residential Construction Loans. The Bank's policy has been to originate
residential construction loans to a lesser extent than other types of mortgages.
Residential construction loans are made up to a maximum of 80% of the appraised
value of the home, based upon the builder's plans. The rate charged is generally
the prime rate plus a margin. The loan proceeds are disbursed based upon work
completed. For a discussion of the Bank's largest residential construction loan,
see "-- Loans to One Borrower."
Consumer Loans. The Bank's consumer loans primarily consist of home equity
loans, and, to a much lesser extent, student loans and loans secured by savings
deposits. The home equity lines of credit are made with loan to value ratios of
up to 80% on either a fixed or adjustable rate basis.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to make payments on the proposed loan and
other indebtedness. In addition to the creditworthiness of the applicant, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount. The Bank's consumer loans tend to
have higher interest rates and shorter maturities than one- to four-family
mortgage loans, but are considered to entail a greater risk of default than
mortgage loans.
Loan Approval Authority and Underwriting. The Board of Directors generally
approves all mortgage loans although the Bank's President has the authority to
approve loans up to $500,000. Any loans exceeding that amount must be approved
by the Board of Directors.
The Bank uses board approved independent fee appraisers on real estate
loans. It is the Bank's policy to obtain title insurance on all properties
securing real estate loans and to obtain fire, flood and casualty insurance on
all loans that require security.
Loan Commitments. The Bank issues written commitments to prospective
borrowers on all real estate approved loans. Generally, the commitment requires
the loan to be closed within sixty days of issuance. At December 31, 1996, the
Bank had $3.3 million of commitments to fund new mortgage loans and commitments
on unused lines of credit relating to home equity loans of $3.0 million.
Loans to One Borrower. Savings associations are subject to the same limits
as those applicable to national banks, which under current regulations limit
loans-to-one borrower in an amount equal to 15% of unimpaired capital and
retained income on an unsecured basis and an additional amount equal to 10% of
unimpaired capital and retained income if the loan is secured by readily
marketable collateral (generally, financial instruments, not real estate) or
$500,000, whichever is higher. The Bank's maximum loan-to-one borrower limit was
approximately $4.0 million as of December 31, 1996.
At December 31, 1996, the Bank's largest lending relationship consisted of
an aggregate of $1.3 million in loans made to a builder in Little Falls, of
which $1.0 is secured by residential building lots. The remaining loans are
mortgages on two one- to four-family homes. All of these loans are performing
7
in accordance with their original terms. The second largest lending relationship
at December 31, 1996, consisted of an aggregate of $1.1 million in loans to two
local businessmen. Of these loans, four are nonperforming loans secured by
mortgages on two contiguous parcels of commercial real estate located in Little
Falls, New Jersey. At December 31, 1996 the aggregate outstanding balance on
these nonperforming loans was $860,000. An appraisal of the properties as of May
1995 indicated an aggregate value of $995,000. The remaining loans in this
relationship consist of two one- to four-family residential mortgages totaling
$184,000 and a home equity loan totaling $92,000, all of which are performing in
accordance with their original terms.
Non-Performing Loans and Classified Assets
Loan Delinquencies. The Bank's collection procedures provide that when a
mortgage loan is 15 days past due, a notice of nonpayment is sent. If payment is
still delinquent after 30 days past due, the customer will receive a letter from
the Bank. If the delinquency continues, similar subsequent efforts are made to
eliminate the delinquency. If the loan continues in a delinquent status for 60
days or more and no repayment plan is in effect, the Bank's attorney will send a
letter to the customer. After 90 days past due, the Board of Directors typically
approves the initiation of foreclosure proceedings as soon as possible. Loans
are reviewed on a monthly basis and are placed on a non-accrual and
non-performing status when the loan becomes more than 90 days delinquent.
The following table sets forth information regarding non-performing loans
and real estate owned. During the periods indicated, the Bank had no
restructured loans within the meaning of SFAS No. 15.
At December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-performing loans:
Nonaccrual loans:
One- to four-family residential $ 989 $1,059 $4,182 $3,894 $3,888
Commercial real estate...... 860 860 -- -- --
Consumer loans.............. 52 23 20 -- 9
------- ------ ------ ------ ------
Total nonaccrual loans......... 1,901 1,942 4,202 3,894 3,897
Accruing one- to four-family
residential................ -- 505 -- -- --
------- ------ ------ ------ ------
Total non-performing loans..... 1,901 2,447 4,202 3,894 3,897
------- ------ ------ ------ ------
Real estate owned.............. 857 1,501 1,765 1,859 1,677
------- ------ ------ ------ ------
Total non-performing assets.... $ 2,758 $3,948 $5,967 $5,753 $5,574
======= ====== ====== ====== ======
Total non-performing loans to
net loans.................... 1.62% 2.54% 4.43% 3.83% 3.03%
======= ====== ====== ====== ======
Total non-performing loans to
total assets................. .63% .79% 2.17% 1.93% 1.95%
======= ====== ====== ====== ======
Total non-performing assets to
total assets................. .91% 1.27% 3.09% 2.85% 2.79%
======= ====== ====== ====== ======
Interest income that would have been recorded on nonaccrual loans had they
been current under the original terms of such loans was approximately $198,000
and $189,000 for the years ended December 31, 1996 and 1995, respectively.
