SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 0-27010
LITTLE FALLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3402073
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
86 Main Street, Little Falls, New Jersey 07424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 256-6100
N/A
Former name, former address and former fiscal year,
if changed since last report.
Indicate by 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date May 10, 1996.
Class Outstanding
$.10 par value common stock 3,041,750 shares
<PAGE>
LITTLE FALLS BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION OF LITTLE FALLS
BANCORP, INC.
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Materially Important Events 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
<PAGE>
LITTLE FALLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995*
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks ......................... $ 4,457,832 $ 2,518,055
Interest-bearing deposits in other banks ........ 7,078,227 11,101,033
Federal funds sold .............................. 6,000,000 39,800,000
------------ ------------
Total cash and cash equivalents ............ 17,536,059 53,419,088
Investment securities held-to-maturity net
(estimated fair values $34,767,000 (1996)
and $29,856,000 (1995)) ....................... 34,988,517 29,999,470
Mortgage-backed securities held to maturity, net
(estimated fair values $122,994,000 (1996)
and $118,842,000 (1995)) ...................... 122,128,471 118,020,300
Loans receivable, net ........................... 98,133,554 96,229,678
Premises and equipment, net ..................... 2,793,682 2,789,468
Investment in real estate, net .................. 544,251 546,786
Foreclosed real estate, net ..................... 1,717,506 1,500,825
Interest receivable, net ........................ 1,831,035 1,717,349
Federal Home Loan Bank of New York stock, at cost 1,395,200 1,395,200
Excess of cost over assets acquired ............. 3,487,603 3,577,800
Other assets .................................... 1,007,797 1,158,999
------------ ------------
TOTAL ASSETS .............................. $285,563,675 $310,354,963
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ...................................... $240,553,508 $247,851,373
Advances by borrowers for taxes ............... 720,361 701,773
Stock subscriptions payable ................... -- 44,831,296
Accounts payable and other liabilities ........ 827,548 747,298
------------ ------------
Total liabilities ......................... $242,101,417 $294,131,740
------------ ------------
Stockholders' Equity:
Retained earnings-substantially restricted .... -- 16,327,286
Preferred stock; 5,000,000 authorized shares;
none outstanding ............................ -- --
Common stock, par value $.10; 10,000,000
authorized shares; 3,041,750 issued
and outstanding ............................ 304,175 --
Additional paid-in-capital .................... 28,985,673 --
Retained earnings ............................. 16,588,203 --
Unearned ESOP shares .......................... (2,311,730) --
Minimum pension liability net of deferred taxes (104,063) (104,063)
------------ ------------
Total stockholders' equity ................ $ 43,462,258 $ 16,223,223
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $285,563,675 $310,354,963
============ ============
- ---------------------
<FN>
* The consolidated balance sheet at December 31, 1995 has been taken from
the audited balance sheet at that date.
</FN>
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
LITTLE FALLS BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For Three Months
Ended March 31,
1996 1995
----------- -----------
Interest income:
<S> <C> <C>
Loans receivable ............................ $ 1,904,823 $ 1,940,528
Mortgage backed securities .................. 2,084,510 802,906
Investment securities and other interest
earning assets ............................ 721,462 493,804
----------- -----------
Total interest income ................... 4,710,795 3,237,238
----------- -----------
Interest expense:
Deposits .................................... 2,912,296 1,998,381
----------- -----------
Net interest income ........................... 1,798,499 1,238,857
Provision for loan losses ..................... 30,000 --
----------- -----------
Net interest income after provision for
loan losses ............................ 1,768,499 1,238,857
----------- -----------
Non-interest income
Income (expense) on foreclosed real estate... 18,777 (4,580)
Other ....................................... 53,308 34,291
----------- -----------
Total non-interest income ................ 72,085 29,711
----------- -----------
Non-interest expense:
Compensation and employee benefits .......... 704,070 369,941
Occupancy, net .............................. 115,241 43,140
Equipment ................................... 111,860 58,861
Deposit insurance premiums .................. 109,205 106,500
Amortization of intangibles ................. 90,197 --
Other ....................................... 315,588 140,943
----------- -----------
Total non-interest expense ............... 1,446,161 719,385
----------- -----------
Income before provision for income
taxes ................................. 394,423 549,183
Provision for income taxes .................... 133,507 181,231
----------- -----------
Net income .............................. $ 260,916 $ 367,952
=========== ===========
