SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27010
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LITTLE FALLS BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3402073
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(State or other jurisdiction of incorporation (I.R.S. employer
or organization) employer identification no.)
86 Main Street, Little Falls, New Jersey 07424
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 256-6100
----------------------------
N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check x 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date May 9, 1997.
Class Outstanding
- ---------------------------- -----------------
$.10 par value common stock 2,745,180 shares
LITTLE FALLS BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION OF LITTLE FALLS
BANCORP, INC.
Item 1. Financial Statements and Notes Thereto....................... 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities........................................ 12
Item 3. Defaults upon Senior Securities.............................. 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Materially Important Events............................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 12
SIGNATURES
LITTLE FALLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Cash and due from banks.......................... $3,867,328 $1,746,743
Interest-bearing deposits in other banks......... 3,210,731 3,627,221
Federal funds sold............................... 3,300,000 5,000,000
----------- -----------
Total cash and cash equivalents............. 10,378,059 10,373,964
Investment securities held-to-maturity net
(estimated fair values $50,893,000
and $51,204,000)............................... 51,364,068 51,370,297
Mortgage-backed securities held to maturity, net
(estimated fair values $106,704,000
and $112,426,000).............................. 106,993,527 112,473,144
Loans receivable, net............................ 122,153,423 117,115,784
Premises and equipment, net...................... 2,644,894 2,659,239
Investment in real estate, net................... 678,471 683,054
Foreclosed real estate, net...................... 774,357 857,157
Interest receivable, net......................... 2,299,036 1,735,291
Federal Home Loan Bank of New York stock, at cost 2,222,000 2,075,700
Excess of cost over assets acquired.............. 3,126,820 3,217,017
Other assets..................................... 749,209 957,091
----------- -----------
TOTAL ASSETS............................... $303,383,864 $303,517,738
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits....................................... $227,548,995 $228,311,543
Securities sold under agreements
to repurchase................................ 33,623,500 33,623,500
Accounts payable and other liabilities......... 2,970,583 1,134,397
------------ -----------
Total liabilities......................... 264,143,078 263,069,440
------------ -----------
Stockholders' Equity:
Preferred stock; 5,000,000 authorized shares;
none outstanding............................. -- --
Common stock, par value $.10; 10,000,000
authorized shares; shares issued 3,041,750;
shares outstanding 2,745,180................ 304,175 304,175
Additional paid-in-capital..................... 28,988,832 28,974,799
Retained earnings.............................. 17,096,424 16,802,056
Unearned ESOP shares........................... (2,230,617) (2,271,173)
Minimum earned restricted MSBP stock at cost... (1,556,469) --
Minimum pension liability net of deferred taxes (84,555) (84,555)
Treasury stock, at cost; 296,570 shares........ (3,277,004) (3,277,004)
----------- -----------
Total stockholders' equity................. 39,240,786 40,448,298
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $303,383,864 $303,517,738
=========== ===========
- ---------------------
* The consolidated balance sheet at December 31, 1996 has been taken from
the audited balance sheet at that date.
See notes to unaudited consolidated financial statements.
1
LITTLE FALLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months
Ended March 31,
-------------------------
1997 1996
---------- ----------
Interest income:
Loans receivable ............................... $2,205,524 $1,904,823
Mortgage backed securities ..................... 1,814,168 2,084,510
Investment securities and other interest
earning assets ............................... 961,423 721,462
---------- ----------
Total interest income ...................... 4,981,115 4,710,795
Interest expense:
Deposits ....................................... 2,521,787 2,912,296
Borrowings ..................................... 473,696 --
---------- ----------
Total interest expense ........................... 2,995,483 2,912,296
---------- ----------
Net interest income before provision for
loan losses .................................... 1,985,632 1,798,499
Provision for loan losses ........................ 60,000 30,000
---------- ----------
Net interest income after provision for
loan losses ............................... 1,925,632 1,768,499
---------- ----------
Non-interest income:
Total non-interest income ........................ 68,903 66,798
---------- ----------
Non-interest expense:
Compensation and employee benefits ............. 635,600 614,764
Occupancy, net ................................. 77,990 115,241
Equipment ...................................... 113,221 111,860
Deposit insurance premiums ..................... 30,973 109,205
Amortization of deposit premium ................ 90,197 90,197
Miscellaneous expense .......................... 331,201 310,301
---------- ----------
Total non-interest expense .................. 1,279,182 1,351,568
Income before provision for
income taxes ............................... 715,353 483,729
Provision for income taxes ....................... 270,000 171,351
---------- ----------
Net income ................................. $ 445,353 $ 312,378
========== ==========
Weighted average number of common
shares outstanding ............................. 2,568,791 2,800,438
========== ==========
Earnings per share ............................... $ 0.17 $ 0.11
========== ==========
See notes to unaudited consolidated financial statements.
