SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1997
---------------------------------------------
OR
[X] 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.
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(Exact name of registrant as specified in its charter)
New Jersey 22-3402073
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
86 Main Street, Little Falls, New Jersey 07424
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(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 ----- -----
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 August 8, 1997.
Class Outstanding
- --------------------------- ----------------
$.10 par value common stock 2,684,680 shares
LITTLE FALLS BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 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)
June 30, December 31,
1997 1996
ASSETS
Cash and due from banks................................................ $ 3,332,106 $ 1,746,743
Interest-bearing deposits in other banks............................... 6,570,723 3,627,221
Federal funds sold..................................................... 1,000,000 5,000,000
----------- -----------
Total cash and cash equivalents................................... 10,902,829 10,373,964
Investment securities held-to-maturity net
(estimated fair values $46,643,000
and $51,204,000)..................................................... 47,015,754 51,370,297
Mortgage-backed securities held to maturity, net
(estimated fair values $102,229,000
and $112,426,000).................................................... 102,430,729 112,473,144
Loans receivable, net.................................................. 128,132,218 117,115,784
Premises and equipment, net............................................ 2,627,241 2,659,239
Investment in real estate, net......................................... 532,512 683,054
Foreclosed real estate, net............................................ 453,757 857,157
Interest receivable, net............................................... 1,710,662 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.................................... 3,036,623 3,217,017
Other assets........................................................... 924,383 957,091
----------- -----------
TOTAL ASSETS..................................................... $299,988,708 $303,517,738
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................. $225,385,268 $228,311,543
Securities sold under agreements
to repurchase...................................................... 33,499,500 33,623,500
Accounts payable and other liabilities............................... 1,274,066 1,134,397
----------- -----------
Total liabilities................................................ 260,158,834 263,069,440
----------- -----------
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........................................... 29,002,621 28,974,799
Retained earnings.................................................... 17,565,378 16,802,056
Unearned ESOP shares................................................. (2,190,060) (2,271,173)
Unearned restricted MSBP stock at cost............................... (1,490,681) --
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....................................... 39,829,874 40,448,298
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $299,988,708 $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 For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
Interest income:
Loans receivable.................................. $2,289,973 $2,003,363 $4,495,497 $3,908,187
Mortgage-backed securities........................ 1,744,190 1,973,706 3,558,358 4,058,215
Investment securities and other interest earning
assets............................................ 937,017 693,180 1,898,440 1,414,642
--------- --------- --------- ---------
Total interest income........................... 4,971,180 4,670,249 9,952,295 9,381.044
--------- --------- --------- ---------
Interest expense:
Deposits.......................................... 2,546,884 2,751,379 5,068,671 5,663,675
Borrowings........................................ 487,199 -- 960,895 --
--------- --------- --------- ---------
Total interest expense.......................... 3,034,083 2,751,379 6,029,566 5,663,675
--------- --------- --------- ---------
Net interest income before provision for loan
losses.............................................. 1,937,097 1,918,870 3,922,729 3,717,369
Provision for loan losses........................... 60,000 -- 120,000 30,000
--------- --------- ---------- ----------
Net interest income after provisions for loan
losses............................................ 1,877,097 1,918,870 3,802,729 3,687,369
--------- --------- --------- ---------
Total non-interest income........................... 188,651 83,414 257,554 155,499
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee benefits................ 618,040 595,401 1,253,640 1,210,165
Occupancy, net.................................... 72,961 94,592 150,951 209,833
Equipment......................................... 108,514 82,082 221,735 193,942
Deposit insurance premiums........................ 35,041 136,234 66,014 245,439
Amortization of deposit premium................... 90,196 90,197 180,393 180,390
Miscellaneous expense............................. 356,042 298,502 687,243 614,094
--------- --------- --------- ---------
Total non-interest expenses..................... 1,280,794 1,297,008 2,559,976 2,653,863
--------- --------- --------- ---------
Income before provision for income taxes............ 784,954 705,276 1,500,307 1,189,005
Provision for income taxes.......................... 316,000 282,149 586,000 453,500
--------- --------- --------- ---------
Net income...................................... $ 468,954 $ 423,127 $ 914,307 $ 735,505
========= ========= ========= =========
Weighted average number of
common shares and common
stock equivalents outstanding..................... 2,572,019 2,804,494 2,570,405 2,802,466
========= ========= ========= =========
Primary earnings per share.......................... $0.18 $0.15 $0.36 $0.26
==== ==== ==== ====
See notes to unaudited consolidated financial statements.
