-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/xTSjLgRlF7AVorGqp3F90Upp5mHHSS5IvIWZd+ewZHOzSfVqZ9D/iXF6i7QXWD Wa3Fc7C8S6P4C056pEL8Pw== 0000946275-98-000216.txt : 19980401 0000946275-98-000216.hdr.sgml : 19980401 ACCESSION NUMBER: 0000946275-98-000216 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITTLE FALLS BANCORP INC CENTRAL INDEX KEY: 0001001427 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 223402073 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-27010 FILM NUMBER: 98582748 BUSINESS ADDRESS: STREET 1: 86 MAIN ST CITY: LITTLE FALLS STATE: NJ ZIP: 07424 BUSINESS PHONE: 2012566100 MAIL ADDRESS: STREET 1: 86 MAIN ST CITY: LITTLE FALLS STATE: NJ ZIP: 07424 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1997 ----------------------------------------- - 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 --------------------- --------------------- Commission Number: 0-27010 LITTLE FALLS BANCORP, INC. ----------------------------------------------------------- (Exact name of Registrant as specified in its Charter) New Jersey 22-3402073 - --------------------------------------------- --------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 86 Main Street 07424 - --------------------------------------------- --------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code: (201) 256-6100 ----------------- Securities registered pursuant to Section 12(b) of the Act: None ------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.10 par value per share --------------------------------------- (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 ----- ----- 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. [ X ] 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 as quoted on the Nasdaq Stock Market, on March 26, 1998, was $47.7 million (2,477,525) shares at $19.25 per share). As of March 26, 1998 there were issued 3,041,750 and outstanding 2,477,525 shares of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended December 31, 1997. (Parts I, II and IV) 2. Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders. (Part III)
INDEX PART I Page ---- Item 1. Business 1 Item 2. Properties...........................................................................................25 Item 3. Legal Proceedings....................................................................................25 Item 4. Submission of Matters to a Vote of Security-Holders..................................................26 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................26 Item 6. Selected Financial Data..............................................................................26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................................................26 Item 8. Financial Statements and Supplementary Data..........................................................26 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.........................................................................................26 PART III Item 10. Directors and Executive Officers of the Registrant...................................................27 Item 11. Executive Compensation...............................................................................27 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................27 Item 13. Certain Relationships and Related Transactions.......................................................27 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................27
PART I Item 1. Business - ----------------- General Little Falls Bancorp, Inc. (the "Company") is a New Jersey corporation organized in August 1995 at the direction of Little Falls Bank (the "Bank") for the purpose of becoming a savings and loan holding company and to acquire all of the capital stock issued by the Bank in its conversion from the mutual to stock form of ownership (the "Conversion"). On January 5, 1996, the Registrant sold 3,041,750 shares of its common stock, par value $0.10 per share (the "Common Stock") in a subscription offering as part of 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. References to the "Bank" herein, unless the context required otherwise, refer to the Company on a consolidated basis. The net conversion proceeds totaled approximately $26.8 million of which $14.6 million was invested in the Bank. The Bank is a federally chartered stock savings bank headquartered in Little Falls, New Jersey. The Bank was originally chartered in 1887 as the Little Falls Building and Loan Association. On December 2, 1993, the Bank converted its mutual charter from a federally chartered savings association to a New Jersey chartered savings bank, changing its name to Little Falls Savings Bank. Effective October 1995, the Bank converted its New Jersey mutual charter to a federal mutual charter and changed its name to "Little Falls Bank." The Bank's deposits are federally insured and the Bank is a member of the Federal Home Loan Bank ("FHLB") System. The Company and the Bank are subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange Commission ("SEC"). The Bank is a community oriented savings institution offering a variety of financial services to meet the needs of the communities it serves. The Bank conducts its business from its main office in Little Falls, New Jersey and five branch offices located in Passaic and Hunterdon Counties, New Jersey. 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. To a lesser extent, 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. Further, the Bank also invests in mortgage-backed securities and investment securities. The principal sources of funds for the Bank's lending activities are deposits, the amortization, repayment and maturity of loans, mortgage-backed securities and investment securities. Principal sources of income are interest and fees on loans, mortgage-backed securities and investment securities. The Bank's principal expense is interest paid on deposits. Because the Bank did not convert to stock form (including the initial sale of Common Stock by the Company) until January 5, 1996, a part of the presentation herein is that of the Bank in mutual form. 1 Year 2000 The Company recognizes that the arrival of the Year 2000 poses a unique worldwide challenge to the ability of all systems to recognize the date change from December 31, 1999 to January 1, 2000 and, like other companies, has assessed and is repairing its computer applications and business processes to provide for their continued functionality. An assessment of external entities which it interfaces with, such as vendors, counterparties, customers, payment systems, and others, is ongoing. Until such assessments are complete, it is not possible to predict the affect on the Company of noncompliance by external entities. The Company expects that the principal costs will be those associated with the remediation and testing of its computer applications. This effort is under way and is following a process of inventory, scoping and analysis, modification, testing and certification, and implementation. A major portion of these costs will be met from existing resources through a reprioritization of technology development initiatives, with the remainder representing incremental costs. The Company does not anticipate that the related overall costs will be material to any single year. Market Area and Competition The Bank focuses on serving its customers located in the New Jersey community of Little Falls and surrounding communities in Passaic and Hunterdon Counties, New Jersey. Economic growth in the Bank's market area remains dependent upon the local economy. The economy of the greater New York - New Jersey market has historically benefitted from having a large number of corporate headquarters and concentration of financial services-related industries. It also has a well-educated employment base and a large number of industrial, service and high technology businesses. Over the past few years, New Jersey's economy has slowly begun to recover from the effects of a prolonged decline in the national and regional economy, layoffs in the financial services industry and corporate relocations. Employment levels and real estate markets in the Bank's market area have stabilized and in some instances begun to improve. Whether such improvement will continue is dependent, in large part, upon the general economic health of the United States and other factors beyond the Bank's control and, therefore, cannot be estimated. In addition, the deposit and loan activity of the Bank is significantly affected by economic conditions in its market area. The Bank's principal competitors are financial institutions and mortgage banking companies, many of which are significantly larger and have greater financial resources than the Bank. The Bank's competition for loans on a retail and wholesale basis comes principally from commercial banks, mortgage brokers, banking and insurance companies. The Bank's competition for deposits has historically come from commercial banks, thrift institutions and credit unions. In addition, the Bank faces increasing competition for deposits from non-bank institutions, such as brokerage firms and insurance companies in such areas as short-term money market funds, corporate and government securities funds, mutual funds and annuities. 2 Lending Activities Analysis of Loan Portfolio. The following table sets forth information concerning the composition of the Bank's loan portfolio in dollar amounts and in percentages of the loan portfolio as of the dates indicated.
At December 31, -------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------ -------------------- ------------------- --------------------- ----------------- Percent of Percent of Percent of Percent of Percent of Amount Total Amount Total Amount Total Amount Total Amount Total ------ ------- ------ ------- ------ ----------- --------- ---------- ------ ---------- (Dollars in Thousands) Type of Loans: One- to four- family..............$118,254 80.42% $ 108,367 92.53% $88,828 92.31% $87,851 92.71% $95,278 93.62% Multi-family and commercial real estate............. 17,362 11.81 3,659 3.13 4,639 4.82 4,463 4.71 3,614 3.54 Residential construction........ 350 0.24 525 0.45 1,098 1.14 521 0.55 -- -- Consumer: Savings account...... 807 0.55 889 0.76 824 0.86 866 .91 1,015 1.00 Second mortgages..... 11,630 7.91 5,028 4.29 2,540 2.64 2,694 2.84 3,007 2.95 Other................ 12 0.01 25 0.02 42 0.04 52 .05 87 .09 -------- ------ -------- ------ ------- ------ ------- ------ -------- ------ Total loans receivable (gross). 148,415 100.94 118,493 101.18 97,971 101.81 96,447 101.77 103,001 101.20 Less: Loans in process... 233 0.16 150 (0.13) 450 (0.47) 186 (.18) -- -- Deferred loan origination (0.12) fees and costs.... (19) (0.01) 138 333 (0.35) 338 (.36) 408 (.40) Allowance for loan losses............ 1,168 0.79 1,090 (0.93) 958 (0.99) 1,169 (1.23) 818 (.80) -------- ------ -------- ------ ------- ------ ------- ------ -------- ------ Total loans, net.....$147,033 100.00% $117,115 100.00% $96,230 100.00% $94,754 100.00% $101,775 100.00% ======== ====== ======== ====== ======= ====== ======= ====== ======== ======
3 Loan Maturity Tables The following table sets forth the contractual maturity of the Bank's loan portfolio at December 31, 1997. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totaled $15.7 million for the year ended December 31, 1997. Adjustable-rate mortgage loans are shown as maturing based on contractual maturities rather than the period in which interest rates are next scheduled to adjust.
Multi-Family and One- to Four- Commercial Residential Family Real Estate Construction Consumer Total ------------- ----------- ------------ --------- ----- (In Thousands) Amounts Due: Within 1 year.................. $ 76 $ -- $ 350 $ 1,154 $ 1,580 -------- ------- ------- ------- -------- 1 to 5 years................. 2,755 -- -- 75 2,830 5 to 10 years................ 5,020 -- -- 1,376 6,396 Over 10 years................ 109,367 17,114 -- 9,844 136,325 -------- ------- ------- ------- -------- Total due after one year....... 117,142 17,114 -- 11,295 145,551 -------- ------- ------- ------- -------- Non-performing................. 1,036 248 -- -- 1,284 Total amount due............... 118,254 17,362 350 12,449 148,415 Less: Allowance for loan and lease loss................... 877 231 4 56 1,168 Loans in process............... -- -- 233 -- 233 Deferred loan fees (costs)..... 8 -- -- (27) (19) -------- ------- ------- ------- -------- Loans receivable, not........ $117,369 $17,131 $ 113 $12,420 $147,033 ======== ======= ======= ======= ========
The following table sets forth the dollar amount at December 31, 1997 of all loans due after December 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................ $38,153 $ 80,025 $118,178 Multi-family and commercial real estate........... 268 17,094 17,362 Consumer........................... 8,402 2,893 11,295 ------- -------- -------- Total............................ $46,823 $100,012 $146,835 ======= ======== ========
4 One- to Four-Family Residential Loans. The Bank's primary lending activity consists of the origination of single-family residential mortgage loans secured by owner-occupied property. The Bank originates one- to four-family residential mortgage loans in amounts up to 80% of the appraised value of the mortgaged property and in amounts up to 70% of the appraised value on loans which exceed $200,000. No private mortgage insurance is obtained since loan to value ratios do not exceed 80%. All loans are held in the Bank's portfolio. The Bank has an agreement with a mortgage solicitation firm pursuant to which the Bank receives one- to four-family mortgage applications on a state-wide basis. The Bank then submits bids on the mortgage applications on which it is interested prior to making the final loan. The submission of a bid to provide the mortgage loan is not a firm commitment on the Bank's part, as the Bank applies its own underwriting standards before committing to the loan. All loans must be documented, including an original appraisal. This agreement has provided the majority of loan applications received by the Bank in the past year. Loan referrals are also obtained from local realtors or builders, existing or past customers and members of the local community. Mortgage loans generally include due-on sale clauses which provide the Bank with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Bank's consent. The Bank primarily originates adjustable-rate mortgage loans with a guaranteed renewal for a thirty-year term. These loans adjust after one, three, five or ten years. The Bank's ARM loans are originated for its portfolio and do not conform to FNMA or FHLMC standards. Although the Bank's ARM loans have a 6% lifetime cap, at the adjustment period, interest rate changes are discretionary. Generally, ARM loans pose credit risks somewhat greater than the risk inherent in fixed-rate loans primarily because, as interest rates rise, the underlying payments of the borrower rise, increasing the potential for default. The Bank also offers fixed-rate loans with terms of 15 and 30 years. The Bank offers various loan programs with varying interest rates and fees which are competitively priced based on market conditions and the Bank's cost of funds. The Bank has purchased and participated in a limited number of loans, primarily in its market area. At December 31, 1997, the Bank had $4.5 million of purchased loans and $2.4 million in loan participations. The Bank purchases and participates in loans after applying its own underwriting standards. The Bank typically does not service the loans that it purchases or participates in with other financial institutions. Multi-Family and Commercial Real Estate Loans. The Company has recently purchased participations in multi-family mortgage loans secured primarily by apartment buildings located in New Jersey and New York. These loans are generally adjustable-rate loans with maturities up to 25 years. These loans typically amortize over 20 to 25 years. As of December 31, 1997, $17.4 million, or 11.8%, of the Bank's loan portfolio consisted of multi-family residential and commercial real estate loans. These loans are generally made in amounts up to 75% of the appraised value of the mortgaged property. In purchasing such loans, the Bank evaluates the mortgage primarily on the net operating income generated by the real estate to support the debt service. The Bank also considers the financial resources and income level of the borrower, the borrower's experience in owning or managing similar property, the marketability of the property and the Bank's lending experience, if any, with the borrower. The typical multi-family property in the Bank's multi-family lending portfolio has between 11 and 110 dwelling units with an average loan balance of approximately $700,000. 5 To a lesser extent, the Bank's policy has been to originate commercial real estate loans. The loans are generally made in amounts up to 65% of the appraised value of the property. The Bank's commercial real estate loans primarily have rates equal to the prime rate plus a margin. In making such loans, the Bank primarily considers the net operating income generated by the real estate to support the debt service, the financial resources and income level and managerial resources of the borrower, the marketability of the property and the Bank's lending experience with the borrower. The Bank's commercial real estate loans typically are secured by properties such as mixed-use properties, retail stores, office buildings and strip shopping centers. The Bank's commercial real estate portfolio includes multi-family loans. In 1997, the Bank purchased $15.1 million of loan participations on apartment buildings in New York and New Jersey. These were adjustable rate loans and resulted in increasing the Bank's yield on interest earning assets while diversifying its loan portfolio. For a discussion of the Bank's largest commercial real estate loan, see "- Loans to One Borrower." Loans secured by multi-family and commercial real estate generally involve a greater degree of risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate. If the cash flow from the property is reduced, the borrower's ability to repay the loan may be impaired. Residential Construction Loans. The Bank's policy has been to originate residential construction loans to a lesser extent than other types of mortgages. Residential construction loans are made up to a maximum of 80% of the appraised value of the home, based upon the builder's plans. The rate charged is generally the prime rate plus a margin. The loan proceeds are disbursed based upon work completed. For a discussion of the Bank's largest residential construction loan, see "-- Loans to One Borrower." Consumer Loans. The Bank's consumer loans primarily consist of home equity loans, and, to a much lesser extent, student loans and loans secured by savings deposits. The home equity lines of credit are made with loan to value ratios of up to 80% on either a fixed or adjustable rate basis. The underwriting standards employed by the Bank for consumer loans include a determination of the applicant's payment history on other debts and an assessment of the borrower's ability to make payments on the proposed loan and other indebtedness. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. The Bank's consumer loans tend to have higher interest rates and shorter maturities than one- to four-family mortgage loans, but are considered to entail a greater risk of default than mortgage loans. Loan Approval Authority and Underwriting. The Board of Directors generally approves all mortgage loans although the Bank's President has the authority to approve loans up to $500,000. Any loans exceeding that amount must be approved by the Board of Directors. The Bank uses board approved independent fee appraisers on real estate loans. It is the Bank's policy to obtain title insurance on all properties securing real estate loans and to obtain fire, flood and casualty insurance on all loans that require security. 6 Loan Commitments. The Bank issues written commitments to prospective borrowers on all real estate approved loans. Generally, the commitment requires the loan to be closed within sixty days of issuance. At December 31, 1997, the Bank had $3.2 million of commitments to fund new mortgage loans and commitments on unused lines of credit relating to home equity loans of $4.1 million. Loans to One Borrower. Savings associations are subject to the same limits as those applicable to national banks, which under current regulations limit loans-to-one borrower in an amount equal to 15% of unimpaired capital and retained income on an unsecured basis and an additional amount equal to 10% of unimpaired capital and retained income if the loan is secured by readily marketable collateral (generally, financial instruments, not real estate) or $500,000, whichever is higher. The Bank's maximum loan-to-one borrower limit was approximately $4.1 million as of December 31, 1997. At December 31, 1997, the Bank's three largest lending relationships ranged from $1.1 million to $1.2 million. They are all performing loans on apartment buildings in New Jersey and New York in which the Bank has a participating interest. See also "-- Multi-Family and Commercial Real Estate." Non-Performing Loans and Classified Assets Loan Delinquencies. The Bank's collection procedures provide that when a mortgage loan is 15 days past due, a notice of nonpayment is sent. If payment is still delinquent after 30 days past due, the customer will receive a letter from the Bank. If the delinquency continues, similar subsequent efforts are made to eliminate the delinquency. If the loan continues in a delinquent status for 60 days or more and no repayment plan is in effect, the Bank's attorney will send a letter to the customer. After 90 days past due, the Board of Directors typically approves the initiation of foreclosure proceedings as soon as possible. Loans are reviewed on a monthly basis and are placed on a non-accrual and non-performing status when the loan becomes more than 90 days delinquent. The following table sets forth information regarding non-performing loans and real estate owned. During the periods indicated, the Bank had no restructured loans within the meaning of SFAS No. 15.
At December 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (Dollars in Thousands) Non-performing loans: Nonaccrual loans: One- to four-family residential .......... $1,036 $ 989 $1,059 $4,182 $3,894 Multi-family and commercial real estate .. 248 860 860 -- -- Consumer loans ........................... -- 52 23 20 -- ------ ------ ------ ------ ------ Total nonaccrual loans ...................... 1,284 1,901 1,942 4,202 3,894 Accruing one- to four-family residential . -- -- 505 -- -- ------ ------ ------ ------ ------ Total non-performing loans .................. 1,284 1,901 2,447 4,202 3,894 ------ ------ ------ ------ ------ Real estate owned ........................... 604 857 1,501 1,765 1,859 ------ ------ ------ ------ ------ Total non-performing assets ................. $1,888 $2,758 $3,948 $5,967 $5,753 ====== ====== ====== ====== ====== Total non-performing loans to net loans ..... .87% 1.62% 2.54% 4.43% 3.83% ====== ====== ====== ====== ====== Total non-performing loans to total assets .. .39% .63% .79% 2.17% 1.93% ====== ====== ====== ====== ====== Total non-performing assets to total assets . .57% .91% 1.27% 3.09% 2.85% ====== ====== ====== ====== ======
Interest income that would have been recorded on nonaccrual loans had they been current under the original terms of such loans was approximately $111,000 and $198,000 for the years ended December 31, 1997 and 1996, respectively. Amounts included in the Bank's interest income attributable 7 to non-performing loans for the years ended December 31, 1997 and 1996 were approximately $50,000 and $84,000, respectively. Classified and Criticized Assets. OTS regulations provide for a classification system for problem assets of insured institutions which covers all problem assets. 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 may sustain "some loss" if the deficiencies are not corrected. Loans classified as substandard may or may not be considered impaired under generally accepted accounting principals. Assets classified as doubtful have all of the weaknesses inherent in those classified 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 as such, are charged off by the Bank. Assets which do not currently expose the Bank to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated "special mention" by management. When the Bank classifies problem assets as either substandard or doubtful, it may establish general allowances for loan and lease 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. When the Bank classifies problem assets as loss, it is considered uncollectible and the Bank charges off such amount. The Bank'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. The following table provides further information about the Bank's classified assets as of the dates indicated.
