SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No Fee required)
For the fiscal year ended March 31, 1997
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|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
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Commission File Number: 0-28200
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WESTWOOD FINANCIAL CORPORATION
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(Name of Small Business Issuer in Its Charter)
New Jersey 22-3413572
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
700-88 Broadway, Westwood, New Jersey 07675
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(Address of Principal Executive Offices) (Zip Code)
(201) 666-5002
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $6,797,000
The registrant's voting stock is traded on the NASDAQ SmallCap Market
under the symbol "WWFC." The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average bid and asked price of
the registrant's Common Stock as reported by the NASDAQ SmallCap Market on June
16, 1997, was $11,018,013.
As of June 15, 1997, the registrant had 645,241 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Parts I and II -- Portions of the registrant's Annual Report to
Stockholders for the fiscal year ended March 31, 1997.
2. Part III -- Portions of the registrant's Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended March 31, 1997.
<PAGE>
PART I
Item 1. Description of Business
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Business of the Company
Westwood Financial Corporation (the "Company") is a New Jersey corporation
organized on December 9, 1995, at the direction of the Board of Directors of
Westwood Savings Bank ("Westwood Savings" or the "Bank") to facilitate the
conversion of Bergen North Financial, M.H.C. (the "Mutual Holding Company") from
the mutual to stock form of ownership and to acquire and hold all of the capital
stock of the Bank (collectively, the "Conversion and Reorganization"). Prior to
the consummation of the Conversion and Reorganization, the Mutual Holding
Company was the majority stockholder of the Bank and upon consummation of the
Conversion and Reorganization, the Mutual Holding Company was merged with and
into the Bank. The Company acquired the Bank as a wholly owned subsidiary upon
the consummation of the Conversion and Reorganization on June 6, 1996. In
connection with the Conversion and Reorganization, the Company sold 385,255
shares of its common stock to the public in an initial public offering (the
"Offering") and issued 261,488 shares in exchange for the outstanding shares of
the Bank held by persons other than the Mutual Holding Company.
Business of the Bank
Westwood Savings is a New Jersey chartered stock savings bank that was
formed as a result of the MHC Reorganization on December 9, 1993. The Bank was
founded in 1906 as The Westwood Savings and Loan Association of Westwood, New
Jersey. On February 23, 1993, the Bank converted from a New Jersey chartered
mutual savings association called Westwood Savings Bank, S.L.A. to a New Jersey
chartered mutual savings bank, the accounts of which are insured by the SAIF of
the FDIC. The Bank operates from its main office in Westwood, New Jersey, and
one branch office in Haworth, New Jersey, which was acquired from the RTC in May
1994.
Competition
The Bank is one of the many financial institutions serving its market area
which consists of Bergen County, including the municipalities of Emerson,
Hillsdale, River Vale, Washington Township, Westwood, Closter, Harrington Park,
Haworth, Dumont and Demarest. The competition for deposit products comes from
other insured financial institutions such as commercial banks, thrift
institutions, credit unions, and multi-state regional banks in the Bank's market
area. Deposit competition also includes a number of insurance products sold by
local agents and investment products such as mutual funds and other securities
sold by local and regional brokers. Loan competition varies depending upon
market conditions and comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, multi-state regional
banks, and mortgage bankers.
Lending Activities
General. The Bank's loan portfolio predominantly consists of fixed-rate
mortgage loans secured by one-to-four family residences and to a lesser extent
the Bank originates commercial loans secured by real estate and consumer loans.
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Bank's loans by type of loan on the dates indicated.
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<PAGE>
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------
1996 1997
---------------------- ----------------------
$ % $ %
--------- ------- -------- -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C>
1-4 family residential ......... $ 31,457 90.62% $ 36,831 90.73%
Multi-family residential ....... 439 1.26 436 1.07
Commercial ..................... 1,197 3.45 977 2.41
Consumer Loans:
Savings account loans .......... 495 1.43 974 2.40
Home improvement loans ......... 835 2.40 1,068 2.63
Automobile loans ............... 356 1.03 300 0.74
Other loans .................... 270 0.78 306 0.75
-------- ------ -------- ------
Total ............................ 35,049 100.97 40,892 100.73
Less:
Deferred loan origination
fees and costs ................ (165) (0.48) (78) (0.19)
Allowance for loan losses (169) (0.49) (218) (0.54)
-------- ------ -------- ------
Total loans, net ................. $ 34,715 100.00% $ 40,596 100.00%
======== ====== ======== ======
</TABLE>
One-to-Four Family Mortgage Loans. The Bank offers first mortgage loans
secured by one-to-four family residences in the Bank's primary lending area.
Typically, such residences are single family homes that serve as the primary
residence of the owner. The Bank currently offers 10, 15 and 20 year fixed-rate
mortgage loans as well as balloon mortgage loans with five to fifteen year
maturities. The Bank may renew these loans at prevailing market rates at its
option for the remaining amortization term of the original loan. Renewal of
balloon mortgage loans is based on the credit history as well as current
qualification of the borrower at time of renewal. The Bank offers balloon
mortgages in an effort to make its assets more interest rate sensitive. Interest
rates charged on fixed-rate loans are competitively priced based on the local
market. The Bank also offers adjustable rate mortgage loans, however, to date,
adjustable rate mortgage loans have not been accepted by customers in the market
area resulting in few originations. Loan origination fees on loans are generally
0% to 2% of the loan amount depending on the market rate and customer demand.
As part of the Bank's one-to-four family mortgage portfolio, the Bank also
originates home equity loans secured by single-family residences. These loans
generally are originated as fixed-rate loans with terms of from 5 to 15 years.
These loans are made only on owner-occupied, single-family residences. The loans
are generally subject to a 75% combined loan-to-value limitation, including any
other outstanding mortgages or liens. Since August 1994, the Bank has offered a
variable rate home equity line of credit which adjusts monthly after the first 6
months based upon the prime rate. The rate for the first six months is a
competitive rate below the prime rate, however, the Bank qualifies each
applicant based on the fully indexed rate of the loan.
Originated mortgage loans in the Bank's portfolio 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.
Commercial Real Estate. To a much lesser degree, the Bank originated
commercial real estate loans secured by property located within its primary
market area. The Bank's commercial real estate loans are permanent loans secured
by improved property such as office buildings, small business facilities and
other non-residential buildings. Essentially all originated commercial real
estate loans are within the Bank's market area. Interest rates on these loans
are slightly higher than those offered on residential
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<PAGE>
loans. The Bank does not seek commercial loans but considers applications
submitted by local organizations or persons within its lending area who are
already customers. At March 31, 1997, commercial real estate loans range in size
from $95,000 to approximately $251,000. The largest commercial real estate loan
was secured by an automobile rebuilding shop in Westwood, New Jersey, with a
balance of $250,636 on March 31, 1997 and is current. Commercial real estate
loans are generally originated in amounts of up to 70% of the appraised value of
the mortgaged property. The Bank generally makes fixed-rate commercial real
estate loans with amortization terms of 15 to 30 years with a balloon payment
after three to five years.
Consumer Loans. Consumer loans represent a small part of the Bank's
lending activity. The types of consumer loans originated by the Bank include
loans secured by savings deposits, home improvement loans, automobile loans made
directly to customers and personal loans.
Loan Underwriting Risks. While commercial real estate and consumer loans
provide benefits to the Bank's asset/liability management program by reducing
exposure to interest rate changes, due to their shorter terms, and producing
higher yields, such loans may entail significant additional credit risks
compared to residential mortgage lending. Commercial real estate mortgage loans
may involve large loan balances to single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation of the
properties and thus may be subject to a greater extent to adverse conditions in
the real estate market or in the general economy.
Loans to One Borrower. SAIF-insured savings banks are subject to the same
limits as those applicable to national banks, which under current law have
lending limits in an amount equal to 15% of unimpaired capital and unimpaired
surplus on an unsecured basis and an additional amount equal to 10% of
unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral. At March 31, 1997, the Bank's self-imposed maximum
loan-to-one borrower limit was $500,000. As of March 31, 1997, the Bank's
largest aggregation of loans to one borrower was approximately $477,300 of loans
secured by commercial property consisting of a store and two apartments in
Westwood, New Jersey, a primary residence in River Vale, New Jersey, office
equipment, and an automobile. The second largest aggregation of loans to one
borrower was approximately $464,750 of loans secured by a primary residence in
Old Tappan, New Jersey and a two-family investment property in Westwood, New
Jersey. The third largest aggregation of loans to one borrower was approximately
$321,800 of loans secured by a primary residence in Bernardsville, New Jersey.
Loan Maturity Tables. The following table sets forth the maturity of the
Bank's loans at March 31, 1997. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totalled $7,864,000 for the year ended March 31, 1997. Adjustable-rate
mortgage loans are shown as maturing based on contractual maturities.