2
LITTLE FALLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
1997 1996
-------- --------
Cash flows from operating activities:
Net income.............................................................. $ 914,307 $ 735,505
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................................... 67,701 73,830
Provision for loan losses............................................. 120,000 30,000
Amortization of intangibles........................................... 180,394 180,390
Amortization (accretion) of deferred fees, premiums and discounts, net 70,578 40,350
Amortization of unearned ESOP shares.................................. 108,935 85,777
Amortization of unearned restricted MSBP stock, at cost............... 109,587 --
Gain (loss) on sale of foreclosed real estate......................... 39,067 (31,249)
Gain on sale of real estate held for investment....................... (106,318) --
Decrease (increase) in other assets................................... 32,708 (89,553)
Increase (decrease) in interest receivable, net....................... 24,629 (102,700)
Increase in interest payable.......................................... 166,943 159,713
Increase in accounts payable and other liabilities.................... 106,648 89,005
---------- ----------
Net cash provided by operating activities........................... 1,835,179 1,171,068
---------- ----------
Cash flows from investing activities:
Purchase of mortgage-backed securities held to maturity............... -- (16,073,205)
Principal collections on mortgage-backed securities held to maturity.. 9,998,843 13,030,948
Net (increase) decrease in loans receivable........................... (11,150,897) (12,514,725)
Maturity of investments held to maturity.............................. 6,342,000 5,000,000
Purchase of investments held to maturity.............................. (2,000,000) (5,342,000)
Purchases of premises and equipment................................... (27,221) (90,790)
Proceeds from sale of real estate held for investment................. 248,378 --
Proceeds from sale of foreclosed real estate.......................... 364,333 205,196
Purchases of Federal Home Loan Bank of New York stock................. (146,300) (712,939)
---------- ----------
Net cash provided by (used in) investing activities................. 3,629,136 (16,497,515)
---------- ----------
Cash flows from financing activities:
Net decrease in deposits............................................... (2,998,735) (7,636,383)
Net decrease in borrowed funds......................................... (124,000) --
Increase (decrease) in advances from borrowers......................... 26,441 (709,860)
Purchase of MSBP stock................................................. (1,688,171) --
Refund of oversubscribed stock subscription............................ -- (19,706,653)
Costs of issuance of common stock...................................... -- (717,311)
Cash dividends paid.................................................... (150,985) --
---------- ----------
Net cash used in financing activities................................ (4,935,450) (28,770,207)
---------- ----------
Increase (decrease) in cash and cash equivalents..................... 528,865 (44,096,654)
Cash and cash equivalents:
Beginning of period..................................................... $ 10,373,964 53,419,088
---------- ----------
End of period........................................................... $ 10,902,829 $ 9,322,434
========== ===========
Supplemental disclosures:
Cash paid during the year for:
Interest................................................................ $ 5,862,623 $ 5,503,962
Income taxes............................................................ 595,000 223,000
Loans receivable transferred to foreclosed real estate.................... -- 308,728
Issuance of common stock:
Deposits used for stock purchase........................................ -- 2,859,458
Stock subscriptions used for stock purchase............................. -- 25,124,458
Deferred costs.......................................................... -- (422,630)
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 and six
month periods ended June 30, 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 June 30, 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.
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
4
$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 and six 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 2,572,019 and
2,570,405, and 2,804,494 and 2,802,466 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 decreased $3.5 million at June 30, 1997 as compared to
December 31, 1996. Net loans increased by $11.0 million due to originations of
$16.8 million offset somewhat by loan repayments. Mortgage-backed securities
decreased by $10.0 million due to repayments and no new purchases. Investment
securities decreased by $4.4 million primarily due to maturities of $6.3 million
and new purchases of $2.0 million. Foreclosed real estate decreased by $403,000
due to the sale of three properties.
