SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[X] EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended July 31, 1997
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- 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
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Commission Number: 0-25106
LAKEVIEW FINANCIAL CORP.
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(Exact name of Registrant as specified in its Charter)
New Jersey 22-3334052
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1117 Main Street, Paterson, New Jersey 07503
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (201) 890-1234
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.00 per share
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(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
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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 on
October 14, 1997 was $68,744,280.
As of October 14, 1997 there were issued and outstanding 4,370,594 shares
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended July
31, 1997. (Parts II and IV)
2. Portions of Proxy Statement for the 1997 Annual Meeting of Stockholders.
(Part III)
PART I
Item 1. Business
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General
In August 1994, Lakeview Financial Corporation, a New Jersey Corporation,
(the "Company") became a unitary savings and loan holding company upon the
completion of the reorganization of Lakeview Savings Bank ("Lakeview" or the
"Savings Bank") into a holding company form of ownership. At that time, the
Company acquired all of the outstanding common stock of the Savings Bank. The
Savings Bank's common stock was originally issued in connection with the Savings
Bank's conversion from mutual to stock form in December 1993. The principal
asset of the Company consists of 100% of the issued and outstanding shares of
common stock of the Savings Bank. The Savings Bank was founded in 1922 as
Lakeview Building and Loan Association.
The principal business of the Savings Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and the purchase of mortgage-backed securities. The
Savings Bank also originates home equity loans. Lakeview has eight office
locations located in Bergen and Passaic Counties, New Jersey.
On September 10, 1997, the Company and Westwood Financial Corporation
("Westwood"), the holding company of Westwood Savings Bank ("Westwood Bank"),
Westwood, New Jersey, signed a definitive agreement providing for the merger of
Westwood into the Holding Company and the merger of Westwood Bank into the
Savings Bank. It is anticipated that the transaction will close by approximately
March 1998 and will be accounted for under the purchase method of accounting.
Competition
The Savings Bank's primary market area consists of Bergen and Passaic
counties in northern New Jersey, and is one of many financial institutions
serving its market area. The competition for deposit products comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions in the Savings Bank's market area. Deposit competition also
includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition comes from other insured financial institutions such
as commercial banks, thrift institutions and credit unions.
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of the
Savings Bank's loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for loan losses, loans in process, and deferred
loan origination fees and costs.
1993 1994 1995 1996 1997
------------ --------------- --------------- -------------- ---------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --
TYPE OF LOAN:
Real Estate Loans:
Construction loans:
Residential (1-4 family) .....$ -- --% $ 190 --% $ 915 .6% $ 863 .5% $ -- --%
Multi-family/commercial ...... -- -- 550 -- -- -- -- -- 377 .2
-------- ----- -------- ------ -------- ------ -------- ------ -------- -----
Total construction loans ... -- -- 740 -- 915 .6 863 .5 377 .2
Residential (1-4 family) ....... 76,832 54.7 79,383 57.3 84,051 57.8 84,006 50.3 82,647 36.2
Multi-family/Commercial ........ 19,322 13.7 20,879 15.1 22,186 15.3 33,063 19.8 68,192 29.9
Commercial loans ............... -- -- -- -- -- -- 697 .4 8,982 3.9
Home equity, second mortgage
and home improvement loans .... 43,842 31.2 36,223 26.7 37,221 25.6 46,705 28.0 66,057 29.0
Consumer Loans:
Passbook account loans ......... 522 .4 1,242 .9 1,022 .7 1,517 1.0 1,914 .8
Student loans .................. 7 -- 6 -- 1 -- -- -- -- --
-------- ----- -------- ------ -------- ------ -------- ------ -------- -----
Total loans ....................$140,525 100.0% $138,473 100.00% $145,396 100.00% $166,851 100.00% $228,169 100.0%
======== ===== ======== ====== ======== ====== ======== ====== ======== =====
TYPE OF SECURITY:
Real Estate Loans
1-4 family ...................$120,674 85.9% $116,346 84.0% $119,885 82.5% $124,467 74.6% $133,852 58.7%
Multi-Family/Commercial ...... 19,322 13.7 20,879 15.1 24,488 16.8 40,170 24.1 83,421 36.6
Passbook accounts .............. 522 .4 1,242 .9 1,022 .7 1,517 .9 1,914 .8
Student loans .................. 7 -- 6 -- 1 -- -- -- -- --
Commercial Loans:
Commercial loans ............... -- -- -- -- -- -- 697 .4 8,982 3.9
-------- ----- -------- ------ -------- ------ -------- ----- ------- -----
Total loans ................... 140,525 100.0% 138,473 100.0% 145,396 100.0% 166,851 100.0% 228,169 100.0%
===== ===== ===== ===== =====
Less:
Loans in process ............... -- 191 451 101 --
Deferred loan origination fees
and costs, net................. 578 425 287 220 194
Allowance for loan losses ...... 2,638 1,714 2,535 3,073 3,411
-------- -------- -------- -------- --------
Total loans, net ...............$137,309 $136,143 $142,123 $163,457 $224,564
======== ======== ======== ======== ========
2
One- to Four-Family Mortgage Loans. The Savings Bank offers first mortgage
loans secured by one- to four family residences in the Savings Bank's market
area. Typically, such residences are single family homes that serve as the
primary residence of the owner. Additionally, this loan category includes a
relatively small amount of loans collateralized by mixed use properties which
are primarily residential, but have some commercial use as well. The Savings
Bank currently offers 15 and 30 year fixed-rate mortgage loans, 15 year balloon
mortgage loans with five to seven year maturities, and adjustable rate mortgage
("ARM") loans with one, three or five year adjustment periods and 15 to 30 year
maturities. The Savings Bank retains ARM loans, 15 year fixed-rate mortgages and
balloon mortgage loans. Fixed-rate loans with more than 15 year maturities are
sold in the secondary market.
Monthly payments on balloon loans are based on a 15 year amortization
schedule. Renewal of balloon mortgage loans is based on the credit history as
well as current qualification of the borrower at time of renewal. The Savings
Bank offers balloon mortgages in an effort to make its mortgage loan portfolio
more interest rate sensitive. Interest rates charged on fixed-rate loans are
competitively priced based on the local competitive market. Loan origination
fees on these loans are generally up to 2% of the loan amount depending on the
interest rate accepted by the borrower.
Balloon loans pose a different credit risk from 15 year mortgage loans.
The balloon loans mature in five to seven years but payments are based on a
fifteen year amortization schedule. At the time of the loan's maturity, the
borrower must either pay the balloon payment or refinance the loan. If the
borrower is ineligible for refinancing at the time of loan maturity and cannot
make the large balloon payment, the loan will go into default. In the case of
standard mortgage loans, payments are spread out evenly over the term of the
loan, thereby decreasing this credit risk.
The Savings Bank currently offers ARM loans with interest rates that
adjust every one, three or five years with a maximum rate increase cap of 2% per
year, and a lifetime cap of 6%. The interest rate on these mortgages since 1985
has been the U.S. Treasury bill rate plus 3%. As of July 31, 1997, one year,
three year, and five year ARM loans originated by the Savings Bank constituted
24%, 26% and 50% of the originated ARM loan portfolio, respectively. ARM loans
are originated for a term of up to 30 years. The Savings Bank originates one- to
four-family residential mortgage loans in amounts up to 80% of the appraised
value of the mortgaged property. The Savings Bank retains the ARM loans it
originates for its loan portfolio.
Generally, ARM loans pose credit risks different than the risks inherent
in fixed-rate loans, primarily because as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Savings Bank attempts to reduce this
credit risk by qualifying ARM loan borrowers based on the first full interest
rate adjustment. The Savings Bank does not originate ARM loans which provide for
negative amortization.
The Savings Bank also offers 15 year fixed-rate mortgage loans. Interest
rates charged on fixed-rate loans are competitively priced based on the Federal
Home Loan Mortgage Corporation ("FHLMC") buy rates. Loan origination fees on
these loans are generally 2% of the loan amount. The Savings Bank retains these
15 year mortgage loans for its loan portfolio.