Weighted average number of common shares
outstanding ................................. 2,804,494 N/A
Earnings per share ............................ $ .09 N/A
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
LITTLE FALLS BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income ................................................................... $ 260,916 $ 367,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................................... 36,915 24,120
Provision for loan losses .................................................. 30,000 --
Amortization of intangibles ................................................ 90,197 --
Amortization (accretion) of deferred fees, premiums and discounts, net...... 25,932 10,922
Amortization of unearned ESOP shares ....................................... 133,958 --
Gain on sale of foreclosed real estate ..................................... (35,316) --
Decrease (increase) in other assets ........................................ (271,428) (91,056)
(Increase) decrease in interest receivable, net ............................ (113,682) 1,059
Increase (decrease) in interest payable .................................... 102,203 73,861
Increase (decrease) in accounts payable and other liabilities............... 80,250 249,212
------------ ------------
Net cash provided by operating activities ................................ 339,945 636,070
------------ ------------
Cash flows from investing activities:
Purchase of mortgage-backed securities held to maturity.................... (10,190,780) --
Principal collections on mortgage-backed securities held to maturity....... 6,047,630 1,063,062
Net (increase) decrease in loans receivable ................................ (2,222,607) 415,371
Purchase of investments held to maturity ................................... (5,000,000) --
Purchases of premises and equipment ........................................ (38,594) (2,508)
Proceeds from sale of foreclosed real estate ............................... 127,363 --
Redemption of Federal Home Loan Bank of New York stock ..................... -- 116,100
------------ ------------
Net cash provided by (used in) operating activities...................... (11,276,988) 1,592,025
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits ......................................... (4,540,610) 2,251,281
Increase in advances from borrowers ......................................... 18,588 24,994
Refund of oversubscribed stock subscription ................................. (19,706,653) --
Costs of issuance of common stock ........................................... (717,311) --
------------ ------------
Net cash provided by (used in) financing activities.................... (24,945,986) 2,276,275
------------ ------------
Increase (decrease) in cash and cash equivalents........................... (35,883,029) 4,504,370
Cash and cash equivalents:
Beginning of period .......................................................... 53,419,088 4,065,128
------------ ------------
End of period ................................................................ $ 17,536,059 $ 8,569,498
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest ..................................................................... $ 2,810,094 $ 1,924,520
Income taxes ................................................................. $ -- $ 54,839
Loans receivable transferred to foreclosed real estate ......................... $ 308,728 $ --
Issuance of common stock:
Deposits used for stock purchase ............................................. $ 2,859,458 $ --
Stock subscriptions used for stock purchase .................................. $ 25,124,642 $ --
Deferred costs ............................................................... $ (422,630) $ --
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
LITTLE FALLS BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the three month period
ended March 31, 1996 include the accounts of Little Falls Bancorp, Inc.
(the "Company") and its subsidiary, Little Falls Bank (the "Bank") which,
as discussed in Note 3, became the wholly owned subsidiary of the Company
on January 5, 1996. The Company's business is conducted principally
through the Bank. All significant intercompany accounts and transactions
have been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
all information necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. However, all adjustments,
consisting of normal recurring accruals, which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for the
period ended March 31, 1996 are not necessarily indicative of the results
which may be expected for the entire fiscal year or any other period.
NOTE 3 - CONVERSION FROM MUTUAL SAVINGS BANK TO STOCK SAVINGS BANK AND
FORMATION OF SAVINGS AND LOAN HOLDING COMPANY
On January 5, 1996, the Bank consummated its conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan
of Conversion (the "Conversion") via the issuance of common stock. In
connection with the Conversion, the Company sold 3,041,750 shares of
common stock which, after giving effect to offering expenses of $1.1
million and 243,340 shares issued to the Bank's Employee Stock Ownership
Plan ("ESOP"), resulted in net proceeds of $26.8 million. Pursuant to the
Conversion, the Bank transferred all of its outstanding shares to a newly
organized holding company, Little Falls Bancorp, Inc., in exchange for 50%
of the net proceeds.
