OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997.
[ ] 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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OTS Docket Number 12559
TRENTON SAVINGS BANK FSB
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(Exact name of registrant as specified in its charter)
United States of America 22-3408029
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
134 Franklin Corner Road, Lawrenceville, New Jersey 08648
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(Address of principal executive offices)
Registrant's telephone number, including area code: 609-844-3100
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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 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: 9,037,160
TRENTON SAVINGS BANK FSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
March 31, 1997 and December 31, 1996 .................... 4
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 .................... 5
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1997 and 1996 .............. 6
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 .................... 7
Notes to Consolidated Financial Statements .............. 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................10-11
PART II. OTHER INFORMATION ................................................ 11
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRENTON SAVINGS BANK FSB
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands of Dollars)
March 31 December 31
ASSETS 1997 1996
------ --------- ---------
(unaudited)
Cash due from banks $ 9,618 $ 12,938
Federal Funds sold 8,500 8,000
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Total cash and cash equivalents 18,118 20,938
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Securities available for sale 116,631 87,648
Investment securities held to maturity 37,703 37,935
Mortgage-backed securities held to maturity 46,420 48,618
Federal Home Loan Bank stock, at cost 3,386 3,089
Loans, net 380,695 380,288
Bank premises and equipment, net 6,755 6,982
Accrued interest receivable 4,521 3,602
Prepaid expenses 1,506 1,471
Intangible assets 8,977 9,164
Other assets 1,638 1,281
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Total assets $ 626,350 $ 601,016
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 484,831 $ 491,246
Borrowed funds 30,000 0
Accrued expenses and other liabilities 7,190 6,418
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Total liabilities 522,021 497,664
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Stockholders' Equity
Common Stock, par value $0.10 904 904
authorized 20,000,000 shares, issued &
outstanding 9,037,160 shares as of
March 31, 1997 and December 31, 1996
Additional paid in capital 30,357 30,357
Retained earnings - substantially restricted 74,216 72,545
Unearned Management Recognition Plan shares (1,459) (1,543)
Net unrealized gainon securities available for
sale, net of taxes 311 1,089
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Total stockholders' equity 104,329 103,352
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Total liabilities and stockholders' equity $ 626,350 $ 601,016
========= =========
See accompanying Notes to Consolidated Financial Statements.
4
TRENTON SAVINGS BANK FSB
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(unaudited)
Three Months
Ended
--------------------
1997 1996
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Interest and dividend income:
Interest and fees on loans $ 7,278 $ 5,814
Interest on securities 3,231 2,824
Interest on Federal funds sold 137 204
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Total interest income 10,646 8,842
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Interest expense on deposits 5,328 4,292
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Net interest income 5,318 4,550
Provision for loan losses (note 4) 10 0
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Net interest income after provision
for loan losses 5,308 4,550
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Other income;
Service fees on deposit accounts 247 81
Fees and other income 182 94
Net gain on sale of securities 334 1,572
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Total other income 763 1,747
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Operating expense:
Salaries and employee benefits 1,657 1,101
Net occupancy expense 381 326
Equipment expense 31 17
FDIC insurance premium 0 20
Amortization of intangible assets 187 68
Data processing fees 132 100
Other operating expense 631 431
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Total operating expense 3,019 2,063
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Income before income taxes 3,052 4,234
Income taxes 1,099 1,525
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Net income $ 1,953 $ 2,709
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Net income per common share $ 0.22 $ 0.30
See accompanying Notes to Consolidated Financial Statements.