At December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- ------ ------ --------- (In Thousands) Criticized: Special Mention........ $ 3,912 $ 2,931 $2,639 $2,094 $ 1,406 Classified: Substandard............ 1,637 3,665 3,925 5,901 8,549 Doubtful............... -- -- -- -- -- Loss................... -- -- -- 123 501 ------- -------- ------ ------ ------- $ 5,549 $ 6,596 $6,564 $8,118 $10,456 ======= ======== ====== ====== =======
Real Estate Owned. Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is carried at the lower of the cost or fair value less selling costs. It is the policy of the Bank to obtain an appraisal on all real estate acquired through foreclosure as soon as practicable after it takes possession of the property. The Bank generally reassesses the value of real estate owned at least every eighteen 8 months. These properties are subsequently evaluated and carried at the lower of the "new" cost or fair value minus selling costs of the underlying collateral. The Bank's real estate owned totaled approximately $604,000 at December 31, 1997. Allowance 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. 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. 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. 9 Analysis of the Allowance for Loan Losses. The following table sets forth information with respect to the Bank's allowance for loan losses at the dates indicated.
At December 31, --------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (Dollars in Thousands) Total loans outstanding ........ $148,415 $118,493 $ 97,971 $ 96,447 $103,001 ======== ======== ======== ======== ======== Allowance balances (at beginning of period) .................... $ 1,090 $ 958 $ 1,169 $ 818 $ 731 Provision: One- to four-family .......... 168 136 87 340 325 Multi-family and commercial real estate(1) ............. 35 38 35 13 -- Consumer ..................... 37 9 9 3 3 ======== ======== -------- -------- -------- Total provision for loan losses 240 183 131 356 328 -------- -------- -------- -------- -------- Charge-offs net of recoveries: One- to four-family .......... 154 51 342 5 241 Multi-family and commercial real estate ................ -- -- -- -- -- Consumer ....................... 8 -- -- -- -- -------- -------- -------- -------- -------- Total charge-offs .............. 162 51 342 5 241 -------- -------- -------- -------- -------- Allowance balance (at end of period) ...................... $ 1,168 $ 1,090 $ 958 $ 1,169 $ 818 ======== ======== ======== ======== ======== Allowance for loan losses as a percent of total loans outstanding .................. 0.79% 0.92% 0.98% 1.21% 0.79% ======== ======== ======== ======== ========
----------------- (1) Includes residential construction loans. 10 Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Bank's allowance for loan and lease losses by loan category and the percentage of loans in each category to net 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 which may occur within the loan category since the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio. At December 31, --------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------- ---------------------- --------------------- ---------------------- --------------------- Percent of Percent of Percent of Percent of Percent of Loans to Loans to Loans to Loans to Loans to Amount Loan Portfolio Amount Loan Portfolio Amount Loan Portfolio Amount Loan Portfolio Amount Loan Portfolio ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------ -------------- (Dollars in Thousands) At end of period allocated to: One-to four- family........$ 877 79.68% $ 863 91.66% $778 92.31% $1,033 92.71% $814 93.62% Multi-family and commercial real estate(1)... 235 11.93 200 3.27 162 4.82 127 4.71 -- 3.54 Consumer ...... 56 8.39 27 5.07 18 3.54 9 3.80 4 4.04 ------ ------ ------ ------ ---- ------ ------ ------ ---- ------ Total allowance.....$1,168 100.00% $1,090 100.00% $958 100.00% $1,169 100.00% $818 100.00% ====== ====== ====== ====== ==== ====== ====== ====== ==== ======
(1) Includes residential construction loans. 11 Investment Activities General. The investment policy of the Bank, which is approved by the Board of Directors and implemented by certain officers as authorized by the Board, is designed primarily to provide and maintain liquidity and to manage the interest rate sensitivity of its overall assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to provide a flow of earnings and a countercyclical balance to earnings and to provide a balance of quality and diversification of the Bank's assets. In establishing its investment strategies, the Bank considers its business and growth plans, the economic environment, its interest rate sensitivity position, the types of securities to be held, and other factors. Federally chartered savings institutions have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed and mortgage-related securities, certain certificates of deposit of insured banks and savings institutions, certain bankers acceptances, repurchase agreements, loans of federal funds, and, subject to certain limits, corporate securities, commercial paper and mutual funds. Current regulatory and accounting guidelines regarding investment portfolio policy require insured institutions to categorize securities as held for "investment," "sale," or "trading." At December 31, 1996, the Bank had no securities held available for sale or trading. The Bank's securities portfolio, which the Bank has the ability and intent to hold to maturity, are accounted for on an amortized cost basis. The Bank may purchase securities in the future to be held available for sale or trading. At December 31, 1997, the Bank's investment securities portfolio primarily consisted primarily of short and medium term U.S. Government and agency securities. In addition, at December 31, 1997, the Bank had federal funds sold of $3.5 million and FHLB stock of $2.5 million. To supplement lending activities and to utilize excess liquidity, the Bank invests in residential mortgage-backed securities. Mortgage-backed securities can serve as collateral for borrowings and, through repayments, as a source of liquidity. The mortgage-backed securities portfolio at December 31, 1997 consisted of both fixed-rate and adjustable rate certificates issued by the FHLMC, GNMA and FNMA. The fixed rate certificates provide the certificate holder principal payments while the adjustable rate securities provide protection against rising interest rates. Mortgage-backed securities represent a participation interest in a pool of single-family or multi-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 interests in the form of securities, to investors such as the Bank. Such quasi-governmental agencies, which guarantee the payment of principal and interest to investors, primarily include FHLMC, FNMA, and GNMA. Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate mortgages or adjustable-rate mortgage 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, 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. To reduce the effect of interest rate changes on net interest income the Bank invests in collateralized mortgage obligations ("CMOs"). All of the products that were purchased are adjustable 12 on a monthly basis and use London Interbank Offered Rates ("LIBOR") index. All of the securities have a cap rate of either 9.0%, or 10.0% and all of the products meet the current FFIEC tests. The securities are tested on a quarterly basis. Investment and Mortgage-backed Securities Portfolio. The following table sets forth the carrying value of the Bank's investment and mortgage-backed securities portfolio.
At December 31, ---------------------------------------- 1997 1996 1995 ------- ---------- -------- (In Thousands) Investment Securities: U.S. Government securities................. $ -- $ 6,006 $10,014 U.S. Agency securities....... 57,988 45,022 19,985 Other securities............. -- 342 -- ------- -------- ------- Total investment 57,988 51,370 29,999 ------- -------- ------- securities............... Federal funds sold............ 3,500 5,000 39,800 FHLB Stock.................... 2,518 2,076 1,395 ------- -------- ------- Total investment securities, federal funds sold and FHLB stock.................... $64,006 $ 58,446 $71,194 ======= ======== =======
At December 31, ------------------------------------------------------- 1997 1996 1995 ---- ---- ---- Amount(1) Amount Amount --------- ------ ------ (Dollars in Thousands) Mortgage-backed securities: GNMA........................... $ 26,337 $ 33,675 $ 38,714 FNMA........................... 42,393 49,434 45,613 FHLMC.......................... 34,932 28,297 32,590 -------- --------- -------- Total...................... 103,662 111,406 116,917 Net premiums................... 1,224 1,067 1,103 -------- --------- -------- Net mortgage-backed securities..................... $104,886 $ 112,473 $118,020 ======== ========= ========
- --------------------- (1) Includes held to maturity and available for sale (available for sale issues are reflected net of an unrealized loss of $111,500). 13 Investment and Mortgage-backed Securities' Portfolios Maturities. The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of the Bank's investment and mortgage-backed securities portfolios at December 31, 19976.
Total Investment and One Year or Less One to Five Years More Than Five Years Mortgage-backed Securities ------------------ ------------------ -------------------- --------------------------------------- Weighted Weighted Weighted Weighted Estimated Carrying Average Carrying Average Carrying Average Carrying Average Fair Value Yield Value Yield Value Yield Value Yield Value ------- ------- ------- ------- ------- ------- ------- ------- ------ (Dollars in Thousands) U.S. Agency securities... $10,006 5.26% 9,000 6.17% $38,982 7.18% $ 57,988 6.69% $ 58,129 ======= ==== ====== ==== ======= ==== ======== ==== ======== GNMA..................... $ -- $ -- 36 7.68% $26,736 7.12% $ 26,772 7.12% $ 26,952 FNMA(1).................. 455 7.14 2,200 7.00 40,196 6.77 42,851 6.78 42,884 FHLMC(1)................. -- -- 8,883 6.65 26,380 6.73 35,263 6.71 35,339 ------- ---- ------ ---- ------- ---- -------- ---- -------- Total mortgage-backed securities........... .$ 455 7.14% 11,119 6.72% $93,312 6.86% $104,886 6.84% $105,175 ======= ==== ====== ==== ======= ==== ======== ==== ========
- ---------------------- (1) Includes mortgage-backed securities held to maturity and available for sale. 14 Sources of Funds General. Deposits are the major source of the Bank's funds for lending and other investment purposes. The Bank derives funds from amortization and prepayment of loans and maturities of investment securities, mortgage-backed securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. The Bank can obtain advances from the FHLB as an alternative to retail deposit funds. FHLB advances may also be used to acquire certain other assets as may be deemed appropriate for investment purposes. These advances are collateralized by the capital stock of the FHLB held by the Bank and by certain of the Bank's mortgage loans and mortgage-backed securities. Deposits. The Bank currently offers NOW Accounts, Super NOW accounts, regular passbook statement savings accounts and savings accounts, money market deposit accounts and term certificate accounts, primarily to consumers within its primary market area. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit and the interest rate, among other factors. Although the Bank partially relies on customer service and relationships with customers to attract and retain deposits, market interest rates and rates offered by competing financial institutions significantly affect the Bank's ability to attract and retain deposits. The interest rates paid by the Bank on deposits are monitored regularly and are set as needed at the direction of the Board of Directors. The interest rates on deposit account products are determined by evaluating the interest rates offered by other local institutions, and the degree of competition the Bank wishes to maintain; the Bank's anticipated need for cash and the timing of that desired cash flow; the cost of borrowing from other sources versus the cost of acquiring funds through customer deposits; and the Bank's anticipation of future economic conditions and related interest rates. The Bank's interest rates typically are competitive with those offered by competitors in the Bank's primary market area. Regular savings accounts, money market accounts and NOW accounts including non-interest bearing deposits constituted $44.5 million, $10.0 million and $21.3 million, respectively, or 19.3%, 4.3%, and 9.3%, respectively. Certificates of deposit constituted $154.4 million or 67.1% of the deposit portfolio. As of December 31, 1997, the Bank had no brokered deposits. Jumbo Certificate Accounts. The following table indicates the amount of the Bank's certificates of deposit of greater than $100,000 by time remaining until maturity as of December 31, 1996. Certificates of Deposits -------------- Maturity Period (In Thousands) - --------------- Within three months................. $ 2,172 Three through six months............ 3,059 Six through twelve months........... 2,916 Over twelve months.................. 1,873 ------- $10,020 ======= 15 Savings Deposit Activity. The following table sets forth the savings activities of the Bank for the periods indicated.
Year Ended December 31, --------------------------------------- 1997 1996 1995 ---- ---- ---- (In Thousands) Net increase (decrease) before interest credited, deposits purchased and deposits sold............ $ (8,507) $(21,401) $ 7,949 Deposits purchased....................... -- -- 54,415 Deposits sold............................ -- (9,221) -- Interest credited........................ 10,328 11,083 9,314 -------- -------- ------- Net increase (decrease) in savings deposits....................... $ 1,821 $(19,539) $71,678 ======== ======== =======
Borrowings At December 31, 1997, the Bank had $50.4 million of borrowings with the Federal Home Loan Bank. These consist of the following: (a) $9.0 million repurchase agreement with a rate of 5.82%, maturing December, 1999 with a one time call feature at December 20, 1998. (b) Two repurchase agreements of approximately $8.2 million each. Both mature in February 1998, and have rates of 5.76% and 5.74%. (These repurchase agreements were subsequently rolled over for nine months, maturing in November 1998, at rates of 5.62% and 5.61%.) (c) $10.0 million, 30 day repurchase agreement with a rate of 6.05%. (This repurchase agreement was subsequently rolled over twice in 1998 at a rate of 5.61% each time.) (d) $15.0 million advance with a rate of 5.80%, maturing in August, 1998. In addition, the Bank had a $8.4 repurchase agreement with an independent third party, which matures in February, 1998 and has a rate of 5.77%. (This repurchase agreement was subsequently rolled over for six months at a rate of 5.62%). Subsidiary Activities As of December 31, 1997, the Bank was the sole subsidiary of the Company. The Bank has no active subsidiaries. Personnel As of December 31, 1997, the Bank had 36 full-time and 9 part-time employees. None of the Bank's employees are represented by a collective bargaining group. The Bank believes that its relationship with its employees is good. 16 Regulation Set forth below is a brief description of all materials laws and regulations which relate to the regulation of the Bank and the Company. 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 Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the 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 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 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 Bank and not for the benefit of stockholders of the Company. The Company is also required to file certain reports with, and otherwise comply with, the rules and regulations of the OTS and the SEC. Qualified Thrift Lender Test. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions, provided the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the 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 Company and any of its subsidiaries (other than the Bank or any other Savings Association Insurance Fund ("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 Bank -- Qualified Thrift Lender Test." Restrictions on Acquisitions. The Company must obtain approval from the OTS before acquiring control of any other SAIF-insured association. Such acquisitions are generally prohibited if they result in a multiple savings and loan holding company controlling savings associations in more than one state. However, such interstate acquisitions are permitted based on specific state authorization or in a supervisory acquisition of a failing savings association. Federal law generally provides that no "person," acting directly or indirectly or through or in concert with one or more other persons, may acquire "control," as that term is defined in OTS regulations, of a federally insured savings institution without giving at least 60 days' written notice to the OTS and providing the OTS an opportunity to disapprove the proposed acquisition. In addition, no company may acquire control of such an institution without prior OTS approval. Federal Securities Law. The Company is subject to filing and reporting requirements by virtue of having its common stock registered under the Securities Exchange Act of 1934. Furthermore, Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period. 17 Regulation of the Bank General. As a federally chartered, SAIF-insured savings association, the Bank is subject to extensive regulation by the OTS and the FDIC. Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Bank is also subject to certain reserve requirements promulgated by the Federal Reserve Board. The OTS, in conjunction with the FDIC, regularly examines the Bank and prepares reports for the consideration of the Bank's Board of Directors on any deficiencies that they find in the Bank's operations. The Bank's relationship with its depositors and borrowers is also regulated to a great extent by federal law, especially in such matters as the ownership of savings accounts and the form and content of the Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulations, whether by the OTS, the FDIC or the Congress could have a material adverse impact on the Company, the Bank and their operations. Deposit Insurance. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. Two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial banks, state savings banks and some federal savings banks, and the SAIF for savings associations, are maintained and administered by the FDIC. The Bank is a member of the SAIF and its deposit accounts are insured by the FDIC, up to the prescribed limits. The FDIC has examination authority over all insured depository institutions, including the Bank, and has under certain circumstances, authority to initiate enforcement actions against federally insured savings institutions to safeguard safety and soundness and the deposit insurance fund. Assessments. The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the BIF and the SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such assessment rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments are set within a range, based on the risk the institution poses to its deposit insurance fund. This risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. FDIC assessments on SAIF institutions currently range from 0 to 27 basis points. In addition, legislation requires the cost of prior thrift failures to be shared by both the SAIF and the Bank Insurance Fund ("BIF") (Fico Bond payments). The Fico Bond assessment for savings institutions in 1997 was approximately $.064 per $100 in deposits. Examination Fees. In addition to federal deposit insurance premiums, savings institutions like the Bank are required by OTS regulations to pay assessments to the OTS to fund the operations of the 18 OTS. The general assessment is paid on a semi-annual basis and is computed based on total assets of the institution, including subsidiaries. Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at least 3% of total adjusted assets, and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted assets. Savings associations with a greater than "normal" level of interest rate exposure will, in the future, be subject to a deduction for an interest rate risk ("IRR") component which may be from capital for purposes of calculating their risk-based capital requirement. See "-- Net Portfolio Value Analysis." Tangible capital is defined as core capital less all intangible assets (including supervisory goodwill), plus purchased mortgage servicing rights valued at the lower of the maximum percentage established by the OTS or the amount includable in core capital. Core capital is defined as common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible assets. The OTS requires a core capital ratio of at least 3% for those savings associations in the strongest financial and managerial condition. All other savings associations are required to maintain minimum core capital of at least 4% of total adjusted assets, with a maximum core capital ratio requirement of 5%. In determining the required minimum core capital ratio, the OTS assesses the quality of risk management and the level of risk in each savings association on a case-by-case basis. The risk-based capital standard for savings institutions requires the maintenance of total risk-based capital (which is defined as core capital plus supplementary capital) of 8% of risk-weighted assets. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock and the portion of the allowance for loan losses not designated for specific loan losses. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. A savings association must calculate its risk-weighted assets by multiplying each asset and off-balance sheet item by various risk factors as determined by the OTS, which range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans and other assets. 19 As shown below, the Bank's regulatory capital exceeded all minimum regulatory capital requirements applicable to it as of December 31, 1997: Percent of Adjusted Amount Assets (Dollars in Thousands) Tangible Capital: Actual capital.............................. $26,416 8.10% Regulatory requirement...................... 4,890 1.50 ------- ----- Excess.................................... $21,526 6.60% ======= ===== Core Capital: Actual capital.............................. $26,416 8.10% Regulatory requirement...................... 9,780 3.00 ------- ----- Excess.................................... $16,636 5.10% ======= ===== Risk-Based Capital: Actual capital.............................. $27,138 23.83% Regulatory requirement...................... 9,112 8.00 ------- ----- Excess.................................... $18,026 15.83% ======= ===== The Bank is not under any agreement with regulatory authorities nor is it aware of any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources or operations of the Bank or the Company. Net Portfolio Value Analysis. In order to encourage associations to reduce their IRR, the OTS adopted a final rule in August 1993 incorporating an IRR component into the risk-based capital rules. The IRR component is a dollar amount that will be deducted from total capital for the purpose of calculating an institution's risk-based capital requirement and is measured in terms of the sensitivity of its Net Portfolio Value ("NPV") to changes in interest rates. NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. An institution's IRR is measured as the change to its NPV as a result of a hypothetical 200 basis point ("bp") change in market interest rates. A resulting change in NPV of more than 2% of the estimated market value of its assets will require the institution to deduct from its capital 50% of that excess change. The rules provide that the OTS will calculate the IRR component quarterly for each institution. The rule will not become effective until the OTS evaluates the process by which savings associations may appeal an interest rate risk reduction determination. It is uncertain as to when this evaluation may be completed. 20 The following table presents the Bank's NPV at December 31, 1997, as calculated by OTS and based on OTS assumptions using raw data provided to the OTS by the Bank. Net Portfolio Value ($ In Thousands)
Change in Percent of Change in Interest Rate Amount of Estimated NPV Ratio NPV (Basis Points) NPV Change (1) NPV (2) (3) Ratio (4) -------------- --- ---------- ------- --- --------- +400 4,264 (29,252) -87% 1.42% (862)bp +300 11,932 (21,585) -64% 3.87% (618)bp +200 19,570 (13,946) -42% 6.17% (388)bp +100 26,884 (6,632) -20% 8.25% (179)bp Par 33,516 -- -- 10.04% -- -100 39,212 5,696 17% 11.51% 147 bp -200 43,922 10,406 31% 12.67% 262 bp -300 48,912 15,396 46% 13.85% 381 bp -400 55,122 21,606 64% 15.28% 524 bp
- --------------------- (1) Represents the excess (deficiency) of the estimated NPV assuming the indicated change in interest rates minus the estimated NPV assuming no change in interest rates. (2) Calculated as the amount of change in the estimated NPV divided by the estimated NPV assuming no change in interest rates. (3) Calculated as the estimated NPV divided by average total assets. (4) Calculated as the excess (deficiency) of the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates. If the OTS rule regarding the IRR component had been in effect at December 31, 1997, the Bank would have had to deduct from its risk-based capital approximately $3.6 million. The Bank would have met its capital requirements, had this rule been in effect at December 31, 1997.