3
Multi-Family and Commercial Real Estate. The Savings Bank originates
multi-family real estate loans usually secured by property located in the
Savings Bank's primary market area. The Savings Bank's commercial real estate
loans are secured by such property as mixed use and office buildings, small
retail stores and industrial buildings. The Savings Bank's multi-family and
commercial real estate loans are five or seven year balloon mortgages with
amortization periods typically of 15 years and loan to value ratios of 80% or
less.
Multi-family and commercial real estate may entail significant additional
credit risks compared to one- to four family residential lending. Commercial and
multi-family real estate mortgage loans may involve large loan balances to
single borrowers or groups of related borrowers. In addition, the payment
experience on loans secured by income producing properties is typically
dependent on the successful operation of the properties and thus may be subject
to a greater extent to adverse conditions in the real estate market or in the
general economy. The Savings Bank intends to increase its marketing efforts
related to these loans in fiscal 1998.
Home Equity, Second Mortgage and Home Improvement Loans. The Savings Bank
originates home equity, second mortgage and home improvement loans secured by
one-family residences. These loans generally are originated as adjustable rate
loans which adjust monthly and have terms of from 15 to 30 years. No loan
origination fee is usually charged on these loans. Loans made on owner-occupied,
one-family residences are generally subject to a 70% combined loan-to-value
limitation, including any other outstanding mortgages or liens, and are made at
an adjustable rate of 185 points over the prime rate. Loans on non-owner
occupied properties are limited to a 65% loan to value ratio, and are made at an
adjustable rate of 210 points over the prime rate. The Savings Bank intends to
increase its marketing efforts related to these loans in fiscal 1998.
Commercial Loans. On January 12, 1996, the Savings Bank granted to
Industry Mortgage Company ("IMC") a line of credit for $7 million with an
interest rate of 10%. At July 31, 1997, $6.8 million was outstanding. The
Company has a 6.02% investment in IMC. See "-- Subsidiaries".
4
Loan Maturity Table
The following table sets forth the maturity of the Savings Bank's loan
portfolio at July 31, 1997. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on loans
totalled $22.4 million at July 31, 1997. Adjustable-rate mortgage loans are
shown as maturing based on contractual maturities.
Home Equity,
Second Mortgage
1-4 Family Multi-Family, and Home
Real Estate Commercial Improvement Commercial
Mortgage Real Estate Loans(1) Loans Total
----------- ------------ --------------- ---------- --------
(In Thousands)
Amounts Due:
Within 3 months............ $ 631 $ 3,019 $ 3,813 $ 48 $ 7,511
3 months to 1 Year......... 151 717 2,047 1,377 4,292
------- ------- ------- ------ --------
782 3,736 5,860 1,425 11,803
------- ------- ------- ------ --------
After 1 year:
1 to 3 years............. 2,969 2,777 2,818 6,839 15,403
3 to 5 years............. 6,078 7,271 14,337 718 28,404
5 to 10 years............ 13,313 17,721 19,022 -- 50,056
10 to 20 years........... 29,275 26,648 25,572 -- 81,495
Over 20 years............ 30,230 10,416 362 -- 41,008
------- ------- ------- ------ --------
Total due after one year... 81,865 64,833 62,111 7,557 216,366
------- ------- ------- ------ --------
Total amount due........... $82,647 $68,569 $67,971 $8,982 $228,169
======= ======= ======= ====== ========
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(1) Also includes passbook and student loans.
The following table sets forth the dollar amount of all loans due after
July 31, 1998, 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 ........................ $ 46,421 $ 35,444 $ 81,865
Multi-family and commercial real estate.... 23,254 41,579 64,833
Home equity, second mortgage and
home improvement loans .................. 32,705 29,406 62,111
Commercial loans .......................... -- 7,557 7,557
-------- -------- --------
Total ................................... $102,380 $113,986 $216,366
======== ======== ========
5
Loan Approval Authority and Underwriting. Upon receipt of any loan
application from a prospective borrower, a credit report and verifications are
ordered to confirm specific information relating to the loan applicant's
employment, income and credit standing. An appraisal of the real estate intended
to secure a first mortgage proposed loan is undertaken by an independent fee
appraiser approved by the Board of Directors. In connection with the loan
approval process, the Savings Bank's loan officers analyze the loan applications
and the property involved. All loans are processed at the Savings Bank's office
by the Savings Bank's loan servicing department. The Savings Bank originates
residential first mortgage loans that conform to the FHLMC and Federal National
Mortgage Association ("FNMA") guidelines, so that such loans can be sold if the
Savings Bank desires to do so.
All mortgage loans are underwritten under guidelines and policies issued
by the Board of Directors. The Savings Bank's Loan Committee reviews all loans
and the full Board of Directors then ratifies the actions of the staff and
committee in regard to all loans except consumer loans and passbook loans. Fixed
rate loans with terms of 30 years are immediately sold after funding to FHLMC or
other private secondary mortgage market purchasers depending on the
attractiveness of the pricing.
Loan applicants are promptly notified of the decision of the Savings Bank
by a letter setting forth the terms and conditions of the decision. If approved,
these terms and conditions include the amount of the loan, interest rate basis,
amortization term, a brief description of real estate to be mortgaged to the
Savings Bank, and the notice of requirement of insurance coverage to be
maintained to protect the Savings Bank's interest. The Savings Bank requires
title, fire and casualty insurance for all first mortgage loans, as well as an
escrow account for the payment of real estate taxes. Disability insurance is
available but not required.
Loan Commitments. The Savings Bank generally grants commitments to fund
real estate mortgage loans for periods of up to 90 days at a specified term and
interest rate. These are primarily for fixed-rate loans. The total amount of the
Savings Bank's commitments to originate loans as of July 31, 1997 was $6.1
million.
Loans to One Borrower. Regulations limit loans-to-one borrowers in an
amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured
basis and an additional amount equal to 10% of unimpaired capital and unimpaired
surplus if the loan is secured by readily marketable collateral. At July 31,
1997 the Savings Bank's maximum loan-to-one borrower limit was $5.9 million and
its largest loan to one borrower was a commercial letter of credit of
approximately $6.8 million. This loan was in excess of the Savings Bank's
lending limit but was in compliance with regulations applicable at the time the
loan was originated. The second largest loan to one borrower relationship is a
loan of approximately $3.1 million secured by multi-family properties in
Passaic, New Jersey. Both of these loans were performing at July 31, 1997.
Non-Performing Loans and Asset Classification. The Savings Bank's
collection policy provides for a late charge to be added to the amount due when
a loan is 15 days past due. The borrower is immediately notified of the
assessment and payment is requested. Periodic contacts are made at 30 day
intervals. At 60 days past due, a letter is sent by the Savings Bank's attorney.
At 120 days, the attorney is authorized to take final action up to initiation of
foreclosure proceedings, if deemed warranted.
6
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. Loans are placed on a non-accrual status when either principal or
interest is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
The following table sets forth information with respect to the Savings
Bank's non-performing assets for the periods indicated. During the periods
indicated the Savings Bank had no restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 ("SFAS 15").
At July 31,
-------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 family
dwelling units(1) ..................... $12,373 $ 8,362 $ 3,143 $2,316 $ 3,007
All other mortgage loans ................ 1,167 566 229 101 804
------- ------- -------- ------ --------
Total ..................................... $13,540 $ 8,928 $ 3,372 $2,417 $ 3,811
======= ======= ======== ====== ========
Accruing loans which are contractually past
due 90 days or more ...................... $ -- $ -- $ -- $ -- $ --
======= ======= ======== ====== ========
Total non-accrual and accrual loans........ $13,540 $ 8,928 $ 3,372 $2,417 $ 3,811
======= ======= ======== ====== ========
Real estate owned (net of allowance)....... $ 5,752 $ 3,574 $ 3,608 $1,667 $ 1,929
======= ======= ======== ====== ========
Other non-performing assets ............... $ -- $ -- $ 850 $ 494 $ --
======= ======= ======== ====== ========
Total non-performing assets ............... $19,292 $12,501 $ 7,830 $4,578 $ 5,740
======= ======= ======== ====== ========
Total non-performing loans to
net loans ............................... 9.86% 6.56% 2.37% 1.50% 1.70%
======= ======= ======== ====== ========
Total non-performing loans to
total assets ............................ 6.53% 2.16% .80% .53% .75%
======= ======= ======== ====== ========
Total non-performing assets to total assets. 9.30% 3.02% 1.87% 1.00% 1.13%
======= ======= ======== ====== ========
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(1) Includes home equity, home improvement and second mortgage loans.