5
TRENTON SAVINGS BANK FSB
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Month Period ended March 31, 1997 and 1996
(In Thousands)
(unaudited)
Unrealized
Net gain
on Unearned
securities Management
Additional available Recognition Total
# Common paid-in Retained for sale, Plan Stockholders'
Shares stock capital Earnings net of taxes Shares equity
--------- --------- --------- --------- ------------ --------- -------------
Balance at December 31, 1995 8,912,500 $ 891 $ 28,687 $ 65,267 $ 2,697 $ 0 $ 97,542
Net income for the three months
ended March 31, 1996 0 0 0 2,709 0 0 2,709
Dividends declared[$.0875 per share] 0 0 0 (272) 0 0 (272)
Net change in unrealized net gains
on securities available for sale 0 0 0 0 (1,224) 0 (1,224)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1996 8,912,500 $ 891 $ 28,687 $ 67,704 $ 1,473 $ 0 $ 98,755
========= ========= ========= ========= ========= ========= =========
Balance at December 31, 1996 9,037,160 $ 904 $ 30,357 $ 72,545 $ 1,089 ($ 1,543) $ 103,352
Income for the three months
ended March 31, 1997 0 0 0 1,953 0 0 1,953
Dividends Paid [$0.0875 per share] 0 0 0 (282) 0 0 (282)
Net change in unrealized net gains
on securities available for sale 0 0 0 0 (778) 0 (778)
Amortization of unearned Management
Recognition Plan shares 0 0 0 0 0 84 84
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1997 9,037,160 $ 904 $ 30,357 $ 74,216 $ 311 ($ 1,459) $ 104,329
========= ========= ========= ========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
6
TRENTON SAVINGS BANK FSB
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(unaudited)
Three Months Ended March 31,
1997 1996
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Cash flows from operating activities:
Net income $ 1,953 $ 2,709
Adjustments to reconcile net income to net cash used inoperating activities:
Provision for loan losses 10 0
Depreciation and amortization expense 422 184
Net accretion of premiums and discounts on securities (8) (51)
Increase in accrued interest receivable and other assets (1,311) (3,069)
Increase in accrued interest payable and other liabilities 1,210 1,370
Net gain on sale of securities (334) (1,572)
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Net cash provided by [used in] operating activities 1,942 (429)
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Cash flows used in investing activities:
Proceeds from maturities of securities available for sale and held to maturity $ 12,774 $ 19,000
Purchase of investment securities held to maturity 0 (11,522)
Purchase of securities available for sale (43,260) (14,999)
Proceeds from sales of securities available for sale 401 2,450
Purchase of Federal Home Loan Bank Stock (297) (225)
Maturities and repayments of mortgage-backed securities 2,648 3,451
Net increase in loans (407) (4,503)
Net additions to bank premises, furniture, & equipment (236) (121)
Proceeds from sale of bank premises, furniture & equipment 312 0
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Net cash used in investing activities (28,065) (6,469)
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Cash flows from financing activities:
Net (decrease)increase in savings and time deposits (6,415) 2,561
Dividends paid (282) (272)
Net increase in borrowings 30,000 0
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Net cash provided by financing activities 23,303 2,289
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Net decrease in cash and cash equivalents (2,820) (4,609)
Cash and cash equivalents as of beginning of year $ 20,938 $ 16,253
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Cash and cash equivalents as of end of period $ 18,118 $ 11,644
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Supplemental disclosure of cash flow information:
Cash paid:
Interest $ 3,106 $ 4,168
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Income taxes $ 175 $ 0
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See accompanying Notes to Consolidated Financial Statements.
7
NOTES TO THE FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in conformity with the instructions to Form 10-Q and Article 10
of Regulation S-X for Trenton Savings Bank FSB (the Bank).
In the opinion of management, all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial condition,
results of operations, and changes in cash flows have been made at and for the
three months ended March 31, 1997 and 1996. The results of operations for the
three months ended March 31, 1997 are not necessarily indicative of results that
may be expected for the entire year ending December 31, 1997.
(2) Reorganization into a Two-tier Mutual Holding Company Structure
At the Annual Stockholders meeting on April 25, 1997, the stockholders
approved the reorganization of the Bank into a two-tier structure. The Bank
anticipates that this restructuring will provide enhanced ability to invest
through a mid-tier structure, facilitate mergers and acquisitions, and
facilitate stock repurchases. OTS approval for the reorganization was received
on March 21, 1997.
(3) Non Performing Loans, Non Performing Assets and the Allowance for Loan
Losses
Non performing loans at March 31, 1997 and December 31, 1996 are as
follows (in thousands of dollars):
March 31, 1997 December 31, 1996
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Loans delinquent 90 days or more 3,777 3,704
Loans delinquent 90 days or more
as a percentage of net loans
receivable .99% .97%
An analysis of the allowance for loan losses for the three month
periods ended March 31, 1997 and 1996 is as follows (in thousands of dollars):
March 31, 1997 March 31, 1996
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Balance at beginning of the period $2,901 $1,767
Provision charged to operations 10 0
Charge-offs, net (42) (47)
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Balance at the end of the period $2,869 $1,720
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Generally, the Bank's loans are placed on a non-accrual status when a
default of principal or interest has existed for a period of 90 days except
when, in the opinion of management, the collection of principal or interest is
reasonably anticipated or adequate collateral exists. In addition, the Bank
places any loan on non-accrual if any part of it is classified as doubtful or
loss or if any part has been charged to the allowance for loan losses. Real
estate owned consists of property acquired through formal foreclosures and
acquired by deed in lieu of foreclosure, and is recorded at the lower of cost or
fair value. At March 31, 1997, the Bank had $71 thousand classified as real
estate owned.