December 31, December 31, 1997(1) 1996 ------------ ------------ *** RISK MEASURES: 200 BP RATE SHOCK *** Pre-Shock NPV Ratio: NPV as % of PV of Assets................. 10.04 % 9.17 % Exposure Measure: Post-Shock NPV Ratio........................ 6.17 % 5.71 % Sensitivity Measure: Change in NPV Ratio...................... (388) bp (346) bp *** CALCULATION OF CAPITAL COMPONENT *** Change in NPV as % of PV of Assets............................ 4.18 % 3.73 % Interest Rate Risk Capital Component ($000)................... $3,637 $2,630
21 Certain shortcomings are inherent in the methodology used in the above table. Modeling changes in NPV requires the making of certain assumptions that may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. First, the models assume that the composition of the Bank's interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the models assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV measurements do provide an indication of the Bank's interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on the Bank's net interest income. In times of decreasing interest rates, the value of fixed-rate assets could increase in value and the lag in repricing of interest rate sensitive assets could be expected to have a positive effect on the Bank. Prompt Corrective Action. The FDICIA also established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, which became effective December 19, 1992, the banking regulators are required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of capitalization. Under the OTS final rule implementing the prompt corrective action provisions, an institution shall be deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I risk- based capital ratio (core or leverage capital to risk-weighted assets) of 6.0% or more, has a leverage capital of 5.0% or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any capital measure, (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risked-based ratio of 4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 4.0% or a leverage capital ratio that is less than 4.0% (3.0% in certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0% and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. In addition, under certain circumstances, a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). Immediately upon becoming undercapitalized, an institution shall become subject to various restrictions and could be subject to additional supervisory actions. As of December 31, 1997, the Bank was a "well capitalized institution" as defined in the prompt corrective action regulations and as such is not subject to any prompt corrective action measures. Dividend and Other Capital Distribution Limitations. OTS regulations require the Bank to give the OTS 30 days' advance notice of any proposed declaration of dividends to the Company, and the OTS has the authority under its supervisory powers to prohibit the payment of dividends to the Company. In addition, the Bank may not declare or pay a cash dividend on its capital stock if the effect thereof would be to reduce the regulatory capital of the Bank below the amount required for the liquidation account to be established in connection with the Conversion. 22 OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, based primarily on an institution's capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution ("Tier 1 institution") and has not been advised by the OTS that it is in need of more than the normal supervision can, after prior notice but without the approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net income to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year, or (ii) 75% of its net income over the most recent four quarter period. Any additional capital distributions require prior regulatory approval. Based on the Bank's capital levels at December 31, 1997, the Bank was a Tier 1 institution. In the event the Bank's capital fell below its fully phased-in requirement or the OTS notified it that it was in need of more than normal supervision, the Bank's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. Finally, under the FDICIA, a savings association is prohibited from making a capital distribution if, after making the distribution, the savings association would be "undercapitalized" (not meet any one of its minimum regulatory capital requirements). OTS regulations also prohibit the Bank from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the regulatory (or total) capital of the Bank would be reduced below the amount required to be maintained for the liquidation account established by it for certain depositors in connection with its conversion from mutual to stock form. In addition, such regulations prohibit an institution from repurchasing any of its stock for a period of at least one year from the date of its conversion without a waiver of such prohibition by the OTS. Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as amended, requires savings institutions to meet a QTL test. If the Bank maintains an appropriate level of Qualified Thrift Investments (primarily residential mortgages and related investments, including certain mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full borrowing privileges from the FHLB of New York. The required percentage of QTIs is 65% of portfolio assets (defined as all assets minus intangible assets, property used by the institution in conducting its business and liquid assets equal to 10% of total assets). Certain assets are subject to a percentage limitation of 20% of portfolio assets. In addition, savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The method for measuring compliance with the QTL test is on a monthly basis in nine out of every 12 months. As of December 31, 1997, the Bank was in compliance with its QTL requirement. A savings association that does not meet a QTL test must either convert to a bank charter or comply with the following restrictions on its operations: (i) the savings association may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the savings association shall be restricted to those of a national bank; (iii) the savings association shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the savings association shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the savings association ceases to be a QTL, it must cease any activity and not retain any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations). 23 Loans-to-One Borrower. See "Business -- Lending Activities -- Loans-to-One Borrower." Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. Current law requires public disclosure of an institution's CRA rating and requires the OTS to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system in lieu of the existing five-tiered numerical rating system. The Bank received a satisfactory rating as a result of its last evaluation in March, 1997. Transactions With Affiliates. Generally, restrictions on transactions with affiliates require that transactions between a savings association or its subsidiaries and its affiliates be on terms as favorable to the Bank as comparable transactions with non-affiliates. In addition, certain of these transactions are restricted to an aggregate percentage of the Bank's capital; collateral in specified amounts must usually be provided by affiliates to receive loans from the Bank. Affiliates of the Bank include the Company and any company which would be under common control with the Bank. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of any affiliate which is not a subsidiary. The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a case-by-case basis. The Bank's authority to extend credit to its officers, directors and 10% shareholders, as well as to entities that such persons control is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the Federal Reserve Board. Among other things, these regulations require such loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans the Bank may make to such persons based, in part, on the Bank's capital position, and require certain approval procedures to be followed. Recent legislation permits savings institutions to make loans to executive officers, trustees and principal shareholders ("insiders") on preferential terms, provided the extension of credit is made pursuant to a benefit or compensation program of the Bank that is widely available to employees of the Bank or its affiliates and does not give preference to any insider over other employees of the Bank or affiliate. Branching by Federal Savings Banks. Effective May 11, 1992, the OTS amended its Policy Statement on Branching by Federal Savings Associations to permit interstate branching to the full extent permitted by statute (which is essentially unlimited). This permits savings associations with interstate networks to diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal associations. However, the OTS will evaluate a branching applicant's record of compliance with the CRA. A poor CRA record may be the basis for denial of a branching application. 24 Liquidity Requirements. All savings associations are required to maintain an average daily balance of liquid assets equal to a certain percentage of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. The liquidity requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At the present time, the required liquid asset ratio is 4%. At December 31, 1997, the Bank's liquidity ratio was 44.14%. Federal Home Loan Bank System. The Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs that administer the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It 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 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. As of December 31, 1997, the Bank had $2.5 million in FHLB stock, which was in compliance with this requirement. The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. For the fiscal year ended December 31, 1997, dividends paid by the FHLB of New York to the Bank totaled $148,000. Federal Reserve System. The Federal Reserve Board 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 Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. Savings associations have authority to borrow from the Federal Reserve Bank "discount window," but Federal Reserve policy generally requires savings associations to exhaust all OTS sources before borrowing from the Federal Reserve System. The Bank had no such borrowings at December 31, 1997. Item 2. Properties - -------------------- The Bank operates from its main office located at 86 Main Street, Little Falls, New Jersey and five branch offices, one of which is leased. This includes three branches purchased from an unaffiliated commercial bank in December 1996. The Bank's total investment in office property and equipment is $4.0 million with a net book value of $2.6 million at December 31, 1997. Item 3. Legal Proceedings - -------------------------- Neither the Company nor its subsidiaries are involved in any pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company. 25 Item 4. Submission of Matters to a Vote of Security-Holders - ------------------------------------------------------------ Not applicable. PART II Item 5. Market for Common Equity and Related Stockholder Matters - ----------------------------------------------------------------- Information relating to the market for Registrant's common equity and related stockholder matters appears under "Stock Market Information" in the Registrant's 1997 Annual Report to Stockholders ("Annual Report") on page 7, and is incorporated herein by reference. Item 6. Selected Financial Data - -------------------------------- The above-captioned information appears in the Annual Report on pages 8 and 9, and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Conditions and Results - -------------------------------------------------------------------------------- of Operations - ------------- The above-captioned information appears under Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on pages 10 through 20 and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The Financial Statements of the Bank, together with the report thereon by Radics & Co., LLC, appear in the Annual Report on pages F-1 through F-40 and are incorporated herein by reference. Item 9. Changes In and Disagreements with Accountants on Accounting and - -------------------------------------------------------------------------------- Financial Disclosure - -------------------- Not applicable. 26 PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ The information contained under the section captioned "Proposal I -- Election of Directors" at pages 4 through 8 of the Registrant's definitive proxy statement for the Registrant's 1998 Annual Meeting of Stockholders to be held on April 21, 1998 (the "Proxy Statement"), which was filed with the Commission on March 25, 1998 and incorporated herein by reference. See also "Item 1. Business of the Bank -- Personnel" included herein. Item 11. Executive Compensation - -------------------------------- The information relating to executive compensation is incorporated herein by reference to the Registrant's Proxy Statement at pages 8 through 14. Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ The information relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the Registrant's Proxy Statement at pages 2 and 3. PART IV Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- The information relating to certain relationships and related transactions is incorporated herein by reference to the Registrant's Proxy Statement at page 15. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- (a) The following documents are filed as a part of this report: (1) Financial Statements of the Company are incorporated by reference to the following indicated pages of the Annual Report. PAGE ---- Independent Auditors' Report................................ F-3 Consolidated Statements of Financial Condition as of December 31, 1997 and 1996................................ F-4 Consolidated Statements of Income For the Years Ended December 31, 1997, 1996 and 1995.......................... F-5 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995...... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.......................... F-7 Notes to Consolidated Financial Statements.................. F-9 27 The remaining information appearing in the Annual Report is not deemed to be filed as part of this report, except as expressly provided herein. (2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto. (3) Exhibits (a) The following exhibits are filed as part of this report. 2.0 Branch Sale Agreement** 3.1 Articles of Incorporation of Little Falls Bancorp, Inc.* 3.2 Bylaws of Little Falls Bancorp, Inc.* 4.0 Form of Stock Certificate of Little Falls Bancorp, Inc.* 10.1 Employment Agreement between the Bank and John P. Pullara** 10.2 Employment Agreement between the Bank and Leonard G. Romaine** 10.4 Form of Employment Agreement with Eight Employees of the Bank*** 10.6 1996 Management Stock Bonus Plan*** 10.7 1996 Stock Option Plan*** 13.0 1997 Annual Report to Stockholders 21.0 Subsidiary of the Registrant (See Item 1 - Business-Subsidiary Activities) 27.0 Financial Data Schedule **** (b) Reports on Form 8-K. None. - --------------------- * Incorporated herein by reference into this document from the Exhibits to Form S-1, Registration Statement, initially filed with the Securities and Exchange Commission on September 25, 1995 (Registration No. 33-97316). ** Incorporated by reference into this document from the Exhibits to Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995 (File No. 0-27010). *** Incorporated by reference into this document from the Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 0-27010). **** In electronic filing only. 28 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. LITTLE FALLS BANCORP, INC. Dated: March 31, 1998 By: /s/ Leonard G. Romaine ----------------------- Leonard G. Romaine President and Director (Duly Authorized Representative) 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 and on the dates indicated.
By: /s/ Leonard G. Romaine By: /s/ Richard A. Capone -------------------------------------- ------------------------------------ Leonard G. Romaine Richard A. Capone President and Director Chief Financial Officer (Principal Executive Officer) (Principal Financial and Accounting Officer) Date: March 31, 1998 Date: March 31, 1998 By: By: /s/ John P. Pullara -------------------------------------- ------------------------------------- Albert J. Weite John P. Pullara Chairman of the Board and Director Director Date: March 31, 1998 Date: March 31, 1998 By: /s/ Edward J. Seugling By: /s/ George Kuiken --------------------------------------- ------------------------------------- Edward J. Seugling George Kuiken Vice Chairman of the Board and Director Director Date: March 31, 1998 Date: March 31, 1998 By: /s/Raoul G. Barton By: /s/ Norman A. Parker --------------------------------------- ------------------------------------- Raoul G. Barton Norman A. Parker Director Director Date: March 31, 1998 Date: March 31, 1998 By: /s/ C. Evans Daniels --------------------------------------- C. Evans Daniels Director Date: March 31, 1998
EX-13 2 EXHIBIT 13 Exhibit 13.0 1997 Annual Report to Stockholders Annual Report 1997 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. Annual Report - 1997 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. Annual Report - 1997 Table of Contents The Board of Directors 2 A Message from the President 3 Corporate Information 4 Corporate Headquarters and Branch Locations 5 Community Services 6 Corporate Profile and Stock Market Information 7 Selected Financial and Other Data 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Index to Financial Statements F-1 - -------------------------------------------------------------------------------- The Board of Directors - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Board of Directors Little Falls Bancorp and Little Falls Bank Seated, left to right: Edward J. Seugling, Vice Chairman; Albert J. Weite, Chairman; Leonard G. Romaine, President, Little Falls Bank/ Little Falls Bancorp, Inc. Standing, left to right: Directors; John P. Pullara, C. Evan Daniels, Raoul G. Barton, George Kuiken Norman A. Parker Director (not present at time of photo) Richard A. Capone Chief Financial Officer and Treasurer 2 - -------------------------------------------------------------------------------- A Message from the President... - -------------------------------------------------------------------------------- [GRAPHICS OMITTED] Leonard G. Romaine President To Our Stockholders: On behalf of our directors, officers and employees, we are pleased to present to you our third annual Stockholders' Report. We believe your Bank has made significant strides in its first two years as a public company. During the past two years, we have been able to grow our loan portfolio through strong originations of over $58.0 million, supplemented by purchases of $15.1 million of participations in multi-family loans. Such purchases should enable us to take advantage of higher yields while diversifying our loan portfolio. Furthermore, excess liquidity was utilized to repurchase 137,259 shares of common stock in fiscal 1997 and to invest in mortgage-backed and investment securities. Such repurchases were accretive to earnings and management believes that its purchases of mortgage-backed securities and investment securities have enhanced the Bank's asset quality and interest rate sensitivity. Your Board of Directors and management team are committed to protecting and enhancing the value of your investment in the Company. To do so, we are challenged to continue delivering high quality services to our customers and communities and build on our past accomplishments. We appreciate the confidence, support and loyalty of our customers, employees and stockholders. Sincerely, /s/Leonard G. Romaine - --------------------- Leonard G. Romaine President March 25, 1998 3 - -------------------------------------------------------------------------------- Corporate Information - -------------------------------------------------------------------------------- Board of Directors of Little Falls Bancorp, Inc. and/or Little Falls Bank Albert J. Weite, Chairman of the Board Edward J. Seugling, Vice Chairman of the Board Raoul G. Barton C. Evan Daniels George Kuiken Norman A. Parker John P. Pullara Leonard G. Romaine Executive Officers of Little Falls Bancorp, Inc. and/or Little Falls Bank Leonard G. Romaine, President Richard A. Capone, Chief Financial Officer and Treasurer Anne Bracchitta, Secretary Michael J. Allen, Vice President Denise Hopper, Vice President Della Talerico, Vice President Corporate Counsel Vincent N. Marino, Esq. 86 Main Street Little Falls, NJ 07424 Independent Auditors Radics & Co., LLC 55 US Highway #46 Pine Brook, NJ 07058 Special Counsel Malizia, Spidi, Sloane & Fisch, P.C. One Franklin Square 1301 K Street NW Suite 700 East Washington, DC 20005 Transfer Agent and Registrar Chase Mellon Shareholder Services, LLC 450 W 33rd Street New York, NY 10001-2697 The Company's Annual Report for the Year-Ended December 31, 1997, filed with the Securities and Exchange Commission on Form 10-K without exhibits, is available without charge upon written request. For a copy of Form 10-K or any other investor information, please write the Secretary of the Company at 86 Main Street, Little Falls, New Jersey. Copies of any exhibits to the Form 10-K are available at cost. The Annual Meeting of Stockholders will be held on April 21, 1998 at 3:00 pm at The Bethwood, Lackawanna Avenue, Totowa, New Jersey. 4 - -------------------------------------------------------------------------------- Corporate Headquarters and Branch Locations - -------------------------------------------------------------------------------- LITTLE FALLS BANCORP, INC. 86 Main Street Little Falls, New Jersey 07424 (973)256-6100 LITTLE FALLS BANK MAIN OFFICE 86 Main Street Little Falls, New Jersey 07424 BRANCH OFFICES WEST PATERSON Route 46 & McBride Avenue West Paterson, New Jersey 07424 SPRUCE RUN 220 Main Street Glen Gardner, New Jersey 08826 MILFORD 34 Bridge Street Milford, New Jersey 08848 ALEXANDRIA 636 Milford-Frenchtown Road Alexandria Township, New Jersey 08848 KINGWOOD Routes 12 and 519 Baptistown, New Jersey 08825 [GRAPHICS OMITTED] Little Falls Office and Corporate Headquarters Kingwood Office Alexandria Office Milford Office Spruce Run Office West Paterson Office 5 - -------------------------------------------------------------------------------- Community Services - -------------------------------------------------------------------------------- [GRAPHICS OMITTED] Little Falls Bank, its Board of Directors, Management and Staff are firmly committed to the communities we serve. From street fairs to team sponsorships, from church and civic support to the health and well-being of every age group, Little Falls Bank takes very seriously the importance of its role in the community. Milford Fair Milford Fair Milford Fair Kingwood Fair and Flea Market - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- Corporate Profile Little Falls Bancorp, Inc. (the "Company") is a New Jersey corporation organized in August 1995 at the direction of the Board of Directors of the Little Falls Bank (the "Bank") to acquire all of the capital stock of the Bank issued upon its conversion from the mutual to stock form of ownership on January 5, 1996 (the "Conversion"). In connection with the Conversion, the Company sold 3,041,750 shares of Common Stock for net proceeds of $26.8 million. 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. At the present time, because the Company does not conduct any active business, the Company does not intend to employ any persons other than officers of the Bank but utilizes the support staff of the Bank from time to time. 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. The Bank attracts deposits from the general public and uses such deposits primarily to originate loans secured by first mortgages on owner-occupied one- to four-family residences in its market area, purchase loans to diversify its loan portfolio, and to purchase mortgage-backed and investment securities. The Bank also originates a limited number of commercial real estate, residential construction, and consumer loans, which consists mainly of second mortgages and home equity lines of credit. Stock Market Information Since its issuance on January 5, 1996, the Company's common stock has traded on the Nasdaq National Market. The following table reflects the stock price as published by the Nasdaq National Market. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. HIGH LOW October 1, 1997 - December 31, 1997 $20 1/2 $16 1/4 July 1, 1997 - September 30, 1997 18 1/2 15 1/4 April 1, 1997 - June 30, 1997 15 7/8 12 5/8 January 1, 1997 - March 31, 1997 14 1/8 12 1/4 October 1, 1996 - December 31, 1996 13 3/4 11 July 1, 1996 - September 30, 1996 11 3/4 10 April 1, 1996 - June 30, 1996 11 9 1/2 January 5, 1996 - March 31, 1996 11 7/8 10 The number of stockholders of record of common stock as of the record date of March 23, 1998 ("Record Date"), was approximately 418.This does not reflect the number of persons or entities who held stock in nominee or "street" name through various brokerage firms. As of the Record Date, there were 2,477,525 shares outstanding. 7 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- The Company's ability to pay dividends to stockholders is subject to the requirements of New Jersey law. No dividend may be paid by the Company unless its board of directors determines that the Company will be able to pay its debts in the ordinary course of business after payment of the dividend. In addition, the Company's ability to pay dividends is dependent, in part, upon the dividends it receives from the Bank. The Bank may not declare or pay a cash dividend on any of its stock if the effect thereof would cause the Bank's regulatory capital to be reduced below (1) the amount required for the liquidation account established in connection with the Bank's conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by the Office of Thrift Supervision ("OTS"). Selected Financial Condition Data
December 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands) Total Assets ................................ $328,522 $303,518 $310,355 $193,385 $202,280 Loans receivable (net) ...................... 147,033 117,116 96,230 94,754 101,775 Mortgage-backed securities held to maturity ........................ 90,957 112,473 118,020 51,664 56,401 Mortgage-backed securities available for sale ................. 13,929 -- -- -- -- Investment securities - held to maturity ........................... 57,988 51,370 29,999 36,146 24,999 Cash and cash equivalents ................... 6,788 10,374 53,419 4,065 12,608 Deposits .................................... 230,133 228,312 247,851 176,173 186,704 Stockholders' equity ........................ 38,295 40,448 16,223 15,715 14,149 Selected Operating Data
Year Ended December 31, ----------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands) Total interest income ....................... $ 21,064 $ 18,776 $ 13,813 $ 13,075 $ 14,237 Total interest expense ...................... 12,920 11,258 9,314 7,170 7,708 Net interest income ................ 8,144 7,518 4,499 5,905 6,529 Provision for loan losses ................... 240 183 131 356 328 Net interest income after provision for loan losses . 7,904 7,335 4,368 5,549 6,201 Total non-interest income ................... 427 409 178 143 917 Total non-interest expense .................. 5,403 6,747(1) 3,059,912 Income before provision for income taxes and cumulative effect of accounting change ........ 2,928 996 705 2,781 4,058 Income tax expense .......................... 1,072 385 241 1,066 1,493 Net income before cumulative effect of accounting change 1,856 611 464 1,715 2,565 Cumulative effect of accounting change ............................. -- -- -- -- 325(3) Net income ......................... $ 1,856 $ 611 $ 464 $ 1,715 $ 2,890
(footnotes on following page) 8 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- Other Selected Data
Year Ended December 31, --------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Return on average assets 0.60% 0.21%(1) 0.22% 0.86% 1.43% Return on average equity 4.74% 1.44%(1) 2.89% 11.62% 21.67% Average equity to average assets 12.57% 14.78% 7.64% 7.62% 6.42% Net interest rate spread 2.27% 2.22% 1.97% 2.86% 3.20% Per Share Information: Diluted earnings per share(4) $0.75 $0.22 N/A N/A N/A Dividends per share(4) $0.155 $0.05 N/A N/A N/A Tangible book value per share(4) $13.59 $13.56 N/A N/A N/A Dividend payout ratio(4) 20.62% 22.28% N/A N/A N/A Non-performing assets to total assets 0.57% 0.91% 1.27% 3.09% 2.85% Non-performing loans to total assets 0.39% 0.63% 0.79% 2.18% 1.93% Allowance for loan losses to total loans 0.79% 0.92% 0.98% 1.21% 0.79%
- ----------------------- (1) Includes one-time special assessment to recapitalize the SAIF. (2) Includes a non-recurring expense of $195,000 due to the implementation of a directors' medical plan. (3) Reflects the adoption of Statement of Financial Accounting Standard ("SFAS") No. 109 which relates to the accounting of deferred income taxes. (4) No shares of common stock were outstanding until January 5, 1996. 9 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General 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. Financial Condition The Bank's total assets increased by $24.9 million to $328.5 million at December 31, 1997 from $303.5 million at December 31, 1996. Total loans receivable increased by $29.9 million due to mortgage originations of $27.3 million and the purchase of $15.1 million of multi-family loans located in New York and New Jersey, offset somewhat by loan repayments. Investment securities increased by $6.6 million due to purchases of $16.0 million offset by securities which matured or were called. Mortgage-backed securities held to maturity decreased by $21.5 million due to repayments of principal. $14.0 million of adjustable rate mortgage-backed securities were purchased during the year and classified as available for sale. Total cash and cash equivalents decreased by $3.6 million. Total deposits increased by $1.8 million. Borrowed funds increased by $25.1 million due to $15.0 million of FHLB reverse repurchase agreements being used to fund the above noted purchase of $15.l million of multi-family loans, and $10 million of FHLB reverse repurchase agreements being used to fund the purchase of adjustable rate mortgage-backed securities. These securities were used as collateral for the borrowing. Total stockholders' equity decreased by $2.0 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 for the year. 10 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- Average Balance, Net Interest Income, Yields Earned and Rates Paid The following table sets forth certain information relating to the Bank's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. 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 difference in the information presented.