Management of the Savings Bank regularly reviews the loan portfolio in
order to identify potential problem loans, and classifies any potential problem
loan as a special mention, substandard, doubtful, or loss asset according to the
Department classification of asset regulations. The Savings Bank does not accrue
interest on any loan that is 90 days or more delinquent. Potential problem loans
that had not been recorded as non-accrual as of July 31, 1997, totalled $7.3
million, or 1.4% of total assets. These loans are accruing but classified by the
Savings Bank as substandard.
For the year ended July 31, 1997, interest income amounting to
approximately $256,000, would have been recognized if interest on loans 90 days
or more in arrears had been recorded based on original contract terms.
7
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions. 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 obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified as 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 of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan 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, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution'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.
In accordance with its classification of assets policy, the Savings Bank
regularly reviews the problem assets in its portfolio to determine whether any
assets require classification in accordance with applicable regulations. On the
basis of management's review of its assets, at July 31, 1997, the Savings Bank
had classified $1.9 million as special mention, $11.6 million as substandard,
and $1.4 million as doubtful.
The following is a summary of the Savings Bank's potential problem loans
with balances in excess of $1,000,000 as of July 31, 1997. There can be no
assurance that additional reserves will not be required or additional losses
will not be incurred on these loans.
Ski Resort in Vernon, New Jersey. The outstanding loan balance of $2.4
million at July 31, 1997, represents Lakeview's 50 percent participation in a
$5.0 million loan. The loan consists of a March 1989 refinancing of a $2.3
million mortgage (originally made by Lakeview in July 1986) and an additional
$2.7 million of working capital. The loan is secured by a first lien on the ski
resort as well as all equipment and rental inventory utilized in the operation
of the premises. Another unrelated lender has a second mortgage of $19.6 million
on the property. The borrower corporation and its parent corporation filed for
protection under Chapter 11 of the Bankruptcy Code on April 2, 1996. As of July
31, 1997, the loan was current as a result of payments being received from an
individual guarantor of the loan. Both the borrower corporation and its parent
corporation have experienced operating losses in recent years. As of July 31,
1997, the loan was classified substandard and continues to be monitored by
management.
8
Mortgage Loans Purchased from Capital Resources. At July 31, 1997, the
Savings Bank had approximately $3.6 million of residential real estate second
mortgage loans that were acquired from Capital Resources, a now defunct mortgage
company. Of this total amount, $910,000 was classified as non-accrual loans and
$2.7 million was classified as performing loans. However, based upon
management's review, $548,000 of these performing loans were considered
potential problem loans. At July 31, 1997, the Savings Bank allocated $911,000
of the loss allowance to the mortgage loans purchased from Capital Resources.
Real Estate Owned. Real estate acquired by the Savings Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. Real estate acquired in settlement of loans is initially
recorded at fair value at the date of foreclosure establishing a new cost basis.
After foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of cost or fair value, minus estimated cost
to sell.
The Savings Bank records loans as in-substance foreclosures if the
borrower has little or no equity in the property based upon its documented
current fair value, the Savings Bank can only expect repayment of the loan to
come from the sale of the property and if the borrower has effectively abandoned
control of the collateral or has continued to retain control of the collateral
but because of the current financial status of the borrower, it is doubtful the
borrower will be able to repay the loan in the foreseeable future. There may be
significant other expenses incurred such as legal and other extraordinary
servicing costs involved with in substance foreclosures.
Allowances for Loan Losses. It is management's policy to provide for
losses on unidentified loans in its loan portfolio. A provision for loan losses
is charged to operations based on management's evaluation of the potential
losses that may be incurred in the Savings Bank's loan portfolio. Such
evaluation, which includes a review of all loans of which full collectibility of
interest and principal may not be reasonably assured, considers the
Association'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 following table sets forth the allocation of the Savings Bank's
allowance for loan losses by loan category and the percent of loans in each
category to total 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 that may occur within the loan category because the
total loan loss allowance is a valuation reserve applicable to the entire loan
portfolio.
9
Analysis of the Allowances for Losses on Loans and Real Estate Owned
The following tables set forth information with respect to the Savings
Bank's allowance for loan losses and REO at the dates indicated:
At or for the year ended July 31,
------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total loans outstanding, net of allowance ........ $ 137,309 $ 136,143 $ 142,123 $ 163,457 $ 224,564
========= ========= ========= ========= =========
Average loans outstanding ........................ $ 142,935 $ 136,165 $ 139,442 $ 155,497 $ 192,822
========= ========= ========= ========= =========
Allowance balance (at beginning of
period) ........................................ $ 2,493 $ 2,638 $ 1,714 $ 2,535 $ 3,073
Provision (credit):
Residential .................................... 1,347 1,842 1,493 384 361
Commercial real estate ......................... 673 (77) (145) 278 500
Consumer ....................................... 11 282 28 2 --
Commercial ..................................... -- -- -- -- 100
Charge-offs:
Residential .................................... (1,514) (3,069) (1,381) (418) (610)
Commercial real estate ......................... (361) -- -- -- (89)
Consumer ....................................... (11) (1) (24) (11) --
Commercial ..................................... -- -- -- -- --
Recoveries:
Residential .................................... -- 99 850 303 76
Commercial real estate ......................... -- -- -- -- --
Consumer ....................................... -- -- -- -- --
Commercial ..................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Allowance balance (at end of period) ............. $ 2,638 $ 1,714 $ 2,535 $ 3,073 $ 3,411
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding, net ................ 1.92% 1.26% 1.78% 1.88% 1.52%
Net loans charged off as a percent of
average loans outstanding ...................... 1.32% 2.18% 0.40% .09% .32%
At or for the year ended July 31,
------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(Dollars in Thousands)
Total real estate owned and in judgment, net of
allowance ....................................... $ 5,752 $ 3,574 $ 3,608 $ 1,667 $ 1,929
========= ========= ========= ========= =========
Allowance balance - beginning .................... $ 709 $ 823 $ 188 $ -- $ --
Provision ........................................ 847 713 502 654 44
Net charge-offs .................................. (733) (1,348) (690) 654 44
--------- --------- --------- --------- ---------
Allowance balance - ending ....................... $ 823 $ 188 $ -- $ -- $ --
========= ========= ========= ========= =========
10
Analysis of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance by
category, which management believes can be allocated only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future loss and does not restrict the use of the allowance to
absorb losses in any category:
At July 31,
---------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------------- ------------------- ------------------- -------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- ---------- ------- ---------- -------- ---------- -------- --------- ------ ----------
(In Thousands)
Residential(1)............ $2,311 85.9% $1,458 84.0% $2,420 82.5% $2,689 74.6% $2,681 58.7%
Commercial real estate.... 325 13.7 250 15.1 106 16.8 384 24.1 630 36.6
Consumer.................. 2 .4 6 .9 9 .7 -- .9 -- .8
Commercial................ -- -- -- -- -- -- -- .4 100 3.9
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$2,638 100.0% $1,714 100.0% $2,535 100.0% $3,073 100.0% $3,411 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
(1) Includes residential construction, home equity, second mortgage and home
improvement loans.
