SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27010
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LITTLE FALLS BANCORP, INC.
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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 incorporation (I.R.S. employer
or organization) identification no.)
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 whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date November 10, 1997.
Class Outstanding
- --------------------------- ----------------
$.10 par value common stock 2,607,921 shares
LITTLE FALLS BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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.............................. 7
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)
September 30, December 31,
1997 1996
-------------- --------------
ASSETS
Cash and due from banks ....................................... $ 2,849,441 $ 1,746,743
Interest-bearing deposits in other banks ...................... 681,808 3,627,221
Federal funds sold ............................................ 4,000,000 5,000,000
------------- -------------
Total cash and cash equivalents .......................... 7,531,249 10,373,964
Investment securities held-to-maturity net
(estimated fair values $53,060,000
and $51,204,000) ............................................ 53,012,341 51,370,297
Mortgage-backed securities held to maturity, net
(estimated fair values $97,158,000
and $112,426,000) ........................................... 97,042,603 112,473,144
Mortgage-backed securities available for sale, net ............ 9,787,691 --
Loans receivable, net ......................................... 145,045,770 117,115,784
Premises and equipment, net ................................... 2,630,916 2,659,239
Investment in real estate, net ................................ 529,980 683,054
Foreclosed real estate, net ................................... 446,401 857,157
Interest receivable, net ...................................... 2,530,586 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 ........................... 2,946,426 3,217,017
Other assets .................................................. 698,898 957,091
------------- -------------
TOTAL ASSETS ............................................ $ 324,424,861 $ 303,517,738
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .................................................... $ 226,268,024 $ 228,311,543
Securities sold under agreements to repurchase .............. 58,499,500 33,623,500
Accounts payable and other liabilities ...................... 1,754,482 1,134,397
------------- -------------
Total liabilities ....................................... 286,522,006 263,069,440
------------- -------------
Stockholders' Equity:
Preferred stock; 5,000,000 authorized shares;
none outstanding .......................................... -- --
Common stock, par value $.10; 10,000,000
authorized shares; 3,041,750 issued;
2,607,921 and 2,745,180 outstanding ...................... 304,175 304,175
Additional paid-in-capital .................................. 29,030,848 28,974,799
Retained earnings ........................................... 17,885,543 16,802,056
Unearned ESOP shares ........................................ (2,149,503) (2,271,173)
Unearned restricted MSBP stock at cost ...................... (1,404,950) --
Unrealized losses on certain securities
available for sale ........................................ (46,417) --
Minimum pension liability net of deferred taxes ............. (84,555) (84,555)
Treasury stock, at cost; 433,829 and 296,570 share........... (5,632,286) (3,277,004)
------------- -------------
Total stockholders' equity .............................. 37,902,855 40,448,298
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............. $ 324,424,861 $ 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 Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
------ ------ ------ ------
Interest income:
Loans receivable ............................... $ 2,616,791 $ 2,108,759 $ 7,112,288 $ 6,016,945
Mortgage-backed securities ..................... 1,799,175 2,014,796 5,357,533 6,073,012
Investment securities and other interest earning
assets ....................................... 932,442 490,555 2,830,882 1,905,197
----------- ----------- ----------- -----------
Total interest income ........................ 5,348,408 4,614,110 15,300,703 13,995,154
----------- ----------- ----------- -----------
Interest expense:
Deposits ....................................... 2,570,720 2,721,029 7,639,391 8,384,704
Borrowings ..................................... 751,279 -- 1,712,174 --
----------- ----------- ----------- -----------
Total interest expense ....................... 3,321,999 2,721,029 9,351,565 8,384,704
----------- ----------- ----------- -----------
Net interest income before provision for loan
losses ........................................... 2,026,409 1,893,081 5,949,138 5,610,450
Provision for loan losses ........................ 60,000 152,900 180,000 182,900
----------- ----------- ----------- -----------
Net interest income after provisions for loan
losses ......................................... 1,966,409 1,740,181 5,769,138 5,427,550
----------- ----------- ----------- -----------
Total non-interest income ........................ 40,697 39,555 298,251 195,053
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and employee benefit............... 661,711 633,518 1,915,351 1,843,683
Occupancy, net ................................. 67,471 92,380 218,422 302,213
Equipment ...................................... 101,510 96,359 323,245 290,301
Deposit insurance premiums ..................... 29,786 1,303,927 95,800 1,549,366
Amortization of deposit premium ................ 90,197 90,197 270,590 270,586
Miscellaneous expense .......................... 370,789 320,473 1,058,032 934,566