2
LITTLE FALLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
-----------------
1997 1996
------- --------
Cash flows from operating activities:
Net income ........................................................... $ 445,353 $ 312,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................................... 34,299 36,915
Provision for loan losses .......................................... 60,000 30,000
Amortization of intangibles ........................................ 90,197 90,197
Amortization of deferred fees, premiums and discounts, net.......... 24,337. 25,932
Amortization of unearned ESOP shares ............................... 54,589 40,557
Loss (gain) on sale of foreclosed real estate ...................... 8,169 (35,316)
Decrease (increase) in other assets ................................ 207,882 (229,489)
Increase in interest receivable, net ............................... (563,745) (113,682)
Increase (decrease) in interest payable ............................ (47,381) 102,203
Increase in accounts payable and other liabilities ................. 275,773 80,250
------------ ------------
Net cash provided by operating activities ........................ 589,473 339,945
------------ ------------
Cash flows from investing activities:
Purchase of mortgage-backed securities held to maturity ............ -- (10,190,780)
Principal collections on mortgage-backed securities 5,458,872aturity 6,047,630
Net increase in loans receivable ................................... (5,095,002) (2,222,607)
Purchase of investments held to maturity ........................... -- (5,000,000)
Purchases of premises and equipment ................................ (15,371) (38,594)
Proceeds from sale of foreclosed real estate ....................... 74,631 127,363
Purchases of Federal Home Loan Bank of New York stock............... (146,300) --
------------ ------------
Net cash provided by (used in) investing activities .............. 276,830 (11,276,988)
------------ ------------
Cash flows from financing activities:
Net decrease in deposits ............................................ (793,578) (4,540,610)
Decrease in advances from borrowers ................................. -- 18,588
Refund of oversubscribed stock subscription ......................... -- (19,706,653)
Costs of issuance of common stock ................................... -- (717,311)
Cash dividends paid ................................................. (68,630) --
------------ ------------
Net cash used in financing activities ............................. (862,208) (24,945,986)
------------ ------------
Increase in cash and cash equivalents ............................. 4,095 35,883,029
Cash and cash equivalents:
Beginning of period .................................................. 10,373,964 53,419,088
------------ ------------
End of period ........................................................ $ 10,378,059 $ 17,536,059
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest ............................................................. $ 3,040,164 $ 2,810,094
============ ============
Income taxes ......................................................... $ $
============ ============
Loans receivable transferred to foreclosed real estat$ ................. -- $ 308,728
============ ============
Issuance of common stock:
Deposits used for stock purchase ..................................... $ -- $ 2,859,458
Stock subscriptions used for stock purchase .......................... -- 25,124,642
Deferred costs ....................................................... -- (422,630)
------------ ------------
$ -- $ 27,561,470
============ ============
Repurchase of stock for MSBP - trade date March 26, 1997,
settlement date April 1, 1997 ........................................ $ 1,688,171 $ --
============ ============
Dividend declared ...................................................... $ 82,355 $ --
============ ============
See notes to unaudited consolidated financial statements.