11
Investment Activities and Mortgage-Backed Securities
General. Income from investment securities provides a significant source
of income for the Savings Bank. The Savings Bank maintains a portfolio of
investment securities such as U.S. government and agency securities,
non-governmental securities, and interest-bearing deposits, in addition to the
Savings Bank's mortgage-backed securities held to maturity portfolio. The amount
of short-term investments reflects management's response to the significantly
increasing percentage of savings deposits with short maturities. It is the
intention of management to maintain shorter maturities in the Savings Bank's
investment portfolio in order to better match the interest rate sensitivities of
its assets and liabilities. However, during periods of rapidly declining
interest rates, such investments also decline at a faster rate than does the
yield on long-term investments.
Investment decisions are made within policy guidelines established by the
Board of Directors. The investment policy of the Savings Bank established by the
Board of Directors is based on its asset/liability management goals. The intent
of the policy is to establish a portfolio of high quality, diversified
investments in order to optimize net interest income within acceptable limits of
safety and liquidity.
Purchases of securities other than equity securities are generally made
with the intent of holding them to maturity. Currently, the policy is to invest
in instruments with an expected average life of five to ten years, to be held to
maturity. Investments and mortgage-backed securities held to maturity are
recorded at amortized cost. Premiums are amortized and discounts accreted on a
level yield method over the life of the investment.
The Savings Bank maintains a portfolio of investments available for sale
and trading to enhance total return on investments and reduce interest rate and
credit risk. These investments are accounted at market value. The Savings Bank's
Investment Policy designates what securities may be maintained in this
portfolio. The Savings Bank's trading portfolio is comprised of U.S. agency
securities. As of July 31, 1997, these were no trading securities outstanding
and the available for sale portfolio was comprised of mortgage-backed
securities, U.S. agency securities, and equity securities.
Mortgage-Backed Securities. The Savings Bank's mortgage-backed securities,
or pass-through certificates, represent a participation interest in a pool of
single-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 interest
in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies that guarantee the payment of principal and interest
to investors include the FHLMC, Government National Mortgage Association
("GNMA"), or the Federal National Mortgage Association ("FNMA"). Pass-through
certificates typically are issued with stated principal amounts, and the
securities are backed by pools of mortgages that have loans with interest rates
and maturities that are within a specified range. The underlying pool of
mortgages can be composed of either fixed rate mortgage loans or ARM 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, (i.e., 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. Mortgage-backed securities issued by FHLMC, FNMA
and GNMA make up a majority of the pass-through market. Generally, the Bank
purchases mortgage-backed securities guaranteed by GNMA and FNMA and
participation certificates issued by the
12
FHLMC. GNMA mortgage-backed securities are certificates issued and backed by the
GNMA and are secured by interests in pools of mortgages which are fully insured
by the Federal Housing Administration ("FHA") or partially guaranteed by the
Veterans' Administration ("VA"). FHLMC mortgage-backed securities are
participation certificates issued and guaranteed by the FHLMC and secured by
interests in pools of conventional mortgages originated by savings associations.
Mortgage-backed securities provide for monthly payments of principal and
interest and generally have contractual maturities ranging from five to thirty
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
The Savings Bank also purchases mortgage-backed securities and
collateralized mortgage obligations ("CMOs") issued by government agencies,
private issuers and financial institutions, some of which are qualified under
the Internal Revenue Code of 1986, as amended (the "Code") as Real Estate
Mortgage Investment Conduits ("REMICs"). CMOs and REMICs (collectively CMOs)
have been developed in response to investor concerns regarding the uncertainty
of cash flows associated with the prepayment option of the underlying mortgagor
and are typically issued by governmental agencies, governmental sponsored
enterprises and special purpose entities, such as trusts, corporations or
partnerships, established by financial institutions or other similar
institutions. Some CMO instruments are most like traditional debt instruments
because they have stated principal amounts and traditionally defined
interest-rate terms. Purchasers of certain other CMO instruments are entitled to
the excess, if any, of the issuer's cash inflows, including reinvestment
earnings, over the cash outflows for debt service and administrative expenses.
These mortgage related instruments may include instruments designated as
residual interests, which represent an equity ownership interest in the
underlying collateral, subject to the first lien of the investors in the other
classes of the CMO. Certain residual CMO interests may be riskier than many
regular CMO interests to the extent that they could result in the loss of a
portion of the original investment. Moreover, cash flows from residual interests
are very sensitive to prepayments and, thus, contain a high degree of
interest-rate risk.
At July 31, 1997, the Savings Bank's investment in CMOs did not include
any residual interests or interest-only or principal-only securities. As a
matter of policy, the Savings Bank does not invest in residual interests of CMOs
or interest-only and principal-only securities. The CMOs held by the Savings
Bank at July 31, 1997 consisted of floating rate and fixed rate tranches. The
interest rate of a majority of the Savings Bank's floating-rate securities
adjusts monthly and provides the institution with net interest margin protection
in an increasing market interest rate environment. The securities are backed by
mortgages on one-to-four family residential real estate and have contractual
maturities up to 30 years. The securities are primarily PACs and TACs (Planned
and Targeted Amortization Classes) are designed to provide a specific principal
and interest cash-flow.
Private issued CMOs tend to have greater prepayment and credit risk than
those issued by government agencies or government sponsored enterprises (e.g.,
FHLMC, FNMA, and GNMA) generally because they often are secured by jumbo loans
(i.e., loans with aggregate outstanding balances above the limit for purchases
by FHLMC or FNMA). At July 31, 1997, the Savings Bank had CMOs with an aggregate
carrying amount (including discounts and premiums) of $40.6 million, of which
$9.3 million, or 22.9%, were privately issued. To minimize the risk of private
issued CMOs, the Savings Bank only purchases those CMOs rated AA or better by
one of the rating agencies.
13
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize borrowings of the Savings Bank in the event that the
Savings Bank determined to utilize borrowings as a source of funds.
Mortgage-backed securities issued or guaranteed by the GNMA, FNMA or the FHLMC
(except interest-only securities or the residual interests in CMOs) are weighted
at no more than 20.0% for risk-based capital purposes, compared to a weight of
50.0% to 100.0% for residential loans.
Investment Portfolio
The following table sets forth the carrying value of the Company's
investment portfolio, short-term investments, and Federal Home Loan Bank
("FHLB") stock at the dates indicated. At July 31, 1997, the market value of the
investment securities that are held to maturity was $144.3 million and the
market value of investment securities available for sale was $105.6 million,
with a cost basis of $83.2 million.
At July 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(In Thousands)
Investment Securities:
U.S. agency securities available for sale(1).... $ -- $ -- $ -- $ 58,045 $ 48,781
U.S. agency securities held to maturity ........ -- 61,662 55,738 40,821 42,682
Mortgage-backed securities held to
maturity ...................................... 43,579 173,067 175,375 121,462 102,249
Equity securities available for sale(1)(2)...... 12,898 11,269 8,567 12,601 41,846
Municipal bonds available for sale(1) .......... -- -- -- 3,083 --
GNMA mortgage-backed securities
available for sale(1) ........................ -- -- -- 4,684 4,192
FNMA/FHLMC CMO securities
available for sale(1) ........................ -- -- -- 2,034 1,489
Private Issue CMO securities
available for sale(1) ........................ -- -- -- 9,521 9,284
Equity securities restricted for sale(2) ....... -- -- -- 7,806 --
Other Securities ............................... 16 975 -- -- --
-------- -------- -------- -------- --------
Total Investment Securities .................. 56,493 246,973 239,680 260,057 250,523
Interest-bearing deposits ...................... 99 -- 5,632 -- --
Federal funds sold ............................. -- 850 -- -- --
FHLB stock ..................................... 1,511 1,856 2,587 2,587 3,550
-------- -------- -------- -------- --------
Total Investments ............................ $ 58,103 $249,679 $247,899 $262,644 $254,073
======== ======== ======== ======== ========
- ---------------------
(1) Carried at market value.
(2) In 1996, equity securities restricted for sale were carried at cost due to
restrictions on the sale or transfer of these securities. During the
fourth quarter ended July 31, 1997, the restrictions were changed and the
securities were reclassified to the available for sale portfolio and such
securities are carried at market value.
14
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Savings Bank's investment
securities portfolio at July 31, 1997 by contractural maturity. The expected
maturities may differ from contractural maturities due to the terms of the
securities which may have callable or prepayment obligations.