1997 1996 1995 ----------------------------- ---------------------------- ---------------------------- Average Average Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost ------- ------------------- ------- ------------------- ------- ------------------- (Dollars in Thousands) Interest-earning assets: Loans receivable(1) $131,625 $10,081 7.66% $105,794 $ 8,255 7.80% $ 93,638 $ 7,580 8.09% Mortgage-backed securities(5) 107,304 7,118 6.63 119,684 7,972 6.64 63,605 3,839 6.04 Investment securities(2) 55,615 3,624 6.52 40,316 2,164 5.37 36,163 1,998 5.52 Other interest-earning assets 4,596 241 5.24 7,431 385 5.18 6,900 395 5.72 -------- ------- -------- ------- -------- ------- Total interest-earning assets 299,140 21,064 7.04 273,225 18,776 6.87 200,306 13,812 6.90 ------- ------- ------- Non-interest-earning assets 12,566 14,223 9,940 -------- ------- -------- Total assets $311,706 $287,448 $210,246 ======== ======== ======== Interest-bearing liabilities: Savings accounts $ 45,724 1,440 3.15 $ 51,633 1,860 3.60 $ 31,425 929 2.95 Now and money market 32,788 642 1.96 39,270 1,155 2.94 27,099 1,086 4.01 Certificates of deposit 148,122 8,246 5.57 147,707 8,068 5.46 130,513 7,299 5.59 Borrowed funds 43,975 2,592 5.89 3,173 175 5.52 -- -- -- -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities 270,609 12,920 4.77 241,783 11,258 4.66 189,037 9,314 4.93 ------- ------- ------- Non-interest bearing liabilities 1,928 3,171 5,149 -------- ------- -------- Total liabilities 272,537 244,954 194,186 Retained earnings 39,169 42,494 16,060 -------- ------- -------- Total liabilities and retained earnings $311,706 $287,448 $210,246 ======== ======== ======== Net interest income $ 8,144 $ 7,518 $ 4,498 ======= ======= ======= Interest rate spread(3) 2.27% 2.21% 1.97% ==== ==== ==== Net yield on interest-earning assets(4) 2.72% 2.75% 2.25% ==== ==== ==== Ratio of average interest-earning assets to average interest- bearing liabilities 110.54% 111.00% 105.96% ====== ====== ======
- ------------- (1) Average balances include non-performing loans. (2) Includes interest-bearing deposits in other financial institutions and FHLB 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) Includes both held to maturity and available for sale. 11 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- The table below sets forth certain information regarding changes in interest income and interest expense of the 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 prior rate); (ii) changes in rates (changes in rate multiplied by prior average volume); (iii) changes in rate-volume (changes in rate multiplied by the change in average volume).
Year Ended December 31, ----------------------------------------------------------------------------------- 1997 vs. 1996 1996 vs. 1995 ---------------------------------------- --------------------------------------- Increase (Decrease) Increase (Decrease) Due to Due to ---------------------------------------- --------------------------------------- Rate/ Rate/ Volume Rate Volume Net Volume Rate Volume Net ------ ----- ------- ------- ------- ------- ------- ------- (In Thousands) Interest income: Loans receivable .............. $ 2,016 $ (152) $ (38) $ 1,826 $ 985 $(274) $ (36) $ 675 Mortgage-backed securities .... (825) (33) 4 (854) 3,385 398 351 4,134 Investment securities ......... 821 463 176 1,460 142 22 2 166 Other interest-earning assets . (147) 5 (2) (144) 45 (49) (6) (10) ------ ----- ------- ------- ------- ------- ------- ------- Total interest-earning assets 1,865 283 140 2,288 4,557 97 311 4,965 ------ ----- ------- ------- ------- ------- ------- ------- Interest expense: Savings accounts .............. (213) (234) 27 (420) 597 203 131 931 Now and money market .......... (191) (386) 64 (513) 488 (289) (130) 69 Certificates of deposit ....... 23 155 -- 178 962 (170) (22) 770 Borrowed funds ................ 2,250 12 155 2,417 175 -- -- 175 Total interest-bearing liabilities ........ 1,869 (453) 246 1,662 2,222 (256) (21) 1,945 ------ ----- ------- ------- ------- ------- ------- ------- Net change in net interest income ............... $ (4) $ 736 $ (106) $ 626 $ 2,335 $ 353 $ 332 $ 3,020 ====== ===== ======= ======= ======= ======= ======= =======
Comparison of Operating Results for Years Ended December 31, 1997 and 1996 General. Net income increased by $1.2 million, or 203.8% to $1.9 million for the year ended December 31, 1997 from $611,000 for the year ended December 31, 1996. The increase in earnings for the year was due in part to the $1.2 million charge in the third quarter of 1996 connected with a one time special assessment from the Savings Association Insurance Fund ("SAIF"). This one time assessment was the result of legislation that was effective on September 30, 1996 for the purpose of recapitalizing the SAIF. Other factors for the increase in earnings were an increase of $569,000 in net interest income after the provision for loan losses, a decrease of $62,000 in the loss on foreclosed real estate and an additional decrease of $270,000 in deposit insurance premiums offset somewhat by increases in the provision for income taxes of $687,000, and miscellaneous expense of $184,000. 12 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- Interest Income. Interest income increased $2.3 million, or 12.2% to $21.1 million for the year ended December 31, 1997 from $18.6 million for the year ended December 31, 1996. The increase was primarily due to increases of $25.8 million and $15.3 million in the average balances of loans and investment securities, respectively, offset somewhat by decreases of $12.4 million and $2.8 million in the average balances of mortgage-backed securities and other interest earnings assets, respectively. Also, the average yield on all interest earning assets increased by 17 basis points to 7.04%. In addition, the payoff of two problem loans resulted in the recording of approximately of $170,000 of income previously reserved for. Interest Expense. Interest expense increased $1.7 million to $12.9 million for the year ended December 31, 1997 from $11.3 million for the year ended December 31, 1996. This was due to an increase in the average balance of borrowed funds of $40.8 million coupled with an increase in the average rate paid on interest-bearing liabilities of 11 basis points (100 basis points equals 1%) to 4.77% partially, offset by a decrease in the average balance of interest-bearing deposits of $12.0 million. Net Interest Income. Net interest income increased by $626,000, or 8.3% for the year ended December 31, 1997 as compared to the year ended December 31, 1996. The increase was due to the reasons noted above. Provision for Losses on Loans. The Bank maintains an allowance for loan losses based upon management's periodic evaluation of known and inherent risks in the loan portfolio, the Bank's past loss experience, adverse situations that may affect the borrowers' ability to repay loans, estimated value of the underlying collateral and current and expected market conditions. The provision for loan losses increased $57,000 or 31.2% to $240,000 for the year ended December 31, 1997 from $183,000 for the year ended December 31, 1996, primarily due to the increase in the loan portfolio. The allowance for loan losses was $1.2 million at December 31, 1997. While the Bank maintains its allowance for losses at a level which it considers to be adequate, there can be no assurance that further additions will not be made to the loss allowances and that such losses will not exceed the estimated amounts. Non-Interest Income. Non-interest income increased by $19,000, or 4.7% to $428,000 at December 31, 1997 from $409,000 at December 31, 1996. A gain of $125,000 was recorded on the sale of the Bank's Frenchtown office building in 1997. The Frenchtown branch was closed in 1996, and the related deposits were transferred to the Bank's other Hunterdon County offices. This offset a gain of $138,000 recorded in 1996 on the sale of the deposits of the Bank's Mount Holly office to an unaffiliated financial institution. Non-Interest Expense. Non-interest expense decreased $1.3 million, or 19.9% to $5.4 million at December 31, 1997 from $6.7 million for the year ended December 31, 1996. This decrease was primarily due to the $1.2 million charge in the third quarter of 1996 connected with a one time special assessment from the Savings Association Insurance Fund ("SAIF"). This one time assessment was the result of legislation that was effective on September 30, 1996 for the purpose of recapitalizing the SAIF. Other factors for the decrease in non-interest expense were the additional decrease in deposit insurance premiums of $270,000, a decrease of $62,000 in the loss on foreclosed real estate offset somewhat by an increase of $184,000 in miscellaneous expense. 13 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- The decrease on the loss on foreclosed real estate was primarily due to a gain of $11,000 being recorded on the sales of foreclosed properties for the year ended December 31, 1997, compared to a loss of $28,000 on the sale of foreclosed properties for the year ended December 31, 1996. Miscellaneous expense increased by $184,000 due in most part to the expense connected with the director's management stock bonus plan, which increased to $139,000 in 1997 from $39,000 for 1996 due to a full year of vesting, an increase in legal expense of $50,000 and a loss of $19,000 on the sale of the Bank's Mount Holly office. The deposits of this branch were sold in 1996. A great deal of information has been disseminated about the global computer year 2000. Many computer programs that can only distinguish the final two digits of the year entered (a common programming practice in earlier years) are expected to read entries for the year 2000 as the year 1900 and compute payment, interest or delinquency based on the wrong date or are expected to be unable to compute payment, interest or delinquency. Rapid and accurate data processing is essential to the operation of the Bank. Data processing is also essential to most other financial institutions and many other companies. All of the material data processing of the Bank that could be affected by this problem is provided by a third party service bureau. The service bureau of the Bank has advised the Bank that it expects to be year 2000 complaint prior to December 31, 1999. However, if the service bureau is unable to resolve this potential problem in time, the Bank would likely experience significant data processing delays, mistakes or failures. These delays, mistakes or failures could have a significant adverse impact on the financial condition and results of operation of the Bank. Income Tax Expense. Income tax expense increased $687,000, or $178.2% to $1.1 million for the year ended December 31, 1997 from $385,000 for the year ended December 31, 1996. This increase was due to an increase in pre-tax income of $1.9 million. Comparison of Operating Results for the Years Ended December 31, 1996 and 1995 General. Net income increased $147,000 or 31.7% to $611,000 for the year ended December 31, 1996 from $464,000 for the year ended December 31, 1995. This was primarily the result of a $3.0 million increase in net interest income and a $230,000 increase in non-interest income, offset by a $2.9 increase in non-interest expenses and an $144,000 increase in the provision for income taxes in fiscal 1996 compared to fiscal 1995. Interest Income. Interest income increased $5.0 million or 35.9% to $18.8 million for the year ended December 31, 1996 from $13.8 million for the year ended December 31, 1995. This increase was primarily due to increases of $56.1 million and $12.2 million in the average balances of mortgage-backed securities and loans receivable, respectively. These increases were primarily due to the funds received from the purchase of three branches in December, 1995 and from the Conversion. Interest Expense. Interest expense increased $1.9 million, or 20.9% to $11.3 million for the year ended December 31, 1996 from $9.3 million for the year ended December 31, 1996. The increase was mainly due to the increase in the average balance of interest-bearing deposits to $238.6 million for the year ended December 31, 1996 from $189.0 million for the year ended December 31, 1995. In addition, the average balance of borrowed funds increased to $3.2 million during 1996. In 1995, the Company had - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- no borrowed funds. The increase in the average balance of interest-bearing liabilities was offset somewhat by the decrease in the average rate paid on interest-bearing liabilities of 29 basis points (100 basis points equals 1%) to 4.66% for the year ended December 31, 1996. Net Interest Income. Net interest income increased by $3.0 million, or 67.1% for the year ended December 31, 1996 as compared to the year ended December 31, 1995. This increase was due to the investment of $26.8 million received from the Conversion in loans and mortgage-backed securities and the decrease in the average rate paid on interest-bearing liabilities, as described earlier. This resulted in an increase in the net interest spread and net interest margin to 2.21% and 2.75%, respectively, for the year ended December 31, 1996 compared with a net interest spread and net interest margin of 1.97% and 2.25%, respectively, for the year ended December 31, 1995. Provision for Losses on Loans. The Bank maintains an allowance for loan losses based upon management's periodic evaluation of known and inherent risks in the loan portfolio, the Bank's past loss experience, adverse situations that may affect the borrowers' ability to repay loans, estimated value of the underlying collateral and current and expected market conditions. The provision for loan losses increased $52,000 or 39.2% to $183,000 for the year ended December 31, 1996 from $131,000 for the year ended December 31, 1995, primarily due to the write-off of a loan in the third quarter. The allowance for loan losses was $936,000 at December 31, 1996. While the Bank maintains its allowance for losses at a level which it considers to be adequate, there can be no assurance that further additions will not be made to the loss allowances and that such losses will not exceed the estimated amounts. Non-Interest Income. Non-interest income increased by $230,000, or 129.3% to $409,000 for the year ended December 31, 1996 from $178,000 for the year ended December 31, 1995. The increase was due in most part to a $138,000 gain recorded on the sale of the Mount Holly deposits in December, 1996. Income on checking accounts increased by $70,000 to $121,000 for the year ended December 31, 1996, from $51,000 for the year ended December 31, 1995 primarily due to the increase in checking accounts that resulted from the purchase of three branches from an unaffiliated commercial bank. Non-Interest Expense. Non-interest expense increased $2.9 million, or 75.7% to $6.7 million for the year ended December 31, 1996 from $3.8 million for the year ended December 31, 1995. This was primarily due to the increase in deposit insurance premiums of $1.2 million, or 286.9%. This increase was due to a special assessment charged by the FDIC on its SAIF members to capitalize the SAIF at the designated reserve level of 1.25% as of October 1, 1996. The Bank paid $1.2 million in November 1996 for this special assessment. The FDIC has subsequently lowered its premium rate for deposits. Other factors causing the increase in non-interest expense was the increase in compensation and employee benefits of $920,000 and the increase in other expenses of $714,000. The increase in compensation and employee benefits was due to the additional employees resulting from the purchase of three branch offices in December 1995, the adoption of an employee stock ownership plan ("ESOP") and the management stock bonus plan ("MSBP"). For the year ended December 31, 1996, the ESOP and MSBP expenses were $178,000 and $49,000, respectively. The acquisition of the branch offices also caused increases in occupancy, equipment and deposit insurance premiums. In addition, the acquisition resulted in an increase in the amortization of goodwill to $361,000 for the year ended December 31, 1996, from $30,000 for the year ended December 31, 1995. 15 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- The 1996 increases were partially offset by a nonrecurring 1995 expense of $195,000 for the implementation of a directors' medical plan, which was recorded during the three months ended June 30, 1995. On August 30, 1996, the Bank closed its Frenchtown office. The decision to close the branch was based on management's evaluation of the purchase of three branch offices in the same county from an unaffiliated commercial bank in December 1995 and the ability of the Bank to decrease expenses and improve efficiencies through consolidation. On December 20, 1996, the Bank closed its Mount Holly office, and sold the related deposits to an unaffiliated local financial institution. This should result in decreased operating expenses going forward. Income Tax Expense. Income tax expense increased $144,000 to $385,000 for the year ended December 31, 1996 from $241,000 for the year ended December 31, 1995 due to an increase in pre-tax income of $291,000. Risk Management In an effort to reduce interest rate risk and protect it from the negative effect of rapid increases and decreases in interest rates, the Bank has instituted certain asset and liability management measures including emphasizing the origination of three, five and ten year adjustable-rate mortgage loans and investing excess funds in short- and medium-term mortgage-backed and investment securities. The Bank retains an asset/liability consultant, FinPro, Inc., to assist it in analyzing its asset liability position. With the consultant's assistance, the Bank undertakes a quarterly extensive study of various trends, conducts separate deposit and asset analyses and prepares various asset/liability tables including contractual interest rate gap, interest rate gap with prepayment assumptions, margin/spread and duration tables. Interest rate gap analysis measures the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of times and their sensitivity to changing interest rates. The Bank, like many other thrift institutions, is exposed to interest rate risk as a result of the difference in the maturity of interest-bearing liabilities and interest-earning assets and the volatility of interest rates. Most deposit accounts react more quickly to market interest rate movements than do the existing mortgage loans because of the deposit accounts' shorter terms to maturity; sharp decreases in interest rates would typically increase the Bank's earnings. Conversely, this same mismatch will generally adversely affect the Bank's earnings during periods of increasing interest rates. The extent of movement of interest rates is an uncertainty that could have a negative impact on the earnings of the Bank. Volatility in interest rates can also result in disintermediation, which is the flow of funds away from savings institutions (such as the Bank) and into other investments, such as U.S. Government and corporate securities and other investment vehicles. Because of the absence of federal insurance premiums and reserve requirements, such investments may pay higher rates of return than investment vehicles offered by savings institutions. 16 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- In order to monitor its interest rate risk, the Company utilizes the services of an outside consultant to calculate the sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. The Company's interest rate risk ("IRR") is measured as the change to its NPV as a result of hypothetical 100 basis point ("bp") changes in market interest rates. Net Portfolio Equity Value NPV as % of PV of Assets -------------------------- ------------------------ Change in Interest Rates $ Change in Basis Points in Market % Change (Rate Shock) Amount Value(1) From Base NPV Ratio(2) Changes(3) ------------ ------ -------- --------- ------------ ---------- (Dollars in Thousands) 300 31,935 (10,532) (25) 10.41% (251)bp 200 35,610 (6,857) (16) 11.33% (159)bp 100 39,121 (3,346) (8) 12.16% (76)bp Static 42,467 -- -- 12.92% -- (100) 45,649 3,182 7 13.61% 69 bp (200) 48,667 6,200 15 14.23% 131 bp (300) 51,521 9,054 21 14.80% 188 bp - -------------------- (1) Represents the increase (decrease) of the estimated NPV at the indicated change in interest rates compared to the NPV assuming no change in interest rates. (2) Calculated as the estimated NPV divided by the present value of total assets. The Company's PV is the estimated present value of total assets. (3) Calculated as the increase (decrease) of the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates. Certain assumptions utilized by the Company in assessing its interest rate risk were employed in preparing the previous table. These assumptions related to interest rates, loan prepayment rates, core deposit duration, and the market values of certain assets under the various interest rate scenarios. It was also assumed that delinquency rates will not change as a result of changes in interest rates although there can be no assurance that this will be the case. The calculation methodology used by the Company has certain shortcomings which include, among others, that the repricing of both loans and deposits is often discretionary and under the control of the Bank's customers. Even if interest rates change in the designated amounts, there can be no assurance that the Company's assets and liabilities would perform as projected. Generally, net interest income should decrease with an instantaneous 100 basis point increase in interest rates while net interest income should increase with instantaneous declines in interest rates. Generally, during periods of increasing interest rates, the Company's liabilities are expected to reprice faster than its assets, causing a decline in the Company's interest rate spread. This would result from an increase in the Company's cost of funds that would not be immediately offset by an increase in its yield on earning assets. An increase in the cost of funds without an equivalent increase in the yield on interest-earning assets would tend to reduce net interest income. 