3
LITTLE FALLS BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the three month
periods ended March 31, 1997 and 1996 include the accounts of Little Falls
Bancorp, Inc. (the "Company") and its subsidiary, Little Falls Bank (the
"Bank") which, as discussed in Note 3, became the wholly owned subsidiary
of the Company on January 5, 1996. The Company's business is conducted
principally through the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
all information necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments,
consisting of normal recurring accruals, which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for the
periods ended March 31, 1997 and 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year or any other
period.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
NOTE 3 - CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS BANK AND
FORMATION OF SAVINGS AND LOAN HOLDING COMPANY
On January 5, 1996, the Bank consummated its conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan
of Conversion (the "Conversion") via the issuance of common stock. In
connection with the Conversion, the Company sold 3,041,750 shares of
common stock which, after giving effect to offering expenses of $1.1
million and 243,340 shares issued to the Bank's Employee Stock Ownership
Plan ("ESOP"), resulted in net proceeds of $26.8 million. Pursuant to the
Conversion, the Bank transferred all of its outstanding shares to a newly
organized holding company, Little Falls Bancorp, Inc., in exchange for 50%
of the net proceeds.
Upon consummation of the Conversion, the preexisting liquidation rights of
the depositors of the Bank were unchanged. Specifically, such rights were
retained and will be accounted for by the Bank for the benefit of such
depositors in proportion to their liquidation interests as of the
eligibility and supplemental eligibility record dates as required by
Office of Thrift Supervision ("OTS") regulations.
4
NOTE 4 - MANAGEMENT STOCK BONUS PLAN ("MSBP")
On July 9, 1996, the Bank established a MSBP to provide both key employees
and outside directors with a proprietary interest in the Company in a
manner designed to encourage such persons to remain with the Bank. The
Bank, effective March 26, 1997, committed to contribute $1,688,171 to the
MSBP to purchase 121,670 shares of common stock of the Company in the open
market. The common stock purchase transaction was effected on March 26,
1997 and funded on April 1, 1997.
NOTE 5 - EARNINGS PER SHARE
Earnings per share for the three month periods herein are calculated by
dividing net earnings for the periods, by the weighted average number of
shares outstanding during these same periods (as if the Conversion had
taken place on January 1, 1996) of 2,568,791 and 2,804,494 shares for the
1997 and 1996 periods, respectively. The weighted average number of common
shares outstanding is adjusted for the unallocated portion of shares held
by the ESOP and for common stock equivalents. The Company's common stock
equivalents are based on the exercise of outstanding stock options that
are determined to have a dilutive effect.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The FASB issued SFAS No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (SFAS No. 125) and SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125 (SFAS No. 127) in
June and December 1996, respectively. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. It requires entities to recognize
servicing assets and liabilities for all contracts to service financial
assets, unless the assets are securitized and all servicing is retained.
The servicing assets will be measured initially at fair value, and will be
amortized over the estimated useful lives of the servicing assets. In
addition, the impairment of servicing assets will be recognized through a
valuation allowance. SFAS No. 125 also addresses the accounting and
reporting standards for securities lending, dollar-rolls, repurchase
agreements and similar transactions. The Company has prospectively adopted
SFAS No. 125 on January 1, 1997. However, in accordance with SFAS No. 127,
the Company will defer adoption of the standard as it relates to
securities lending, dollar-rolls, repurchase agreements and similar
transactions until January 1, 1998. The Company does not expect the
adoption of SFAS No. 125 to have a material impact on its consolidated
financial statements.
Earnings per Share. On March 3, 1997, the FASB issued SFAS No. 128,
Earnings per Share (SFAS No. 128) which is effective for financial
statements issued for periods ending after December 15, 1997. SFAS No. 128
replaces APB Opinion 15, Earnings per Share, and simplifies the
computation of earnings per share (EPS) by replacing the presentation of
primary EPS with a presentation of basic EPS. In addition, the Statement
requires dual presentation of basic and diluted EPS by entities with
complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share
in the earnings of an entity, similar to fully diluted EPS. The
computation of EPS will be compatible with international standards, as the
International Accounting Standards Committee recently issued a comparable
standard.
5
LITTLE FALLS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
General
The Company is a New Jersey corporation organized in August 1995 at the
direction of the Board of Directors of the Bank to acquire all of the capital
stock of the Bank issued in 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.