After One Through After Five Through
One Year or Less Five Years Ten Years Over Ten Years Totals
------------------- ------------------ ------------------ ------------------- -----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield(4) Value Yield Value Yield Value Yield Value Yield(2)
-------- -------- -------- -------- -------- -------- -------- --------- ----------------
(Dollars Thousands)
U. S. agency securities available
for sale .........................$ -- --% $ 2,980 5.34 $ 22,950 7.00% $ 22,851 7.34% $ 48,781 7.06%
U.S. agency securities held
to maturity....................... -- -- -- -- 9,231 7.55 33,451 7.70 42,682 7.67
Mortgage-backed securities
held to maturity ................. -- -- 39,363 6.09 17,375 6.17 45,511 6.33 102,249 6.21
Equity securities available
for sale(1)....................... 41,846 .62 -- -- -- -- -- -- 41,846 .62
FHLB stock(1) ..................... 3,550 6.25 -- -- -- -- -- -- 3,550 6.25
GNMA mortgage-backed securities
available for sale .............. -- -- -- -- -- -- 4,192 8.27 4,192 8.27
FNMA/FHLMC CMO's
available for sale .............. -- -- -- -- -- -- 1,489 4.64 1,489 4.64
Private issue CMO's
available for sale .............. -- -- -- -- -- -- 9,284 6.37 9,284 6.37
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total ...........................$ 45,396 1.06% $ 42,343 6.04% $ 49,556 6.81% $116,778 6.97 $254,073 5.73%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
- ------------------
(1) Equity securities and other securities have been classified as maturing in
one year or less, since they have no stated maturity.
(2) Excluding dividend yield on equity and other securities.
15
Sources of Funds
General. Deposits are the major source of the Savings Bank's funds for
lending and other investment purposes. In addition to deposits, the Savings Bank
derives funds from loan and mortgage-backed securities principal repayments, and
maturities of investment securities. Loan and mortgage-backed securities
payments are a relatively stable source of funds, while deposit inflows are
significantly influenced by general interest rates and money market conditions.
Deposits. The Savings Bank offers a wide variety of deposit accounts,
although a majority of such deposits are in fixed-term, market-rate certificate
accounts. Deposit account terms vary, primarily as to the required minimum
balance amount, the amount of time that the funds must remain on deposit and the
applicable interest rate. The Savings Bank's deposits are typically obtained
from the area in which its offices are located. The Savings Bank had no brokered
certificates of deposits as of July 31, 1997.
Deposit Portfolio. Deposits in the Savings Bank as of July 31, 1997, were
represented by various types of savings programs described below.
Weighted Minimum Percentage of Average
Category Term Average Rates Balance Amount Balance Total Deposits Balance
- -------- ---- ------------- -------------- ------- -------------- -------
(In Thousands) (In Thousands)
NOW Accounts None 1.7% $ 250 $ 52,926 14.2% $47,464
Regular Savings and Club
Accounts None 2.4 10 75,967 20.5 74,396
Money Market Checking
Accounts None 2.4 2,500 7,871 2.1 8,032
Money Market Passbook
Accounts None 2.5 7,500 18,353 4.9 19,652
Certificates of Deposit:
Fixed Term, Fixed Rate 3-6 Months 4.7 2,500 38,250 10.3 37,527
Fixed Term, Fixed Rate 7-12 Months 5.2 500 104,560 28.2 100,153
Fixed Term, Fixed Rate 13-30 5.3 500 54,860 14.8 56,234
Months
Fixed Term, Fixed Rate 31-120 5.4 500 17,167 4.6 19,264
Months
Fixed Term, Variable Rate 18 Months 4.2 500 833 .2 918
Accrued interest on
deposits 679 .2 --
-------- ------ --------
Total $371,466 100.00% $363,640
======== ====== ========
16
Certificates of Deposit with Balances Greater Than $100,000. The following
table indicates the amount of the Savings Bank's certificates of deposit of
$100,000 or more by time remaining until maturity as of July 31, 1997.
Certificates
Maturity Period of Deposits
- --------------- --------------
(In Thousands)
Within three months............................ $ 8,131
Three through six months....................... 6,873
Six through twelve months...................... 7,031
Over twelve months............................. 1,956
-------
$23,991
=======
Borrowings. Although deposits are the Savings Bank's primary source of
funds, the Savings Bank's policy has been to utilize borrowings as an
alternative or less costly source of funds. The Savings Bank obtains advances
from the FHLB of New York. Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. The maximum amount that the FHLB of New York will advance to member
institutions, including the Savings Bank, for purposes other than meeting
withdrawals, fluctuates from time to time in accordance with the policies of the
FHLB of New York. The maximum amount of FHLB of New York advances to a member
institution generally is reduced by borrowings from any other source.
The Savings Bank has in the past utilized the Regular Advance Program of
the FHLB of New York under an advances, collateral, pledge and security
agreement. The program offers a wide range of interest rates and maturities on
advances that are collateralized by various assets. At July 31, 1997, the
Savings Bank had $39.0 million outstanding under the Regular Advance Program.
The Savings Bank will continue to use this program in the future to meet long
term operating needs.
The Savings Bank's primary method of borrowing since August 1991 is
through the FHLB Overnight Line of Credit Program. The line of credit has a
variable rate of interest and matures daily. The maximum amount that can be
borrowed under this program is approximately $57 million. The line of credit has
a term of one year and expired in August 1997. This program has the same
collateral requirement as the Regular Advance Program. At July 31, 1997, the
Savings Bank had $20.3 million outstanding under this program.
The Savings Bank has a blanket pledge with the FHLB of New York and has
pledged all of its stock in the FHLB, federal funds sold, U.S. agency
securities, certain qualifying loans, and mortgage-backed securities.
17
The following tables set forth certain information regarding borrowings by
the Savings Bank.
As of July 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Weighted average rate paid on:
FHLB advances/line of credit.......... 3.13% 4.44% 5.81% 5.79% 5.53%
Reverse Repurchase Agreements......... -- -- -- 6.33% 5.47%
Line of credit........................ -- -- -- -- 8.00%
ESOP.................................. -- 7.54% 8.96% 9.12% 6.16%
During the Year Ended July 31,
---------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In Thousands)
Maximum amount of borrowings outstanding
during the year:
FHLB advances/line of credit.......... $22,775 $51,909 $32,000 $50,460 $68,500
Line of credit........................ -- -- -- -- 2,000
Reverse Repurchase Agreement.......... -- -- -- 20,000 40,000
ESOP.................................. -- 1,100 1,021 859 2,354
Maximum amount of short-term
borrowings outstanding at any month
end with respect to:
FHLB advances/line of credit.......... 18,500 36,000 30,500 49,450 67,750
Reverse Repurchase Agreement.......... -- -- -- 20,000 20,000
ESOP.................................. -- 1,100 1,021 859 2,354
Line of credit........................ -- -- -- -- 2,000
Subsidiaries
Branchview, Inc. ("Branchview")
Branchview, a New Jersey corporation, owned by the Company has a 6.02%
interest in IMC. IMC is a mortgage banking company involved in the origination
and securitization of equity mortgage products. See "-- Investment Portfolio".
Lakeview Mortgage Depot, Inc. ("LMD")
LMD, a New Jersey mortgage corporation, is 90% owned by the Company and
was formed in October 1995. For the year ended July 31, 1997, the Company
recorded net consolidated income before taxes of $229,000. LMD has opened two
additional offices during the year, one in South Jersey and one in Pennsylvania.
Additional expansion is planned for New York during the 1998 fiscal year.
18
Lakeview Investment Services, Inc. ("LISI")
LISI was organized by the Savings Bank to provide brokerage and insurance
services to the Savings Bank's customers, utilizing the services of Cross
Marketing, Inc., a registered broker dealer. LISI is not a significant source of
revenues or expenses.