Amounts included in the Bank's interest income attributable to non-performing
loans for the years ended December 31, 1996 and 1995 were approximately $84,000
and $39,000, respectively.
Classified and Criticized Assets. OTS regulations provide for a
classification system for problem assets of insured institutions which covers
all problem assets. Under this classification system, problem assets of insured
institutions are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the
8
obligor or of the collateral pledged, if any. Substandard assets include those
characterized by the "distinct possibility" that the insured institution may
sustain "some loss" if the deficiencies are not corrected. Loans classified as
substandard may or may not be considered impaired under generally accepted
accounting principals. Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible" and
as such, are charged off by the Bank. Assets which do not currently expose the
Bank to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" by
management.
When the Bank classifies problem assets as either substandard or doubtful,
it may establish general allowances for loan and lease losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated with lending
activities. When the Bank classifies problem assets as loss, it is considered
uncollectible and the Bank charges off such amount. The Bank's determination as
to the classification of its assets and the amount of its valuation allowances
is subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
The following table provides further information about the Bank's
classified assets as of the dates indicated.
At December 31,
------------------------------------------------------------------
1996 1995 1994 1993
--------------- --------------- ---------------- --------------
(In Thousands)
Criticized:
Special Mention $ 2,931 $2,639 $2,094 $1,406
Classified:
Substandard.... 3,665 3,925 5,901 8,549
Doubtful....... -- -- -- --
Loss........... $ -- -- 123 501
-------- ------ ------ -------
$ 6,596 $6,564 $8,118 $10,456
======== ====== ====== =======
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is carried at the lower of the
cost or fair value less selling costs. It is the policy of the Bank to obtain an
appraisal on all real estate acquired through foreclosure as soon as practicable
after it takes possession of the property. The Bank generally reassesses the
value of real estate owned at least every eighteen months. These properties are
subsequently evaluated and carried at the lower of the "new" cost or fair value
minus selling costs of the underlying collateral. The Bank's real estate owned
totaled $857,000 million at December 31, 1996.
Allowance for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in the Bank's loan portfolio. Such evaluation, which includes a review
of certain loans of which full collectibility of interest and principal
9
may not be reasonably assured, considers the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral
and current economic conditions.
Management will continue to review its loan portfolio to determine the
extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
As a result of the declines in regional real estate market values and the
significant losses experienced by many financial institutions, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolios of
financial institutions undertaken as part of the examination of the institution
by the FDIC, OTS or other federal or state regulators. Results of recent
examinations indicate that these regulators may be applying more conservative
criteria in evaluating real estate market values, requiring significantly
increased provisions for potential loan losses. While the Bank believes it has
established an adequate allowance for loan losses, there can be no assurance
that regulators, in reviewing the Bank's loan portfolio, will not request the
Bank to significantly increase its allowance for loan losses, thereby negatively
affecting the Bank's financial condition and earnings or that the Bank may not
have to increase its level of loan loss allowance in the future.
10
Analysis of the Allowance for Loan Losses. The following table sets forth
information with respect to the Bank's allowance for loan losses at the dates
indicated.
At December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
Total loans outstanding ....... $118,493 $ 97,971 $ 96,447 $103,001 $130,027
======== ======== ======== ======== ========
Allowance balances (at
beginning of period) ........ $ 958 $ 1,169 $ 818 $ 731 $ 835
Provision:
One- to four-family ......... 136 87 340 325 391
Commercial real estate(1) ... 38 35 13 -- --
Consumer .................... 9 9 3 3 --
======== -------- -------- -------- --------
Total provision for loan losses 183 131 356 328 391
-------- -------- -------- -------- --------
Charge-offs net of recoveries:
One- to four-family ......... 51 342 5 241 495
Commercial real estate ...... -- -- -- -- --
Consumer ...................... -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs ............. 51 342 5 241 495
-------- -------- -------- -------- --------
Allowance balance (at end of
period) ..................... $ 1,090 $ 958 $ 1,169 $ 818 $ 731
======== ======== ======== ======== ========
Allowance for loan losses as
a percent of total loans
outstanding ................. 0.92% 0.98% 1.21% 0.79% 0.56%
======== ======== ======== ======== ========
- -----------------------------
(1) Includes residential construction loans.
11
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan and lease losses by loan
category and the percentage of loans in each category to net loans receivable at
the dates indicated. The portion of the loan loss allowance allocated to each
loan category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation reserve applicable to the entire loan portfolio.
At December 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------- --------------------- -------------------- ----------------------- ----------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Loan Portfolio Amount Loan Portfolio AmountLoan Portfolio Amount Loan Portfolio Amount Loan Portfolio
------ -------------- ------ -------------- -------------------- ------- -------------- ------ --------------
(Dollars in Thousands)
At end of period
allocated to:
One-to four-family..$ 863 91.66% $778 92.31% $1,033 92.71% $814 93.62% $730 96.92%
Commercial real
estate(1)......... 200 3.27 162 4.82 127 4.71 -- 3.54 -- 0.36
Consumer ........... 27 5.07 18 3.54 9 3.80 4 4.04 1 3.70
------ -------- ---- ----- ------ ------ --- ------ --- ------
Total allowance.....$ 1,090 100.00% $958 100.00% $1,169 100.00% $818 100.00% $731 100.00%
===== ====== === ====== ===== ====== === ====== === ======
(1) Includes residential construction loans.