The Bank is a federally chartered stock savings bank headquartered in
Little Falls, New Jersey. The Bank was founded in 1887 and its deposits are
federally insured by the Savings Association Insurance Fund ("SAIF") and the
Bank is a member of the Federal Home Loan Bank ("FHLB") System. The Bank is a
community oriented, full service retail savings institution offering traditional
mortgage loan products. It is the Bank's intent to remain an independent
community savings bank serving the local banking needs of its community.
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. 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.
The largest components of the Bank's net income are net interest income,
which is the difference between interest income and interest expense, and
noninterest income derived primarily from fees. Consequently, the Bank's
earnings are dependent on its ability to originate loans, net interest income,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net income is also affected by its provision for loan
losses and foreclosed real estate as well as the amount of non-interest
expenses, such as compensation and benefit expense, occupancy and equipment
expense and deposit insurance premium expenses. Earnings of the Bank also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Comparison of Financial Condition
Total assets remained relatively stable, decreasing $134,000 at March 31,
1997 as compared to December 31, 1996. Net loans increased by $5.0 million
primarily due to loan originations of $7.7 million offset somewhat by loan
repayments. Mortgage-backed securities decreased by $5.5 million due to
repayments and no new purchases.
Total deposits remained relatively stable, decreasing, after interest
credited, by $763,000.
Accounts payable and other liabilities increased by $1.8 million to $3.0
million at March 31, 1997. This increase was due in most part to the repurchase
of 121,670 shares of the Company's stock in connection with the Bank's
Management Stock Bonus Plan. The total cost of the stock was approximately $1.7
million. The trade date for the transaction was March 26, 1997, and the
settlement
6
date was April 1, 1997. To a much lesser degree, the Company's dividend declared
on March 11, 1997 and payable on or about May 1, 1997 also contributed to the
increase. The dividend amounted to approximately $82,000.
Total stockholders' equity decreased by $1.3 million, primarily due to the
purchase of 121,670 shares of stock at an average price of $13.875 per share.
The total price was approximately $1.7 million. These shares were purchased for
future distribution through the Management Stock Bonus Plan. The trade date for
this transaction was March 26, 1997, and the settlement date was April 1, 1997.
Equity was also reduced $82,000 due to a dividend declared on March 11, and
payable on May 1, 1997. These were offset in part by earnings for the quarter.
Non-performing Assets
The following table sets forth information regarding non-performing loans
and real estate owned.
At At At
March 31, December 31, March 31,
-------- ------------ ---------
1997 1996 1996
---- ---- ----
Total non-performing loans..... $ 1,967 $ 1,901 $ 2,748
Real estate owned.............. 774 857 1,718
------- ------- -------
Total non-performing assets.... $ 2,741 $ 2,758 $ 4,466
======= ======= =======
Total non-performing loans to
net loans.................... 1.61% 1.62% 2.80%
======= ======= =======
Total non-performing loans to
total assets................. .65% .63% .96%
======= ======= =======
Total non-performing assets to
total assets................. .90% .91% 1.56%
======= ======= =======
Comparison of Earnings for the Three Months Ended March 31, 1997 and 1996
Net Income. Net income for the three months ended March 31, 1997 increased
$133,000 or 42.6% to $445,000 over the same period of 1996. This increase was
due primarily to an increase of $187,000 in net interest income, a decrease of
$78,000 in deposit insurance premiums, offset somewhat by increases in the
provision for loan losses and income tax expense of $30,000 and $99,000,
respectively.
Total Interest Income. Interest income increased by $270,000 or 5.7% to
$5.0 million for the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996. This increase was due in most part to an increase
of $12.8 million in the average balance of interest earning assets. In addition,
the average rate earned on interest earning assets increased by 8 basis points
to 6.86% from 6.78%. This increase was due in part to the change in the
composition of average interest earning assets. For the three months ended March
31, 1997, loans made up 40.9% of all interest earning assets, up from 35.1% for
the three months ended March 31, 1996. The average balance of investment
securities increased to 17.7% from 11.7%. Conversely, mortgage-backed securities
made up 37.8% of the average interest earning assets for the quarter ended March
31, 1997, down from 44.3% for the first quarter of 1996. The average balance of
federal funds sold and interest bearing deposits in banks decreased to 2.95% of
all interest earning assets for the quarter ended March 31, 1997, from 8.41% for
7
the quarter ended March 31, 1996. In general, mortgage-backed securities have a
lower yield than loans because they are guaranteed as to principal and interest.