Lakeview Credit Card Services, Inc. ("LCCS")
LCCS, a wholly owned subsidiary of the Savings Bank was formed in January
1996. On October 1, 1996, LCCS entered into a joint venture agreement with IMC
Credit Card, Inc., ("IMCC") a wholly owned subsidiary of IMC, to market secured
credit cards through IMCC's retail loan centers and correspondents. To date, no
revenues have been generated.
North Properties, Inc. ("North Properties")
North Properties, a wholly owned subsidiary of the Savings Bank, was
formed in May 1997 to hold real estate owned properties.
Asset/Liability Management
General. The difference between an institution's interest-earning assets
and interest-bearing liabilities that mature or reprice within a specified time
period, based on certain estimates and assumptions, is called its "gap." At July
31, 1997, the Savings Bank's cumulative one-year gap as a percentage of total
assets was a negative 6.5%, making the Savings Bank vulnerable to increases in
interest rates. A negative gap position in a period of rising interest rates
generally results in a decrease in net interest income. Management of the
Savings Bank believes that interest rates may continue to rise and that this
could have a material impact on net interest income. When interest rates rise,
interest income increases may only occur through the addition of new
interest-earning assets at current rates and/or, to the extent that existing
assets can be repriced, principally through prepayment and repayment of loan
principal with reinvestment in higher rates. Because a higher volume of existing
liabilities reprice relative to the assets, interest expense increases more
rapidly than interest income. The opposite effect is realized on net interest
margin and earnings when interest rates fall. Generally, the rates paid on
existing interest-earning assets decrease more slowly than the rate on
interest-bearing liabilities due to the difference in shorter repricing terms,
with the result that net interest margin and earnings improve.
The Savings Bank, like many other thrift institutions, is subject to
interest rate risk as a result of the difference in the maturity on
interest-bearing liabilities and interest-earning assets and the volatility of
interest rates. Because most deposit accounts react more quickly to market
interest rate movements than do traditional mortgage loans because of their
shorter terms to maturity, sharp increases in interest rates will generally
adversely affect the Savings Bank's earnings. Conversely, this mismatch will
generally benefit the Savings Bank during periods of declining or stable
interest rates. To reduce the potential volatility of the Savings Bank's
earnings, management has adopted a strategy designed to improve the match
between asset and liability maturities and rates, while maintaining an
acceptable interest rate spread. Pursuant to this strategy, the Savings Bank has
been actively originating for retention in its portfolio fixed-rate and balloon
mortgage loans with terms to maturity of five, seven and 15 years, and one,
three and five year adjustable-rate mortgage loans. At July 31, 1997,
approximately $114.0 million or 52.7% of the Savings Bank's loan portfolio
consisted of adjustable-rate loans. All 30 year fixed-rate mortgage loans
originated by the Savings Bank are sold into the secondary mortgage market.
19
The Savings Bank's strategy is designed to maintain a mix of adjustable-rate,
and 15-year or less fixed-rate mortgage loans in its loan portfolio. In
addition, the Savings Bank has purchased five and seven year balloon
mortgage-backed securities and has increased its emphasis on making home equity
loans which have 15 year terms to maturity and provide for adjustable interest
rates.
Gap Analysis. As rates on sources of funds have become deregulated and
subject to competitive pressures, savings associations have become increasingly
concerned with the extent to which they are able to match maturities of
interest-earning assets and interest-bearing liabilities. Such matching is
facilitated by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is considered to be interest rate
sensitive if it will mature or reprice within a specific time period. The
interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap theoretically would tend to adversely affect net interest
income. Conversely, during a period of falling interest rates, a negative gap
position would theoretically tend to result in an increase in net interest
income. Based upon the assumptions used in the following table, at July 31,
1997, the Company's total interest-bearing liabilities maturing or repricing
within one year exceed its total interest-earning assets maturing or repricing
in the same time period by $33.3 million, representing a one-year cumulative
"gap," as a percentage of total assets of negative 6.5%. As a result, the
Company has limited vulnerability to increases in interest rates.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at July 31, 1997, which are expected to
reprice or mature in each of the future time periods shown. The amount of assets
or liabilities shown which reprice or mature during a particular period were
determined in accordance with the contractual terms of the asset or liability
and assumed loan prepayments and deposit withdrawals. The Savings Bank's
analysis of its interest-rate sensitivity, which is prepared quarterly by the
Savings Bank, incorporates certain assumptions developed by the Savings Bank
based on its actual experience concerning the amortization and prepayment of
loans and other interest-earning assets and the withdrawal of deposits.
Adjustable rate loans, and adjustable rate mortgage-backed securities will
reprice at contractual repricing intervals. Fixed rate mortgage-backed
securities are assumed to have an annual prepayment rate of 8%. For fixed-rate
mortgage loans with the following types of security, the following annual
prepayment rates are assumed: 10% for loans secured by one- to four family, 8%
for loans secured by multi-family residential, and 8% for nonresidential and
commercial property. For other residential loans and all non-residential loans,
an annual prepayment rate of 9% was assumed. Decay Rates for NOW, money market
accounts, and savings accounts were established at 4% to 30%, 12.5% to 25%, and
4% to 30%, respectively. These assumptions change over time based upon the
current economic outlook. Management believes that these assumptions approximate
actual experience and considers them appropriate and reasonable. However, the
interest rate sensitivity of the Savings Bank's assets and liabilities
illustrated in the following table would vary substantially if different
assumptions were used or if actual experience differs from that indicated by
such assumptions. No consideration has been provided for the impact of future
commitments and loans in process.
20
Certain shortcomings are inherent in the methods of analysis presented in
the following table setting forth the maturing and repricing of interest-earning
assets and interest-bearing liabilities. For example, although certain assets
and liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates while interest rates on other types
of assets may lag behind changes in market rates. Additionally, certain assets,
such as adjustable-rate loans, have features which restrict changes in interest
rates both on a short-term basis and over the life of the asset. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to make scheduled payments on their
adjustable-rate loans may decrease in the event of an interest rate increase. As
a result, the actual effect of changing interest rates may differ from that
presented in the following table.
21
At July 31, 1997
--------------------------------------------------------------------------------------------
Three Over Ten
Less Than Months Over One Over Three Over Five Through Over
Three Through Through Through Through Twenty Twenty
Months One Year Three Years Five Years Ten Years Years Years Total
------ -------- ----------- ---------- --------- ------- ----- ----------
(Dollars in Thousands)
Interest-earning assets:
Mortgage loans ........................$ 6,320 $ 13,699 $ 26,470 $ 56,843 $ 36,483 $ 9,522 $ 26 $ 149,363
Home equity, second mortgage and
consumer loans ....................... 32,657 1,528 4,602 13,498 10,079 3,628 21 66,013
Commercial loans ...................... 8,982 -- -- -- -- -- -- 8,982
Mortgage-backed securities held-to
maturities........................... 16,376 17,259 19,994 23,434 17,969 7,004 213 102,249
Investment securities(1) .............. 25,900 11,780 8,552 -- -- -- -- 46,232
Investment securities available for
sale(2).............................. 57,266 32,160 5,929 1,049 2,813 5,279 1,096 105,592
--------- --------- -------- --------- --------- -------- ------- ---------
$ 147,501 $ 76,426 $ 65,547 $ 94,824 $ 67,344 $ 25,433 $ 1,356 $ 478,431
Interest-bearing liabilities:
NOW and money market accounts .........$ -- $ 4,588 $ 27,416 $ 34,987 $ 12,159 $ -- $ -- $ 79,150
Savings and clubs accounts ............ -- -- 22,790 37,983 15,193 -- -- 75,966
Certificates of deposits .............. 59,138 129,894 24,042 2,463 134 -- -- 215,671
FHLB of New York advances ............. 39,000 -- -- -- -- -- -- 39,000
FHLB of New York line of credit ....... 20,250 -- -- -- -- -- -- 20,250
Line of credit ........................ 2,000 -- -- -- -- -- -- 2,000
ESOP debt ............................. 2,354 -- -- -- -- -- -- 2,354
--------- --------- -------- --------- --------- -------- ------- ---------
$ 122,742 $ 134,482 $ 74,248 $ 75,433 $ 27,486 $ -- $ -- $ 434,391
Interest sensitivity gap ..............$ 24,759 $ (58,056) $ (8,701) $ 19,391 $ 39,858 $ 25,433 $ 1,356 $ 44,040
Cumulative interest sensitivity gap ...$ 24,759 $ (33,297) $(41,998) $ (22,607) $ 17,251 $ 42,684 $44,040 $ 44,040
Ratio of interest-earning assets to
interest-bearing liabilities ........ 120.2% 56.8 % 88.3 % 125.7 % 245.0 % --% --% 110.1%
Ratio of cumulative gap to total
assets .............................. 4.9% (6.5)% (8.3)% (4.4)% 3.4 % 8.4% 8.7% 8.7%
- -------------------
(1) Includes investment in stock of Federal Home Loan Bank of New York
totaling $3.6 million.