12
Investment Activities
The investment policy of the Bank, which is approved by the Board of
Directors and implemented by certain officers as authorized by the Board, is
designed primarily to provide and maintain liquidity and to manage the interest
rate sensitivity of its overall assets and liabilities, to generate a favorable
return without incurring undue interest rate and credit risk, to provide a flow
of earnings and a countercyclical balance to earnings and to provide a balance
of quality and diversification of the Bank's assets. In establishing its
investment strategies, the Bank considers its business and growth plans, the
economic environment, its interest rate sensitivity position, the types of
securities to be held, and other factors. Federally chartered savings
institutions have authority to invest in various types of assets, including U.S.
Treasury obligations, securities of various federal agencies, mortgage-backed
and mortgage-related securities, certain certificates of deposit of insured
banks and savings institutions, certain bankers acceptances, repurchase
agreements, loans of federal funds, and, subject to certain limits, corporate
securities, commercial paper and mutual funds.
Current regulatory and accounting guidelines regarding investment
portfolio policy require insured institutions to categorize securities as held
for "investment," "sale," or "trading." At December 31, 1996, the Bank had no
securities held available for sale or trading. The Bank's securities portfolio,
which the Bank has the ability and intent to hold to maturity, are accounted for
on an amortized cost basis. The Bank may purchase securities in the future to be
held available for sale or trading.
At December 31, 1996, the Bank had an investment securities portfolio of
$51.4 million, consisting primarily of short and medium term U.S. Government and
agency securities. The estimated fair value of the Bank's investment securities
portfolio at December 31, 1996 was $51.2 million, resulting in a net unrealized
loss at that date of approximately $166,000. In addition, at December 31, 1996,
the Bank had federal funds sold of $5.0 million and FHLB stock of $2.1 million.
To supplement lending activities and to utilize excess liquidity, the Bank
invests in residential mortgage-backed securities. The Bank's investment in
mortgage-backed securities, which had increased significantly during the past
few years as a result of a decline in loan demand, decreased by approximately
4.7% or $5.5 million during the year ended December 31, 1996. The decrease was
primarily due to the Bank using more of its funds for loan originations. While
the Bank did purchase $16.1 million of mortgage-backed securities in 1996, these
were more than offset by repayments and prepayments received. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. The mortgage-backed securities portfolio at December 31,
1996 consisted of both fixed-rate and adjustable rate certificates issued by the
FHLMC, GNMA and FNMA. The fixed rate certificates provide the certificate holder
principal payments while the adjustable rate securities provide protection
against rising interest rates. At December 31, 1996, the mortgage-backed
securities portfolio had an estimated fair value of $112.4 million and a
carrying value of $112.5 million. The portfolio is classified as held to
maturity, and is recorded at amortized cost.
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi- family mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, FNMA, and GNMA.
13
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, fixed rate or adjustable rate, as well as prepayment risk, are passed
on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
Investment and Mortgage-backed Securities Portfolio
The following table sets forth the carrying value of the Bank's investment
and mortgage-backed securities portfolio.
At December 31,
--------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Investment Securities:
U.S. Government securities .. $ 6,006 $10,014 $14,016
U.S. Agency securities ...... 45,022 19,985 21,977
Other securities ............ 342 -- 153
------- ------- -------
Total investment securities 51,370 29,999 36,146
------- ------- -------
Federal funds sold ........... 5,000 39,800 1,100
FHLB Stock ................... 2,076 1,395 1,511
------- ------- -------
Total investment
securities, federal funds
sold and FHLB stock ....... $58,446 $71,194 $38,757
======= ======= =======
At December 31,
-----------------------------
1996 1995 1994
---- ---- ----
Amount Amount Amount
------ ------ ------
(Dollars in Thousands)
Mortgage-backed securities:
GNMA .................... $ 33,675 $ 38,714 $ 26,206
FNMA .................... 49,434 45,613 5,895
FHLMC ................... 28,297 32,590 19,416
-------- -------- --------
Total ............... 111,406 116,917 51,517
Net premiums ............ 1,067 1,103 147
-------- -------- --------
Net mortgage-backed
securities ................ $112,473 $118,020 $ 51,664
======== ======== ========
14
Investment and Mortgage-backed Securities Portfolios Maturities. The
following table sets forth certain information regarding the carrying values,
weighted average yields and maturities of the Bank's investment and
mortgage-backed securities portfolios at December 31, 1996.