As part of the acquisition of BCB, the Bank acquired BCB's loan
portfolio. BCB's underwriting standards and related risk characteristics of the
loan portfolio differed from those of the Bank. The addition of this portfolio
has increased the Bank's non-performing portfolio and negatively effected
certain coverage ratios. However, management believes that the Bank's asset
quality remains strong. Management believes that the allowance for loan losses
is adequate based on historical experience, the volume and
8
type of lending conducted by the Bank, the amount of non-performing loans,
general economic conditions and other factors relating to the Bank's loan
portfolio. However, there can be no assurance that actual losses will not exceed
estimated amounts.
As of March 31, 1997, the Bank's total non-performing loans and
foreclosed assets amounted to $4.2 million, or .66% of total assets, compared to
$3.4 million, or .57% of total assets at December 31, 1996.
Federal regulations required that each insured savings institution
classify its assets on a regular basis. There are four classifications for
problem assets: "special mention," "substandard," "doubtful" and "loss."
At March 31, 1997, the Bank had $1.2 million of loans classified as
special mention, $5.6 million classified as substandard and $.3 million
classified as doubtful or loss. As of March 31, 1997, total classified assets,
which includes repossessed assets, amounted to $6.0 million, 0.96% of total
assets.
It is management's policy to maintain an allowance for estimated loan
losses based upon an assessment [1] in the case of residential loans,
management's review of delinquent loans, loans in foreclosure and market
conditions, [2] in the case of commercial business loans and commercial mortgage
loans, when a significant decline in value can be identified as well as an
overall assessment of the inherent risk in the portfolio and [3] in the case of
consumer loans, based on the assessment of risks inherent in the loan portfolio.
The Bank's allowance for loan losses, which includes a general valuation
allowance, amounted to approximately $2.9 million at March 31, 1997 and December
31, 1996
(4) Per Share Data
The earnings per share for the three months ended March 31, 1997 of
$.22, has been calculated on a weighted average number of shares outstanding
during the period of 9,037,160. Earnings per share data for the three months
ended March 31, 1996 was $.30 per share.
(5) Acquisition of Manchester Trust Bank
On April 25, 1997, the Bank announced the execution of a Definitive
Acquisition Agreement with Manchester Trust Bank, a trust services company with
$125 million of assets under management. Under terms of the agreement,
Manchester will be operated as a wholly owned subsidiary of the bank.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Stockholders' equity increased by $1.0 million, or .95%, to $104.3
million at March 31, 1997 from $103.4 million at December 31, 1996. The increase
in Stockholders' equity was due to net income of $2.0 million for the quarter
ended March 31, 1997 combined with a net decrease of $.8 million in the market
value of the Bank's portfolio of available for sale investments largely due to
the sale of investments. At March 31, 1997 the Bank's tangible, core and risk
based capital ratios were 15.22%, 15.22%, and 26.89%, respectively.
Total assets increased by $25.3 million, or 4.2%, to $626.3 million at
March 31, 1997 from $601.0 million at December 31, 1996. In January of 1997 the
Board approved a specific borrowing in the amount of $30 million for
reinvestment in federal agency securities at an earnings spread above the cost
of borrowing which increased assets and securities available for sale in that
amount. Deposits decreased by $6.4 million, or 1.3%, to $484.8 million at March
31, 1997 from $491.2 million at December 31, 1996. Cash and cash equivalents
declined $2.8 million, to $18.1 million at March 31, 1997 from $20.9 million at
December 31, 1996. Securities available for sale increased by $29.0 million or
33.1% to $116.6 million at March 31, 1997 from $87.6 million at December 31,
1996. Mortgage-backed securities declined by $2.2 million or 4.52% to $46.4
million at March 31, 1997 from $48.6 million at December 31, 1996. Funds from
repayments of Mortgage-backed Securities and cash equivalents were reinvested in
loans.
Results of Operations
The annualized return on average assets and return on average equity
were 1.24% and 7.49% respectively for the quarter ended March 31, 1997 compared
to 2.10% and 11.00% respectively for the quarter ended March 31, 1996.
Annualized income included security gains of $.3 million in the first quarter of
1997 and $1.6 million in the first quarter of 1996.
Net operating income after tax [excluding net securities gains] for the
first quarter of 1997 was $1.7 million, which represents an increase of $36
thousand or 2.1%, as compared to the first quarter of 1996. Net income including
net securities gains of $214 thousand was $2.0 million for the first quarter of
1997 compared to $2.7 million for the first quarter of 1996 which included net
securities gains of $1.0 million.