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<PAGE>
<TABLE>
<CAPTION>
1-4 Family Multi-Family
Real Estate Real Estate Commercial Consumer
Loans Loans Loans Loans Total
----------- ------------ ---------- -------- ------
(In Thousands)
Amounts Due:
<S> <C> <C> <C> <C> <C>
Within 1 Year....... $ 2,491 $ 4 $ 495 $ 769 $ 3,759
After 1 year:
1 to 2 years...... 667 8 187 286 1,148
2 to 3 years...... 1,360 10 - 426 1,796
3 to 5 years...... 5,198 11 227 552 5,988
5 to 10 years..... 7,626 37 68 298 8,029
Over 10 years..... 19,489 366 - 317 20,172
------- ------ ------ ------- -------
Total due after one
year.............. 34,340 432 482 1,879 37,133
------- ------ ------ ------- -------
Total amount due.... 36,831 436 977 2,648 40,892
Less:
Allowance for loan
losses............ 208 - - 10 218
Deferred loan fees.. 78 - - - 78
------- ------ ------ ------- -------
Loans receivable,
net............. $36,545 $ 436 $ 977 $ 2,638 $40,596
======= ====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
March 31, 1998, which have predetermined interest rates and which have floating
or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -------
(In Thousands)
One-to-four family........ $31,532 $2,808 $34,340
Multi-Family.............. 432 -- 432
Commercial................ 482 -- 482
Consumer.................. 1,879 -- 1,879
------- ------ -------
Total................... $34,325 $2,808 $37,133
======= ====== =======
Nonperforming Loans and Problem Assets
Loan Delinquencies. The Bank's collection policy provides for a late
charge to be added to the amount due when a loan is 15 days past due. The
borrower is immediately notified of the assessment and payment is requested.
Periodic contacts are made at 15 day intervals. When a loan is 60 days past due,
a letter is sent by the Bank's attorney. At 90 days, the attorney is authorized
to take "last resort" action up to initiation of foreclosure proceedings, if
deemed warranted.
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<PAGE>
Loans are reviewed on a monthly basis and are placed on a nonaccrual
status when, in the opinion of management, the collection of additional interest
is doubtful and either principal or interest is 90 days or more past due.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan. At March 31, 1997, the
Bank had no real estate loans past due 30 through 89 days and $149,000 of real
estate loans past due 90 days or more. Because all of these loans are well
secured and in the process of collection, interest is still being accrued on the
$149,000 of loans more than 30 days past due.
New Jersey banking law requires the Board of Directors of the Bank to
prepare, within 60 days after the presentation of the annual audit report to the
Board by its independent public auditor, a detailed statement of the assets of
the Bank, other than loans, which in the judgment of the Board of Directors,
have a value less than the value at which they are carried on the books of the
Bank. The statement must present the value of such assets in the judgment of the
Board. The statement must also include a list of loans which in the judgment of
the Board of Directors, are classified internally by the Board as (i) worthless;
(ii) doubtful, or (iii) insufficiently secured. This statement must be filed
with the NJDB, along with a certified copy of the audit report, within 60 days
of the completion of the audit report. At March 31, 1997, the Bank had no loans
that had been classified as worthless, doubtful, or insufficiently secured.
Allowance for Losses on Loans. In making loans, the Bank recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the credit worthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan. The Bank's management evaluates the need
to establish reserves against losses on loans and other assets each year based
on estimated losses on specific loans and on any real estate held for sale or
investment when a finding is made that a loss is estimable and probable. Such
evaluation includes a review of all loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated market
value of the underlying collateral of problem loans, prior loss experience,
economic conditions and overall portfolio quality. These provisions for losses
are charged against earnings in the year they are established.
As a result of the declines in 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 and
allowance for loan losses of financial institutions nationwide, undertaken as
part of the examination of the institution by the NJDB, FDIC or other federal or
state regulators. While the Bank believes it has established its existing
allowance for loan losses in accordance with generally accepted accounting
principles ("GAAP"), 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, or that a deteriorating real estate market will not
cause the Bank to significantly increase its allowance for loan losses,
therefore negatively affecting the Bank's financial condition and earnings.
During the year ended March 31, 1997, the Bank charged-off one loan
receivable and no other assets. It is the Bank's policy to review its loan
portfolio, in accordance with statutory classification procedures, on a monthly
basis. Additionally, the Bank maintains a program of reviewing loan applications
prior to making the loan and immediately after loans are made in an effort to
maintain loan quality.
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<PAGE>
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:
<TABLE>
<CAPTION>
At March 31,
-----------------------
1996 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding .......................... $34,715 $40,596
======= =======
Average loans outstanding ........................ 32,958 38,503
======= =======
Allowance balances (at beginning of
period) ........................................ $ 134 $ 169
Provision (credit):
Residential .................................... 33 46
Consumer ....................................... 2 6
Net Charge-offs (recoveries):
Consumer ....................................... -- 3
------- -------
Allowance balance (at end of period) ............. $ 169 $ 218
======= =======
Allowance for loan losses as a percent
of total loans outstanding ..................... .49% .54%
======= =======
</TABLE>
The following table provides a breakdown of the allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------
1996 1997
------------------- ---------------------
Percent of Percent of
Loans in Loans in
Category Category
To Total To Total
Amount Income Amount Income
------ ---------- ------ -----------
(In Thousands)
Balance at End of Period Applicable to:
<S> <C> <C> <C> <C>
Commercial ................................... $ 8 .14% $ 10 .15%
1 to 4 family - mortgage ..................... 154 2.71% 198 2.91%
Installment loans to individuals ............. 7 .12% 10 .15%
</TABLE>
Mortgage-Backed Securities and Investment Activities
General. Income from investment securities provides a significant source
of income for the Bank. The Bank maintains a portfolio of investment securities
such as U.S. government and agency securities, adjustable mortgage mutual funds
and interest-bearing deposits, in addition to the Bank's mortgage-backed
securities. The amount of short-term investments reflects management's response
to the significantly increasing percentage of savings deposits with short
maturities. It is the intention of management to maintain shorter maturities in
the Bank's investment portfolio in order to better match the interest rate
sensitivities of its assets and liabilities. However, during periods of rapidly
declining interest rates, the yield on such shorter term investments also
declines at a faster rate than does the yield on long-term investments.
Investment decisions are made within policy guidelines established by the
Board of Directors. The investment policy of the Bank, established by the Board
of Directors, is based on its asset/liability
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<PAGE>
management goals. The intent of the policy is to establish a portfolio of high
quality, diversified investments in order to optimize net interest income within
acceptable limits of safety and liquidity.
Purchases of U.S. government and agency securities are generally made with
the intent of holding them to maturity. Currently, the policy is to invest in
instruments with an average life of one to five years, to be held to maturity.
In addition, the Board of Directors has recently approved periodic investments
in adjustable mortgage mutual funds intended as a depository for funds required
to be available for liquidity purposes. At March 31, 1997, the Bank had $1,700
of adjustable rate mortgage mutual funds classified as available for sale.
The Bank's investment securities portfolio includes investments held for
sale and investments held to maturity. Investments that are held to maturity are
recorded at amortized cost. Premiums and discounts are amortized on a straight
line method over the estimated life of the investment. Investments that are held
for sale are recorded at market value.
Mortgage-Backed Securities. The Bank also invests excess liquidity in the
purchase of mortgage-backed securities guaranteed as to principal by FNMA and
issued by the FHLMC which are secured by fixed-rate and adjustable-rate
mortgages. The FNMA mortgage-backed securities consist of pass-through
certificates. FHLMC mortgage-backed securities consist of pass-through
certificates issued and guaranteed by the FHLMC and secured by interests in
pools of conventional mortgages originated by savings banks. All of the Bank's
mortgage-backed securities are classified as held to maturity. At March 31,
1997, most of the Bank's mortgage-backed securities were at a fixed rate,
however, the Bank currently intends to increase its amount of adjustable rate
mortgage-backed securities if, in the opinion of the Bank, favorable market
conditions exist for such purchases.
Investment Portfolio. The following table sets forth the carrying value of
the Bank's investment securities portfolio, short-term investments, and FHLB
stock at the date indicated. At March 31, 1997, the market values of the Bank's
investment securities portfolio was $38,126 million.
At March 31,
------------------
1996 1997
-------- --------
(In Thousands)
U.S. Government and agency securities $22,992 $37,903
Other securities available for sale.. 4,422 2
Other securities..................... 2,750 1,000
------- -------
Mortgage-backed securities........... 13,281 19,728
------- -------
Total ............................ $43,445 $58,633
======= =======
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<PAGE>
Investment Securities Portfolio Maturities. The following table sets forth
certain information regarding the carrying values, weighted average yields and
maturities of the Bank's investment securities portfolio at March 31, 1997.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------ ------------------ ------------------ ------------------- -----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
U.S. Government
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
obligations......... $ -- --% $15,905 6.6% $17,998 7.1% $ 4,000 7.5% $37,903 6.9% $37,124
Mortgage-backed
securities.......... 394 6.2 6,244 6.4 -- -- 13,090 6.2 19,728 6.3 19,581
Other securities ..... 1,002 5.5 -- -- -- -- -- -- 1,002 5.5 1,002
------- --- ------- --- ------- --- ------- --- ------- --- -------
Total ............ $ 1,396 5.7% $22,149 6.5% $17,998 7.1% $17,090 6.5% $58,633 6.7% $57,707
======= === ======= === ======= === ======= === ======= === =======
</TABLE>
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<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
loan and mortgage-backed securities principal repayments, and maturities of
investment securities. Loan and mortgage-backed securities payments are a
relatively stable source of funds, while deposit inflows are significantly
influenced by general interest rates and market conditions. The Bank also has
the ability to borrow funds from the FHLB of New York and obtain advances from
the Federal Reserve Bank discount window as a source of funds.