17 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- Liquidity and Capital Resources The Bank is required under applicable federal regulations to maintain specified levels of "liquid" investments in qualifying types of U.S. Government, federal agency and other investments. OTS regulations require that a savings association maintain liquid assets of not less than 4% of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. At December 31, 1997, the Bank's liquidity was in excess of the minimum requirement. The Bank adjusts liquidity as appropriate to meet its asset/liability objectives. The Bank's primary sources of funds are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and funds provided from operations. While scheduled loan repayments are a relatively predictable source of funds, deposit flows and loan and mortgage-backed security prepayments are significantly influenced by general interest-rates, economic conditions and competition. In addition, the Bank invests excess funds in overnight deposits which provide liquidity to meet lending requirements. The Bank's most liquid asset is cash, which includes investments in highly liquid short-term investments. The level of these assets are dependent on the Bank's operating, financing and investing activities during any given period. At December 31, 1997, cash and cash equivalents totaled $6.8 million. The Bank has other sources of liquidity if a need for additional funds arises. Another source of liquidity is the repayment and prepayment of mortgage-backed and investment securities. Additional sources of funds include the ability to utilize FHLB of New York advances and the ability to borrow against mortgage-backed and investment securities. At December 31, 1997, the Bank had a $9 million repurchase agreement with a rate of 5.82%. The repurchase agreement matures in December 1999, and has a one time call feature at December 20, 1998. The repurchase agreement was used to fund the sale of the Mount Holly branch deposits which were sold in December 1996. In an effort to increase earnings, reduce the Company's interest rate sensitivity, and to better match its interest rate position, on November 13, 1996, the Company entered into a financial transaction whereby it purchased a $25.0 million fixed-rate FNMA note and simultaneously borrowed $25.0 million from an independent third party using the FNMA note as collateral. The note has an initial term of ten years at an annual rate of 7.2% and is callable after two years and continuously thereafter. The borrowings are comprised of a combination of repurchase agreements with remaining terms of two months. The annual rates payable on these repurchases agreements are 5.77% and 5.74%. (These advances were subsequently rolled over for 6 months, nine months and nine months with new rates of 5.62%, 5.62% and 5.61%, respectively). On July 10, 1997, the Bank borrowed $10.0 million from the FHLB of New York and used these funds to purchase two agency collateralized mortgage obligation ("CMO") securities. The securities consist of a $1.5 million FNMA which adjusts monthly to the 30 day LIBOR rate plus 125 basis points with a 10% cap, and an $8.2 million FHLMC which adjusts monthly to the 30 day LIBOR rate plus 115 basis points with a 9% cap. Both securities meet the OTS guidelines set forth in Thrift Bulletin 13. The securities were used as collateral for the $10.0 million borrowing, which was set up initially as a 30 day repurchase agreement and has been rolled over monthly since it's inception. At December 31, 1997, the rate on the borrowed funds was 6.05%: (This advance was subsequently rolled over twice in 1998 at a rate of 5.61% each time). On August 1, 1997, the Bank borrowed $15.0 million from the Federal Home Loan Bank of New York with 18 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- a term of one year and a rate of 5.8%. These funds were used to purchase $15.1 million of loan participations on apartment buildings. These participations have an approximate yield of 8.36%. The Bank's cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Cash flows from operating activities, consisting primarily of net income adjusted for depreciation, amortization and provisions for loan and real estate owned losses, were $3.4 million, $1.6 million, and $368,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Net cash used in investing activities consisted primarily of disbursement of loan originations, loan purchases, mortgage-backed security purchases and investment purchases, offset by principal collections on loans and mortgage-backed securities and proceeds from the maturities of investment securities, were $29.5, $37.2 million, and $12.8 million for fiscal 1997, 1996 and 1995, respectively. Net cash provided by (used in) financing activities consisting primarily of proceeds from stock subscriptions, net activity in deposit and escrow accounts, and activity in borrowed funds were $22.5 million, $(7.5) million and $61.8 million for the years ended December 31, 1997, 1996 and 1995, respectively. Operating activities in 1997 provided $3.4 million in cash primarily due to net income of $1.9 million adjusted for $149,000 in depreciation, $367,000 in the provision for loan and real estate owned lossed and $361,000 of goodwill amortization. Investing activities in 1997 used $29.5 million due to $16.0 million, $14.0 million and $15.1 million in purchases of investment securities held to maturity, mortgage-backed securities available for sale, and loans, respectively, and the $15.0 million increase in loans receivable, offset somewhat by $21.4 million from principal collections on mortgage-backed securities held to maturity and $9.3 million from the maturity of investment securities held to maturity. Financing activities in 1997 provided $22.5 million due to a $1.8 million change in deposits and $25.1 million increase in borrowed funds offset somewhat by $1.7 million and $2.4 million for the purchase of stock by the MSBP program and the repurchase of shares of stock for the stock repurchase program, respectively. Operating activities in 1996 provided $1.6 million in cash primarily due to net income of $611,000 adjusted for $153,000 in depreciation, a $183,000 provision for loan and real estate owned losses, $361,000 of goodwill amortization. Investing activities in 1996 used $37.2 million due to $16.1 million and $32.3 million in purchases of mortgage-backed and investment securities, respectively, and a $21.3 million increase in loans receivable, $11.0 million from the maturity of investment securities held to maturity, and $21.5 million from principle collections on mortgage-backed securities held to maturity. Financing activities used $7.8 million due to a $7.5 million decrease in deposits, a $19.7 million refunding of oversubscribed deposits related to the initial public offering completed in January 1996, $9.1 million used to fund the sale of the deposits of the Mount Holly branch, and $3.3 million for the repurchase of common stock, offset somewhat by an increase in borrowed funds of $33.6 million. Operating activities in 1995 provided $368,000 in cash due primarily to net income of $464,000 adjusted for $103,000 in depreciation, a $382,000 provision for loan and real estate owned losses and $355,000, $127,000 and $528,000 increases in interest receivable, net, interest payable and other assets, respectively. Investing activities in 1995 used $12.8 million due to $75.2 million and $6.0 million in purchases of mortgage-backed and investment securities, respectively, and $2.2 million due to an 19 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. - -------------------------------------------------------------------------------- increase in loans receivable offset somewhat by $49.3 million of cash received in connection with the branch acquisitions, $12.2 million provided due to the maturity of investment securities held to maturity and $8.8 million from principle collections on mortgage-backed securities held to maturity. Financing activities provided $61.6 million primarily due to $44.8 million in proceeds from stock subscriptions and a $17.1 million increase in deposits. The Bank anticipates that it will have sufficient funds available to meet its current commitments. As of December 31, 1997, the Bank had mortgage commitments to fund loans of $3.2 million. Also, at December 31, 1997, there were commitments on unused lines of credit relating to home equity loans of $4.1 million. Certificates of deposit scheduled to mature in one year or less at December 31, 1997 totaled $130.8 million. Based on historical deposit withdrawals and outflows, and on internal monthly deposit reports monitored by management, management believes that a majority of such deposits will remain with the Bank. As a result, no adverse liquidity effects are expected. At December 31, 1997, the Bank exceeded each of the three regulatory capital requirements on a fully phased-in basis. See Note 11 of Notes to Consolidated Financial Statements. Impact of Inflation and Changing Prices The financial statements of the Bank and notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting principles, 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 and due to inflation. The impact of inflation is reflected in the increased cost of the Bank's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary. As a result, interest rates have a greater impact on the Bank's performance than do the effects of general levels of inflation. Interest rates do not necessary move in the same direction or to the same extent as the price of goods and services. 20 - -------------------------------------------------------------------------------- Financial Statements - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Financial Statements (With Independent Auditors' Report Thereon) December 31, 1997 -------------------------------------- INDEX F-2 Management Responsibility Statement F-3 Independent Auditors' Report F-4 Consolidated Statements of Financial Condition as of December 31, 1997 and 1996 F-5 Consolidated Statements of Income for Each of the Years in the Three Year Period Ended December 31, 1997 F-6 Consolidated Statements of Changes in Stockholders' Equity for Each of the Years in the Three Year Period Ended December 31, 1997 F-7 - 8 Consolidated Statements of Cash Flows for Each of the Years in the Three Year Period Ended December 31, 1997 F-9 - 40 Notes to Consolidated Financial Statements F-1 Logo Little Falls Bancorp, Inc. 86 Main Street Little Falls, NJ 07424-1493 201.256.6100 January 16, 1998 Management Responsibility Statement ----------------------------------- Management of Little Falls Bancorp, Inc. is responsible for the preparation of the consolidated financial statements and all other financial information included in this report. The consolidated financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis. All financial information included in the report agrees with the consolidated financial statements. In preparing the consolidated financial statements, management makes informed estimates and judgments, with consideration given to materiality, about the expected results of various events and transactions. Management maintains a system of internal accounting control that includes personnel selection, appropriate division of responsibilities, and formal procedures and policies consistent with high standards of accounting and administrative practice. Consideration has been given to the necessary balance between the costs of,systems of accounting and internal control and the benefits derived. Management reviews and modifies its systems of accounting and internal control in light of changes in conditions and operations as well as in response to recommendations from the independent certified public accountants. Management believes the accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable. The Board of Directors is responsible for determining that management fulfills its responsibilities in the preparation of the consolidated financial statements and the control of operations. The Board appoints the certified public accountants. The Board meets with management and the independent certified public accountants, approves the overall scope of audit work and related fee arrangements and reviews audit reports and findings. /s/Leonard G. Romaine Richard - ----------------------------- Leonard G. Romaine Richard President /s/A. Capone - ------------ A. Capone Chief Financial Officer and Treasurer F-2 Independent Auditors' Report To The Board of Directors and Stockholders Little Falls Bancorp, Inc. Little Falls, New Jersey We have audited the consolidated statements of financial condition of Little Falls Bancorp, Inc. (the "Company") and subsidiary as of December 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 December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the second preceding paragraph present fairly, in all material respects, the consolidated financial position of Little Falls Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996 and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Radics & Co., LLC - -------------------- Pine Brook, New Jersey January 16, 1998, except for the last paragraph of Note 2, as to which the date is January 27, 1998 F-3 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Statements of Financial Condition - --------------------------------------------------------------------------------
December 31, ------------------------------ Assets Notes 1997 1996 ------------- ------------- ------------- Cash and due from banks ........................................ $ 2,737,709 $ 1,746,743 Interest-bearing deposits in other banks ....................... 550,522 3,627,221 Federal funds sold ............................................. 3,500,000 5,000,000 ------------- ------------- Total cash and cash equivalents .............. 1 and 17 6,788,23 10,373,964 Investment securities held to maturity ......................... 1, 3 and 17 57,987,644 51,370,297 Mortgage-backed securities available for sale .................. 1, 4 and 17 13,929,048 -- Mortgage-backed securities held to maturity .................... 1, 4 and 17 90,957,446 112,473,144 Loans receivable ............................................... 1, 5 and 17 147,033,259 117,115,784 Premises and equipment ......................................... 1 and 6 2,617,175 2,659,239 Investment in real estate ...................................... 1 and 7 427,317 683,054 Foreclosed real estate ......................................... 1 604,219 857,157 Interest receivable ............................................ 1 and 16 2,079,091 1,735,291 Federal Home Loan Bank of New York stock ....................... 9 and 16 2,517,60 2,075,700 Excess of cost over assets acquired ............................ 1 2,856,230 3,217,017 Other assets ................................................... 13 725,234 957,091 ------------- ------------- Total assets ................................. $ 328,522,494 $ 303,517,738 ============= ============= Liabilities and stockholders' equity Liabilities Deposits ....................................................... 8 and 17 $230,132 $ 228,311,543 Borrowed money ................................................. 10 and 17 58,719,500 33,623,500 Accounts payable and other liabilities ......................... 12 and 13 1,375,658 1,134,397 ------------- ------------- Total liabilities ............................ 290,227,833 263,069,440 ------------- ------------- Commitments .................................................... 16 and 17 -- -- Stockholders' equity ...........................................2, 11, 12 and 13 Preferred stock $.10 per value, 5,000,000 shares authorized; none issued and outstanding ............... -- -- Common stock $.10 par value, 10,000,000 shares authorized; 3,041,750 shares issued; shares outstanding 2,607,921 (1997) and 2,745,180 (1996) ................. 304,175 304,175 Additional paid in capital ..................................... 29,067,633 28,974,799 Retained earnings - substantially restricted ................... 18,275,517 16,802,056 Common stock acquired by employee stock ownership plan ("ESOP") ......................... (2,106,432) (2,271,173) Unearned restricted Management Stock Bonus Plan ("MSBP") stock, at cost .................... (1,329,167) -- Treasury stock, at cost; 433,829 and 296,570 shares at December 31, 1997 and 1996 .......... (5,632,286) (3,277,004) Unrealized loss on mortgage-backed securities available for sale, net .................... (71,062) -- Minimum pension liability, net of deferred income taxes ........ (213,717) (84,555) ------------- ------------- Total stockholders' equity ................... 38,294,661 40,448,298 ------------- ------------- Total liabilities and stockholders' equity ... $ 328,522,494 $ 303,517,738 ============= =============
See notes to consolidated financial statements. F-4 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Statements of Income - --------------------------------------------------------------------------------
Year Ended December 31, ------------------------------------ Notes 1997 1996 1995 ----------- ----------- ----------- ----------- Interest income: Loans receivable ...................................... 5 $10,081,393 $ 8,255,040 $ 7,579,947 Mortgage-backed securities ............................ 7,117,907 7,972,069 3,839,383 Investment securities and other interest-earning assets 3,864,885 2,549,230 2,393,297 ----------- ----------- ----------- Total interest income ........................ 21,064,185 18,776,339 13,812,627 ----------- ----------- ----------- Interest expense: Deposits .............................................. 8 10,327,779 11,082,926 9,313,730 Borrowings ............................................ 2,592,479 175,324 -- ----------- ----------- ----------- Total interest expense ....................... 12,920,258 11,258,250 9,313,730 ----------- ----------- ----------- Net interest income ............................................ 8,143,927 7,518,089 4,498,897 Provision for loan losses ...................................... 5 240,000 182,900 131,359 ----------- ----------- ----------- Net interest income after provision for loan losses ............ 7,903,927 7,335,189 4,367,538 ----------- ----------- ----------- Non-interest income: Service fees .......................................... 147,818 169,678 133,464 Other ................................................. 279,877 238,89 44,699 ----------- ----------- ----------- Total non-interest income .................... 427,695 408,571 178,163 ----------- ----------- ----------- Non-interest expenses: Compensation and employee benefits .................... 12 2,622,159 2,608,587 1,688,213 Occupancy, net ........................................ 6 295,305 334,406 166,347 Equipment ............................................. 6 430,366 401,510 268,841 Deposit insurance premiums ............................ 15 126,987 1,596,307 412,639 Loss on foreclosed real estate ........................ 26,900 88,981 372,304 Amortization of deposit premium ....................... 360,787 360,783 30,069 Other ................................................. 12 1,540,603 1,356,853 902,059 ----------- ----------- ----------- Total non-interest expenses .................. 5,403,107 6,747,427 3,840,472 ----------- ----------- ----------- Income before provision for income taxes ....................... 2,928,515 996,333 705,229 Provision for income taxes ..................................... 13 1,072,400 385,444 241,490 ----------- ----------- ----------- Net income ..................................................... $ 1,856,115 $ 610,889 $ 463,739 =========== =========== =========== Net income per common share: ................................... 1 and 14 Basic ................................................. $ 0.78 $ 0.22 N/A(1) =========== =========== =========== Diluted ............................................... $ 0.75 $ 0.22 N/A(1) =========== =========== ===========
(1) Little Falls Bancorp, Inc. converted to stock form on January 5, 1996. See notes to consolidated financial statements. F-5 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Statements of Changes in Stockholders' Equity - --------------------------------------------------------------------------------
Unrealized Loss on Minimum Mortgage- Pension Backed Liability, Retained Common Unearned Securities Net of Additional Earnings- Stock Restricted Available Deferred Common Paid in Substantially Acquired MSBP Treasury For Income Stock Capital Restricted By ESOP Stock Stock Sale, Net Taxes Total -------- ------------ ------------ ------------ ----------- ---------- ------------ --------- ------------ Balance - December 31, 1994 .....$ -- $ -- $ 15,863,547 $ -- $ -- $ -- $ -- $(148,825) $ 15,714,722 Net income for the year ended December 31, 1995 ..... -- -- 463,739 -- -- -- -- -- 463,739 Decrease in minimum pension liability, net of deferred income taxes ........ -- -- -- -- -- -- -- 44,762 44,762 Balance - December 31, 1995 ..... -- -- 16,327,286 -- -- -- -- (104,063) 16,223,223 Net income for the year ended December 31, 1996 ..... -- -- 610,889 -- -- -- -- -- 610,889 Net proceeds from issuance of common stock . 304,175 28,959,347 -- -- -- -- -- -- 29,263,522 Acquisition of common stock by ESOP....... -- -- -- (2,433,400) -- -- -- -- (2,433,400) ESOP shares committed to be released ..... -- 15,452 -- 162,227 -- -- -- -- 177,679 Purchase of 296,570 shares of treasury stock ......... -- -- -- -- -- (3,277,004) -- -- (3,277,004) Decrease in minimum pension liability, net of deferred income taxes . -- -- -- -- -- -- -- 19,508 19,508 Dividends paid . -- -- (136,119) -- -- -- -- -- (136,119) -------- ------------ ------------ ------------ ----------- ---------- ------------ --------- ------------ Balance - December 31, 1996 ..... 304,175 28,974,799 16,802,056 (2,271,173) -- (3,277,004) -- (84,555) 40,448,298 Net income for the year ended December 31, 1997 ..... -- -- 1,856,115 -- -- -- -- -- 1,856,115 Acquisition of common stock by MSBP....... -- -- -- -- (1,600,268) -- -- -- (1,600,268) ESOP shares committed to be released ..... -- 92,834 -- 164,741 -- -- -- -- 257,575 Amortization of MSBP stock ... -- -- -- -- 271,101 -- -- -- 271,101 Purchase of 137,259 shares of treasury stock ........ -- -- -- -- -- (2,355,282) -- -- (2,355,282) Unrealized loss on mortgage- backed securities available for sale, net .......... -- -- -- -- -- -- (71,062) -- (71,062) Increase in minimum pension liability, net of deferred income taxes . -- -- -- -- -- -- -- (129,162) (129,162) Dividends paid . -- -- (382,654) -- -- -- -- -- (382,654) -------- ------------ ------------ ------------ ----------- ---------- ------------ --------- ------------ Balance - December 31, 1997 .....$304,175 $ 29,067,633 $ 18,275,517 $ (2,106,432)$(1,329,167) $5,632,286) $ (71,062) $(213,717) $ 38,294,661 ======== ============ ============ ============ =========== ========== ============ ========= ============