Total Investment and
One Year or Less One to Five Years More Than Five Years Mortgage-backed Securities
-------------------- ------------------ -------------------- --------------------------
Weighted Weighted Weighted Weighted Estimated
Carrying Average Carrying Average Carrying Average Carrying Average Fair
Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ------- ------- -------
(Dollars in Thousands)
U.S. Government securities......... $ 6,006 5.63% $ -- --% $ -- --% $ 6,006 5.63% $ 6,000
U.S. Agency securities ............ 3,002 5.35 15,014 5.39 27,006 7.23 45,022 6.49 44,862
Other securities .................. 342 6.00 -- -- -- -- 342 6.00 342
-------- ---- ------- ---- -------- ---- -------- ---- --------
Total investment securities...... 9,350 5.55% $15,014 5.39% $ 27,006 7.23% $ 51,370 6.39% $ 51,204
======== ==== ======= ==== ======== ==== ======== ==== ========
GNMA .............................. $ -- --% $ 52 7.66%$ 34,114 6.86% $ 34,166 6.86 $ 34,369
FNMA .............................. 112 8.50 3,129 7.00 46,674 6.74 49,915 6.76 49,703
FHLMC ............................. 752 8.02 9,872 6.66 17,768 6.87 28,392 6.83 28,354
-------- ---- ------- ---- -------- ---- -------- ---- --------
Total mortgage-backed
securities ..................... $ 864 8.08% $13,053 6.75% $ 98,556 6.80% $112,473 6.81% $112,426
======== ==== ======= ==== ======== ==== ======== ==== ========
15
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. The Bank derives funds from amortization and
prepayment of loans and maturities of investment securities, mortgage-backed
securities and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
The Bank can obtain advances from the FHLB as an alternative to retail deposit
funds. FHLB advances may also be used to acquire certain other assets as may be
deemed appropriate for investment purposes. These advances are collateralized by
the capital stock of the FHLB held by the Bank and by certain of the Bank's
mortgage loans and mortgage-backed securities. At December 31, 1996, the Bank
has a $9.0 million FHLB advance, with a rate of 5.82% and a term of three years,
with a one-time callable feature at the end of the second year. In addition, the
Bank also has three repurchase agreements with an independent third party
totaling $24.6 million. The terms of the repurchase agreements are one year, six
months and overnight. The annual rates on the one-year and six month repurchase
agreements are 5.68% and 5.50%, respectively. The effective rate on the
overnight repurchase agreement adjusts daily.
Deposits. The Bank currently offers NOW Accounts, Super NOW accounts,
regular passbook statement savings accounts and savings accounts, money market
deposit accounts and term certificate accounts, primarily to consumers within
its primary market area. Deposit account terms vary according to the minimum
balance required, the time period the funds must remain on deposit and the
interest rate, among other factors.
Although the Bank partially relies on customer service and relationships
with customers to attract and retain deposits, market interest rates and rates
offered by competing financial institutions significantly affect the Bank's
ability to attract and retain deposits.
The interest rates paid by the Bank on deposits are monitored regularly
and are set as needed at the direction of the Board of Directors. The interest
rates on deposit account products are determined by evaluating the interest
rates offered by other local institutions, and the degree of competition the
Bank wishes to maintain; the Bank's anticipated need for cash and the timing of
that desired cash flow; the cost of borrowing from other sources versus the cost
of acquiring funds through customer deposits; and the Bank's anticipation of
future economic conditions and related interest rates. The Bank's interest rates
typically are competitive with those offered by competitors in the Bank's
primary market area.
Regular savings accounts, money market accounts and NOW accounts including
non-interest bearing deposits constituted $49.7 million, $14.8 million and $20.9
million, respectively, or 21.8%, 6.5%, and 9.1%, respectively. Certificates of
deposit constituted $142.9 million or 62.6% of the deposit portfolio. As of
December 31, 1996, the Bank had no brokered deposits.
16
Jumbo Certificate Accounts. The following table indicates the amount of
the Bank's certificates of deposit of $100,000 or more by time remaining until
maturity as of December 31, 1996.
Certificates
of Deposits
------------
Maturity Period (In Thousands)
- ---------------
Within three months............................ $1,655
Three through six months....................... 1,634
Six through twelve months...................... 3,211
Over twelve months............................. 3,552
-------
$10,052
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated.
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
Net increase (decrease)
before interest credited, deposits
purchased and deposits sold....... $(21,401) $ 7,949 $(17,672)
Deposits purchased ................. -- 54,415 --
Deposits sold ...................... (9,221) -- --
Interest credited .................. 11,083 9,314 7,170
-------- -------- --------
Net increase (decrease) in
savings deposits ................. $(19,539) $ 71,678 $(10,502)
======== ======== ========
Subsidiary Activities
As of January 5, 1996, the Bank was the sole subsidiary of the Company.
The Bank has no active subsidiaries.