Deposits. The Bank offers a wide variety of deposit accounts, although a
majority of such deposits are in fixed-term, fixed-rate certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate. Certificate accounts have been the primary sources of new
deposits for the Bank. The Bank intends to continue to emphasize retail
deposits, including checking, certificates of deposit, savings accounts and
individual retirement accounts ("IRAs"). The Bank had no brokered certificates
of deposit as of March 31, 1997.
Deposit Portfolio. Deposits in the Bank as of March 31, 1997 were
represented by various types of savings programs described below.
<TABLE>
<CAPTION>
Weighted Balance as of
Average March 31, Percentage
Interest 1997 of Total
Category Term Rate (In Thousands) Deposits
- -------- ---- -------- -------------- --------
<S> <C> <C> <C> <C>
NOW Accounts None 1.50% $ 9,516 10.83%
Regular Savings None 2.53% 17,817 20.28
Money market accounts None 2.75% 3,595 4.09
Certificates of Deposit:
Fixed Term, Fixed Rate 1 - 12 Months 5.21% 11,098 12.63
Fixed Term, Fixed Rate 13 - 24 Months 5.57% 35,407 40.30
Fixed Term, Fixed Rate 25 - 36 Months 5.58% 5,195 5.91
Fixed Term, Fixed Rate 37 - 60 Months 5.67% 4,905 5.58
Jumbo Certificates 5.30% 200 .24
Accrued Interest................ 124 .14
------- ------
Total........................ $87,857 100.00%
======= ======
</TABLE>
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<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the amount
and maturities of time deposits at March 31, 1997.
Amount Due in
-----------------------------------------------------
Less Than 1 - 2 2 - 3 After
One Year Years Years 3 Years Total
-------- ----- ----- ------- -----
(In Thousands)
$50,151 $5,676 $506 $471 $56,805
Jumbo Certificates of Deposit. The following table indicates the amount of
the Bank's short-term certificates of deposit with negotiated rates of $100,000
or more by time remaining until maturity as of March 31, 1997.
Maturity Period Certificates of Deposit
- --------------- -----------------------
(In Thousands)
Three months or less................... --
Over three months...................... $200
---
Total............................ $200
===
Personnel
As of March 31, 1997, the Bank had 12 full-time employees and 3 part-time
employees. The employees are not represented by a collective bargaining unit.
The Bank believes its relationship with its employees to be satisfactory.
Legal Proceedings
The Company is not involved in any material legal proceedings. The Bank,
from time to time, is a party to litigation, which arises in the ordinary course
of business, such as claims to enforce liens, claims involving the making and
servicing of loans, claims relating to the hiring or termination of employees,
and other issues incident to the business of the Bank. In the opinion of
management, the resolution of these lawsuits would not have a material adverse
effect on the financial condition or results of operations of the Bank or the
Company, taken as a whole.
SUPERVISION AND REGULATION
General
As a New Jersey chartered, SAIF-insured savings bank, Westwood Savings is
subject to extensive regulation by the NJDB and the FDIC. Lending activities and
other investments must comply with various state and federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the FRB.
The NJDB and the FDIC regularly examine the Bank and prepare reports for
consideration by 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
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<PAGE>
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 NJDB 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 regulation, whether by the NJDB, the FDIC or the
state or federal government could have a material adverse impact on the Company,
the Bank and their operations. The Company, as a bank holding company, is
required to file certain reports with, and otherwise comply with the rules and
regulations of the NJDB and the FRB.
Set forth below is a brief description of certain laws which are related
to the regulation of the Company and the Bank. The description does not purport
to be complete and is qualified in its entirety by reference to applicable laws
and regulations.
Regulation of the Company
Acquisitions/Permissible Business Activities. The BHCA currently permits
bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
certain nationwide- and state-imposed concentration limits. Effective June 1,
1997, the Bank will have the ability, subject to certain restrictions, including
state opt-out provisions, to acquire by acquisition or merger branches outside
its home state. States may affirmatively opt-in to permit these transactions
earlier, which New Jersey, among other states, has done. The establishment of
new interstate branches also will be possible in those states with laws that
expressly permit it. Interstate branches will be subject to certain laws of the
states in which they are located. Competition may increase further as banks
branch across state lines and enter new markets.
Under the BHCA, the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5 percent of any
class of voting shares of any nonbanking corporation. Further, the Company may
not engage in any business other than managing and controlling banks or
furnishing certain specified services to subsidiaries, and may not acquire
voting control of nonbanking corporations except those corporations engaged in
businesses or furnishing services that the Federal Reserve deems to be closely
related to banking.
Community Reinvestment. Bank holding companies and their subsidiary banks
are subject to the provisions of the Community Reinvestment Act of 1977, as
amended ("CRA"). Under the terms of the CRA, the Bank's record in meeting the
credit needs of the community served by the Bank, including low- and
moderate-income neighborhoods, is generally annually assessed by the FDIC. When
a bank holding company applies for approval to acquire a bank or other bank
holding company, the Federal Reserve will review the assessment of each
subsidiary bank of the applicant bank holding company, and such records may be
the basis for denying the application. As of March 31, 1997, the Bank had
received "Satisfactory" rating in its last CRA exam.
-11-
<PAGE>
Regulation of the Bank
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator. The FDIC may also prohibit an insured depository institution
from engaging in any activity the FDIC determines to pose a serious threat to
the SAIF.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase deposit insurance rates on a
semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC. Prior to
September 30, 1996, savings associations paid within a range of .23% to .31% of
domestic deposits and the SAIF was substantially underfunded. By comparison,
prior to September 30, 1996, members of the Bank Insurance Fund ("BIF"),
predominantly commercial banks, were required to pay substantially lower, or
virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. The Bank recorded a $454,000 pre-tax
expense for this assessment at September 30, 1996. Beginning January 1, 1997,
deposit insurance assessments for SAIF members were reduced to approximately
.064% of deposits on an annual basis; this rate may continue through the end of
1999. During this same period, BIF members are expected to be assessed
approximately .013% of deposits. Thereafter, assessments for BIF and SAIF
members should be the same and the SAIF and BIF may be merged. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 72% from rates in effect prior to September 30,
1996.
Capital Requirements. Under FDIC regulations, the Bank is required to
maintain a minimum leverage capital requirement consisting of a ratio of Tier 1
capital to total risk-weighted assets of 4%. For institutions other than those
most highly rated by the FDIC, an additional "cushion" of at least 100 to 200
basis points is required. Tier 1 capital is the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority investments in certain subsidiaries, less certain intangible
assets, deferred tax assets, certain identified losses and certain investments
in securities subsidiaries. As a SAIF-insured, state-chartered bank, the Bank
must currently also deduct from Tier 1 capital an amount equal to its
investments in, and extensions of credit to, subsidiaries engaged in certain
activities not permissible for national banks.
In addition to the leverage ratio, the Bank must maintain a minimum ratio
of qualifying total capital to risk-weighted assets of at least 8.0%, of which
at least four percentage points must be Tier 1 capital. Qualifying total capital
consists of Tier 1 capital plus Tier 2 or supplementary capital items which
include allowances for loan losses in an amount of up to 1.25% of risk-weighted
assets, cumulative
-12-
<PAGE>
preferred stock and preferred stock with a maturity of over 20 years and certain
other capital instruments. The includable amount of Tier 2 capital cannot exceed
the institution's Tier 1 capital. Qualifying total capital is further reduced by
the amount of the bank's investments in banking and finance subsidiaries that
are not consolidated for regulatory capital purposes, reciprocal cross-holdings
of capital securities issued by other banks and certain other deductions. Under
the FDIC risk-weighted system, all of a bank's balance sheet assets and the
credit equivalent amounts of certain off-balance sheet items are assigned to
risk weight categories. The aggregate dollar amount of each category is
multiplied by the risk weight assigned to that category. The sum of these
weighted values equals the bank's risk-weighted assets.
Pursuant to New Jersey banking law the minimum leverage capital for a
depository institution is a ratio of Tier 1 capital to total risk-weighted
assets of four percent. However, the Commissioner of the Department may require
a higher ratio for a particular depository institution.
New Jersey banking law requires that a depository institution maintain
qualifying capital of at least eight percent of its risk weighted assets. At
least four percent of this qualifying capital shall be in the form of Tier 1
capital. For purposes of New Jersey banking law, risk weighted assets, Tier 1
capital, and total assets are defined in the same manner as in the FDIC
regulations.
The Bank was in compliance with both the FDIC and New Jersey capital
requirements at March 31, 1997.
Capital Distributions. Earnings of the Bank appropriated to bad debt
reserves and deducted for Federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then current tax rate by the Bank on the amount of earnings
removed from the reserves for such distributions.
Dividends payable by the Bank to the Corporation and dividends payable by
the Corporation to stockholders are subject to various additional limitations
imposed by federal and state laws, regulations and policies adopted by federal
and state regulatory agencies. The Bank is required by federal law to obtain
FDIC approval for the payment of dividends if the total of all dividends
declared by the Bank in any year exceed the total of the Bank's net profits (as
defined) for that year and the retained net profits (as defined) for the
preceding two years, less any required transfers to surplus. Under New Jersey
law, the Bank may not pay dividends unless, following payment, the capital stock
of the Bank would be unimpaired and (a) the Bank will have a surplus of not less
than 50% of its capital stock, or, if not, (b) the payment of such dividends
will not reduce the surplus of the Bank.
Under applicable regulations, the Bank would be prohibited from making any
capital distributions if, after making the distribution, the Bank would have:
(i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based
capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%,
unless a higher ratio is required by the Commissioner of the Department.