Total deposits decreased, after interest credited, by $2.9 million.
Total stockholders' equity decreased by $618,000, primarily due to the
purchase of 121,670 shares of Company 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
6
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 paid on May 1, 1997. Such decreases were offset
somewhat by earnings during the period.
Non-performing Assets
The following table sets forth information regarding non-performing
loans and real estate owned.
At At
June 30, December 31,
-------- ------------
1997 1996
---- ----
(Dollars in Thousands)
Total non-performing loans................... $2,671 $1,901
Real estate owned............................ 454 857
----- -----
Total non-performing assets.................. $3,125 $2,758
===== =====
Total non-performing loans to
net loans.................................. 2.08% 1.62%
===== =====
Total non-performing loans to
total assets............................... .89% .63%
===== =====
Total non-performing assets to
total assets............................... 1.04% .91%
===== =====
Comparison of Earnings for the Three Months Ended June 30, 1997 and 1996
Net Income. Net income for the three and six months ended June 30, 1997
increased $46,000 or 10.8% and $179,000 or 24.3%, respectively, over the same
periods in 1996. These increases were due primarily to increases in net interest
and non-interest income and decreases in deposit insurance premiums, offset
somewhat by increases in the provision for loan losses, other expenses and
income tax expenses.
Total Interest Income. Interest income increased by $301,000 or 6.4%
and $571,000 or 6.1% for the three and six months ended June 30, 1997,
respectively, as compared to the three and six months ended June 30, 1996. These
increases were due in most part to increases of $18.8 million and $15.3 million
in the average balances of interest earning assets for the three and six month
periods ended June 30, 1997 as compared to the same periods in 1996.
Total Interest Expense. Interest expense increased $283,000 or 10.3%
and $366,000 or 6.5% for the quarter and six months ended June 30, 1997,
respectively, as compared to the quarter and six months ended June 30, 1996.
These increases were primarily due to the increases of $19.2 million and $18.6
million in the average balance of interest bearing liabilities for the three and
six months ended June 30, 1997 as compared to the same periods in 1996, and to
an increase of 9 basis points in the average cost of interest bearing
liabilities for the three months ended June 30, 1997 as compared to the three
months ended June 30, 1996, and a decrease of 5 basis points in the average rate
on interest bearing liabilities for the six months ended June 30, 1997 as
compared to the same period in 1996.
7
Net Interest Income. Net interest income increased $18,000 or 1.0% and
$205,000 or 5.5%, 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, decreased by 12 basis points to 2.22% for the
quarter ended June 30, 1997 and increased 7 basis points to 2.21% for the six
months ended June 30, 1997.
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 $60,000 and
$90,000 in the quarter and six months ended June 30, 1997, respectively, as
compared to the same periods in 1996. The primary cause for the increase for
both periods was the increase in the balance of the loan portfolio.
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.
An analysis of the allowance for loan losses follows:
Three Months
Ended June 30,
----------------
1997 1996
---- ----
(In thousands)
Balance - beginning $1,008 $931
Provisions charged to operations............... 60 --
Loans charged off, net of recoveries........... (8) --
----- ---
Balance-ending................................. $1,060 $931
===== ===
8
Impaired loans and related amounts recorded in the allowance for loan
losses at June 30, 1997 are summarized as follows (in thousands):
With recorded allowances............................ $1,509
Without recorded allowances......................... --
-----
Total impaired loans................................ 1,509
Related allowance for loan losses................... 208
-----
Net impaired loans.................................. $1,301
=====
Non-interest Income. Non-interest income increased by $105,000 and
$102,000 for the three and six months ended June 30, 1997, respectively,
primarily due to a $125,000 gain recorded on the sale of the Bank's Frenchtown,
NJ branch office in June 1997. The office had been closed during the third
quarter of 1996 and deposits were transferred to other Bank's offices.