See notes to consolidated financial statements F-6 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net income ........................................................ $ 1,856,115 $ 610,889 $ 463,739 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ............................................. 149,187 153,207 102,863 Provision for loan and real estate owned losses .......... 367,356 182,900 381,809 Amortization of intangibles .............................. 360,787 360,783 30,069 Amortization of deferred fees, premiums and discounts, net 117,732 40,903 7,186 Gain on sale of branch ................................... -- (136,320) -- Gain on sale of investments in real estate ............... (106,318) -- -- (Gain) loss on sale of foreclosed real estate ............ (11,086) 28,418 (27,705) Deferred income taxes .................................... (35,527) 1,808 Increase in interest receivable .......................... (343,800) (17,942) (354,543) Decrease (increase) in other assets ...................... 366,147 (2,447) Increase in interest payable ............................. 92,789 180,501 127,445 Increase in accounts payable and other liabilities ....... 55,364 256,012 163,438 ESOP shares committed to be released ..................... 257,575 177,679 -- Amortization of MSBP cost ................................ 271,101 -- -- ------------ ------------ ------------ Net cash provided by operating activities .............. 3,397,422 1,589,578 367,704 ------------ ------------ ------------ Cash flows from investing activities: Purchases of investment securities held to maturity ............... (15,977,500) (32,347,937) (6,022,500) Maturities of investment securities held to maturity .............. 9,342,000 11,000,000 12,167,500 Purchases of mortgage-backed securities available for sale ........ (14,048,125) -- -- Purchases of mortgage-backed securities held to maturity .......... -- (16,073,205) (75,243,631) Principal collections on mortgage-backed securities held to maturity .............. 21,444,380 21,500,221 8,849,495 Purchase of loans ................................................. (15,096,510) -- -- Net (increase) in loans receivable ................................ (15,023,967) (21,265,657) (2,239,571) Purchases of premises and equipment ............................... (102,193) (159,246) (482,366) Proceeds from sales of investments in real estate ................. 42,125 -- -- Proceeds for sales of foreclosed real estate ...................... 394,486 849,629 713,646 (Purchase) redemption of Federal Home Loan Bank of New York stock ........................................... (441,900) (680,500) 116,100 Cash and cash equivalents received in connection with acquisition . -- -- 49,303,415 ------------ ------------ ------------ Net cash (used in) investing activities ................ (29,467,204) (37,176,695) (12,837,912) ------------ ------------ ------------ Cash flows from financing activities: Net increase (decrease) in deposits ............................... 1,814,156 (7,464,225) 17,135,595 Decrease in advances from borrowers for taxes ..................... -- (701,773) (142,723) (Refunds of) proceeds from stock subscriptions .................... -- (19,706,653) 44,831,296 Net change in short-term borrowings ............................... 10,096,000 24,623,500 -- Proceeds of long-term borrowings .................................. 15,000,000 9,000,000 -- Costs of issuance of common stock ................................. -- (731,348) -- Dividends paid .................................................... (382,654) (136,119) -- Cash paid in connection with branch sales ......................... -- (9,064,385) -- Cost of MSBP shares ............................................... (1,688,171) -- -- Treasury stock acquired ........................................... (2,355,282) (3,277,004) -- ------------ ------------ ------------ Net cash provided by (used in) financing activities 22,484,049 (7,458,007) 61,824,168 ------------ ------------ ------------ (Decrease) increase in cash and cash equivalents (3,585,733) (43,045,124) 49,353,960 Cash and cash equivalents--beginning 10,373,964 53,419,088 4,065,128 ------------ ------------ ------------ Cash and cash equivalents--ending $ 6,788,231 $ 10,373,964 $ 53,419,088 ============ ============ ============
See notes to consolidated financial statements. F-7 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Consolidated Statement of Cash Flows - --------------------------------------------------------------------------------
Year Ended December 31, ------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Supplemental disclosures: Cash paid during the period for: Interest ....................................... $ 12,827,469 $ 11,077,749 $ 9,186,285 ============ ============ ============ Income taxes, net of refunds ................... $ 957,808 $ 410,701 $ 403,925 ============ ============ ============ Unrealized loss on mortgage-backed securities available for sale, net of deferred income taxes $ (71,062) $ -- $ -- ============ ============ ============ Loans to facilitate sales of investment in real estate .. $ 215,000 $ -- $ -- ============ ============ ============ Loans receivable transferred to foreclosed real estate .. $ 157,818 $ 406,379 $ 672,584 ============ ============ ============ Loans to facilitate sales of foreclosed real estate ..... $ -- $ 172,000 $ -- ============ ============ ============ Increase (decrease) in minimum pension liability, net of deferred income taxes $ 129,162 $ (19,508) $ (44,762) ============ ============ ============ Property transferred to investment in real estate ....... $ 9,629 $ 145,478 $ 243,667 ============ ============ ============ Issuance of common stock: Deposits used for stock purchases .............. $ -- $ 2,859,458 $ -- Stock subscriptions used for stock purchases ... -- 25,124,642 -- Deferred costs ................................. -- (422,630) -- ------------ ------------ ------------ $ -- $ 27,561,470 $ -- ============ ============ ============ Reduction in MSBP liability in connection with purchase of MSBP shares ................................. $ (87,903) $ -- $ -- ============ ============ ============ Assets acquired in connection with acquisition: Cash and cash equivalents ...................... $ -- $ -- $ 49,303,415 Loans receivable ............................... -- -- 8,564 Premises and equipment ......................... -- -- 1,500,000 ------------ ------------ ------------ -- -- 50,811,979 ------------ ------------ ------------ Liabilities assumed in connection with acquisition: Deposits ....................................... -- -- 54,414,848 Other .......................................... -- -- 5,000 ------------ ------------ ------------ -- -- 54,419,848 ------------ ------------ ------------ Excess of cost over assets acquired ..................... $ -- $ -- $ (3,607,869) ============ ============ ============ Liabilities assigned in connection with branch sales: Deposits ....................................... $ -- $ 9,221,324 $ -- ============ ============ ============ Assets sold in connection with branch sales: Loans .......................................... $ -- $ 18,619 $ -- ============ ============ ============
See notes to consolidated financial statements. F-8 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies Basis of financial statement presentation The consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles, include the accounts of the Company and its wholly owned subsidiary, Little Falls Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, the assessment of prepayment risks associated with mortgage-backed securities and the determination of the amount of deferred tax assets that are more likely than not to be realized. Management believes that the allowance for loan losses is adequate, foreclosed real estate is appropriately valued, prepayment risks associated with mortgage-backed securities are properly recognized and all deferred tax assets are more likely than not to be recognized. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to allowance for loan losses or further writedowns of foreclosed real estate may be necessary based on changes in economic conditions in the market area. Additionally, assessments of prepayment risks related to mortgage-backed securities are based upon current market conditions, which are subject to frequent change. Finally, the assessment of the amount of deferred tax assets more likely than not to be realized is based on projected future taxable income, which is subject to continual revisions for updated information. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowance or additional writedowns on real estate based on their judgments about information available to them at the time of their examination. Cash and cash equivalents Cash and cash equivalents include cash and amounts due from banks, federal funds sold and interest-bearing deposits in other banks having original maturities of three months or less. Generally, federal funds sold are sold for one day periods. Investment and mortgage-backed securities Debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held-to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in a separate component of retained earnings. F-9 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (Cont'd.) Investment and mortgage-backed securities (Cont'd.) Premiums are amortized and discounts are accreted to interest income using the interest method. Gains or losses on the sale of securities are based on specifically identifiable cost and are accounted for on a trade date basis. Loans receivable Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and costs and discounts. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost accreted or amortized as an adjustment of yield using the interest method over the contractual lives of the related loans. Unearned interest on consumer loans is recognized over the contractual lives of the loans using a method which approximates the interest method. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments is reestablished, in which case the loan is returned to accrual status. Allowance for loans losses An allowance for loan losses is maintained at a level considered adequate to absorb future loan losses. Management of the Bank, in determining the allowance for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Bank utilizes a two tier approach: (1) identification of impaired loans and the establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, types of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including , but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of the loan loss allowance may be necessary. F-10 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (Cont'd.) Allowance for loan losses (Cont'd.) Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined by the Bank as up to ninety days, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Bank expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. Thus, a demand loan or other loan with no stated maturity is not impaired if the Bank expects to collect all amounts due, including interest accrued at the contractual interest rate, during the period the loan is outstanding. All loans identified as impaired are evaluated independently. The Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to interest receivable and then to principal. Premises and equipment Land is carried at cost. Buildings and improvements, leasehold improvements and furniture, fixtures and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the lesser of the estimated useful lives of the assets or, if applicable, the term of lease. Significant renovations and additions are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations for the period. Maintenance and repairs are charged to expense as incurred. Rental income is netted against occupancy expense. Investment in real estate Investments in real estate are carried at the lower of cost less accumulated depreciation or fair value less estimated disposal costs. Foreclosed real estate Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost or fair value at the date of foreclosure. Subsequent valuations are periodically performed and an allowance for losses established by a charge to operations if the carrying value of a property exceeds its fair value less estimated selling costs. Costs relating to development and improvement of properties are capitalized, whereas income and expenses relating to the operating and holding of properties are recorded in operations as earned or incurred. Gains and losses from sales of these properties are recognized as they occur. Excess of cost over assets acquired The cost in excess of the fair value of net assets acquired through the acquisition of certain assets and assumption of certain liabilities of branch offices is being amortized to expense over a ten year period by use of the straight-line method. F-11 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (Cont'd.) Income taxes The Company and its subsidiary file a consolidated federal income tax return and separate state income tax returns. Income taxes are allocated to the Company and its subsidiary based upon the contribution of their respective income or loss to the consolidated return. Federal and State income taxes have been provided on the basis of reported income. The amounts reflected on the tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and tax reporting purposes. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary difference are expected to be recovered or settled. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which more likely than not will not be realized. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize all deferred tax assets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Accounting for stock-based compensation In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("Statement") No. 123 "Accounting for Stock-Based Compensation". Statement No. 123 establishes financial accounting and reporting standards for stock-based employees compensation plans. While all entities are encouraged to adopt the "fair value based method" of accounting for employee stock compensation plans, Statement No. 123 also allows an entity to continue to measure compensation cost under such plans using the "intrinsic value based method" specified in Accounting Principles Board Opinion No. 25. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, usually the vesting period. Fair value is determined using an option pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk free interest rate over the expected life of the option. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. The accounting requirements of Statement No. 123 are effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company has elected to account for compensation cost under the intrinsic value based method. Included in Note 12 to consolidated financial statements are the pro forma disclosures required by Statement No. 123. F-12 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (Cont'd.) Net income per common share In February 1997, the FASB issued Statement No. 128, "Earnings Per Share". Statement No. 128 is effective for years ending after December 15, 1997 and requires that prior period data be restated. Per share amounts are reported in accordance with Statement No. 128. Basic net income per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the unallocated portion of shares held by the ESOP in accordance with the American Institute of Certified Public Accountants' ("AICPA") Statement of Position ("SOP") 93-6. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of stock options, stock-based compensation grants and other securities, if dilutive, using the treasury stock method. See Note 14 to consolidated financial statements for a reconciliation of such amounts. Per share amounts for the year ended December 31, 1996 have been calculated based on the net income for the entire year. The calculation of the weighted average number of common shares outstanding, adjusted for the unallocated portion of shares held by the ESOP, from the date of conversion to stock form (January 5, 1996) through December 31, 1996, assumes such shares were outstanding for the entire year (as if the conversion had taken place on January 1, 1996). Interest rate risk The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, along with borrowings and other funds, to make loans secured by real estate and to purchase mortgage-backed and investment securities. The potential for interest-rate risk exists as a result of the generally shorter duration of the Bank's interest-sensitive liabilities compared to the generally longer duration of its interest-sensitive assets. In a rising interest rate environment, liabilities will reprice faster than assets, thereby reducing the market value of long-term assets and net interest income. For this reason, management regularly monitors the maturity structure of the Bank's interest-earning assets and interest-bearing liabilities in order to measure its level of interest-rate risk and to plan for future volatility. Concentration of risk The Bank's lending and real estate activity is concentrated in real estate and loans secured by real estate located in the State of New Jersey. In general, the Bank's loan portfolio performance is dependent upon local economic conditions. Reclassification Certain amounts for the year ended December 31, 1996 and 1995 have been reclassified to conform to the current year's presentation. F-13 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 2. Reorganization and Stockholders' Equity On July 13, 1995, the Board of Directors of the Bank adopted a Plan of Conversion, which was subsequently amended, pursuant to which the Bank would convert from a federally chartered mutual savings bank to a federally chartered stock savings bank, with the concurrent formation of a holding company. The holding company, Little Falls Bancorp, Inc., (the "Company") is a New Jersey corporation organized in August 1995 to acquire all of the capital stock of the Bank upon the completion of the conversion. In October 1995, the Bank converted from a New Jersey chartered mutual savings bank to a federally chartered mutual savings bank. Concurrently, the Bank changed its name from "Little Falls Savings Bank" to "Little Falls Bank". On January 5, 1996, the conversion and initial public stock offering were completed with the issuance of 3,041,750 shares of the Company's common stock, par value $.10 per share, for net proceeds, after conversion costs and the effect of the shares acquired by the ESOP, of $26,830,022. Concurrently with the issuance of the Company's common stock, the Company utilized $14,671,962 of the net proceeds to purchase all of the outstanding capital stock of the Bank. At the time of the conversion, the Bank, in order to grant priority to eligible depositors in the event of future liquidation, established a liquidation account of $15,488,000, an amount equal to its total net worth as of September 30, 1995, the date of the latest statement of financial condition appearing in the final prospectus. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases in the deposit account will not restore an eligible account holder's interest in the liquidation account. In the unlikely event of a complete liquidation, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to their current adjusted qualifying balances. The balance of the liquidation account on December 31, 1997 has not been determined. The ability of the Company to pay dividends to stockholders is dependent upon the receipt of income from the subsidiary Bank. The Bank may not declare or pay any dividend on or repurchase any of its capital stock if the effect thereof would cause its net worth to be reduced below: (1) the amount required for the liquidation account, or (2) the net worth requirements contained in section 563.13 (b) of the rules and regulation of the Office of Thrift Supervision (the "OTS"). During the years ended December 31, 1997 and 1996, the Company approved plans to repurchase 137,259 and 296,570 shares, respectively, of its common stock outstanding, up to five percent (5%) of the shares outstanding at any single instance. In accordance therewith, during the years ended December 31, 1997 and 1996, 137,259 and 296,570 shares, respectively, at an aggregate cost of $2,355,282 and $3,277,004, respectively, were purchased in the open market. On January 27, 1998, the Company announced that it intends to repurchase in the open market up to 5%, or 130,396 shares, of its common shares outstanding as of that date. F-14 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 3. Investment Securities Held to Maturity
December 31, 1997 ------------------------------------------------------ Gross Unrealized Amortized -------------------------- Estimated Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- U.S. Government (including agencies): Due in one year or less ............................ $10,005,774 $ -- $ 69,571 $ 9,936,203 Due after one year through five years .............. 11,000,000 26,270 46,875 10,979,395 Due after five years through ten years ............. 30,981,870 239,337 -- 31,221,207 Due after ten years ................................ 6,000,000 2,500 10,000 5,992,500 $57,987,644 $ 268,107 $ 126,446 $58,129,305 =========== =========== =========== ===========
December 31, 1997 ------------------------------------------------------ Gross Unrealized Amortized -------------------------- Estimated Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- U.S. Government (including agencies): Due in one year or less ............................ $ 9,008,182 $ -- $ 23,182 $ 8,985,000 Due after one year through five years .............. 15,014,352 -- 147,477 14,866,875 Due after five years through ten years ............. 27,005,763 4,237 -- 27,010,000 ----------- ----------- ----------- ----------- 51,028,297 4,237 170,659 50,861,875 Muncipal bonds: Due within one year ................................ 342,000 -- -- 342,000 ----------- ----------- ----------- ----------- $51,370,297 $ 4,237 $ 170,659 $51,203,875 =========== =========== =========== ===========
There were no sales of investment securities held to maturity during the years ended December 31, 1997, 1996 and 1995. Investment securities held to maturity with a carrying value of approximately $2,000,000 at December 31, 1997 and 1996, were pledged to secure public funds. See Note 10 to consolidated financial statements for securities pledged as collateral for repurchase agreements. 4. Mortgage-Backed Securities Available for sale:
December 31, 1997 ------------------------------------------------------ Gross Unrealized Amortized -------------------------- Estimated Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- Federal Home Loan Mortgage Corporation $ 12,512,965 $ -- $ 104,516 $ 12,408,449 Federal National Mortgage Association 1,527,083 -- 6,484 1,520,599 ------------ ----------- ----------- ------------ $ 14,040,048 $ -- $ 111,000 $ 13,929,048 ============ =========== =========== ============
F-15 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 4. Mortgage-Backed Securities (Cont'd.) Held to maturity:
December 31, 1997 ------------------------------------------------------------------ Carrying Gross Unrealized Estimated Value Gains Losses Fair Value ------------ ------------ ----------- ------------ Government National Mortgage Association $ 26,771,595 $ 215,909 $ 35,973 $ 26,951,531 Federal Home Loan Mortgage Corporation 22,853,912 219,635 143,405 22,930,142 Federal National Mortgage Association 41,331,939 200,891 168,976 41,363,854 ------------ ------------ ----------- ------------ $ 90,957,446 $ 636,435 $ 348,354 $ 91,245,527 ============ ============ =========== ============
December 31, 1996 ------------------------------------------------------------------ Carrying Gross Unrealized Estimated Value Gains Losses Fair Value ------------ ------------ ----------- ------------ Government National Mortgage Association $ 34,166,041 $ 211,082 $ 8,570 $ 34,368,553 Federal Home Loan Mortgage Corporation 28,391,893 223,170 260,908 28,354,155 Federal National Mortgage Association 49,915,210 148,410 360,828 49,702,792 ------------ ------------ ----------- ------------ $112,473,144 $ 582,662 $ 630,306 $112,425,500 ============ ============ =========== ============