New Jersey banking regulations require that a depository institution
maintain qualifying capital of at least 8% of its risk weighted assets. At least
4% of this qualifying capital shall be in the form of Tier 1 capital. For
purposes of New Jersey banking law, risk weighted assets, Tier 1 capital, and
total assets are defined in the same manner as in the FDIC regulations.
The Bank was in compliance with both the FDIC and New Jersey capital
requirements at March 31, 1997.
-13-
<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. The FHLB of New York is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System. The FHLB of New York makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of Directors
of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Qualified Thrift Lender Test. The Bank must maintain an appropriate level
of certain investments ("Qualified Thrift Investments") and otherwise qualify as
a "Qualified Thrift Lender" ("QTL"), in order to continue to enjoy full
borrowing privileges from the FHLB of New York. The required percentage of
Qualified Thrift Investments is 65% of portfolio assets. In addition, savings
banks may include shares of stock of the Federal Home Loan Banks, FNMA and FHLMC
as qualifying QTL assets. Compliance with the QTL test is measured on a monthly
basis in nine out of every 12 months. As of March 31, 1997, the Bank was in
compliance with its QTL requirement.
Federal Reserve System. The FRB requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts)
and non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy the liquidity
requirements that are imposed by the NJDB. At March 31, 1997, the Bank met these
reserve requirements.
State-chartered savings banks have authority to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve policy generally requires
savings banks to exhaust all reasonable alternative sources before borrowing
from the Federal Reserve System. The Bank had no discount window borrowings at
March 31, 1997.
Item 2. Description of Property.
- --------------------------------
(a) Properties
The Bank conducts its business through its main office located at 700-88
Broadway in Westwood, New Jersey and a branch office located at 139 Terrace
Street, Haworth, New Jersey, which was acquired on May 6, 1994. The Bank leases
its main office and currently has a 10 year lease expiring on May 30, 2001,
which provides that rent on the office will increase from $4,225 to $7,805 per
month during the ten year period. The Bank purchased the Haworth branch office
from the RTC.
Financial Services, Inc., Glen Rock, New Jersey, performs the Bank's data
processing. As of March 31, 1997, the net book value of leasehold improvements,
furniture fixtures, and equipment owned by the Bank totalled $734,131.
(b) Investment Policies. See "Item 1. Description of Business" above for a
general description of the Bank's investment policies and any regulatory or
Board of Directors' percentage of assets limitations regarding certain
investments. All of the Bank's investment policies are reviewed and approved by
the Board of Directors of the Bank, and such policies, subject to regulatory
restrictions (if
-14-
<PAGE>
any), can be changed without a vote of stockholders. The Bank's investments are
primarily acquired to produce income.
(1) Investments in Real Estate or Interests in Real Estate. See
"Item 1. Description of Business -- Lending Activities," "Item 1. Description of
Business -- Bank Regulation" and "Item 2. Description of Property. (a)
Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Description
of Business -- Lending Activities" and "Item 1. Description of Business -- Bank
Regulation."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Description of Business --
Lending Activities," "Item 1. Description of Business -- Bank Regulation" and
"Item 1. Description of Business -- Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- --------------------------
There are various claims and lawsuits in which the Bank is periodically
involved, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims involving the
making and servicing of real property loans and other issues incident to the
Bank's business. In the opinion of management, the resolution of these legal
actions are not expected to have a material adverse effect on the Bank's results
of operations, financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matter was submitted to a vote by securityholders during the fourth
quarter of the fiscal year.
-15-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
- -------
The information contained under the sections captioned "Stock Market
Information" of the Company's Annual Report to Stockholders for the year ended
March 31, 1997 (the "Annual Report") is incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The required information is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
- -----------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not Applicable.
-16-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(b) of the Exchange Act
- --------------------------------------
The information contained under the sections captioned "Filing of
Beneficial Ownership" and "I Election of Directors" in the "Proxy Statement" is
incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Director and Executive
Compensation" in the Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I - Voting
Securities and Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I - Voting
Securities and Principal Holders Thereof" in the Proxy Statement.
(c) Management of the Registrant knows of no arrangements, including any
pledge by any person of securities of the Registrant, the operation
of which may at a subsequent date result in a change in control of
the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Interests of Certain Persons in Matters to Be Acted
Upon" in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of independent
accountants of the Registrant included in the Registrant's Annual Report to
Stockholders for the fiscal year ending March 31, 1997 are incorporated herein
by reference and also in Item 7 hereof.
-17-
<PAGE>
Report of Independent Auditors
Consolidated Statements of Financial Condition as of March 31, 1997 and
1996.
Consolidated Statements of Operations for the Years Ended March 31, 1997
and 1996.
Consolidated Statements of Retained Earnings for the Years Ended March 31,
1997 and 1996.
Consolidated Statements of Cash Flows for the Years Ended March 31, 1997
and 1996.
Notes to Consolidated Financial Statements.
2. Other than as set forth below, Financial Statement Schedules for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission ("SEC") are not required under the related
instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are included in this Report or
incorporated herein by reference:
(a) List of Exhibits:
3.1 Articles of Incorporation of Westwood Financial Corporation*
3.2 Bylaws of Westwood Financial Corporation*
4 Specimen Stock Certificate*
13 Annual Report to Stockholders for Fiscal Year Ended March 31,
1997
21 Subsidiaries of the Registrant (See "Item 1 - Description of
Business -- Subsidiary Activity")
27 Financial Data Schedule (electronic filing only)
- ----------------
* Incorporated by reference to Registrant's Registration Statement on Form
S-1 initially filed with the SEC on December 20, 1995 (File No. 33-28200).
b. Reports on Form 8-K
None
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of June 18, 1997.
WESTWOOD FINANCIAL CORPORATION
By: /s/William J. Woods
--------------------------------------
William J. Woods
Chief Executive Officer and President
(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 indicated as of June 18, 1997.
/s/William J. Woods /s/George E. Niemczyk
- ---------------------------------- ---------------------------------
William J. Woods George E. Niemczyk
President and Chairman Vice President and Controller
(Principal Financial and Executive (Principal Accounting Officer)
Officer)
/s/Joanne Miller /s/William J. Durgin
- ---------------------------------- ---------------------------------
Joanne Miller William J. Durgin
Vice President and Director Director
/s/Paul F. Becker /s/Sidney J. Hagan
- ---------------------------------- ---------------------------------
Paul F. Becker Sidney J. Hagan
Director Director
/s/John M. Caruso
- ----------------------------------
John M. Caruso
Director
EXHIBIT 13
Annual Report to Stockholders for Fiscal Year
Ended March 31, 1997
<PAGE>
[** LOGO **]
WESTWOOD FINANCIAL CORPORATION
ANNUAL REPORT - 1997
----------------------------------------------------------
<PAGE>
WESTWOOD
ANNUAL REPORT - 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Stockholders.................................................... 1
Corporate Profile and Stock Market Information............................ 2
Selected Financial and Other Data......................................... 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 5
Independent Auditors' Report............................................ F-1
Consolidated Financial Statements....................................... F-2
Notes to Consolidated Financial Statements.............................. F-6
Office Locations and Other Corporate Information......................... 12
<PAGE>
WESTWOOD
[LOGO] FINANCIAL
Since 1906 CORPORATION
-----------------------------------------------------------------
June 9, 1997
To Our Stockholders:
I am pleased to present the First Annual Report of Westwood Financial
Corporation covering the year ended March 31, 1997.
The financial statements contained in this report include the operations
of Westwood Savings Bank ("Westwood Savings" or the "Bank") for the full twelve
month period as well as the accounts of Westwood Financial Corporation (the
"Corporation"), which assumed ownership of the Bank effective June 6, 1996.
Since its inception on that date, the Corporation's principal business activity
has been ownership of the Bank's common stock.
Fiscal 1997 earnings were significantly impacted by a one-time Savings
Association Insurance Fund ("SAIF") special assessment charged to all
SAIF-insured institutions nationwide. The one benefit from this assessment will
be the significant reduction in future deposit premiums effective January 1,
1997. In our case, the pre-tax assessment was $454,000, basically taking all of
our Bank's net income for the first six months of this year. Reflecting the
impact of this one-time special assessment, net income for fiscal 1997 amounted
to $435,000 compared to $552,000 for fiscal 1996.
We are well-positioned to meet tomorrow's challenges and demands. Our
Board of Directors looks forward to the future with optimism. As we look forward
to the introduction of new and expansion of existing facilities, products and
services, we remain alert to our organization's responsibility to protect and
advance the value of our shareholders' investment as well as the economic growth
of the communities and customers we serve.
Finally, we acknowledge and thank those who have made Westwood Savings'
growth and prosperity a continuing reality - first, to our customers, whose
confidence constantly motivates us to provide premium quality services, to our
employees who take justified pride in the unequalled personal attention they
provide, and to our Board members and shareholders who, with their participation
and investment, provide the capital that makes our institution's growth and
prosperity possible.
Our Board of Directors and all of our employees thank you for your past
confidence and we look forward to your continued support of Westwood Savings.