Total interest income increased $1.8 million, or 20.4%, to $10.6 million
for the quarter ended March 31, 1997 from $8.8 million for the quarter ended
March 31, 1996. The increase resulted from an increase in average interest
earnings assets to $596.1 million for the quarter ended March 31, 1997 from
$493.4 million for the quarter ended March 31, 1996 which offset a decrease in
average yield on interest-earnings assets from 7.17% for the quarter ended March
31, 1996 to 7.14% for the quarter ended March 31, 1997. The $102.7 million
increase in average interest earnings assets was attributed to the acquisition
of Burlington County Bank in October of 1996 and the $30 million leverage
program in January of 1997.
Total interest expense increased by $1.0 million, or 24.1%, for the
quarter ended March 31, 1997 to $5.3 million from $4.3 million for the quarter
ended March 31, 1996. The increase was primarily the result of an increase in
average deposits to $486.4 million for the quarter ended March 31, 1997 from
$410.2 million for the quarter ended March 31, 1996 which offset with a decrease
in the average rate paid on deposits from 4.19% for the quarter ended March 31,
1996 to 4.01% for the quarter ended March 31, 1997. The increase in deposits is
primarily attributed to the acquisition of BCB. The decrease in the average rate
paid on deposits was attributed to the effect of the addition of lower cost
deposits from the BCB acquisition.
There was a $10 thousand provision for loan losses for the quarter ended
March 31, 1997 compared to a $0 provision for the three months ended March 31,
1996. The provision represents the establishment of a reserve for loans
originated by the Bank's subsidiary, TSBusiness Finance Corporation. Such
evaluation includes a review of all loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated net
realizable value of the underlying collateral, economic conditions and other
matters which warrant consideration. The allowance for loan losses was $2.9
million or 70.2% of loans delinquent by 90 days or more at March 31, 1997
compared to $2.9 million or .78% of loans delinquent 90 days or more at December
31, 1996 [see note three].
Total other income decreased by $1.0 million, or 56.3%, to $.7 million
for the quarter ended March 31, 1997 compared to $1.7 million for the quarter
ended March 31, 1996. Other income included $.3 million of gains from the sale
of equity securities for the quarter ended March 31, 1997 compared to $1.6
million of gains from the sale of equity securities for the quarter ended March
31, 1996. Excluding gains on sales of securities, other income increase $254
thousand or 145.1% to $429 thousand for the quarter ended March 31, 1997
compared to $175 thousand for the quarter ended March 31, 1996. The increase in
other income is attributed to
10
higher fees generated on deposits acquired from BCB. Total operating expenses
increased by $1.0 million, or 46.3%, to $3.0 million for the quarter ended March
31, 1997 compared to $2.1 million for the quarter ended March 31, 1996. The
increase in operating expenses is attributed to the addition of staff and
activities from the BCB acquisition, the establishment of TSBusiness Finance
Corporation and opening of an additional branch [West Windsor].
Capital
The OTS requires that the Bank meet minimum tangible, core and
risk-based capital requirements. As of March 31, 1997, the Bank exceeded all
regulatory capital requirements. The Bank's required, actual, and excess capital
levels as of March 31, 1997, are as follows:
Required Actual Excess of
--------------- --------------- Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
(Dollars in Thousands)
Tangible Capital 9,238 1.50% 93,720 15.22% 84,482
Core Capital 18,477 3.00% 93,720 15.22% 75,243
Risk-based Capital 28,735 8.00% 96,589 26.89% 67,854
Liquidity
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 5%. The
Bank's liquidity ratio averaged 33.56% during the first quarter of 1997 and
equaled 33.21% at March 31, 1997. The Bank adjusts liquidity as appropriate to
meet its asset and liability management objectives.
PART II. OTHER INFORMATION
Legal Proceedings
There are various claims and lawsuits in which the Bank is periodically
involved incidental to the Bank's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
Changes in Securities
Not applicable.
Defaults upon Senior Securities
Not applicable.
Submission of Matters to a Vote of Security Holders
None.
Other Information
Not applicable.
Exhibits and Report on Form 8-K.
The bank filed a Form 8-K pertaining to the previously mentioned
execution of a definitive purchase agreement with Manchester Trust Bank.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
TRENTON SAVINGS BANK FSB
Date: May 7, 1997 By: /s/ Wendell T. Breithaupt
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Wendell T. Breithaupt
President and Chief Executive Officer
Date: May 7, 1997 By: /s/ Robert Russo
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Robert Russo
Vice President and Treasurer
[Principal Financial and Accounting Officer]