Upon consummation of the Conversion, the preexisting liquidation rights of
the depositors of the Bank were unchanged. Specifically, such rights were
retained and will be accounted for by the Bank for the benefit of such
depositors in proportion to their liquidation interests as of the
eligibility and supplemental eligibility record dates as required by
Office of Thrift Supervision ("OTS") regulations.
NOTE 4 - EARNINGS PER SHARE
Earnings per share for the three month period ended March 31, 1996 are
calculated by dividing the net earnings for the period from January 1,
1996 (the beginning of the Company's fiscal year) to March 31, 1996 of
$260,916 by the weighted average number of shares outstanding during that
same period (as if the conversion had taken place on January 1, 1996) of
2,804,494 shares. The weighted average number of common shares outstanding
is adjusted for the unallocated portion of shares held by the ESOP.
Earnings per share is not presented for the 1995 period as the Bank was a
mutual savings bank at that time and no common stock was outstanding.
4
<PAGE>
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, the Bank adopted FASB Statement Nos. 114,
"Accounting by Creditors for Impairment of a Loan" and 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
The provision of these statements are applicable to all loans,
uncollateralized as well as collateralized, except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment and loans that are measured at fair value or at the lower of
cost or fair value. Additionally, such provisions apply to all loans that
are renegotiated in troubled debt restructurings involving a modification
of terms.
Statement No. 114 requires that impaired loans be 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, except that loans renegotiated as part of a troubled
debt restructuring subsequent to the adoption of Statement Nos. 114 and
118 must be measured for impairment by discounting the total expected cash
flow under the renegotiated terms at each loan's original effective
interest rate.
A loan evaluated for impairment pursuant to Statement No. 114 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 the 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.
The adoption of Statement Nos. 114 and 118 did not have a material adverse
impact on financial condition or operations.
Payments received on impaired loans are applied first to interest
receivable and then to principal.
5
<PAGE>
LITTLE FALLS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a New Jersey corporation organized in August 1995 at the
direction of the Board of Directors of the Bank to acquire all of the capital
stock of the Bank issued in the Conversion. The Company is a unitary savings and
loan holding company which, under existing laws, generally is not restricted in
the types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments.
The Bank is a federally chartered stock savings bank headquartered in
Little Falls, New Jersey. The Bank was founded in 1887 and its deposits are
federally insured by the Savings Association Insurance Fund ("SAIF") and the
Bank is a member of the Federal Home Loan Bank ("FHLB") System. The Bank is a
community oriented, full service retail savings institution offering traditional
mortgage loan products. It is the Bank's intent to remain an independent
community savings bank serving the local banking needs of its community.
The Bank attracts deposits from the general public and has historically
used such deposits primarily to originate loans secured by first mortgages on
owner-occupied one- to four-family residences in its market area and to purchase
mortgage-backed securities. The Bank also originates a limited number of
commercial real estate, residential construction, and consumer loans, which
mainly consist of home equity lines of credit.
The largest components of the Bank's net income are net interest income,
which is the difference between interest income and interest expense, and
noninterest income derived primarily from fees. Consequently, the Bank's
earnings are dependent on its ability to originate loans, net interest income,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net income is also affected by its provision for loan
losses and foreclosed real estate as well as the amount of non-interest
expenses, such as compensation and benefit expense, occupancy and equipment
expense and deposit insurance premium expenses. Earnings of the Bank also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities. The current disparity in premiums paid by Bank
Insurance Fund ("BIF") and SAIF insured institutions may also adversely impact
the Bank in the future. See "Item 5" herein.
Comparison of Financial Condition
Total assets decreased by $24.8 million to $285.6 million at March 31,
1996, from $310.4 million at December 31, 1995. Net loans increased by $1.9
million to $98.1 million due in most part to $4.6 million of loan originations
offset somewhat by loan repayments. Mortgage-backed securities increased by $4.1
million due to the purchase of $10.1 million of adjustable rate securities
offset by payments received. Investment securities increased by $5.0 million as
a result of the purchase of $5.0 million of new securities. Total cash and cash
equivalents decreased by $35.6 million primarily due to the $10.1 million and
$5.0 million of purchases of mortgage-backed securities as the Company invested
proceeds from the Conversion and investment securities and the refund of $19.7
million of oversubscribed stock subscriptions.