Very truly yours,
/s/William J. Woods
William J. Woods
Chairman of the Board
President & Chief Executive Officer
1
700-88 Broadway - Westwood, New Jersey 07675 -
Tel. (201) 666-5002 - FAX (201) 666-4265
<PAGE>
BUSINESS OF THE CORPORATION
WESTWOOD FINANCIAL CORPORATION
Westwood Financial Corporation (the "Corporation") is a New Jersey corporation
organized in December 1995, to facilitate the conversion of Bergen North
Financial, M.H.C. from the mutual to stock form of ownership and to acquire and
hold all of the capital stock of Westwood Savings Bank (the "Bank"). Prior to
the consummation of the Conversion and Reorganization, the Mutual Holding
Company was the majority stockholder of the Bank and upon consummation of the
Conversion and Reorganization, the Mutual Holding Company was merged into the
Bank. The Corporation acquired the Bank as a wholly owned subsidiary upon the
consummation of the Conversion and Reorganization on June 6, 1996. Since the
inception on that date, the Corporation's principal business activity has been
the ownership of the Bank's common stock.
WESTWOOD SAVINGS BANK
Westwood Savings Bank is a New Jersey chartered stock savings bank that was
formed as a result of the MHC Reorganization on December 9, 1993. The Bank is a
community oriented savings institutions offering a variety of financial services
to meet the needs of the communities its serves. It is the Bank's present
intention to remain an independent community savings bank serving the local
needs of northern Bergen County, New Jersey. The Bank operates from its main
office in Westwood, New Jersey, and one branch office in Haworth, New Jersey.
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those deposits, together with other funds, to originate
mortgage loans for the purchase or refinance of residential properties and to
purchase mortgage-backed and investment securities.
Stock Market Information
On June 6, 1996, the Corporation became a public company and its Common Stock is
currently traded on the Nasdaq "Small Cap" Market under the trading symbol
"WWFC". The daily stock quotation for Westwood Financial Corporation is
published in The Wall Street Journal under the trading symbols of "WWFC" or
"WstwdF".
The following table reflects the per share stock price trading range as
published by the Nasdaq "Small Cap" Market Statistical Report. The stock price
in the initial offering was $10.00 per share.
High Low
First Quarter 6/30/96 $11 $10 1/4
Second Quarter 9/30/96 $13 1/4 $10 1/4
Third Quarter 12/31/96 $16 3/4 $13 1/4
Fourth Quarter 3/31/97 $19 3/4 $15 1/2
2
<PAGE>
The number of shareholders of record of common stock as of the record date May
28, 1997 was approximately 342. This does not reflect the number of persons or
entities who held stock in nominee or "street" name through various brokerage
firms. At March 31, 1997, there were 645,241 shares outstanding. Quarterly cash
dividends of $0.05 per share were paid on July 19, 1996, October 18, 1996,
January 18, 1997 and April 18, 1997, to the shareholders of common stock on the
record dates of June 30, 1996, September 30, 1996, December 31, 1996 and March
31, 1997, respectively.
The Corporation's ability to pay dividends to shareholders is dependent upon the
earnings from investments and dividends it receives from the Bank. The Bank may
not declare or pay a 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 FDIC.
3
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
Financial Condition (In Thousands)
========================================================================================================================
At March 31, 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Amount of:
Assets................................ $86,564 $107,981
Loans receivable, net(1).............. 34,504 40,371
Mortgage-backed and investment securities
held to maturity .................. 39,023 58,631
Investment securities available 4,422 2
for sale............................
Goodwill.............................. 1,238 1,132
Total retained earnings/shareholders'
equity.............................. 6,127 9,950(2)
Summary of Operations (In thousands)
- ------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
Interest and dividend income............ $5,566 $6,648
Interest expense........................ 3,314 3,775
Net interest income................... 2,252 2,873
Provision for loan losses............... 35 52
Net interest income after
provision for loan losses........... 2,217 2,821
----- -----
Total non-interest income............... 108 149
----- -----
Total non-interest expenses(3).......... 1,476 2,211
----- -----
Income before income taxes.............. 849 759
Provision for income taxes.............. 297 324
------ ------
Net income (loss)....................... $ 552 $ 435
====== ======
Other Selected Data
- ------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
Return on average assets................ 0.7% 0.5%
Return on average equity................ 9.4 4.8
Average equity to average assets........ 7.2 9.4
Net interest rate spread................ 2.7 2.7
Net interest margin..................... 2.9 3.0
Non-performing assets to total assets(4) N/A N/A
Allowance for loan losses to total loans .5 .5
Non-performing loans to total loans(4).. N/A N/A
Non-interest expense to average assets(5) 1.8 2.3
Earnings per share...................... NM $0.73
Dividends payout ratio.................. NM 27.40%
Book value per share.................... NM $15.42
</TABLE>
NM - Not meaningful as a result of the Conversion and Reorganization completed
June 6, 1996.
- -----------------------------
(1) Net of accrued interest, loan origination fees and valuation allowances.
(2) Includes stock offering proceeds of $3.4 million related to the
Conversion and Reorganization on June 6, 1996.
(3) At March 31, 1997, includes a non-recurring expense of $454,000 in regard
to a one-time deposit premium to recapitalize the SAIF.
(4) During all periods presented, the Bank did not have any loans which
qualified for nonperforming status, and had no real estate owned.
(5) Non-interest expense at or for the years ended March 31, 1996 and 1997
includes amortization of goodwill.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Consolidated Financial Statements and Notes to the Consolidated
Financial Statements elsewhere in this document.
Our results of operations depend primarily on net interest income, which
is determined by (i) the difference between rates of interest we earn on our
interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. In addition, our results of operations are
also affected by non-interest income, primarily, income from customer deposit
account service charges and non-interest expense, including, primarily, salaries
and employee benefits, federal deposit insurance premiums, office occupancy
expenses and other general and administrative expenses. We are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, which events are beyond our control.
Asset/Liability Management
Our assets and liabilities may be analyzed by examining the extent to
which our assets and liabilities are interest rate sensitive and by monitoring
the expected effects of interest rate changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific time
period, if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to mitigate the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of our earnings to material
and prolonged changes in interest rates.
Net Portfolio Value
In order to measure our interest rate risk, we use a interest rate
sensitivity model similar to that used by the OTS for OTS regulated
institutions. We compute our interest rate risk by which the net present value
of our cash flow from assets, liabilities and off balance sheet items (our net
portfolio value or "NPV") would change in the event of a range of assumed
changes in market interest rates. These computations estimate the effect on our
NPV from instantaneous and permanent 1% to 3% increases and decreases in market
interest rates. At March 31, 1997, we estimated that our NPV would decrease 11%,
23%, and 35% and increase 11%, 21%, and 31% in the event of 1%, 2%, and 3%,
increases and decreases in market rates, respectively. These calculations
indicate that our net portfolio value could be adversely affected by increases
in interest rates but could be favorably affected by decreases in interest
rates. Changes in interest rates also may affect our net interest income, while
increases in rates expected to decrease income and decreases in rates expected
to increase income, our interest-bearing liabilities
5
<PAGE>
would be expected to mature or reprice more quickly than our interest-earning
assets. In addition, we would be deemed to have more than a normal level of
interest rate risk under applicable regulatory capital requirements.
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates to have a
material adverse effect on our NPV or net interest income in the future.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit run- offs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Financial Condition
Our total consolidated assets increased by $21.4 million or 24.7% from
$86.6 million at March 31, 1996 to $108.0 million at March 31, 1997. The
increase in assets for the period was primarily attributable to the growth in
our loan portfolio of $5.8 million which was the result of increase loan demand
in our market area. In addition, our investment and mortgage-backed securities
portfolios held to maturity increased $13.2 million and $6.4 million,
respectively, which was offset by the sale of $4.4 million of securities
available for resale. Loan growth and investment and mortgage-backed securities
held for maturity were primarily funded from $3.4 million in net proceeds
received in connection with our stock offering which was completed in June 1996,
increases of $7.5 million in net deposits and $10.0 million in FHLB advances.
Our total liabilities increased $17.6 million or 21.9% from $80.4 million at
March 31, 1996 as compared to $98.0 million at March 31, 1997. Shareholders'
equity increased $3.8 million, or 62.4%, from $6.1 million at March 31, 1996 to
$9.9 million at March 31, 1997. The net increase in shareholders' equity is the
result of $3.4 million in net proceeds from our stock offering and $435,000 in
net income.
Results Of Operations for the Year Ending March 31, 1997
Net Income. Net income decreased $117,000 or 21.2% from $552,000 for
1996 to $435,000 for 1997. The decrease was primarily the result of the
recognition of the one-time SAIF special insurance assessment in the amount of
$291,000 (after taxes), which was partially offset by an increase in net
interest income of $397,000 (after taxes).
Net Interest Income. Net interest income is the most significant
component of our operations. Net interest income is the difference between
interest we receive on our interest-earning assets (primarily loans, investment
and mortgage-backed securities) and interest we pay on our interest-bearing
liabilities (primarily deposits and borrowed funds). Net interest income depends
on the volume of and rates earned on interest-earning assets and the volume of
and rates paid on interest-bearing liabilities.