----------- ----------- ----------- -----------
Total non-interest expenses .................. 1,321,464 2,536,854 3,881,440 5,190,715
----------- ----------- ----------- -----------
Income before provision for income taxes.......... 685,642 (757,118) 2,185,949 431,888
Provision for income taxes ....................... 229,000 (275,526) 815,000 177,974
----------- ----------- ----------- -----------
Net income ................................... $ 456,642 $ (481,592) $1,370,949 $ 253,914
=========== =========== =========== ===========
Weighted average number of
common shares and common
stock equivalents outstanding .................. 2,538,873 2,732,507 2,559,657 2,766,472
=========== =========== =========== ===========
Primary earnings (loss) per share ................ $ 0.18 $ (0.18) $ 0.54 $ 0.09
=========== =========== =========== ===========
See notes to unaudited consolidated financial statements.
2
LITTLE FALLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
-------------------
1997 1996
------ ------
Cash flows from operating activities:
Net income ...................................................................... $ 1,370,949 $ 253,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................................. 99,460 110,745
Provision for loan losses ..................................................... 180,000 182,900
Provision for losses on foreclosed properties ................................. 27,356 --
Amortization of intangibles ................................................... 270,591 270,586
Amortization (accretion) of deferred fees, premiums and discounts, net......... 120,508 45,680
Amortization of unearned ESOP shares .......................................... 177,719 128,321
Amortization of unearned restricted MSBP stock, at cost........................ 283,221 --
Loss (gain) on sale of foreclosed real estate ................................. 39,067 (4,455)
Gain on sale of real estate held for investment ............................... (106,318) --
Decrease (increase) in other assets ........................................... 258,193 (611,483)
Increase in interest receivable, net .......................................... (795,295) (36,864)
Increase in interest payable .................................................. 471,595 157,977
Increase in accounts payable and other liabilities ............................ 199,426 1,194,147
------------ ------------
Net cash provided by operating activities ................................... 2,596,472 1,691,468
------------ ------------
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........... 15,365,831 17,407,442
Purchase of mortgage-backed securities available for sale...................... (9,865,157) --
Purchase of loans ............................................................. (15,096,510) --
Net (increase) decrease in loans receivable ................................... (13,049,530) (15,418,684)
Maturity of investments held to maturity ...................................... 6,342,000 9,000,000
Purchase of investments held to maturity ...................................... (8,000,000) (5,342,000)
Purchases of premises and equipment ........................................... (60,123) (112,904)
Proceeds from sale of real estate held for investment ......................... 248,378 --
Proceeds from sale of foreclosed real estate .................................. 344,333 807,179
Purchases of Federal Home Loan Bank of New York stock.......................... [46,300] (680,500)
------------ ------------
Net cash used in investing activities ....................................... (23,917,078) (10,412,672)
------------ ------------
Cash flows from financing activities:
Net decrease in deposits ....................................................... (2,096,778) (8,214,792)
Net decrease in borrowed funds ................................................. 24,876,000 --
Increase (decrease) in advances from borrowers ................................. 29,584 (743,937)
Repurchase of common stock ..................................................... (2,355,282) (1,606,419)
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 ............................................................ (287,462) (76,044)
------------ ------------
Net cash provided by (used in) financing activities........................... 18,477,891 (31,065,156)
------------ ------------
Decrease in cash and cash equivalents ........................................ (2,842,715) (39,786,360)
Cash and cash equivalents:
Beginning of period ............................................................. 10,373,964 53,419,088
------------ ------------
End of period ................................................................... 7,531,249 $ 13,632,728
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest ........................................................................ $ 8,877,270 $ 8,226,727
Income taxes .................................................................... 668,000 403,000
Loans receivable transferred to foreclosed real estate ............................ -- 308,728
Unrealized losses on certain securities available for sale......................... (46,417) --
Issuance of common stock:
Deposits used for stock purchase ................................................ -- 2,859,458
Stock subscriptions used for stock purchase ..................................... -- 25,124,642
Deferred costs .................................................................. -- (422,630)
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 nine
month periods ended September 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 September 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 nine month periods herein are
calculated by dividing net earnings (loss) 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). 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. See Exhibit 11.