6
<PAGE>
Total deposits decreased by $7.4 million to $240.3 million at March 31,
1996, due in part to $2.8 million being used for the purchase of stock in the
Conversion.
Total stockholders' equity increased $27.2 million primarily due to the
completion of the Conversion and, to a much lesser extent, earnings during the
quarter.
Non-performing Assets
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 At
March 31, 1996 December 31, 1995
(Dollars in Thousands)
Total non-performing loans ................. $2,748 $2,447
Real estate owned .......................... 1,718 1,501
------ ------
Total non-performing assets ................ $4,466 $3,948
====== ======
Total non-performing loans to net loans..... 2.80% 2.54%
====== ======
Total non-performing loans to total assets.. 0.96% 0.79%
====== ======
Total non-performing assets to total assets. 1.56% 1.26%
====== ======
During the quarter ended March 31, 1996, non-performing assets increased
by $518,000. The increase was primarily due to nine 1-4 family home loans
totaling $986,000, becoming more than 90 days delinquent, offset by four 1-4
family home loans totaling $388,000 coming off the non-performing list due to
payments received during the quarter. Real estate owned increased by $217,000
due to the foreclosure on two 1-4 family homes totaling $307,000 offset by the
sale of a 1-4 family property of $90,000. The two loans which were foreclosed
were previously non-performing loans, and therefore did not effect the
non-performing totals.
Comparison of Earnings for the Three Months Ended March 31, 1996 and 1995
Net Income. Net income for the three months ended March 31, 1996 decreased
$107,000 or 29.1% over the same period ended March 31, 1995. This decrease was
due primarily to increases in non-interest expense of $727,000 and interest
expense of $914,000, offset somewhat by an increase in interest income of $1.5
million.
Total Interest Income. Interest income increased by $1.5 million, or 45.5%
due to an increase in the average balance of total interest earning assets
(primarily investment and mortgage-backed securities) of $91.6 million for the
quarter ended March 31, 1996 compared to March 31, 1995. The increase in the
average balance of interest earning assets was primarily due to the funds
received for the purchase of three branches and their deposits in December 1995
of $50.8 million, and the conversion to stock form in January 1996 which raised
$26.8 million. The increase in interest earning assets was offset somewhat by a
decrease in the average rates earned on interest earning assets. For the three
months ended March 31, 1996, the average rate earned on interest earning assets
decreased by 16 basis points to 6.78% from 6.94% for the same period one year
ago. This decrease was due in part to a change in the composition of average
interest earning assets. For the three months ended March 31, 1996, loans made
up 35.3% of the average of all interest earning assets, down from 50.1% for the
three months ended March 31, 1995. Conversely, mortgage-backed securities made
up 44.2% of the average interest earning assets for the three months ended March
31, 1996, up from 28.1% for the three months ended March 31, 1995. In general,
mortgage-backed securities, because they are guaranteed as to principal and
interest, have a lower yield than loans.
7
<PAGE>
Total Interest Expense. Interest expense increased $914,000 or 45.7% due
to an increase in the average balance of deposits of $66.1 million at March 31,
1996 compared to one year ago. The average balances increased by $22.2 million,
$29.7 million and $14.2 million for savings accounts, certificates and demand
deposit accounts, respectively. These increases were due primarily to the
purchase of three branch offices previously mentioned. The cost of deposits
increased by 20 basis points to 4.82% for the three months ended March 31, 1996,
as compared to 4.60% for the three months ended March 31, 1995. The increase was
primarily due to a general increase in market rates, offset somewhat by the
acquisition in December 1995 of three branches, including deposits, from a
commercial bank. The average rates paid on the deposits in these branches were
significantly lower than the average rates paid on the Bank's other branch
deposits.
Net Interest Income. Net interest income increased $560,000 due in most
part to the investment of $26.8 million received from the stock conversion in
loans, investment and mortgage-backed securities. Furthermore, as previously
discussed, the increase in interest earning assets was offset by a decrease in
the average rate earned on those assets, while the average balance and the rate
paid on the deposits increased. The Company's interest rate spread decreased by
36 basis points to 1.97% for the quarter ended March 31, 1996 as compared to
2.33% for the same period one year ago.
Provision for Loan Losses. The provision for loan losses increased $30,000
due to primarily to an increase in the Bank's nonperforming assets. 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.