6
<PAGE>
The following table sets forth a summary of average balances of assets
and liabilities with corresponding interest income and interest expense as well
as average yield and cost information. Average balances are derived from monthly
balances. However, we do not believe the use of month-end balances has caused
any material difference in the information presented. There have been no tax
equivalent adjustments made to the yields.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------------------------------
1996 1997
------------------------------------------ -----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............... $32,958 $2,617 7.94% $38,503 $3,009 7.82%
Mortgage-backed securities..... 13,095 848 6.48 16,948 1,147 6.77
Cash and investment securities(1) 33,006 2,101 6.37 38,988 2,493 6.39
------ ----- ------ -----
Total interest-earning assets. 79,059 5,566 7.04 94,439 6,649 7.04
----- ---- ----- ----
Non-interest-earning assets..... 2,838 2,925
------ ------
Total assets.................. $81,897 $97,364
====== ======
Interest-bearing liabilities:
Borrowings.................... - - - 4,167 215 5.16
Deposit accounts............... 75,714 3,314 4.38 $83,563 3,560 4.26
------ ----- ------ -----
Total interest-bearing liabilities 75,714 3,314 4.38 87,730 3,775 4.30
----- ------ ----- ------
Non-interest bearing liabilities 328 487
------ ------
Total liabilities.............. 76,042 88,217
Shareholders' equity............ 5,855 9,147
------ ------
Total liabilities and shareholders' $81,897 $97,364
====== ======
equity........................
Net interest income............. $2,252 $2,874
===== =====
Interest rate spread(2)......... 2.66% 2.74%
====== ======
Net yield on interest-earning assets(3) 2.85% 3.04%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 104.42% 107.65%
====== ======
</TABLE>
- ---------------------------------
(1) Includes interest-bearing deposits in other financial institutions.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest- bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
7
<PAGE>
The table below sets forth information regarding changes in our interest
income and interest expense for the periods indicated. For each category of our
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (changes in volume
multiplied by old rate); (ii) changes in rate (changes in rate multiplied by old
volume); (iii) changes in rate-volume (changes in rate multiplied by the change
in volume). Increases and decreases due to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
change due to rate.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------------------------------
1995 vs. 1996 1996 vs. 1997
----------------------------------------- ----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------------- ----------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Mortgage loan portfolio... $ 177 $(28) $ (2) $ 147 $ 440 $ (40) $ (7) $ 343
Mortgage-backed securities 36 91 5 132 250 38 11 299
Investment securities/
FHLB stock.............. 490 193 70 753 380 7 1 388
----- ---- ----- ----- ---- ---- ---- ----
Total change in
interest income........ $ 703 $ 256 $ 73 $ 1,032 $ 1,070 $ 5 $ 5 $ 1,080
==== ==== ===== ====== ====== ==== ==== ======
Interest expense:
Deposits................. $ 434 $ 490 $ 92 $ 1,016 $ 344 $ (91) $ (9) $ 244
Borrowings............... 0 0 0 0 0 0 215 215
----- ---- ---- ----- ---- --- ------ -----
Total change in
interest expense...... $ 434 $ 490 $ 92 $ 1,016 $ 344 $ (91) $ 206 $ 459
==== ===== ==== ====== ===== ===== ====== ====
NET CHANGE IN NET
INTEREST INCOME.......... $ 269 $ (256) $ (19) $ 16 $ 726 $ 96 $ (201) $ 621
==== ====== ===== ===== ===== ==== ====== ====
</TABLE>
Our net interest income increased $621,000 or 27.6% to $2.9 million in
1997 compared to $2.3 million in 1996. The increase was due primarily to the
growth of average interest-earning assets from $79.0 million in 1996 to $94.4
million in 1997. The increase in our average interest-earning assets of $15.4
million reflects an increase of $5.5 million in average loans, an increase of
$3.8 million in average mortgage-backed securities and an increase of $6.0
million in average cash and investment securities, which was funded by an
increase of $7.8 in average deposit accounts and $4.1 million in average
borrowings.
Our interest rate spread and net interest margin increased in 1997
compared to 1996. This was due to a decrease in the interest cost of average
interest-bearing liabilities from 4.38% in 1996 to 4.30% in 1997. The yield on
our average interest-earning assets was 7.04% in 1996 and 1997.
The decrease in the cost of our average interest-bearing liabilities was
due primarily to decreases in the cost of our deposit accounts from 4.38% in
1996 to 4.26% in 1997, offset by borrowed money which increased to 5.16% in
1997. The lower costs of deposit accounts reflects our reduction of deposit
rates to match the decrease in interest rates during 1996 and the increase in
the cost of borrowings reflects the increase in average advances from the
Federal Home Loan Bank .
8
<PAGE>
Provision for Loan Losses. We recorded a provision for loan losses of
$52,000 in 1997 compared with $35,000 in 1996. The increase in our loan for loan
losses in 1997 and 1996 reflects the increase in the size of our loan portfolio
due to internal loan growth.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to: (i) the composition of our loan portfolio, (ii)
observations of the general economic climate and (iii) loan loss expectations
(identification of problem loans and the establishment of specific loan loss
allowances on such loans).
We will continue to monitor our allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. We maintain an allowance for loan losses at a level
that we consider to be adequate to provide for the inherent risk of loss in our
loan portfolio, however, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in future periods. In addition, our determination as to the amount
of our allowance for loan losses is subject to review by the FDIC and the New
Jersey Department of Banking (the "Regulators"), as part of the examination
process, which may result in the establishment of an additional allowance based
upon the judgment of the Regulators after review of the information available at
the time of their examination.
Non-Interest Income. Our non-interest income increased $41,000 in 1997
or 37.9% from $108,000 for the year ended March 31, 1996 to $149,000 for the
year ended March 31, 1997, primarily due to an increase in ATM fees and personal
and business checking accounts which resulted in increased fee income.
Non-Interest Expense. Our non-interest expense increased by $735,000 or
49.8% from $1.48 million for 1996 to $2.21 million for 1997. The increase was
primarily attributable to the one-time special SAIF assessment of $454,000.
Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"),
the FDIC imposed a special assessment on SAIF members to capitalize the SAIF at
the designated reserve level of 1.25% as of October 1, 1996. Based on our
deposits as of March 31, 1995, the date for measuring the amount of the special
assessment pursuant to the Act, our special assessment was $454,000. Due to the
recapitalization of the SAIF, we expect lower premiums for deposit insurance in
future periods.
Pursuant to the Act, we will pay, in addition to our normal deposit
insurance premium as a member of the SAIF, an annual amount equal to
approximately 6.4 basis points of outstanding SAIF deposits toward the
retirement of the Financing Corporation Bonds ("Fico Bonds") issued in the
1980's to assist in the recovery of the savings and loan industry. Members of
the Bank Insurance Fund ("BIF"), by contrast, will pay, in addition to their
normal deposit insurance premium, approximately 1.3 basis points. Beginning no
later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal
for members of the BIF and the SAIF. The Act also provides for the merging of
the BIF and the SAIF by January 1, 1999 provided there are no financial
institutions still chartered as savings associations at that time. Should the
insurance funds be merged before January 1, 2000, the rate paid by all members
of this new fund to retire the Fico Bonds would be equal.
In addition, salaries and employee benefits increased $48,000 in 1997
compared to 1996 due to our hiring of additional staff. We also recognized a
$98,000 loss on the sale of mutual funds from our investment securities
portfolio held for resale.
9
<PAGE>
Income Tax Expense. Our income tax expense increased $27,000 or 9.0%
from $297,000 for 1996 to $324,000 for 1997 as a result of a non-deductible
capital loss of $98,000 from our sale of mutual funds.
Liquidity and Capital Resources
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of New York.
While scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Net cash provided by our operating activities for the year ended March
31, 1997 totalled $730,000 as compared to $494,000 for the year ended March 31,
1996.
Net cash used in our investing activities for the year ended March
31,1997 totalled $21.3 an increase of $10.5 million from March 31, 1996. The
increase was primarily attributable to net loan originations of $3.6 million and
net proceeds of $6.9 from calls and maturities of our investment and
mortgage-backed securities portfolio held to maturity and the sales from our
investment securities portfolio held for resale.
Net cash provided by our financing activities for 1997 totalled $20.8
million. This was the result of a net increase in deposits of $7.5 million,
$10.0 million in FHLB advances and $3.4 million in net proceeds from our stock
offering.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Further, the disparity in Fico
Bond interest payments as described herein could result in us losing deposits to
BIF members that have lower costs of funds and therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs and
determines the level desirable, based in part on our commitments to make loans
and management's assessment of our ability to generate funds. We are also
subject to federal and state regulations that impose certain minimum capital
requirements.
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes
presented elsewhere in this document, 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
our operations. As a result, interest rates have a greater impact on our
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.
10
<PAGE>
Recent Accounting Pronouncements
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
after December 31, 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. The FASB has
proposed to defer the effective date of SFAS No. 125 until January 1, 1998 for
certain transactions including repurchase agreements, dollar-roll, securities
lending and similar transactions. FASB 125 will not have a material effect on
our financial statements.
FASB Statement on Earnings Per Share. In March 1997, FASB issued SFAS
No. 128, which will be effective, for fiscal years and interim periods ending
after December 15, 1997. SFAS No. 128 will require an institution to change the
method by which it calculates earnings per share. Earlier application of this
statement is not permitted, however, pro forma earnings per share amounts using
SFAS No. 128 is permitted. We do not believe the implementation of SFAS No. 128
will have a material effect upon our earnings per share calculation.
11
<PAGE>
F-1
- --------------------------------- RDH LOGO -------------------------------------
<TABLE>
<CAPTION>
RD HUNTER & COMPANY LLP
<S> <C> <C>
One Mack Centre Drive Certified Public Accountants Members
Paramus, New Jersey American Institute of
07652-3900 Certified Public Accountants
Tel 201 261-4030 New Jersey Society of
Fax 201 261-8588 Certified Public Accountants
http://www.rdhunter.com Accounting Firms Associated, Inc.