NOTE 6 - PENDING ACCOUNTING STANDARDS
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
Comprehensive Income. In July 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". Statement No. 130 is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and presentation of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. It requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is presented with the
same prominence as other financial statements. Statement No. 130 requires
that companies (i) classify items of other comprehensive income by their
nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of
financial condition. Reclassification of financial statements for earlier
periods provided for comprehensive purposes is required.
6
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 increased by $20.9 million at September 30, 1997 as compared
to December 31, 1996. Net loans increased by $27.9 million due to originations
of $22.3 million and purchases of $15.1 million offset somewhat by loan
repayments. The loans purchased were loan participations on apartment buildings.
Mortgage-backed securities held to maturity decreased by $15.4 million due to
repayments of principal. $9.8 million of adjustable rate mortgage-backed
securities were purchased during the quarter, and were classified as available
for sale. Investment securities increased by $1.6 million primarily due to
purchases exceeding maturities. Foreclosed properties decreased by $411,000, due
in most part to the sale of three properties.
Total deposits decreased, after interest credited, by $2.0 million.
Securities sold under agreements to repurchase increased by $24.9 million. These
borrowed funds were used to fund the loan participations and adjustable rate
mortgage-backed securities purchases noted above.
7
Total stockholders' equity decreased by $2.5 million, primarily due to the
purchase of shares of Company stock pursuant to the Company's stock repurchase
program (137,259 shares at a total price of approximately $2.4 million) and by
the Bank Management Stock Bonus Plan (121,670 shares at a total price of
approximately $1.7 million) and to dividends paid, 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 and For the At and For the
Nine Months Ended Year Ended
September 30,1997 December 31, 1996
----------------- -----------------
(Dollars in Thousands)
Total non-performing loans $2,461 $ 1,901
Real estate owned 446 857
------ ---------
Total non-performing assets $2,907 $ 2,758
====== =========
Total non-performing loans to
net loans 1.70% 1.62%
====== =========
Total non-performing loans to
total assets 0.76% 0.63%
====== =========
Total non-performing assets to
total assets 0.90% 0.91%
====== =========
Net loan charge-offs to average
outstanding loans (annualized) 0.01% 0.05%
====== =========
Comparison of Earnings for the Three and Nine Months Ended September 30, 1997
and 1996
Net Income. Net income for the three and nine months ended September 30,
1997 increased $938,000 and $1.1 million, respectively, over the same periods in
1996. These increases were due primarily to a one time $1.2 million pre-tax
assessment from the SAIF. This one time assessment was the result of legislation
effective on September 30, 1996, for the purpose of recapitalizing the SAIF. Net
income was also affected by increases in net interest and non-interest income
and decreases in deposit insurance premiums and the provision for loan losses,
offset somewhat by increases in miscellaneous other expenses and income tax
expenses.
Total Interest Income. Interest income increased by $734,000 or 15.9% and
$1.3 million or 9.3% for the three and nine months ended September 30, 1997,
respectively, as compared to the three and nine months ended September 30, 1996.
These increases were due in most part to increases of $40.4 million and $25.6
million in the average balances of interest earning assets for the three and
nine month periods ended September 30, 1997 as compared to the same periods in
1996.
Total Interest Expense. Interest expense increased $601,000 or 22.1% and
$967,000 or 11.5% for the quarter and nine months ended September 30, 1997,
respectively, as compared to the quarter and nine months ended September 30,
1996. These increases were primarily due to the increases of $41.2 million and
$26.2 million in the average balance of interest bearing liabilities for the
three and nine months ended September 30, 1997 as compared to the same periods
in 1996, and to increases of 18 and
8
three basis points in the average cost of interest bearing liabilities for the
three and nine months ended September 30, 1997, as compared to the same periods
in 1996.