As a result of the declines in regional real estate market values and the
significant losses experienced by many financial institutions, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolios of
financial institutions undertaken as part of the examination of the institution
by the FDIC, OTS or other federal or state regulators. Results of recent
examinations indicate that these regulators may be applying more conservative
criteria in evaluating real estate market values, requiring significantly
increased provisions for potential loan losses. While the Bank believes it has
established an adequate allowance for loan losses, there can be no assurance
that regulators, in reviewing the Bank's loan portfolio, will not request the
Bank to significantly increase its allowance for loan losses, thereby negatively
affecting the Bank's financial condition and earnings or that the Bank may not
have to increase its level of loan loss allowance in the future.
Management will continue to review its loan portfolio to determine the
extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
8
<PAGE>
An analysis of the allowance for loan losses follows:
Quarter Ended March 31
1996 1995
-------- ---------
Balance - beginning 958,149 1,169,058
Provisions charged to operations 30,000 --
Loans charged off, net of recoveries (57,202) (257,351)
-------- --------
Balance-ending.................. $ 930,947 $ 911,707
======== ========
Impaired loans and related amounts recorded in the allowance for loan
losses at March 31, 1996 are summarized as follows (in thousands):
Recorded investment in impaired loans:
With recorded allowances............ $1,626
Without recorded allowances......... 116
------
Total impaired loans.................... 1,742
Related allowance for loan losses......... 245
-------
Net impaired loans...................... $ 1,497
======
Non-interest Income. Non-interest income increased $42,000 primarily due
to a $35,000 gain during the three months ended March 31, 1996 on the sale of a
property which was formerly held as real estate owned. Such sale was not present
during the same period in 1995.
Non-interest Expense. Non-interest expense increased $727,000 due
primarily to increased costs resulting from the purchase of three branch offices
and their accompanying deposits in December, 1995, and therefore are not
reflected in the March 31, 1995 figures. These increased costs include
compensation and employee benefits, occupancy and equipment, and the
amortization of goodwill. In addition, there were some one-time costs associated
with new services being offered by the Bank which were recorded in the quarter
ended March 31, 1996. The increase was also due to the expense connected with
the amortization of the unearned ESOP shares. For the three months ended March
31, 1996, this expense was $134,000. There was no such expense during the three
months ended March 31, 1995.
Income Tax Expense. Income tax expense decreased by $48,000, or 26.3% to
$134,000, due to the decrease in pre-tax income for the three months ended March
31, 1996 compared with the same period one year earlier.
9
<PAGE>
Liquidity and Capital Resources
On March 31, 1996, the Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
-------- -------
(In thousands)
Tangible capital.......................... $ 25,104 8.90%
Tangible capital requirement.............. 4,230 1.50
-------- ----
Excess over requirement................... $ 20,874 7.40%
======== ====
Core capital.............................. $ 25,104 8.90%
Core capital requirement.................. 8,460 3.00
-------- ----
Excess over requirement................... $ 16,644 5.90%
======== ====
Risk based capital........................ $ 25,491 29.95%
Risk based capital requirement............ 6,810 8.00
-------- ----
Excess over requirement................... $ 18,681 21.95%
======== =====
Management believes that under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
The Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Bank's primary sources of funds are deposits and scheduled
amortization and prepayment of loan and mortgage-backed principal. During the
past several years, the Bank has used such funds primarily to fund maturing time
deposits, pay savings withdrawals, fund lending commitments, purchase new
investments, and increase liquidity. The Bank is currently able to fund its
operations internally. Additionally, sources of funds include the ability to
utilize Federal Home Loan Bank of New York advances and the ability to borrow
against mortgage-backed and investment securities. As of March 31, 1996, the
Bank had no such borrowed funds. Loan payments, maturing investments and
mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. As of March 31, 1996, the Bank had mortgage commitments
to fund loans of $5.2 million. Also, at March 31, 1996, there were commitments
on unused lines of credit relating to home equity loans of $2.4 million.
Certificates of deposit scheduled to mature in one year or less at March 31,
1996 totaled $96.6 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.