Personnel
As of December 31, 1996, the Bank had 35 full-time and 9 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a brief description of all materials laws and
regulations which relate to the regulation of the Bank and the Company. The
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
17
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company. The Company is also
required to file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and the SEC.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
Savings Association Insurance Fund ("SAIF")-insured savings association) would
become subject to restrictions applicable to bank holding companies unless such
other associations each also qualify as a QTL and were acquired in a supervisory
acquisition. See "Regulation of the Bank -- Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
Federal Securities Law. The Company is subject to filing and reporting
requirements by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, Company stock held by persons who
are affiliates (generally officers, directors and principal stockholders) of the
Company may not be resold without registration or unless sold in accordance with
certain resale restrictions. If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
18
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of federally insured banks and
savings institutions and safeguards the safety and soundness of the banking and
savings industries. Two separate insurance funds, the Bank Insurance Fund
("BIF") for commercial banks, state savings banks and some federal savings
banks, and the SAIF for savings associations, are maintained and administered by
the FDIC. The Bank is a member of the SAIF and its deposit accounts are insured
by the FDIC, up to the prescribed limits. The FDIC has examination authority
over all insured depository institutions, including the Bank, and has under
certain circumstances, authority to initiate enforcement actions against
federally insured savings institutions to safeguard safety and soundness and the
deposit insurance fund.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such assessment rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments are set within a range, based on
the risk the institution poses to its deposit insurance fund. This risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings associations were used to pay the cost of prior thrift failures, the
reserves of the SAIF were below the level required by law. The BIF had, however,
met its required reserve level during the third calendar quarter of 1995. As a
result, deposit insurance premiums for deposits insured by the BIF were
substantially less than premiums for SAIF-insured deposits. Legislation to
capitalize the SAIF and to eliminate the significant premium disparity between
the BIF and the SAIF became effective December 31, 1996. The recapitalization
plan provided for a special assessment equal to $.657 per $100 of SAIF deposits
held at March 31, 1995, in order to increase SAIF reserves to the level required
by law. Certain BIF institutions holding SAIF-insured deposits were required to
pay a lower special assessment. Based on its deposits at March 31, 1995, on
November 27, 1996, the Bank paid a pre-tax special assessment of $1.2 million.
Such payment was recorded as an expense and accounted for by the Bank as of
December 31, 1996. Earnings and capital were, therefore, negatively affected for
the quarter ended September 30, 1996, by an after-tax amount of approximately
$750,000.
19
The recapitalization plan also provides that the cost of prior thrift
failures will be shared by both the SAIF and the BIF (Fico Bond payments), which
will increase BIF assessments for healthy banks to approximately $.013 per $100
of deposits in 1997. SAIF assessments for healthy savings institutions in 1997
will be approximately $.064 per $100 in deposits and may never be reduced below
the level set for healthy BIF institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and widened
the spread of those rates. The FDIC's action established a base assessment
schedule for the SAIF with rates ranging from 4 to 31 basis points, and an
adjusted assessment schedule that reduces these rates by 4 basis points. As a
result, the effective SAIF rates range from 0 to 27 basis points as of October
1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
Examination Fees. In addition to federal deposit insurance premiums,
savings institutions like the Bank are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general assessment
is paid on a semi-annual basis and is computed based on total assets of the
institution, including subsidiaries.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
Savings associations with a greater than "normal" level of interest rate
exposure will, in the future, be subject to a deduction for an interest rate
risk ("IRR") component which may be from capital for purposes of calculating
their risk-based capital requirement. See "-- Net Portfolio Value Analysis."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.
The OTS requires a core capital ratio of at least 3% for those savings
associations in the strongest financial and managerial condition. All other
savings associations are required to maintain minimum core capital of at least
4% of total adjusted assets, with a maximum core capital ratio requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings association on
a case-by-case basis.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of
20
1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100%
of core capital. A savings association must calculate its risk-weighted assets
by multiplying each asset and off-balance sheet item by various risk factors as
determined by the OTS, which range from 0% for cash to 100% for delinquent
loans, property acquired through foreclosure, commercial loans and other assets.
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1996:
Percent of
Adjusted
Amount Assets
------ --------
(Dollars in Thousands)
Tangible Capital:
Actual capital.......................... $25,657 8.54%
Regulatory requirement.................. 4,506 1.50
------- ----
Excess................................ $21,151 7.04%
======= =====
Core Capital:
Actual capital.......................... $25,657 8.54%
Regulatory requirement.................. 9,013 3.00
------- ----
Excess................................ $16,644 5.54%
======= =====
Risk-Based Capital:
Actual capital.......................... $25,910 27.37%
Regulatory requirement.................. 7,573 8.00
------- ----
Excess................................ $18,337 19.37%
======= =====
The Bank is not under any agreement with regulatory authorities nor is it
aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Bank or the Company.
Net Portfolio Value Analysis. In order to encourage associations to reduce
their IRR, the OTS adopted a final rule in August 1993 incorporating an IRR
component into the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose of calculating
an institution's risk-based capital requirement and is measured in terms of the
sensitivity of its Net Portfolio Value ("NPV") to changes in interest rates. NPV
is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's IRR is
measured as the change to its NPV as a result of a hypothetical 200 basis point
("bp") change in market interest rates. A resulting change in NPV of more than
2% of the estimated market value of its assets will require the institution to
deduct from its capital 50% of that excess change. The rules provide that the
OTS will calculate the IRR component quarterly for each institution. The rule
will not become effective until the OTS evaluates the process by which savings
associations may appeal an interest rate risk reduction determination. It is
uncertain as to when this evaluation may be completed.
21
The following table presents the Bank's NPV at December 31, 1996, as
calculated by OTS and based on OTS assumptions using raw data provided to
FinPro, Inc. by the Bank.