December 31, 1997 ----------------------------------------------------------------- Principal Unamortized Unearned Carrying Balance Premium Discounts Value ------------ ----------- ------------ ------------ Government National Mortgage Association $ 26,336,892 $ 442,503 $ 7,800 $ 26,771,595 Federal Home Loan Mortgage Corporation 22,725,681 185,390 57,159 22,853,912 Federal National Mortgage Association 40,898,959 460,159 27,179 41,331,939 ------------ ----------- ------------ ------------ $ 89,961,532 $ 1,088,052 $ 92,138 $ 90,957,446 ============ =========== ============ ============
December 31, 1996 ----------------------------------------------------------------- Principal Unamortized Unearned Carrying Balance Premium Discounts Value ------------ ----------- ------------ ------------ Government National Mortgage Association $ 33,675,013 $ 510,696 $ 19,668 $ 34,166,041 Federal Home Loan Mortgage Corporation 28,296,802 219,734 124,643 28,391,893 Federal National Mortgage Association 49,434,097 517,150 36,037 49,915,210 ------------ ------------ ------------ ------------ $111,405,912 $ 1,247,580 $ 180,348 $112,473,144 ============ ============ ============ ============
There were no sales of mortgage-backed securities available for sale or held to maturity during the years ended December 31, 1997, 1996 and 1995. See note 10 for securities pledged as collateral for repurchase agreements. F-16 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 5. Loans Receivable
December 31, ------------------------------ 1997 1996 ------------- ------------- Real estate mortgage: One-to-our family .......................... $ 118,254,242 $ 108,367,393 Commercial and multi-family ................ 17,361,751 3,658,543 ------------- ------------- 135,615,993 112,025,936 ------------- ------------- Construction ........................................ 350,000 525,000 ------------- ------------- Consumer: Second mortgage ............................ 11,629,689 5,028,193 Passbook or certificate .................... 807,062 888,885 Student education .......................... 12,451 25,368 ------------- ------------- 12,449,202 5,942,446 ------------- ------------- Total loans ....................... 148,415,195 118,493,382 ------------- ------------- Less: Loans in process .............................. 233,125 150,000 Allowance for loan losses .................. 1,168,160 1,089,828 Deferred loan fees, costs and discounts, net (19,349) 137,770 ------------- ------------- 1,381,936 1,377,598 ------------- ------------- $ 147,033,259 $ 117,115,784 ============= =============
An analysis of the allowance for loan losses follows:
Year Ended December 31, ------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Balance--beginning ..................... $ 1,089,828 $ 958,149 $ 1,169,058 Provisions charged to operations ....... 240,000 182,900 131,359 Loans charged off, net of recoveries.... (161,668) (51,221) (342,268) ----------- ----------- ----------- Balance--ending ........................ $ 1,168,160 $ 1,089,828 $ 958,149 =========== =========== ===========
F-17 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 5. Loans Receivable (Cont'd.) Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows (in thousands):
December 31, ------------------------ 1997 1996 1995 ------ ------ ------ Recorded investment in impaired loans: With recorded allowances ..................................... $ 744 $1,777 $1,743 Without recorded allowance ................................... -- -- 267 ------ ------ ------ Total impaired loans ................................ 744 1,777 2,010 Related allowance for loan losses ............................ 111 404 30 ------ ------ ------ Net impaired loans .................................. $ 633 $1,373 $1,980 ====== ====== ====== Average recorded investment in impaired loans ......................... $1,509 $1,717 $1,783 ====== ====== ====== Interest income recognized on impaired loans during the period each loan was impaired: Total ............................................... $ 214 $ 57 $ 42 ====== ====== ====== Cash basis .......................................... $ 197 $ 57 $ 33 ====== ====== ======
At December 31, 1997, 1996 and 1995, nonaccrual loans for which the accrual of interest had been discontinued totalled approximately $1,284,000, $1,901,000 and $1,942,000, respectively. Interest income that would have been recorded under the original terms of such loans and the interest income actually recognized is summarized as follows (in thousands): Year Ended December 31, ----------------------- 1997 1996 1995 ---- ---- ---- Interest income that would have been recorded... $111 $198 $189 Interest income recognized ..................... $ 50 $ 84 $ 39 The activity with respect to loans to directors, executive officers and associates of such persons is as follows: Year Ended December 31, ------------------------------------ 1997 1996 ----------- ----------- Balance--beginning .... $ 1,168,277 $ 855,760 Loans originated ...... 242,128 569,187 Collection of principal (14,879) (256,670) Other additions ....... 53,099 -- ----------- ----------- Balance--ending ....... $ 1,448,625 $ 1,168,277 =========== =========== F-18 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 6. Premises and Equipment December 31, ----------------------- 1997 1996 ---------- ---------- Land ......................................... $ 614,714 $ 614,714 Buildings and improvements ................... 2,301,063 2,296,452 Furniture, fixture and equipment ............. 1,071,944 1,038,673 Leasehold improvements ....................... 54,122 54,122 ---------- ---------- 4,041,843 4,003,961 Less accumulated depreciation and amortization 1,424,668 1,344,722 ---------- ---------- $2,617,175 $2,659,239 ========== ========== Depreciation and amortization expense totalled $134,628, $143,997 and $92,735 for the years ended December 31, 1997, 1996 and 1995, respectively. 7. Investment in Real Estate The Bank owns real estate adjoining its main office and other land originally acquired for a future office site which is no longer to be used for that purpose. The real estate adjoining the main office is comprised of various rental units, both residential and commercial. In addition, during the years ended December 31, 1997 and 1996, as a result of the relocation of a branch office and the sale of deposits in another branch office, properties with a carrying value of $9,629 and $145,478, respectively, were transferred from premises and equipment to investment in real estate. These properties were sold during the year ended December 31, 1997 at a gain of $106,318. Also, during the year ended December 31, 1997, a $100,000 impairment loss was recorded on a parcel of land to reduce its carrying value from $243,667 to $143,667. The income received from the properties, net of expenses, is included in other income. The properties are summarized as follows: December 31, ------------------- 1997 1996 -------- -------- Land ......................................... $143,667 $291,277 Buildings and improvements ................... 363,452 622,480 -------- -------- 507,119 913,757 Less accumulated depreciation and amortization 79,802 230,703 -------- -------- $427,317 $683,054 ======== ======== F-19 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 8. Deposits
December 31, 1997 ----------------- Weighted Average Rate Amount Percent ---- ------------ ------ NOW accounts and non-interest-bearing deposits.. 1.33% $ 21,338,938 9.27 Money Market accounts .......................... 2.94 9,952,885 4.33 Passbook and club accounts ..................... 3.08 44,468,893 19.32 Certificates of deposit ........................ 5.63 154,371,959 67.08 ------------ ------ 4.62 $230,132,675 100.00 ============ ======
December 31, 1996 ------------------------------------- Weighted Average Rate Amount Percent ---- ------------ ------ NOW accounts and non-interest-bearing deposits 1.46% $ 20,871,936 9.14 Money Market accounts ........................ 3.33 14,822,840 6.49 Passbook and club accounts ................... 3.60 49,700,347 21.77 Certificates of deposit ...................... 5.48 142,916,420 62.60 ------------ ------ 4.48 $228,311,543 100.00 ============ ======
The aggregate amount of jumbo certificates of deposit with a minimum denomination of greater than $100,000 was approximately $10,020,000 and $18,177,000 at December 31, 1997 and 1996, respectively. These certificates of deposit do not receive a preferential interest rate. Deposits in excess of 100,000 are not federally insured. The scheduled maturities of certificates of deposit are as follows: December 31, -------------------------- 1997 1996 -------- -------- Three months or less .............. $ 40,847 $ 27,834 Over three months to one year ..... 89,942 75,561 Over one year to three years ...... 21,296 37,488 Over three years .................. 2,287 2,033 -------- -------- $154,372 $142,916 ======== ======== F-20 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 8. Deposits (Cont'd.) A summary of interest on deposits follows: Year Ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- NOW accounts .......... $ 260,813 $ 366,984 $ 195,025 Money Market .......... 380,732 788,001 890,973 Passbook and club ..... 1,440,145 1,859,939 970,934 Certificates of deposit 8,246,089 8,068,002 7,256,798 ----------- ----------- ----------- $10,327,779 $11,082,926 $ 9,313,730 =========== =========== =========== 9. Line of Credit The Bank has an available line of credit with the Federal Home Loan Bank of New York ("FHLB"), subject to the terms and conditions of the lenders' overnight advances program, in the amount of $30,018,400 at December 31, 1997. Borrowings under this line of credit, which expires on November 23, 1998, are made for one day periods and are secured by the Bank's investment in FHLB stock and an assignment of the Bank's unpledged, qualifying one-to-four family mortgage loans. During the year ended December 31, 1997, the Bank did not borrow funds under this program. See Note 10 to consolidated financial statements for FHLB borrowers under other programs. 10. Borrowed Money
December 31, --------------------------- 1997 1996 Interest ------------- ------------- Lender Maturity Rate Amount Amount - ------ -------- ---- ------ ------ Securities sold under agreement to repurchase: Security broker dealer .............. May 19, 1997 5.50% $ -- $ 8,175,000 Security broker dealer .............. November 20, 1997 5.68% -- 8,148,000 Security broker dealer .............. Overnight 7.10% -- 8,300,000 FHLB ................................ January 30, 1998 6.05% 10,000,000 -- FHLB ................................ February 17, 1998 5.74% 8,175,000 -- Security broker dealer .............. February 18, 1998 5.77% 8,368,500 -- FHLB ................................ February 19, 1998 5.76% 8,176,000 -- FHLB ................................ December 30, 1999 5.82% 9,000,000 9,000,000 ----------- ----------- 43,719,500 33,623,000 Advance: FHLB ................................ August 3, 1998 5.80% 15,000,000 -- ----------- ----------- $58,719,500 $33,623,000 =========== ===========
F-21 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 10. Borrowed Money (Cont'd.) Certain information concerning borrowed money is summarized as follows:
Year Ended December 31, -------------------------------- 1997 1996 -------------- -------------- Average balance during the year ......... $ 43,974,600 $ 3,173,000 Average interest rate during the year ... 5.89% 5.53% Maximum month-end balance during the year $ 58,719,500 $ 33,624,000 Average interest rate at year end ....... 5.83% 6.02%
At December 31, 1997, the Bank's investment in FHLB stock and a blanket assignment of the Bank's unpledged, qualifying one-to-four family mortgage loans served as collateral for FHLB advances. The carrying values of collateral for the agreements to repurchase are as follows: December 31, ------------------------- 1997 1996 ----------- ----------- Investment securities held to maturity ...... $18,700,000 $35,331,000 Mortgage-backed securities available for sale 9,749,213 -- Mortgage-backed securities held to maturity . 21,500,903 -- ----------- ----------- $49,950,116 $35,331,000 =========== =========== 11. Regulatory Capital The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to met minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material adverse effect on the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The OTS has prescribed capital requirements which include three separate measurements of capital adequacy: a leverage-ratio capital standard ("Core"), a tangible capital standard and a risk based capital standard (collectively known as the "Capital Rule"). The Capital Rule requires each savings institution to maintain tangible capital equal to at least 1.5% of its tangible assets and core capital equal to at least 3.0% of its adjusted total assets. The Capital Rule further requires each savings institution to maintain total capital equal to at least 8.0% of its risk-weighted assets. F-22 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 11. Regulatory Capital (Cont'd.) The following table sets forth the capital position of the Bank as calculated as of December 31, 1997:
Tangible Core Risk-Based --------------------- ------------------- ------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Capital as calculated under GAAP ..... $ 29,201 8.96 $ 29,201 8.96 $ 29,201 25.60 Deduct goodwill ...................... (2,856) (2,856) (0.88) (2,856) (2.41) Add unrealized loss on securities available for sale 71 0.02 71 0.02 71 0.06 Deduct investment in real estate ..... -- -- -- -- (427) (0.37) Add qualifying general loan loss allowance ......... -- -- -- -- 1,149 1.01 -------- ---- -------- ---- -------- ----- Capital, as calculated ............... 26,416 8.10 26,416 8.10 27,138 23.83 Capital, as required ................. 4,890 1.50 9,780 3.00 9,112 8.00 -------- ---- -------- ---- -------- ----- Excess ............................... $ 21,526 6.60 $ 16,636 5.10 $ 18,026 15.83 ======== ==== ======== ==== ======== =====
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICA") imposes increased requirements on the operations of financial institutions and mandated the development of regulations designed to empower regulators to take prompt corrective action with respect to institutions that fall below certain capital standards. FDICA stipulates that an institution with less than 4% core capital is deemed to be undercapitalized. Quantitative measures established by FDICIA to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of June 23, 1997, the most recent notification from the OTS, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total, risk-based, and Tier 1 leverage ratios of 10%, 6%, and 5%, respectively. There are no conditions existing or events which have occurred since notification, that management believes have changed the institution's category. 12. Benefit Plans Employee pension plan The Bank has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and employees' compensation. The Bank's funding policy is to contribute the maximum amount deductible for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. F-23 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) Employee pension plan (Cont'd.) Plan assets are composed primarily of certificates of deposit, savings accounts and insurance contracts. The following tables present the plan's funded status and the components of net periodic pension cost:
December 31, ---------------------------------- 1997 1996 ----------- ----------- Actuarial present value of benefit obligations: Vested .................................. $ 1,873,615 $ 1,493,630 Non-vested .............................. 16,195 4,382 ----------- ----------- Total benefit obligation ....... $ 1,889,810 $ 1,498,012 =========== =========== Projected benefit obligation ..................... $ 2,410,463 $ 1,919,617 Plan assets at fair value ........................ 1,258,573 1,222,245 ----------- ----------- Plan benefit obligation in excess of plan assets . 1,151,890 697,372 Unrecognized net transition obligation being amortized over fifteen years ...... (82,585) Unrecognized net loss ............................ (854,481) (553,681) Additional minimum liability ..................... 416,413 228,426 ----------- ----------- Accrued pension cost included in accounts payable and other liabilities $ 631,237 $ 275,767 =========== ===========
Year Ended December 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Net periodic pension cost included the following components: Service cost ................ $ 94,253 $ 87,161 $113,010 Interest cost ............... 168,152 127,080 122,026 Actual return on plan assets (14,684) Net amortization and deferral (6,806) 60,784 63,398 -------- -------- -------- Net periodic pension cost included in compensation and employee benefits.. $240,915 $200,728 $208,493 ======== ======== ========
F-24 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) Employee pension plan (Cont'd.) Significant actuarial assumptions used in determining plan benefits are: Year Ended December 31, 1997 ---------------------------- 1997 1996 1995 ---- ---- ---- Annual salary increase 5.50% 5.00% 6.00% Long-term return on assets 8.00% 8.00% 8.00% Discount rate 7.50% 7.00% 8.25% Directors retirement plan The Board of Directors adopted a plan, effective January 1, 1995, which provides that any director with twenty or more years of service may retire and continue to be paid at the rate of 50% of regular directors fees. These payments will continue for the directors' lifetime. This plan is unfunded. The following tables present the status of the plan and the components of net periodic plan cost: December 31, -------------------------- 1997 1996 --------- --------- Actuarial present value of benefit obligation: Vested ............................... $ 253,159 $ 189,536 Non-vested ........................... 57,394 143,912 --------- --------- $ 310,553 $ 333,448 ========= ========= Projected benefit obligation .................. $ 366,691 $ 357,661 Unrecognized past service cost ................ (218,618) (235,914) Unrecognized net (loss) ....................... (23,558) --------- --------- Accrued plan cost included in accounts payable and other liabilities ... $ 124,515 $ 74,928 ========= =========
Year Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- Net periodic plan cost included the following components: Service cost ................................... $ 784 $ 6,380 $ 4,151 Interest cost .................................. 26,825 20,972 14,563 Amortization of past service cost and unrecognized net loss ........................... 21,978 17,317 11,545 ------- ------- ------- Net periodic plan cost included in other expense ........ $49,587 $44,669 $30,259 ======= ======= =======
F-25 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) Directors retirement plan (Cont'd.) Significant actuarial assumptions used in determining plan benefits are: Year Ended December 31, 1997 ---------------------------- 1997 1996 1995 ---- ---- ---- Annual compensation increase........... 7.00% 7.00% 8.00% Discount rate.......................... 7.25% 7.50% 8.25% Directors health benefits plan The Board of Directors also adopted a plan, effective January 1, 1995, providing for the continuation of the directors' medical insurance coverage for their lifetime after retirement. Benefits under this plan are available to directors retiring after their attainment of age 60 and twenty years of service. This plan is unfunded. The following tables present the status of the plan and the net components of net periodic plan cost: December 31, -------------------- 1997 1996 -------- -------- Accumulated postretirement benefit obligation... $158,388 $160,094 Unrecognized net gain........................... 55,426 44,907 -------- -------- Accrued plan cost included in accounts payable and other liabilities. $213,814 $205,001 ======== ========
Year Ended December 31, -------------------------------- 1997 1996 1995 ------- ------- -------- Net periodic plan cost included the following components: Service cost................................. $ 190 $ 2,866 $ 4,082 Interest cost................................ 12,007 10,969 13,270 Immediate recognition of prior service cost.. -- -- 177,830 Net amortization............................. (3,384) (4,016) -- ------- ------- -------- Net periodic plan cost included in other expense...... $ 8,813 $ 9,819 $195,182 ======= ======= ========
A discount rate of 7.25%, 7.50% and 8.25% was assumed for the years ended December 31, 1997, 1996 and 1995, respectively. For the years ended December 31, 1997, 1996 and 1995, a medical cost trend rate of 7.0%, 7.5% and 10.5%, respectively, decreasing 0.5% per year thereafter until an ultimate rate of 5.0% is reached, was used in the plan's valuation. Increasing the assumed medical cost trend by one percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997, by $18,459 and the aggregate of the service and interest components of net periodic postretirement benefit cost for the year ended December 31, 1997 by $1,522. F-26 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) ESOP Effective upon conversion, an ESOP was established for all eligible employees. The ESOP used $2,433,400 of proceeds from a term loan from the Company to purchase 243,340 shares of Company common stock in the initial offering. The term loan from the Company to the ESOP, including interest, is payable over one-hundred-eighty (180) equal monthly installments. The initial interest rate is 8.25% and is subject to semi-annual adjustment based on the prime rate. The Bank intends to make contributions to the ESOP which will be equal to the principal and interest payment required from the ESOP on the term loan. Shares purchased with the loan proceeds are pledged as collateral for the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation, as described by the plan in the year of allocation. During the years ended December 31, 1997 and 1996, the Bank made cash contributions of $323,642 and $286,659 to the ESOP of which $193,801 and $196,181, respectively, were applied to interest and $129,841 and $90,478, respectively, were applied to principal. At December 31, 1997 and 1996, the loan had an outstanding balance of $2,213,081 and $2,342,922, respectively. The ESOP is accounted for in accordance with SOP 93-6, which was issued by the AICPA in November 1993. Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for basic net income per common share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Contributions equivalent to dividends on unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation expenses were $255,061 and $177,679 for the years ended December 31, 1997 and 1996, respectively. The ESOP shares were as follows: December 31, ----------------------- 1997 1996 ---------- ---------- Allocated shares ................ 16,223 9,048 Shares commited to be released... 16,474 7,175 Unreleased shares ............... 210,643 227,117 ---------- ---------- Total ESOP shares ............... 243,340 243,340 ========== ========== Fair value of unreleased shares.. $4,318,182 $2,895,742 ========== ========== MSBP On July 3, 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, during the year ended December 31, 1997, contributed $1,688,171 to the MSBP to allow the MSBP to purchase 121,670 shares of common stock of the Company in the open market at an average cost of $13.875 per share. F-27 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) MSBP (Cont'd.) Under the MSBP, awards are granted in the form of common stock held by the MSBP Trust. The awards vest over a period of time not more than five years, commencing one year from the date of award. The awards become fully vested upon termination of employment due to death or disability. At December 31, 1997, 79,248 shares had been granted to directors and 26,767 shares had been granted to officers and employees. 16,311 shares were vested at December 31, 1997. $271,101 and $87,903 of expense related to the MSBP shares was recorded during the years ended December 31, 1997 and 1996, respectively. Stock Option Plan The Company adopted the 1996 Stock Option Plan (the "Plan") authorizing the grant of stock options equal to 304,175 shares of common stock to officers, directors and key employees of the Bank or the Company. Options granted under the Plan may be either options that qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory options. Options granted will vest and will be exercisable on a cumulative basis in equal installments at the rate of 20% per year commencing one year from the date of grant. All options granted will be exercisable in the event the optionee terminates his employment due to death or disability. The options expire ten years from the date of grant. In the event of change in control of the Bank or Company, the optionee will be given: (1) substitute options by the acquiring or succeeding corporation, (2) shares of stock issueable upon the exercise of such substitute options or (3) cash for each option granted, equal to the difference between the exercise price of the option and the fair market value or merger price equivalent to cash payment for each share of common stock exchanged in the change of control transaction. Shares of common stock have been granted under the plan as non-incentive stock options to directors and incentive stock options to officers and employees, respectively, as follows:
Shares Weighted ----------------------------- Average Non- Exercise Exercise Incentive Incentive Total Price Price ------- ------- ------- ----------- ----------- Granted in 1996 ......................... 121,665 109,476 231,161 $ 10.625 $ 10.625 Granted in 1997 .......................... -- 16,000 16,000 20.000 20.000 ------- ------- ------- ----------- 121,665 125,476 247,161 $ 11.232 ======= ======= ======= ===========
No options have been exercised. Options for 46,232 shares are exercisable at December 31, 1997 at a weighted average exercise price of $10.625. No options were exercisable at December 31, 1996. F-28 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. Benefit Plans (Cont'd.) Stock Option Plan (Cont'd.) The Company, as permitted by Statement No. 123, recognizes compensation cost for stock options granted based on the intrinsic value method instead of the fair value based method. The weighted-average grant-date fair value of options granted during 1997 and 1996, all of which have exercise prices equal to the market price of the Company's common stock at the grant date, is estimated using the Black-Scholes option-pricing model. Such fair values and the assumptions used for estimating fair values are as follows: December 31, -------------------- 1997 1996 ---- ---- Weighted average grant-date fair value per share $ 5.87 $ 2.81 Expected common stock dividend yield ........... 1.00% 0.94% Expected volatility ............................ 23.29% 13.90% Expected option life ........................... 5 years 5 years Risk-free interest rate ........................ 5.88% 6.875% Had the Company used the fair value based method, net income for the years ended December 31, 1997 and 1996 would have been decreased to $1,736,000 and $574,000, respectively, and basic and diluted net income per common share would have been reduced to $0.73 and $0.70, respectively, for the year ended December 31, 1997 and $0.21 each during the year ended December 31, 1996. 13. Income Taxes The Bank qualifies as a Savings Institution under the provisions of the Internal Revenue Code and was therefore, prior to January 1, 1996, permitted to deduct from taxable income an allowance for bad debts based on the greater of: (1) actual loan losses (the "experience method"); or (2) eight (8) percent of taxable income before such bad debt deduction less certain adjustments (the "percentage of taxable income method"). On August 21, 1996, legislation was signed into law which repealed the percentage of taxable income method for tax bad debt deductions. The repeal is effective for the Bank's taxable year beginning January 1, 1996. In addition, the legislation requires the Bank to include in taxable income its bad debt reserves in excess of its base year reserves over a six, seven, or eight year period depending upon the attainment of certain loan origination levels. Since the percentage of taxable income method for Federal tax bad debt deductions and the corresponding increase in the Federal tax bad debt reserve in excess of the base year have been reflected as temporary differences pursuant to FASB Statement No. 109, with deferred income taxes recorded thereon, this change in the tax law did not have a material adverse effect on the Company's consolidated financial position or operations. F-29 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 3. Income Taxes (Cont'd.) Retained earnings at December 31, 1997 includes approximately $2.4 million of tax bad debt deductions which, in accordance with FASB Statement No. 109, are considered a permanent difference between the book and income tax basis of loans receivable, and for which income taxes have not been provided. If such amount is used for purposes other than bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate. The provision for income taxes is summarized as follows: Year Ended December 31, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Current: Federal.... $ 990,405 $ 540,688 $ 222,142 State ..... 117,522 87,761 17,540 ----------- ----------- ----------- 1,107,927 628,449 239,682 ----------- ----------- ----------- Deferred: Federal.... (32,405) (222,744) 1,658 State ..... (3,122) (20,261) 150 ----------- ----------- ----------- (35,527) (243,005) 1,808 ----------- ----------- ----------- $ 1,072,400 $ 385,444 $ 241,490 =========== =========== =========== The provision for income taxes differs from that computed at the federal statutory rate of 34% as follows:
Year Ended December 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Tax at the statutory rate .................. $ 995,695 $ 338,753 $ 239,777 New Jersey Savings Institution Tax, net of federal income tax effect... 75,504 44,550 11,675 Other ...................................... 1,201 2,141 (9,962) ---------- ---------- ---------- $1,072,400 $ 385,444 $ 241,490 ========== ========== ==========
F-30 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 13. Income Taxes (Cont'd.) The tax effects of existing temporary differences which give rise to significant portions of deferred tax assets and liabilities are as follows:
December 31, ------------------ 1997 1996 -------- -------- Deferred tax assets: Allowance for loan losses .............................. $316,151 $346,353 Deferred loan orgination fees, net ..................... 63,821 46,702 Deferred compensation .................................. 115,025 97,185 Minimum pension liability .............................. 120,111 47,521 Goodwill ............................................... 90,101 46,829 MSBP ................................................... 15,513 31,627 Unrealized loss on securities available for sale ....... 39,938 -- Other .................................................. -- 1,920 -------- -------- Total deferred tax assets ..................... 760,660 618,137 -------- -------- Deferred tax liabilities: Depreciation of premises and equipment ................. 67,944 64,196 Other .................................................. 2,572 11,852 -------- -------- Total deferred tax liabilities ................ 70,516 76,048 -------- -------- Net deferred tax asset included in other assets $690,144 $542,089 ======== ========
At December 31, 1997 and 1996, current income taxes receivable of $25,526 and $55,769, respectively, are included in other assets. At December 31, 1997, income taxes payable of $119,876 are included in other liabilities. F-31 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 14. Net Income Per Common Share Year Ended December 31, 1997 ---------------------------- Weighted Net Average Per Share Income Shares Amounts ------ ------ ------- Basic net income per share ... $1,856,115 2,389,063 $ 0.78 Effect of dilutive securities: ======== Stock options ....... -- 71,296 MSBP unearned shares -- 6,531 ---------- --------- Diluted net income per share . $1,856,116 2,466,890 $ 0.75 ========== ========= ======== Year Ended December 31, 1996 Weighted Net Average Per Share Income Shares Amounts ------ ------ ------- Basic net income per share ... $610,889 2,727,627 $ 0.22 Effect of dilutive securities: ============ Stock options ....... -- 7,336 MSBP unearned shares -- 1,681 -------- --------- Diluted net income per share . $610,889 2,736,644 $ 0.22 ======== ========= ============ 15. Legislative Matters On September 30, 1996, legislation was enacted which, among other things, imposed a special one-time assessment on Savings Association Insurance Fund ("SAIF") member institutions, including the Bank, to recapitalize the SAIF and spread the obligation for payment of Financial Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special assessment levied amounted to 65.7 basis points on SAIF assessable deposits held as of March 31, 1995. The special assessment was recognized in the third quarter of 1996 and is tax deductible. The Bank took a charge of $1,167,427 as a result of the special assessment. This legislation eliminated the substantial disparity between the amount that BIF and SAIF members had been paying for deposit insurance premiums. Currently, the Federal Deposit Insurance Corporation ("FDIC") has estimated that, in addition to normal deposit insurance premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis points on BIF-insured deposits compared to 6.4 basis points by SAIF members on SAIF-insured deposits. All institutions will pay a pro rate share of the FICO payment on the earlier of January 1, 2000 or the date upon which the last savings association ceases to exist. The legislation also requires BIF and SAIF to be merged by January 1, 1999 provided that legislation is adopted to eliminate the saving association charter and no savings associations remain as of the time. F-32 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 15. Legislative Matters (Cont`d.) The FDIC has lowered SAIF assessments to a range comparable to that of BIF members, although SAIF members must also make the FICO payments described above. Management cannot predict the precise level of FDIC insurance assessments on an ongoing basis or whether the BIF and SAIF will eventually be merged. 16. Commitments The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are comprised of the undisbursed portion of construction loans, unused amounts of lines of credit and residential loan originations. The Bank's exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Collateral, usually in the form of residential real estate, is generally required to support financial instruments with credit risk. At December 31, 1997, the Bank had commitments outstanding to originate mortgage loans of $3,205,000, of which $377,000 were for five year commercial adjustable rate loans with initial rates ranging from 8.23% to 9.50% and $2,828,000 were for fixed rate loans with rates ranging from 7.00% to 8.50%. The commitments are due to expire within sixty days. The rates at which the Bank has committed to fund these loans are set based on the rate in effect when the borrower accepts the commitment in writing. At December 31, 1997, outstanding commitments related to unused home equity lines of credit totalled $4,101,000 These amounts, when used, will carry interest rates that will float at the prime rate plus 13/4%. Rental expenses related to the occupancy of premises totalled approximately $30,000, $38,000 and $38,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Minimum non-cancellable obligations under lease agreements with original terms of more than one year are as follows: December 31, Amount ------------ ------ 1998 $ 42,497 1999 42,497 2000 42,497 2001 42,497 2002 17,707 -------- $187,695 ======== F-33 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 17. Disclosures About the Fair Value of Financial Instruments The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced or liquidation sale. Significant estimations were used for the purposes of this disclosure. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value: Cash and cash equivalents and interest receivable For cash and cash equivalents and interest receivable, the carrying amounts approximate fair value. Investment and mortgage-backed securities For investment and mortgage-backed securities, both available for sale and held to maturity, fair value is estimated using quoted market prices. Loans receivable The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposits The fair value of demand, savings and money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Borrowed money The fair value of advances and securities sold under agreements to repurchase is estimated by discounting cash flows using rates currently available for borrowings of similar remaining securities. Commitments to extend credit The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. F-34 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 17. Disclosures About the Fair Value of Financial Instruments (Cont'd.)
December 31, ------------------------------------- 1997 1996 ------------------ ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Financial assets: Cash and cash equivalents ................... $ 6,788 $ 6,788 $ 10,374 $ 10,374 Investment securities held to maturity ...... 57,988 58,129 51,370 51,204 Mortgage-backed securities available for sale 13,929 13,929 -- -- Mortgage-backed securities held to maturity . 90,957 91,246 112,473 112,426 Loans receivable ............................ 147,033 148,534 117,116 114,850 Interest receivable ......................... 2,079 2,079 1,735 1,735 Financial liabilities: Deposits .................................... 230,133 226,113 228,312 227,954 Borrowed money .............................. 58,720 58,708 33,624 33,475 Commitments: To fund loans................................ 7,306 7,306 6,287 6,287
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and exclude the value of assets and liabilities that are not considered financial instruments. Other significant assets that are not considered financial assets include premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to those estimated fair values. F-35 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 18. Parent Only Financial Information The Company operates one wholly owned subsidiary, the Bank. The earnings of the Bank are recognized by the Company using the equity method of accounting. Accordingly, the earnings of the Bank are recorded as increases in the Company's investment in the subsidiary. The following are the condensed financial statements for the Company (parent company only) as of December 31, 1997 and 1996 and for the periods then ended. The Company had no operations prior to the Bank's conversion to stock form on January 5, 1996.
December 31, ---------------------------- Statements of Financial Condition 1997 1996 ------------ ------------ Assets Cash and due from banks ........................... $ 1,167,965 $ 555,582 Loan receivable from the Bank ..................... 6,044,666 8,854,264 ESOP loan receivable .............................. 2,213,081 2,342,922 Investment in subsidiary .......................... 29,200,841 28,874,037 Other assets ...................................... 18,000 12,167 ------------ ------------ Total assets ............................. $ 38,644,553 $ 40,638,972 ============ ============ Liabilities and stockholders' equity Liabilities Other liabilities ................................. $ 349,892 $ 190,674 ------------ ------------ Stockholders' equity Common stock ...................................... 304,175 304,175 Additional paid in capital ........................ 29,067,633 28,974,799 Retained earnings ................................. 18,204,455 16,802,056 Common stock acquired by ESOP ..................... (2,106,432) (2,271,173) Unearned restricted MSBP stock .................... (1,329,167) -- Treasury stock .................................... (5,632,286) (3,277,004) Minimum pension liability, net .................... (213,717) (84,555) ------------ ------------ Total stockholders' equity ............... 38,294,661 40,448,298 ------------ ------------ Total liabilities and stockholders' equity $ 38,644,553 $ 40,638,972 ============ ============
F-36 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 18. Parent Only Financial Information (Cont'd.) Statements of Income From Inception January 5, Year Ended 1996 to December 31, December 31, ------------ ------------ 1997 1996 ---------- ---------- Interest income .............................. $ 666,225 $ 880,582 Equity in undistributed earnings of subsidiary 1,598,621 248,247 ---------- ---------- 2,264,846 1,128,829 Expenses ..................................... 235,731 274,940 ---------- ---------- Income before income taxes ................... 2,029,115 853,889 Income taxes ................................. 173,000 243,000 ---------- ---------- Net income ................................... $1,856,115 $ 610,889 ========== ========== F-37 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 18. Parent Only Financial Information (Cont'd.) Statements of Cash Flows
From Inception January 5, Year Ended 1996 to December 31, December 31, 1997 1996 ------------ ------------ Cash flows from operations activities: Net income ................................................. $ 1,856,115 $ 610,889 Adjustments to reconcile net income provided by operative activities: Equity in undistributed earnings of subsidiary .... (1,598,620) (248,247) (Increase) in other assets ........................ (5,833) (12,167) Increase in other liabilities ..................... 159,218 190,674 ------------ ------------ Net cash provided by operating activities ......... 410,880 541,149 ------------ ------------ Cash flows from investing activities: Purchase of all outstanding stock of the Bank .............. -- (14,638,780) Loan to the Bank ........................................... -- (12,205,380) Repayments of loan by the Bank ............................. 2,809,598 3,351,116 Loan to ESOP ............................................... -- (2,433,400) Repayments of Loan by ESOP ................................. 129,841 90,478 ------------ ------------ Net cash provided by (used in) investing activities 2,939,439 (25,835,966) ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of common stock ................. -- 29,263,522 Acquisition of treasury stock .............................. (2,355,282) (3,277,004) Dividends paid ............................................. (382,654) (136,119) ------------ ------------ Net cash (used in) provided by financing activities (2,737,936) 25,850,399 ------------ ------------ Net increase in cash and cash equivalents ........................... 612,383 555,582 Cash and cash equivalents--beginning ................................ 555,582 -- ------------ ------------ Cash and cash equivalents--ending ................................... $ 1,167,965 $ 555,582 ============ ============
F-38 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 19. Quarterly Financial Data (unaudited) Year Ended December 31, 1997 ---------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------ ------ ------ ------ (In thousands, except per share data) Interest income ............ $4,981 $4,971 $5,348 $5,764 Interest expense ........... 2,995 3,034 3,322 3,569 ------ ------ ------ ------ Net interest income 1,986 1,937 2,026 2,195 Provision for loan losses .. 60 60 60 60 Non-interest income ........ 69 189 41 129 Non-interest expense ....... 1,280 1,281 1,321 1,522 Income taxes ............... 270 316 229 257 ------ ------ ------ ------ Net income ................. $ 445 $ 469 $ 457 $ 485 ====== ====== ====== ====== Net income per common share: Basic ............. $ 0.18 $ 0.20 $ 0.19 $ 0.21 ====== ====== ====== ====== Diluted ........... $ 0.17 $ 0.19 $ 0.19 $ 0.20 ====== ====== ====== ====== Year Ended December 31, 1996 ---------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In thousands, except per share data) Interest income ............ $ 4,710 $ 4,670 $ 4,614 $ 4,782 Interest expense ........... 2,912 2,751 2,721 2,874 ------- ------- ------- ------- Net interest income 1,798 1,919 1,893 1,908 Provision for loan losses .. 30 -- 153 -- Non-interest income ........ 53 82 67 207 Non-interest expense ....... 1,427 1,296 2,564 1,460 Income taxes ............... 133 282 (275) 246 ------- ------- ------- ------- Net income ................. $ 261 $ 423 $ (482) $ 409 ======= ======= ======= ======= Net income per common share: Basic ............. $ 0.09 $ 0.15 $ (0.18) $ 0.16 ======= ======= ======= ====== Diluted ........... $ 0.09 $ 0.15 $ (0.18) $ 0.16 ======= ======= ======= ====== F-39 - -------------------------------------------------------------------------------- Little Falls Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 20. Impact of Recent Accounting Standards In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income". Statement No. 130 requires that all items that are components of "comprehensive income" be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined as the "change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Companies will be required to (a) classify items of other comprehensive income by their nature in the financial statements and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Statement No. 130 is effective for fiscal years beginning after December 15, 1997 and requires reclassification of prior periods presented. As the requirements of Statement No. 130 are disclosure-related, its implementation will have no impact on the Company's consolidated financial condition or results of operations. F-40 EX-27 3 FDS 10K-405
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE QUARTERLY REEPORT ON FORM 10-K405 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 2,738 551 3,500 0 13,929 148,945 149,375 148,201 1,168 328,522 230,133 49,720 1,376 9,000 0 0 304 37,991 328,522 10,081 10,983 0 21,064 10,328 2,592 8,144 240 0 5,403 2,929 1,856 0 0 1,856 0.78 0.75 2.72 1,284 0 0 3,912 1,090 162 0 1,168 1,168 0 1,168 Basic Earnings Per Share
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