(2) Includes equity securities.
22
Net Interest Income
The Savings Bank's earnings depend primarily on its net interest income.
Net interest income is affected by (i) the amount of interest-earning assets and
interest-bearing liabilities, (ii) rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities and (iii) the difference
("interest rate spread") between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
23
Average Balance Sheet
The following table sets forth certain information relating to the Savings
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
Year Ended July 31,
-------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ -------------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Interest-earning assets:
Loans receivable(1)............. $139,442 $12,509 8.97% $155,497 $14,131 9.09% $192,822 $16,841 8.73%
Mortgage-backed securities...... 171,867 11,163 6.50 149,373 9,605 6.43 112,464 7,319 6.51
Investment securities(2)........ 66,204 4,535 6.85 47,672 3,004 6.30 44,241 3,426 7.75
Investment and mortgage-backed
securities available for sale
(6)........................... 8,060 223 2.77 58,719 4,232 7.21 93,307 5,256 5.63
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets.. $385,573 $28,430 7.37% $411,261 $30,972 7.53% $442,834 $32,842 7.42%
======= ====== ===== ======= ====== ==== ======= ====== ====
Non-interest-earning assets...... 31,983 29,502 30,058
-------- -------- --------
Total assets................... $417,556 $440,763 $472,892
======== ======== ========
Interest-bearing liabilities:
Deposit accounts................ $330,542 $11,944 3.61% $340,771 $14,064 4.12% $345,829 $13,987 4.04%
Borrowings...................... 26,902 1,595 5.93 42,162 2,485 5.89 59,810 3,331 5.57
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities................... $357,444 $13,539 3.79% $382,933 $16,549 4.32% $405,639 $17,318 4.27%
======== ======= ==== ======== ======= ==== ======== ======= ====
Non-interest bearing liabilities. $ 11,995 $ 12,212 $ 20,939
-------- --------- ---------
Total liabilities............... $369,439 $ 395,145 $426,578
======== ========= ========
Stockholders' equity............. $ 48,117 $ 45,618 $ 46,314
-------- --------- ---------
Total liabilities and
stockholders................... $417,556 $ 440,763 $472,892
======== ========= ========
Net interest income.............. $14,891 $14,423 $15,524
======= ======= =======
Interest rate spread(3).......... 3.58% 3.21% 3.15%
==== ==== ====
Net yield on interest-earning
assets(4)...................... 3.86% 3.51% 3.51%
==== ==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities............ 1.08X 1.08X 1.09X
==== ==== ====
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and
Federal Home Loan Bank of New York stock.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Annualized (where appropriate) for purposes of comparability with year-end
data.
(6) At market value.
24
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Savings Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
Year Ended July 31,
----------------------------------------------------------------------------------------
1995 vs. 1996 1996 vs. 1997
--------------------------------------- --------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------------- --------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
-------- -------- --------- ------- --------- --------- --------- -----------
(In Thousands)
Interest income:
Loans receivable ......... $ 1,440 $ 163 $ 19 $ 1,622 $ 3,392 $ (550) $ (132) $ 2,710
Mortgage-backed securities (1,461) (112) 15 (1,558) (2,373) 116 (29) (2,286)
Investment securities .... (1,269) (363) 101 (1,531) (216) 687 (49) 422
Investment and mortgage-
backed securities
available for sa1e ..... 1,402 358 2,249 4,009 2,493 (925) (544) 1,024
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning
assets ................ $ 112 $ 46 $ 2,384 $ 2,542 $ 3,296 $ (672) $ (754) $ 1,870
======= ======= ======= ======= ======= ======= ======= =======
Interest expense:
Savings accounts ......... $ 370 $ 1,698 $ 52 $ 2,120 $ 209 $ (282) $ (4) $ (77)
Borrowings ............... 904 (9) (5) 890 1,040 (137) (57) 846
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ........... $ 1,274 $ 1,689 $ 47 $ 3,010 $ 1,249 $ (419) $ (61) $ 769
======= ======= ======= ======= ======= ======= ======= =======
Net change in interest
income .................. $(1,162) $(1,643) $ 2,337 $ (468) $ 2,047 $ (253) $ (693) $ 1,101
======= ======= ======= ======= ======= ======= ======= =======
Employees
At July 31, 1997, the Savings Bank had 69 full-time and 36 part-time
employees. None of the Savings Bank's employees are represented by a collective
bargaining group. The Savings Bank believes that its relationship with its
employees is good.
REGULATION
Set forth below is a brief description of certain laws which related to
the regulation of the Holding Company and the Savings Bank. The description does
not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
Company Regulation
General. The Holding Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding 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 Holding 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
25
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
Association and not for the benefit of stockholders of the Holding Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Holding Company generally is not subject to activity restrictions,
provided the Association satisfies the Qualified Thrift Lender ("QTL") test. If
the Holding 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 Holding Company and any of its subsidiaries
(other than the Association or any other 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 Savings Bank - Qualified Thrift Lender
Test."
Regulation of the Savings Bank
Insurance of Deposit Accounts. The Savings Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator. The FDIC may also prohibit an insured
depository institution from engaging in any activity the FDIC determines to pose
a serious threat to the SAIF.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase deposit insurance rates on a
semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC. Prior to
September 30, 1996, savings associations paid within a range of .23% to .31% of
domestic deposits and the SAIF was substantially underfunded. By comparison,
prior to September 30, 1996, members of the Bank Insurance Fund ("BIF"),
predominantly commercial banks, were required to pay substantially lower, or
virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Savings Bank of
approximately .657% of deposits held on March 31, 1995. The Savings Bank
recorded a $2.2 million pre-tax expense for this assessment at September 30,
1996. Beginning January 1, 1997, deposit insurance assessments for SAIF members
were reduced to approximately .064% of deposits on an annual basis; this rate
may continue through the end of 1999. During this same period, BIF members are
expected to be assessed approximately .013% of deposits. Thereafter, assessments
for BIF and SAIF members should be the same and the SAIF and BIF may be merged.
It is expected that these continuing assessments for both SAIF and BIF members
will be used to repay outstanding Financing Corporation bond obligations. As a
result of these changes, beginning January 1, 1997, the rate of deposit
insurance assessed the Savings Bank declined by approximately 70% from rates in
effect prior to September 30, 1996.
26
Capital Requirements. Under FDIC regulations, the Savings Bank is required
to maintain a minimum leverage capital requirement consisting of a ratio of Tier
1 capital to total risk-weighted assets of 4%. For institutions other than those
most highly rated by the FDIC, an additional "cushion" of at least 100 to 200
basis points is required. Tier 1 capital is the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority investments in certain subsidiaries, less certain intangible
assets, deferred tax assets, certain identified losses and certain investments
in securities subsidiaries. As a SAIF-insured, state-chartered bank, the Savings
Bank must currently also deduct from Tier 1 capital an amount equal to its
investments in, and extensions of credit to, subsidiaries engaged in certain
activities not permissible for national banks.
In addition to the leverage ratio, the Savings Bank must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of at least
8.0%, of which at least four percentage points must be Tier 1 capital.