Alliott Peirson International
</TABLE>
Independent Auditors' Report
----------------------------
Board of Directors and Shareholders of
Westwood Financial Corporation and Subsidiary
700-88 Broadway
Westwood, New Jersey 07675
We have audited the accompanying consolidated balance sheets of Westwood
Financial Corporation and Subsidiary (the "Company") as of March 31, 1997 and
1996, and the related consolidated statements of shareholders' equity, income
and cash flows for the years then ended. 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. Those standards require that we plan and perform the audit 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westwood Financial
Corporation and Subsidiary at March 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/RD Hunter & Company LLP
----------------------------
Paramus, New Jersey RD Hunter & Company LLP
May 1, 1997 Certified Public Accountants
Offices in Paramus, New Jersey - Princeton, New Jersey - New York, New York
<PAGE>
Westwood Financial Corporation and Subsidiary F-2
Consolidated Balance Sheets
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ --------
(in thousands)
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 5,408 $ 5,208
--------- ---------
Investments
Held for resale, at market value 2 4,422
Held to maturity, at amortized cost (market value of $38,124
and $25,587 at March 31, 1997 and March 31, 1996, respectively) 38,903 25,742
--------- ---------
Total investments 38,905 30,164
--------- ---------
Mortgage-backed securities, held to maturity
(market value of $19,581 and $13,266 at
March 31, 1997 and March 31, 1996, respectively) 19,728 13,281
--------- ---------
Loans and interest receivable 40,596 34,715
--------- ---------
Stock in Federal Home Loan Bank, at cost 576 440
Accrued interest receivable 852 488
Property and equipment, net 734 750
Prepaid expenses and other assets 50 279
Prepaid corporate taxes - 1
Goodwill 1,132 1,238
--------- ---------
Total other assets 3,344 3,196
--------- ---------
Total $ 107,981 $ 86,564
----- ========= =========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deposits $ 87,857 $ 80,356
Loan payable 10,000 --
Accrued expenses 83 82
Dividends payable 32 --
Corporate taxes payable 59 --
--------- ---------
Total liabilities 98,031 80,438
--------- ---------
Shareholders' Equity:
Common stock $.10 par value 747,500 shares authorized,
645,241 issued and outstanding at 3/31/97
$2 par value 5,000,000 shares authorized,
380,000 issued and outstanding at 3/31/96 65 760
Additional paid in surplus 3,212 4,413
Stock bonus plans (80) (128)
Unrealized loss on investments -- (93)
Retained earnings 6,753 1,174
--------- ---------
Total shareholders' equity 9,950 6,126
--------- ---------
Total $ 107,981 $ 86,564
----- ========= =========
</TABLE>
(The accompanying notes are an integral part of these
consolidated financial statements)
<PAGE>
Westwood Financial Corporation and Subsidiary F-3
Consolidated Statements of Shareholders' Equity
Years Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Additional (Loss) Total
(in thousands) Common Paid in Stock Bonus Recovery on Retained Shareholders'
Stock Surplus Plans Investments Earnings Equity
----- ------- ----- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1995 $ 760 $ 4,413 $ (176) $ (109) $ 654 $ 5,542
Recovery of unrealized loss
on investments - - - - - - - - - 16 - - - 16
Release of stock bonus plans
shares - - - - - - 48 - - - - - - 48
Net income - - - - - - - - - - - - 552 552
Cash dividends declared - - - - - - - - - - - - (32) (32)
---------- ---------- ---------- ------- ------- -------
Balance March 31, 1996 760 4,413 (128) (93) 1,174 6,126
Exchange of Westwood Savings Bank
stock to Westwood Financial
Corporation and Subsidiary (760) (4,413) - - - - - - 5,273 100
Proceeds from Westwood Financial
Corporation and Subsidiary
initial public offering 65 3,263 - - - - - - - - - 3,328
Purchase and retirement of
treasury stock - - - (51) - - - - - - - - - (51)
Loss realized on sale of
investments held for resale - - - - - - - - - 93 - - - 93
Release of stock bonus plan shares - - - - - - 48 - - - - - - 48
Net income - - - - - - - - - - - - 435 435
Cash dividends declared - - - - - - - - - - - - (129) (129)
---------- ---------- ---------- ------- ------- -------
Balance March 31, 1997 $ 65 $ 3,212 $ (80) $ - - - $ 6,753 $ 9,950
---------------------- ========== ========== ========== ======= ======= =======
</TABLE>
(The accompanying notes are an integral part of these
consolidated financial statements)
<PAGE>
Westwood Financial Corporation and Subsidiary F-4
Consolidated Statements of Income
Years Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
---- ----
( $ in thousands except
earnings per share data)
Interest and dividend income:
Loans receivable $ 3,008 $ 2,616
Mortgage backed securities 1,147 849
Investment securities and other
interest bearing assets 2,463 2,070
Federal Home Loan Bank stock 30 31
------ ------
6,648 5,566
------ ------
Interest expense:
Deposits 3,560 3,314
Borrowings 215 - - -
------ -------
3,775 3,314
------ -------
Net interest income 2,873 2,252
Provision for loan losses 52 35
------- ------
Net interest income after
provision for loan losses 2,821 2,217
------ -----
Non-interest income:
Late charges 6 7
Miscellaneous charges and fees 143 101
------ ------
149 108
------ -----
Non-interest expenses:
General and administrative 882 748
Salaries and employee benefits 672 624
Rent and utilities 105 104
SAIF Special assessment 454 - - -
Loss on sale of investments held for resale 98 - - -
------- -------
2,211 1,476
------ -----
Income before taxes on income 759 849
------- ------
Taxes on income:
Federal income tax 314 272
NJ Savings Institution tax 10 25
-------- -------
Total taxes on income 324 297
------- ------
Net income $ 435 $ 552
---------- ======= =======
Earnings per share $ .73
------------------ =======
(The accompanying notes are an integral part of these
consolidated financial statements)
<PAGE>
Westwood Financial Corporation and Subsidiary F-5
Consolidated Statements of Cash Flows
Years Ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
---- ----
Operating activities:
Net income $ 435 $ 552
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 163 155
Provision for loan losses 52 35
Stock bonus plans expense 48 48
Loss on sale of investments 98 -
(Increase) decrease in assets:
Interest receivable (364) (96)
Prepaid corporate taxes 1 8
Prepaid expenses 229 (223)
Increase (decrease) in liabilities:
Interest payable 8 46
Deferred income - (19)
Corporate taxes payable 59 22
Accrued expenses 1 (34)
------- ------
Net cash provided by operating activities 730 494
------- ------
Investing activities:
Loans made to customers (13,797) (9,445)
Principal collected on loans 7,864 7,129
Purchase of FHLB stock (136) (19)
Purchase of investments (25,609) (24,376)
Proceeds from matured/called investments 10,416 15,986
Purchases of property and equipment (53) (55)
Acquisition of goodwill 12 -
------- ------
Net cash used in investing activities (21,303) (10,780)
------- -------
Financing activities:
Net increase in deposit accounts 7,493 10,487
Proceeds from borrowings 10,000 -
Dividends paid (97) (48)
Proceeds from public stock offering, net 3,428 -
Purchase of treasury stock (51) -
------- -------
Net cash provided by financing activities 20,773 10,439
------- -------
Increase in cash and cash equivalents 200 153
Cash and cash equivalents, beginning of year 5,208 5,055
------- -------
Cash and cash equivalents, end of year $ 5,408 $ 5,208
-------------------------------------- ====== ======
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid for interest $ 3,767 $ 3,267
====== ======
Cash paid for taxes on income $ 264 $ 267
====== ======
(The accompanying notes are an integral part of these
consolidated financial statements)
<PAGE>
Westwood Financial Corporation and Subsidiary F-6
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
Westwood Financial Corporation is a holding company whose subsidiary, Westwood
Savings Bank, has been serving Northern Bergen County, New Jersey since 1906.
The Bank is a full service financial institution which primarily grants first
and second mortgages on one and two family homes to qualified applicants within
the Northern Bergen County region secured by security liens on the respective
properties.
A. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of Westwood Financial Corporation and Westwood Savings
Bank, a wholly-owned subsidiary of the Corporation. All significant
intercompany balances and transactions have been eliminated in
consolidation. The financial statements at March 31, 1996 are the
audited financial statements at that date of Westwood Savings Bank.
B. Organization
------------
The Corporation is a New Jersey stock corporation organized in
December 1995 to facilitate the conversion of the Bank's holding
company (formerly Bergen North Financial, M.H.C.) from the mutual to
stock form of ownership and to acquire and hold all of the capital
stock of the Bank. In connection with the conversion, Bergen North
Financial, M.H.C., which had owned 58% of the Bank's common stock,
was merged with and into the Bank, and its shares of the Bank were
canceled. On June 6, 1996, the Corporation issued 261,488 shares of
its common stock for all of the remaining outstanding shares of the
Bank, and issued and sold 385,184 shares of its common stock at a
price of $10.00 per share which after giving effect to offering
expenses of $424,000 resulted in net proceeds of $3,428,000. Since
June 6, 1996, the Corporation engaged in no significant business
activity other than its ownership of the Bank's common stock.
C. Use of Estimates
----------------
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could
differ significantly from these estimates.
Material estimates that are particularly susceptible to significant
change relates to the determination of the allowance for loan
losses.