Federal funds and interest bearing deposits in banks have a lower yield than
investment securities, generally, due to their relatively short terms.
Total Interest Expense. Interest expense increased by $83,000 or 2.9% for
the quarter ended March 31, 1997 as compared to the same period of 1996. This
increase was primarily due to the increase in the average balance of interest
bearing liabilities of $18.1 million partially offset by a decrease in the
average cost of funds of 15 basis points to 4.65% for the quarter ended March
31, 1997 as compared to the quarter ended March 31, 1996.
Net Interest Income. Net interest income increased $187,000 or 10.4%, due
to the reasons discussed in the two previous sections. In addition, the net
interest spread, the difference between the average rate earned and the average
rate paid, increased by 24 basis points to 2.21% for the quarter ended March 31,
1997 from 1.97% for the quarter ended March 31, 1996.
Provisions 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 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. The provision for loan losses increased $30,000 in
the quarter ended March 31, 1997 as compared to the same period in 1996. The
primary cause for the increase for the three month period was the increase in
the balance of the loan portfolio, as well as management's intent to increase
the level of the allowance for loan losses.
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.
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.
8
An analysis of the allowance for loan losses follows:
Three Months
Ended March 31,
------------------
1997 1996
------- -------
(In thousands)
Balance - beginning ................ $ 1,090 $ 958
Provisions charged to operations ... 60 30
Loans charged off, net of recoveries (142) (57)
------- -------
Balance-ending ..................... $ 1,008 $ 931
======= =======
Impaired loans and related amounts recorded in the allowance for loan
losses at March 31, 1997 are summarized as follows (in thousands):
With recorded allowances............ $1,612
Without recorded allowances......... --
------
Total impaired loans................ 1,612
Related allowance for loan losses... 245
------
Net impaired loans.................. $1,367
======
Non-interest Income. Non-interest income increased by $2,000 for the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996.
Non-interest Expense. Non-interest expense decreased by $72,000 or 5.4%,
for the three months ended March 31, 1997 as compared to the same period last
year. The decrease was primarily due to decreases in the deposit insurance
premiums and occupancy expense, offset somewhat by increases in compensation and
employee benefits and miscellaneous expense. Deposit insurance premiums
decreased $78,000 for the first quarter of 1997 due to the FDIC reduction of the
premium charged SAIF members. This was the result of the one-time special
assessment charged by the FDIC in September 1996. Occupancy expense decreased
$37,000 due in most part to the closing of two branch offices in 1996.
Compensation and employee benefits increased by $21,000 due in most part to the
adoption of the Management Stock Bonus Plan ("MSBP") in the second half of 1996.
The MSBP expense for the three months ended March 31, 1997 was $25,000. This was
partially offset with a reduction in personnel costs associated with the closing
of two branch offices previously discussed. Miscellaneous expense increased
$21,000, primarily due to the MSBP expense for the directors. For the three
months ended March 31, 1997, the MSBP expense for the directors was $19,000.
Income Tax Expense. Income tax expense increased from $171,000 to
$270,000, due to the increase of pre-tax income for the same periods.