Non-interest Expense. Non-interest expense decreased somewhat primarily
due to a decrease in deposit insurance premiums due to the recapitalization of
the SAIF in September 1996, offset somewhat by an increase in miscellaneous
expenses due to a loss on the sale of an office building of a previously closed
branch office and stock compensation expenses due to the implementation of stock
benefit plans adopted by stockholders in July 1996. Further, occupancy expense
decreased $22,000 and $59,000 respectively due in most part to the closing of
two branch offices in the second half of 1996. Compensation and employee
benefits increased by $23,000 and $43,000, respectively 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 and six months ended June 30, 1997 was $37,000
and $62,000, respectively. This was partially offset with a reduction in
personnel costs associated with the closing of two branch offices previously
discussed. Miscellaneous expense increased $58,000 and $73,000, primarily due to
the MSBP expense for the directors of $27,000 and $48,000 for the three and six
months ended June 30, 1997, and a loss of $19,000 on the sale of an office
building of a previously closed branch in June, 1997.
Income Tax Expense. Income tax expense increased due to the increase of
pre-tax income for the same periods.
Liquidity and Capital Resources
On June 30, 1997, the Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital................................................ $26,747 9.00%
Tangible capital requirement.................................... 4,457 1.50
------ ----
Excess over requirement......................................... $22,290 7.50%
====== ====
Core capital.................................................... $26,747 9.00%
Core capital requirement........................................ 8,914 3.00%
------ ----
Excess over requirement......................................... $17,833 6.00%
====== ====
Risk based capital.............................................. $27,263 27.17%
Risk based capital requirement.................................. 8,026 8.00%
------ -----
Excess over requirement......................................... $19,237 19.17%
====== =====
9
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 Company's requirements.
The Company'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 Company's primary sources of funds are deposits and scheduled
amortization and prepayment of loan and mortgage-backed principal. During the
past several years, the Company has used such funds primarily to fund maturing
time deposits, pay savings withdrawals, fund lending commitments, purchase new
investments, and increase liquidity. The Company 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 June 30, 1997, the
Company had $33.5 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 Company anticipates that it will have sufficient funds available to
meet its current commitments. As of June 30, 1997, the Company had mortgage
commitments to fund loans of $3.1 million. Also, at June 30, 1997, there were
commitments on unused lines of credit relating to home equity loans of $3.1
million and commitments to purchase investment securities of $6.0 million.
Certificates of deposit scheduled to mature in one year or less at June 30, 1997
totaled $115.8 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 Company.
As a result, no adverse liquidity effects are expected.
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 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.
10
Additional Key Operating Ratios
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1997(1) 1996(1) 1997(1) 1996(1)
------- ------- ------- -------
Return on average assets................ 0.63% 0.60% 0.61% 0.51%
Return on average equity................ 4.75% 3.88% 4.59% 3.39%
Interest rate spread.................... 2.22% 2.34% 2.21% 2.14%
Net interest margin..................... 2.70% 2.86% 2.71% 2.72%
Noninterest expense to average
assets................................ 1.71% 1.82% 1.70% 1.83%
Net charge-offs to average
outstanding loans..................... 0.01% -- 0.12% 0.03%
At June 30, At December 31,
1997 1996
----------- ---------------
Tangible book value per share...................................... $13.41 $13.56
- ----------------
(1) The ratios for the three and six month period are annualized.
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 June 30, 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 June 30,
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 August 1, 1997, the Company purchased approximately $15.1 million
of participations in multi-family loans from an unaffiliated financial
institution. The loans are all on properties located in New York City
and New Jersey. The funding for this transaction was obtained with a
one-year FHLB advance for $15 million. While multi-family real estate
lending affords the Company an opportunity to receive interest at
rates higher than those generally available from one- to four-family
residential lending, loans secured by such properties are generally
greater in amount, more difficult to evaluate and monitor and are more
susceptible to default as a result of general economic conditions and,
therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by
multi-family properties are often dependent on the successful
operation and management of the properties, repayment of such loans
may be impacted by adverse conditions in the real estate market or the
economy.
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: August 13, 1997 By: /s/Leondard G. Romaine
-------------------------------------
Leonard G. Romaine
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1997 By: /s/Richard Capone
-------------------------------------
Richard Capone
Senior Vice President and
Chief Financial Officer
(Principal Officer)