The Bank is required under federal regulations to maintain certain
specified levels of "liquid investments," which include certain United States
government obligations and other approved investments. Current regulations
require the Bank to maintain liquid assets of not less than 5% of its net
withdrawable accounts plus short term borrowings. Short term liquid assets must
consist of not less than 1% of such accounts and borrowings, which amount is
also included within the 5% requirement. Those levels may be changed from time
to time by the regulators to reflect current economic conditions. The Bank has
maintained liquidity in excess of regulatory requirements.
10
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Key Operating Ratios
Three Months Ended
March 31,
1996(1) 1995(1)
-------- --------
(Dollars in Thousands)
(Unaudited)
Earnings per common share (2) (3) ... $0.09 N/A
Return on average assets ............ 0.36% %0.76
Return on average equity............. 2.41% 9.44%
Interest rate spread ................ 1.97% 2.33%
Net interest margin ................. 2.67% 2.62%
Noninterest expense to average assets 1.97% 1.50%
Net charge-offs to average
outstanding loans ................... 0.03% 0.06%
Nonaccrual and 90 days past due loans $ 2,748 $ 2,969
Repossessed real estate ............. 1,718 1,765
------- ------
Total nonperforming assets $ 4,466 $ 4,734
Allowance for credit losses
to nonperforming assets ........... 20.85% 16.91%
Nonperforming loans to total loans .. 2.80% 3.15%
Nonperforming assets to total assets 1.56% %2.42%
Tangible book value per share ....... $13.14(4) N/A(2)
- ----------------
(1) The ratios for the three-month period are annualized.
(2) There were no shares outstanding prior to the completion of the Company's
initial public offering on January 5, 1996.
(3) The average number of shares outstanding during the three months ended
March 31, 1996 was 2,804,494.
(4) The number of shares issued and outstanding as of March 31, 1996, was
3,041,750.
11
<PAGE>
LITTLE FALLS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal proceeding
of a material nature at March 31, 1996. From time to time, the
Company is a party to legal proceedings in the ordinary course of
business wherein it enforces its security interest in loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Potential One-Time Assessment. Current regulations require the Bank
to pay an insurance premium to the Federal Deposit Insurance
Corporation ("FDIC") between .23% to .31% of its total deposits. In
August, 1995, the FDIC announced that it will lower the insurance
premium for members of the BIF, primarily commercial banks, to a
range of between 0.04% and 0.31% of deposits, with the result that
most commercial banks will pay the lowest rate of 0.04%. This
reduction in insurance premiums for BIF members could place SAIF
members, primarily savings associations, such as the Bank, at a
material competitive disadvantage to BIF members and, for the
reasons set forth below, could have a material adverse effect on the
results of operations and financial condition of the Bank in future
periods.
The disparity in insurance premiums between those required for the
Bank and BIF members could allow BIF members to attract and retain
deposits at a lower effective cost than that possible for the Bank
and put competitive pressure on the Bank to raise its interest rates
paid on deposits thus increasing its cost of funds and possibly
reducing net interest income. The resultant competitive disadvantage
could result in the Bank losing deposits to BIF members who have a
lower cost of funds and are therefore able to pay higher rates of
interest on deposits. Although the Bank has other sources of funds,
these other sources may have higher costs than those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF
insurance premium disparity have recently been proposed by the U.S.
Congress, federal regulators, industry lobbyists and the
Administration. One plan that has gained support of several sponsors
would require all SAIF member institutions, including the Bank, to
pay a one-time fee of up to 85 basis points on the amount of
deposits held by the member institution to recapitalize
12
<PAGE>
the SAIF. If this proposal is enacted by Congress, the effect would
be to immediately reduce the capital of the SAIF-member institutions
by the amount of the fee, and such amount would be immediately
charged to earnings, unless the institutions are permitted to
amortize the expense of the fee over a period of years. Management
of the Bank is unable to predict whether this proposal or any
similar proposal will be enacted or whether ongoing SAIF premiums
will be reduced to a level equal to that of BIF premiums.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On January 5, 1996, the Company filed an Form 8-K with the SEC
announcing the completion of the Bank's mutual to stock
conversion.
13
<PAGE>
LITTLE FALLS BANCORP, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLE FALLS BANCORP, INC.
Date: May 15, 1996 By:/s/John P. Pullara
---------------------
John P. Pullara
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1996 By:/s/Richard Capone
---------------------
Richard Capone
Senior Vice President and
Chief Financial Officer
(Principal Officer)
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