9
Liquidity and Capital Resources
On March 31, 1997, the Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
(Dollars in thousands)
Tangible capital............................ $26,156 8.71%
Tangible capital requirement................ 4,505 1.50%
------ ------
Excess over requirement..................... $21,651 7.21%
====== ======
Core capital................................ $26,156 8.71%
Core capital requirement.................... 9,009 3.00%
------ ------
Excess over requirement..................... $17,147 5.71%
====== ======
Risk based capital.......................... $26,474 27.28%
Risk based capital requirement.............. 7,762 8.00%
------ -------
Excess over requirement..................... $18,712 19.28%
====== =======
Management believes that under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary sources of funds are deposits and scheduled
amortization and prepayment of loan and mortgage-backed principal. During the
past several years, the Bank has used such funds primarily to fund maturing time
deposits, pay savings withdrawals, fund lending commitments, purchase new
investments, and increase liquidity. The Bank is currently able to fund its
operations internally. Additionally, sources of funds include the ability to
utilize Federal Home Loan Bank of New York advances and the ability to borrow
against mortgage-backed and investment securities. As of March 31, 1997, the
Bank had $33.6 million of borrowed funds. Loan payments, maturing investments
and mortgage-backed security prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. As of March 31, 1997, the Bank had mortgage commitments
to fund loans of $4.4 million. Also, at March 31, 1997, there were commitments
on unused lines of credit relating to home equity loans of $3.0 million and
commitments to purchase investment securities of $2.0 million. Certificates of
deposit scheduled to mature in one year or less at March 31, 1997 totaled $110.4
million. Based on historical deposit withdrawals and outflows, and on internal
monthly deposit reports monitored by management, management believes that a
majority of such deposits will remain with the Bank. As a result, no adverse
liquidity effects are expected. Note, however, that purchases of common stock of
the Company pursuant to the repurchase plan and MSBP will require additional
liquidity. Management is currently evaluating its options on these matters.
The Bank is required under federal regulations to maintain certain
specified levels of "liquid investments," which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 5% of its net
withdrawable accounts plus short term borrowings. Short term liquid assets must
consist of not less than 1% of such accounts and borrowings, which amount is
also included within the 5% requirement. Those levels may
10
be changed from time to time by the regulators to reflect current economic
conditions. The Bank has maintained liquidity in excess of regulatory
requirements.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Additional Key Operating Ratios
For the
Three Months Ended
March 31,
-----------------------
1997(1) 1996(1)
------- -------
Earnings per common share (2) ........ $ 0.17 $ 0.11
Return on average assets ............. 0.59% 0.43%
Return on average equity ............. 4.44% 2.89%
Interest rate spread ................. 2.21% 1.97%
Net interest margin .................. 2.73% 2.59%
Noninterest expense to average assets 1.69% 1.84%
Net charge-offs to average outstanding
loans .............................. 0.12% 0.03%
At March 31, At December 31,
1997 1996
------------ ---------------
Tangible book value per share................. $13.16 $13.56
- ----------------
(1) The ratios for the three month period are annualized.
(2) The average number of shares outstanding during the three months ended
March 31, 1997 and 1996 was 2,568,791 and 2,800,438, respectively.
11
LITTLE FALLS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal proceeding
of a material nature at March 31, 1997. From time to time, the
Company is a party to routine legal proceedings in the ordinary
course of business, such as claims to enforce liens, condemnation
proceedings on properties in which the Company holds security
interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the
Company. There were no lawsuits pending or known to be contemplated
against the Company at March 31, 1997 that would have a material
effect on the operations or income of the Company or the Bank, taken
as a whole.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 17, 1997, the Company held its Annual Meeting. At the
Meeting, C. Evan Daniels, Norman A. Parker and Edward J. Seugling
were elected as directors, each for a three-year term. In addition,
stockholders also ratified the appointment of Radics & Co., LLC as
auditors for the Company for the fiscal year ending December 31,
1997.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
On March 26, the Company completed its purchase of stock for the
Bank's Management Stock Bonus Plan. The Plan was approved by
shareholders at a special meeting held on July 9, 1996. A total of
121,670 shares of common stock was purchased at an average net price
of $13.875. The total price was approximately $1.7 million.
Settlement date for the transaction was April 1, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Earnings Per Share Calculation
Exhibit 27 Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K
None.
12
LITTLE FALLS BANCORP, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLE FALLS BANCORP, INC.
Date: May 15, 1997 By: /s/ Leonard G. Romaine
--- ----------------------------------------
Leonard G. Romaine
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1997 By: /s/ Richard Capone
--- ----------------------------------------
Richard Capone
Senior Vice President and
Chief Financial Officer
(Principal Officer)