Qualifying total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock and preferred stock
with a maturity of over 20 years and certain other capital instruments. The
includable amount of Tier 2 capital cannot exceed the institution's Tier 1
capital. Qualifying total capital is further reduced by the amount of the bank's
investments in banking and finance subsidiaries that are not consolidated for
regulatory capital purposes, reciprocal cross-holdings of capital securities
issued by other banks and certain other deductions. Under the FDIC risk-weighted
system, all of a bank's balance sheet assets and the credit equivalent amounts
of certain off-balance sheet items are assigned to risk weight categories. The
aggregate dollar amount of each category is multiplied by the risk weight
assigned to that category. The sum of these weighted values equals the bank's
risk-weighted assets.
Pursuant to New Jersey banking law the minimum leverage capital for a
depository institution is a ratio of Tier 1 capital to total risk-weighted
assets of four percent. However, the Commissioner of the Department may require
a higher ratio for a particular depository institution.
New Jersey banking law requires that a depository institution maintain
qualifying capital of at least eight percent of its risk weighted assets. At
least four percent of this qualifying capital shall be in the form of Tier 1
capital. For purposes of New Jersey banking law, risk weighted assets, Tier 1
capital, and total assets are defined in the same manner as in the FDIC
regulations.
The Savings Bank was in compliance with both the FDIC and New Jersey
capital requirements at July 31, 1997.
Capital Distributions. Earnings of the Savings Bank appropriated to bad
debt reserves and deducted for Federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then current tax rate by the Savings Bank on the amount of
earnings removed from the reserves for such distributions.
Dividends payable by the Savings Bank to the Company and dividends payable
by the Company to stockholders are subject to various additional limitations
imposed by federal and state laws, regulations and policies adopted by federal
and state regulatory agencies. The Savings Bank is required by federal law to
obtain FDIC approval for the payment of dividends if the total of all dividends
declared by the Savings Bank in any year exceed the total of the Savings Bank's
net profits (as defined) for that year and the retained net profits (as defined)
for the preceding two years, less any required transfers to surplus. Under New
Jersey law, the Savings Bank may not pay dividends unless, following payment,
the capital stock of the Savings Bank would be unimpaired and (a) the Savings
Bank will have a surplus of not less than 50% of its capital stock, or, if not,
(b) the payment of such dividends will not reduce the surplus of the Savings
Bank.
27
Under applicable regulations, the Savings Bank would be prohibited from
making any capital distributions if, after making the distribution, the Savings
Bank would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a
Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of
less than 4.0%, unless a higher ratio is required by the Commissioner of the
Department.
New Jersey banking regulations require that a depository institution
maintain qualifying capital of at least 8% of its risk weighted assets. At least
4% of this qualifying capital shall be in the form of Tier 1 capital. For
purposes of New Jersey banking law, risk weighted assets, Tier 1 capital, and
total assets are defined in the same manner as in the FDIC regulations.
The Savings Bank was in compliance with both the FDIC and New Jersey
capital requirements at July 31, 1997.
Federal Home Loan Bank System. The Savings Bank is a member of the FHLB of
New York, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. The FHLB of New York is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System. The FHLB of New York makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of Directors
of the FHLB.
As a member, the Savings 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.
Qualified Thrift Lender Test. The Savings Bank must maintain an
appropriate level of certain investments ("Qualified Thrift Investments") and
otherwise qualify as a "Qualified Thrift Lender" ("QTL"), in order to continue
to enjoy full borrowing privileges from the FHLB of New York. The required
percentage of Qualified Thrift Investments is 65% of portfolio assets. In
addition, savings banks may include shares of stock of the Federal Home Loan
Banks, FNMA and FHLMC as qualifying QTL assets. Compliance with the QTL test is
measured on a monthly basis in nine out of every 12 months. As of July 31, 1997,
the Savings Bank was in compliance with its QTL requirement.
Federal Reserve System. The FRB 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 FRB may be used to satisfy the liquidity
requirements that are imposed by the NJDB. At July 31, 1997, the Savings Bank
met these reserve requirements.
State-chartered savings banks have authority to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve policy generally requires
savings banks to exhaust all reasonable alternative sources before borrowing
from the Federal Reserve System. The Savings Bank had no discount window
borrowings at July 31, 1997.
28
Item 2. Properties and Equipment
- ----------------------------------
The Company and the Savings Bank operate from their main office and 7
branch offices. The Savings Bank leases three branch offices. The remainder of
the branch offices are owned by the Savings Bank.
Item 3. Legal Proceedings
- --------------------------
There are various claims and lawsuits in which the Company or the Savings
Bank are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Savings Bank holds security interests,
claims involving the making and servicing of real property loans, and other
issues incident to the Savings Bank's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
The information contained in the section captioned "Market For Common
Stock" in the Management Discussion and Analysis of Financial Condition and
Results of Operations of the Company's Annual Report to Shareholders for fiscal
year ended July 31, 1997 (the "Annual Report") is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the section captioned "Selected Financial
Data" of the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 8. Financial Statements
- -----------------------------
The Company's financial statements listed under Item 14 are incorporated
herein by reference.
Item 9. Change In and Disagreements with Accountants on Accounting and Financial
- --------------------------------------------------------------------------------
Disclosure
- ----------
Not applicable.
29
PART III
Item 10. Directors and Executive Officers
- ------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance," "I - Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers"
and "Biographical Information" in the Proxy Statement is incorporated herein by
reference.
Item 11. Executive Compensation
- ---------------------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Management of the Registrant knows of no arrangements, including any
pledge by any person of securities of the Registrant, the operation
of which may at a subsequent date result in a change in control of
the Registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information contained under the section captioned "Certain
Relationships and Related Transactions" in the Proxy Statement is incorporated
herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as part
of this report.
(1) The consolidated balance sheets of Lakeview Financial Corp.
and subsidiaries as of July 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three year
period ended July 31, 1997, together with the related notes
and the independent auditors' report of KPMG Peat Marwick LLP,
independent certified public accountants.
(2) Schedules omitted as they are not applicable.
30
(3) Exhibits
The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Lakeview Financial Corp.*
3.2 Bylaws of Lakeview Financial Corp.*
4 Stock Certificate of Lakeview Financial Corp.*
10.1 Form of Lakeview Savings Bank 1993 Stock Option Plans*
10.2 Lakeview Savings Bank Management Stock Bonus Plan and Trust
Agreement*
10.3 Employment Agreements**
10.4 Supplemental Retirement Plan for Senior Officers***
11 Statement re Computation of Earnings Per Share
13 Portions of the 1997 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See - "Part I - Business").
23 Independent Auditors' Consent
27 Financial Data Schedule (electronic filing only)
* Incorporated herein by reference to the registration statement on Form S-4
(File No. 33-77646).
** Incorporated herein by reference to the Form 10-K for fiscal year ended
July 31, 1994.
*** Incorporated herein by reference to the Form 10-K for fiscal year ended
July 31, 1996.
(b) On September 10, 1997, the Company filed a Form 8-K reporting the
announcement of the definitive merger agreement with Westwood
Financial Corporation.
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 as of October 28, 1997.
LAKEVIEW FINANCIAL CORP.
By: /s/ Kevin J. Coogan
-------------------------------------
Kevin J. Coogan
President, Chief Executive
Officer and Director
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 as of October 28, 1997.
By: /s/ Kevin J. Coogan By: /s/ Leo J. Dean
------------------------------------- -----------------------------------
Kevin J. Coogan Leo J. Dean
President, Chief Executive Officer Director
and Director
By: /s/ Leo J. Costello By: /s/ Michael R. Rowe
------------------------------------- ----------------------------------
Leo J. Costello Michael R. Rowe
Chairman of the Board Director
By: /s/ Robert J. Davenport By: /s/ Dennis D. Pedra
------------------------------------- ----------------------------------
Robert J. Davenport Dennis D. Pedra
Director Director
By: /s/ Vincent A. Scola By: /s/ Anthony G. Gallo
------------------------------------- ----------------------------------
Vincent A. Scola Anthony G. Gallo
Director Vice President and Chief
Financial Officer