Net Portfolio Value
($ In Thousands)
Change in Percent of Change in NPV
Interest Rate Amount of Estimated NPV Ratio Ratio (4)
(Basis Points) NPV Change (1) NPV (2) (3)
- -------------- -------- ---------- ---------- --------- -------------
+400 3,599 (24,295) -87% 1.31% -786 bp
+300 10,104 (17,789) -64% 3.58% -560 bp
+200 16,562 (11,331) -41% 5.71% -346 bp
+100 22,609 (5,284) -19% 7.60% -157 bp
Par 27,893 -- 9.17%
-100 32,089 4,195 +15% 10.36% 119 bp
-200 35,404 7,511 +27% 11.26% 209 bp
-300 38,295 10,402 +37% 12.01% 284 bp
-400 41,916 14,023 +50% 12.94% 377 bp
- ----------------------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by average total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming
no change in interest rates.
If the OTS rule regarding the IRR component had been in effect at December
31, 1996, the Bank would have had to deduct from its risk-based capital
approximately $2.6 million. The Bank would have met its capital requirements,
had this rule been in effect at December 31, 1996.
December 31, December 31,
1996 1995(1)
------------ ------------
*** RISK MEASURES: 200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets... 9.17% 6.76%
Exposure Measure: Post-Shock NPV Ratio.......... 5.71% 5.63%
Sensitivity Measure: Change in NPV Ratio........ (346) bp (113) bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets.............. 3.73% 1.3%
Interest Rate Risk Capital Component ($000)..... $2,630 --
- -----------------------------
(1) Percentages for 1995 are calculated by FinPro, Inc. and based on OTS
assumptions using raw data provided to FinPro, Inc. by the Bank.
22
Certain shortcomings are inherent in the methodology used in the above
table. Modeling changes in NPV requires the making of certain assumptions that
may tend to oversimplify the manner in which actual yields and costs respond to
changes in market interest rates. First, the models assume that the composition
of the Bank's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured. Second,
the models assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the NPV
measurements do provide an indication of the Bank's interest rate risk exposure
at a particular point in time, such measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income.
In times of decreasing interest rates, the value of fixed-rate assets
could increase in value and the lag in repricing of interest rate sensitive
assets could be expected to have a positive effect on the Bank.
Prompt Corrective Action. The FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, which became effective December 19, 1992, the banking
regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Under the OTS final rule implementing
the prompt corrective action provisions, an institution shall be deemed to be
(i) "well capitalized" if it has total risk-based capital of 10.0% or more, has
a Tier I risk- based capital ratio (core or leverage capital to risk-weighted
assets) of 6.0% or more, has a leverage capital of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier I risked-based ratio of
4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized," (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 4.0% or a leverage
capital ratio that is less than 4.0% (3.0% in certain circumstances), (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage capital ratio that is less than 3.0% and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. In addition, under certain circumstances, a federal
banking agency may reclassify a well capitalized institution as adequately
capitalized and may require an adequately capitalized institution or an
undercapitalized institution to comply with supervisory actions as if it were in
the next lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized). Immediately upon
becoming undercapitalized, an institution shall become subject to various
restrictions and could be subject to additional supervisory actions.
As of December 31, 1996, the Bank was a "well capitalized institution" as
defined in the prompt corrective action regulations and as such is not subject
to any prompt corrective action measures.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established in
connection with the Conversion.
23
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. Based on
the Bank's capital levels at December 31, 1996, the Bank was a Tier 1
institution. In the event the Bank's capital fell below its fully phased-in
requirement or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Finally, under the FDICIA, a savings association is prohibited from making
a capital distribution if, after making the distribution, the savings
association would be "undercapitalized" (not meet any one of its minimum
regulatory capital requirements). OTS regulations also prohibit the Bank from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory (or total) capital of the Bank would be reduced below the
amount required to be maintained for the liquidation account established by it
for certain depositors in connection with its conversion from mutual to stock
form. In addition, such regulations prohibit an institution from repurchasing
any of its stock for a period of at least one year from the date of its
conversion without a waiver of such prohibition by the OTS.
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If the Bank maintains
an appropriate level of Qualified Thrift Investments (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full
borrowing privileges from the FHLB of New York. The required percentage of QTIs
is 65% of portfolio assets (defined as all assets minus intangible assets,
property used by the institution in conducting its business and liquid assets
equal to 10% of total assets). Certain assets are subject to a percentage
limitation of 20% of portfolio assets. In addition, savings associations may
include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The
method for measuring compliance with the QTL test is on a monthly basis in nine
out of every 12 months. As of December 31, 1996, the Bank was in compliance with
its QTL requirement.
A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
24
Loans-to-One Borrower. See "Business -- Lending Activities -- Loans-to-One
Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. Current law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
in lieu of the existing five-tiered numerical rating system. The Bank received a
satisfactory rating (the second highest rating available) as a result of its
last evaluation in November, 1993. In April 1995, final CRA regulations were
adopted by the federal banking agencies, including the OTS. Under these
regulations, the Bank, as a relatively small institution, will have several
alternatives to choose from to satisfy its CRA obligations. These alternatives
were effective January 1, 1996.
Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate which is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors and 10%
shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the Bank may make
to such persons based, in part, on the Bank's capital position, and require
certain approval procedures to be followed. Recent legislation permits savings
institutions to make loans to executive officers, trustees and principal
shareholders ("insiders") on preferential terms, provided the extension of
credit is made pursuant to a benefit or compensation program of the Bank that is
widely available to employees of the Bank or its affiliates and does not give
preference to any insider over other employees of the Bank or affiliate.
Branching by Federal Savings Banks. Effective May 11, 1992, the OTS
amended its Policy Statement on Branching by Federal Savings Associations to
permit interstate branching to the full extent permitted by statute (which is
essentially unlimited). This permits savings associations with interstate
networks to diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
associations. However, the OTS will evaluate a branching applicant's record of
compliance with the CRA. A poor CRA record may be the basis for denial of a
branching application.
25
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 5%. At December 31, 1996, the Bank's liquidity ratio was 12.88%.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term U.S. Government obligations), and long-term assets (e.g., U.S.
Government obligations of more than one and less than five years and state
agency obligations with a minimum term of 18 months). The regulations governing
liquidity requirements include as liquid assets debt securities hedged with
forward commitments obtained from, or debt securities subject to repurchase
agreements with, members of the Bank of Primary Dealers in United States
Government Securities or banks whose accounts are insured by the FDIC, debt
securities directly hedged with a short financial future position, and debt
securities that provide the holder with a right to redeem the security at par
value, regardless of the stated maturities of the securities. FIRREA also
authorized the OTS to designate as liquid assets certain mortgage-related
securities with less than one year to maturity. Short- term liquid assets
currently must constitute at least 1% of an association's average daily balance
of net withdrawable deposit accounts and current borrowings. Monetary penalties
may be imposed upon associations for violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. As of December
31, 1996, the Bank had no borrowed funds from the FHLB of New York to fund
operations; however, there can be no assurances that borrowings will not be made
in the future.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. As of December 31, 1996, the Bank had $2.1 million
in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended December 31, 1996, dividends paid by
the FHLB of New York to the Bank totaled $126,000.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS.
26
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings at December 31, 1996.
Federal Taxation
Savings institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), in the same general manner as other
corporations. However, savings institutions such as the Bank, which meet certain
definitional tests and other conditions prescribed by the Code may benefit from
certain favorable provisions regarding their deductions from taxable income for
annual additions to their bad debt reserve. The amount of the bad debt deduction
that a qualifying savings institution may claim with respect to additions to its
reserve for bad debts is subject to certain limitations.
Prior to certain changes to the Code in 1996, thrift institutions enjoyed
a tax advantage over banks with respect to determining additions to its bad debt
reserves. All thrift institutions, prior to 1996, were generally allowed a
deduction for additions to a reserve for bad debts. In contrast, only "small
banks" (the average adjusted bases of all assets of such institution equals $500
million or less) were allowed a similar deduction for additions to their bad
debt reserves. In addition, while small banks were only allowed to use the
experience method in determining their annual addition to a bad debt reserve,
all thrift institutions generally enjoyed a choice between (i) the percentage of
taxable income method and, (ii) the experience method, for determining the
annual addition to their bad debt reserve. This choice of methods provided a
distinct advantage to thrift institutions that continually experienced little or
no losses from bad debts, over small banks in a similar situation, because
thrift institutions in comparison to small banks were generally allowed a
greater tax deduction by using the percentage of taxable income method (rather
than the experience method) to determine their deductible addition to their bad
debt reserves.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debt. Now only thrift institutions that are treated as
small banks may continue to account for bad debts under the reserve method;
however such institutions may only use the experience method for determining
additions to their bad debt reserve. Thrift institutions that are not treated as
small banks may no longer use the reserve method to account for their bad debts
but must alternatively use the specific charge-off method.
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of (i) the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over (ii) the
balance of such reserves as of the close of its last taxable year beginning
before January 1, 1988 ("pre- 1988 reserves"). The Bank will not be required to
recapture any amounts into income with regard to any applicable excess reserves
because the balance of its bad debt reserves as of the close of its taxable year
beginning before January 1, 1996 did not exceed the balance of its pre-1988
reserves.
In addition, all thrift institutions must continue to keep track of their
pre-1988 reserves because this amount remains subject to recapture in the future
under the Code. A thrift institution such as the Bank, would generally be
required to recapture into its taxable income its pre-1988 reserves in the case
of certain excess distributions to, and redemptions of, shareholders (e.g.,
stock repurchases). For taxable years after 1995, the Bank will continue to
account for its bad debts under the reserve method. Any
27
additions to the Bank's bad debt reserves after 1995 will generally not be
subject to the recapture provisions of the Code. The balance of the Bank's
pre-1988 reserves equaled $2.4 million.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items defined
in the Code. Only a portion of AMTI can be offset by net operating loss
carryovers; however, the Bank currently has no net operating loss carryovers.