Net Interest Income. Net interest income increased $133,000 or 7.0% and
$339,000 or 11.5%, 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 eight basis points to 2.24% for
the quarter ended September 30, 1997 and five basis points to 2.22% for the nine
months ended September 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 decreased $93,000 and
$3,000 in the quarter and nine months ended September 30, 1997, respectively, as
compared to the same periods in 1996. The primary cause for the decrease for
three month period was the write-off of a loan in the 1996 three-month period
which had been a performing loan in the previous quarter.
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.
Impaired loans and related amounts recorded in the allowance for loan
losses at September 30, 1997 are summarized as follows (in thousands):
With recorded allowances............ $1,507
Without recorded allowances......... --
-----
Total impaired loans................ 1,507
Related allowance for loan losses... 208
-----
Net impaired loans.................. $1,299
=====
Non-interest Income. Non-interest income increased by $1,000 and $103,000
for the three and nine months ended September 30, 1997, respectively. The
increase during the nine month period was 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.
9
Non-interest Expense. Non-interest expense, excluding the $1.2 million
one-time SAIF assessment included in the 1996 quarter, decreased $48,000 or 3.5%
and $142,000 or 3.5% for the three and nine months ended September 30, 1997
compared to the prior periods, primarily due to a decrease of $107,000 and
$286,000, respectively, in deposit insurance premiums due to the
recapitalization of the SAIF in September 1996, offset somewhat by increases of
$50,000 and $123,000, respectively, 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 $25,000 and
$84,000 respectively due in most part to the closing of two branch offices in
the second half of 1996. Compensation and employee benefits increased by $28,000
and $72,000, 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 nine months ended September 30, 1997 was $28,000 and $90,000
respectively. Normal recurring wage increases were offset with a reduction in
personnel costs associated with the closing of two branch offices previously
discussed. Miscellaneous expense increased $50,000 and $123,000, primarily due
to the MSBP expense for the directors of $48,000 and $96,000 for the three and
nine months ended September 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 September 30, 1997, the Bank was in compliance with its three
regulatory capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital ............. $25,865 8.04%
Tangible capital requirement . 4,826 1.50
------- -----
Excess over requirement ...... $21,039 6.54%
======= =====
Core capital ................. $25,865 8.04%
Core capital requirement ..... 9,652 3.00%
------- -----
Excess over requirement ...... $16,213 5.04%
======= =====
Risk based capital ........... $26,435 22.13%
Risk based capital requirement 9,557 8.00%
------- -----
Excess over requirement ...... $16,878 14.13%
======= =====
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
10
ability to utilize Federal Home Loan Bank of New York advances and the ability
to borrow against mortgage-backed and investment securities. As of September 30,
1997, the Company had $58.5 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 September 30, 1997, the Company had mortgage
commitments to fund loans of $4.0 million. Also, at September 30, 1997, there
were commitments on unused lines of credit relating to home equity loans of $3.6
million. Certificates of deposit scheduled to mature in one year or less at
September 30, 1997 totaled $124.3 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.
Additional Key Operating Ratios
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1997(1) 1996(1) 1997(1) 1996(1)
------- ------- ------- -------
Return (loss) on average assets......... 0.57% (0.68%) 0.60% 0.12%
Return (loss) on average equity......... 4.75% (4.52%) 4.63% 0.78%
Interest rate spread.................... 2.24% 2.32% 2.22% 2.27%
Net interest margin..................... 2.64% 2.84% 2.70% 2.78%
Noninterest expense, excluding one-time
SAIF special assessment, to average
assets................................. 1.66% 1.97% 1.69% 1.89%
At September 30, At December 31,
1997 1996
---------------- ---------------
Tangible book value per share......... $13.40 $13.56
- ----------------
(1) The ratios for the three and nine month periods 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 September 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 September 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
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Not applicable.
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: November 12, 1997 By: /s/ Leonard G. Romaine
-----------------------------------------
Leonard G. Romaine
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1997 By: /s/ Richard Capone
-----------------------------------------
Richard Capone
Senior Vice President and
Chief Financial Officer
(Principal Officer)