AMTI is also adjusted by determining the tax treatment of certain items in a
manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, the Company's AMTI is increased by an amount
equal to 75% of the amount by which the Company's adjusted current earnings
exceeds its AMTI (determined without regard to this adjustment and prior to
reduction for net operating losses).
28
Item 2. Properties
- ---------------------
The Bank operates from its main office located at 86 Main Street, Little
Falls, New Jersey and 7 branch offices. This includes three branches purchased
from an unaffiliated commercial bank in December 1995. The Bank's total
investment in office property and equipment is $4.0 million with a net book
value of $2.7 million at December 31, 1996.
Item 3. Legal Proceedings
- --------------------------
Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Stock Market Information" in the
Registrant's 1996 Annual Report to Stockholders ("Annual Report") on page _, and
is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears in the Annual Report on pages 3
and 4, and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
- --------------------------------------------------------------------------
The above-captioned information appears under Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Annual Report
on pages 5 through 15 and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
The Financial Statements of the Bank, together with the report thereon by
Radics & Co., LLC, appear in the Annual Report on pages 16 through 51 and are
incorporated herein by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
- -------------------------------------------------------------------------
Lewis W. Parker, III declined to stand for re-election in 1995 as
indenpendent auditor for the Bank. The reports of Lewis W. Parker, III on the
financial statements of the Bank for the past three years prior to his
resignation contained no adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
Further, during the three most recent fiscal years and the subsequent period
preceding the resignation of Lewis W. Parker, III, there were no
29
disagreements with Lewis W. Parker, III on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Lewis W. Parker,
III, would have caused Lewis W. Parker, III to make reference to the subject
matter of the disagreements in connection with his report. The Bank accepted
Lewis W. Parker, III's resignation, effective as of the closing of the
Conversion, and appointed Radics & Co., LLC, Pine Brook, New Jersey, certified
public accountants, to conduct an audit of the financial statements for the
fiscal years ended December 31, 1995 and 1996.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors" at pages 4 through 8 of the Registrant's definitive proxy
statement for the Registrant's 1997 Annual Meeting of Stockholders to be held on
April 17, 1997 (the "Proxy Statement"), which was filed with the Commission on
March 24, 1997 and incorporated herein by reference. See also "Item 1. Business
of the Bank -- Personnel" included herein.
Item 11. Executive Compensation
- ---------------------------------
The information relating to executive compensation is incorporated herein
by reference to the Registrant's Proxy Statement at pages 10 through 14.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement at pages 5-6.
PART IV
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement at page
16.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
30
(1) Financial Statements of the Company are incorporated by reference to the
following indicated pages of the Annual Report.
PAGE
----
Independent Auditors' Report......................................... 17
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995......................................... 18
Consolidated Statements of Income For the Years Ended
December 31, 1996, 1995 and 1994................................... 19
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994............... 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................... 21
Notes to Consolidated Financial Statements........................... 24
The remaining information appearing in the Annual Report is not deemed to
be filed as part of this report, except as expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
2.0 Branch Sale Agreement**
3.1 Articles of Incorporation of Little Falls Bancorp, Inc.*
3.2 Bylaws of Little Falls Bancorp, Inc.*
4.0 Form of Stock Certificate of Little Falls Bancorp, Inc.*
10.1 Employment Agreement between the Bank and John P. Pullara**
10.2 Employment Agreement between the Bank and Leonard G. Romaine**
10.4 Form of Employment Agreement with Seven Employees of the Bank
10.6 1996 Management Stock Bonus Plan
10.7 1996 Stock Option Plan
13.0 1996 Annual Report to Stockholders
21.0 Subsidiary of the Registrant (See Item 1 - Business-Subsidiary
Activities)
(b) Reports on Form 8-K.
None.
- ------------------------------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, initially filed with the Securities and
Exchange Commission on September 25, 1995, Registration No. 33-97316.
** Incorporated by reference into this document from the Exhibits to
Registrant's Annual Report on Form 10-K for the Year Ended December 31,
1995 (File No. 0-27010).
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LITTLE FALLS BANCORP, INC.
Dated: March 24, 1997 By: /s/ Leonard G. Romaine
--------------------------------
Leonard G. Romaine
President and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Leonard G. Romaine By: /s/ Richard A. Capone
----------------------------- ----------------------------------
Leonard G. Romaine Richard A. Capone
President and Director Chief Financial Officer
(Principal Executive Officer) Principal Financial and Accounting
Officer)
Date: March 24, 1997 Date: March 24, 1997
By: By: /s/ John P. Pullara
------------------------- --------------------
Albert J. Weite John P. Pullara
Chairman of the Board and Director
Director
Date: March __, 1997 Date: March 25, 1997
By: /s/ Edward J. Seugling By: /s/ George Kuiken
----------------------- -------------------
Edward J. Seugling George Kuiken
Vice Chairman of the Board Director
and Director
Date: March 25, 1997 Date: March 25, 1997
By: By: /s/ Norman A. Parker
------------------------ -------------------------
Raoul G. Barton Norman A. Parker
Director Director
Date: March ____, 1997 Date: March 25, 1997
By: /s/ C. Evan Daniels
--------------------
C. Evans Daniels
Director
Date: March 25, 1997