<PAGE>
Westwood Financial Corporation and Subsidiary F-7
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies - (continued)
--------------------------------------------------------
D. Investments and Mortgage-Backed Securities
------------------------------------------
The Bank adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), effective March 31, 1994. SFAS 115 requires
the Bank to classify its securities as: (1) held to maturity, (2)
available for sale and (3) trading.
Securities held to maturity consist of debt securities that
management intends to, and the Bank has the ability to, hold until
maturity. Such securities are stated at cost, adjusted for
amortization of premium and accretion of discount.
Securities available for sale consist of debt and equity securities
that are not intended to be held to maturity and are not held for
trading. Securities available for sale are reported at fair value,
with unrealized gains and losses credited or charged, net of tax
effect, directly to stockholders' equity. Realized gains and losses
on securities available for sale are determined on a specific
identification basis.
The Bank has not classified any of its securities as trading.
E. Loans Receivable
----------------
Loans are stated at their principal amounts outstanding, net of
unearned income and loan origination fees and costs. Interest on
loans is accrued and credited to interest income based on loan
principal amounts outstanding at appropriate interest rates. Loan
origination fees and certain direct loan origination costs are
deferred and recognized over the life of the loan as an adjustment
to the loan's yield. When management believes there is sufficient
doubt as to the ultimate collectibility of interest on any loan, the
accrual of applicable interest is discontinued. Any subsequent
payments are credited to income as received. Other loan fees are
recorded as earned and included in non-interest income.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," (SFAS No. 114) as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan- Income Recognition and
Disclosures," (SFAS No. 118) were adopted prospectively by the Bank
on January 1, 1995. SFAS No. 114 defines an impaired loan as a loan
for which it is probable based on current information, that the
lender will not collect all amounts due under the contractual terms
of the loan agreement. The Bank has defined the population of
impaired loans to be all non-accrual loans. Commercial and mortgage
impaired loans are individually assessed to determine that each
loan's carrying value is not in excess of the fair value of the
related collateral or the present value of the expected future cash
flows. There were no impaired loans at March 31, 1997 as defined by
SFAS 114 and SFAS 118.
<PAGE>
Westwood Financial Corporation and Subsidiary F-8
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: (continued)
-------------------------------------------------------
F. Provision for Loan Losses
-------------------------
The allowance for loan losses is established through a provision for
loan losses charged to income. Losses on loans are charged against
the allowance when management believes the collectibility of
principal is unlikely. Subsequent recoveries, if any, are credited
to the allowance. The allowance for loan losses is based upon
factors such as individual loan characteristics, changes in
composition and volume of the loan portfolio, economic conditions
and other factors that may warrant recognition in maintaining an
allowance at a level sufficient to provide for estimated loan
losses. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions, particularly in Northern
New Jersey. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgements about
information available to them at the time of their examination.
G. Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization charges
are computed using the straight-line method, over the estimated
useful lives of the assets. The estimated useful lives are as
follows:
Classification Life (Years)
-------------- ------------
Building and building improvements 39
Office property and equipment 5 to 10
Leasehold improvements 10
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," in
fiscal year 1997. This statement requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present. Impairment would be considered when the
undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Implementation of this
statement had no effect on the consolidated financial statements.
<PAGE>
Westwood Financial Corporation and Subsidiary F-9
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: (continued)
-------------------------------------------------------
H. Goodwill
--------
Goodwill, which represents the excess of the cost of acquiring the
Haworth, New Jersey branch over the fair value of the net assets at
the date of acquisition, is being amortized using the straight line
method over 15 years. The asset is evaluated annually for potential
impairment.
I. Interest Rate Risk
------------------
The Company is engaged principally in providing first mortgage loans
to individuals. At March 31, 1997, the Company's assets consist
primarily of assets that earned interest at fixed interest rates.
Those assets were funded primarily with short-term liabilities that
have interest rates that vary with market rates over time.
The shorter duration of the interest-sensitive liabilities indicates
that the Company is exposed to interest rate risk because, in a
rising rate environment, liabilities will be repricing faster at
high interest rates, thereby reducing the market value of long-term
assets and net interest income.
J. Statement of Cash Flows
-----------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks with original
maturities of three months or less, and Federal funds sold.
Generally, Federal funds sold are for a one-day period.
K. Income Taxes
------------
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to 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 in effect for
the year in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
<PAGE>
Westwood Financial Corporation and Subsidiary F-10
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: (continued)
-------------------------------------------------------
L. Earnings per Share
------------------
Earnings per share amounts for the year end March 31, 1997 are
determined by dividing net income by the calculated weighted average
number of shares of common stock and common stock equivalents
outstanding. Stock options are regarded as common stock equivalents
computed using the Treasury Stock method, however, they did not have
a material effect on primary and fully diluted earnings per share.
Earnings per share data is not presented for the year end March 31,
1996 due to the conversion and reorganization effective June 6,
1996, and such information would not be meaningful.
Note 2 - Cash and Cash Equivalents:
-------------------------
Cash and cash equivalents consist of the following at March 31:
1997 1996
---- ----
Noninterest bearing:
Cash on hand $ 1,475 $ 330
Fleet Bank 19 36
Core States Bank 31 50
Westwood Savings Bank 5 -
------ ------
1,530 416
----- -----
Interest bearing:
Federal Reserve Bank 1,751 1,236
F.H.L.B. - Demand 327 256
F.H.L.B. - Overnight 700 300
First USA 1,000 3,000
Bogota Savings Bank 100 -
----- ------
3,878 4,792
----- ------
Total $ 5,408 $ 5,208
----- ===== =====
<PAGE>
Westwood Financial Corporation and Subsidiary F-11
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 3 - Loans Receivable and Interest Receivable:
----------------------------------------
March 31, 1997
--------------
Loans receivable and interest receivable consist of the following:
Loans
Receivable
----------
(in thousands)
Conventional direct reduction mortgages $ 29,215
Second mortgages 6,592
Mortgage loan participation 436
V.A. Direct Reduction Mortgages 12
Account loans 971
Property improvement loans 1,062
Home equity lines of credit 1,708
Student loans 113
Automobile loans 300
Personal loans 189
Construction loans 68
NOW credit reserve loans 1
--------
40,667
Add, interest receivable 225
Less, Deferred loan origination
fees (see Note 4) (78)
Valuation allowance relating
to loan losses (see Note 5) (218)
--------
Total $ 40,596
----- ========
The following table sets forth the maturity of loans receivable as of
March 31, 1997:
(In Thousands)
--------------
Maturity of one year or less $ 3,534
Maturity of over one through two years 1,148
Maturity of over two through three years 1,796
Maturity of over three through five years 5,988
Maturity of over five through ten years 8,029
Maturity of over ten years 20,172
------
Total $ 40,667
----- ======
<PAGE>
Westwood Financial Corporation and Subsidiary F-12
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 3 - Loans Receivable and Interest Receivable: - (continued)
----------------------------------------
March 31, 1996
--------------
Loans receivable and interest receivable consist of the following:
Loans
Receivable
----------
(in thousands)
Conventional direct reduction mortgages $ 26,578
Second mortgages 4,782
Mortgage loan participation 439
F.H.A. Direct Reduction Mortgages 9
V.A. Direct Reduction Mortgages 13
Account loans 489
Property improvement loans 830
Home equity lines of credit 1,075
Student loans 87
Automobile loans 356
Personal loans 180
--------
34,838
Add, interest receivable 211
Less, Deferred loan origination
fees (see Note 4) (165)
Valuation allowance relating
to loan losses (see Note 5) (169)
--------
Total $ 34,715
----- ======
<PAGE>
Westwood Financial Corporation and Subsidiary F-13
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 4 - Deferred Income:
---------------
March 31,
---------
1997 1996
---- ----
(in thousands)
Deferred income deducted from loans
receivable in Note 3 (above) consists
of the following:
Deferred loan fees $ 54 $ 125
Modification origination fees 24 40
----- -----
Total $ 78 $ 165
----- ===== =====
Note 5 - Valuation Allowance:
-------------------
The valuation allowance pertaining to loan losses deducted from loans
receivable in Note 3 (above) consists of the following:
March 31,
---------
1997 1996
---- ----
(in thousands)
Balance, beginning of period $ 169 $ 134
Add, provision charged to income 52 35
Less, losses charged against
allowance (3) -
----- ----
Balance, end of period $ 218 $ 169
---------------------- ===== =====
<PAGE>
Westwood Financial Corporation and Subsidiary F-14
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 6 - Investments and Accrued Interest:
-----------------------------------
<TABLE>
<CAPTION>
March 31, 1997
--------------
Gross Gross
Interest Face Amortized Unrealized Unrealized Market Accrued
Maturity Rate Amount Cost Gains Losses Value Interest
-------- ---- ------ ---- ----- ------ ----- --------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Investments held for resale:
Asset Manage-
ment Fund
Adjustable
Rate
Mortgages N/A 6.144% $ 2 $ 2 $ - $ - $ 2 $ -
===== ===== ======= ====== ===== ====== ======= ========
2. Investments held to maturity:
Federal Home 5.04%
Loan Bank to
Notes Various 8.31% $ 15,500 $15,497 $ - $ (282) $15,215 $ 259
Federal Home 04/21/97 5.47%
Loan Bank to to
Term Deposits 05/19/97 5.51% 1,000 1,000 - - 1,000 1
US Treasury
Note 01/15/99 6.375% 500 497 3 - 500 6
Federal National 5.3%
Mortgage Assoc. to
Bonds Various 8.0% 8,000 8,000 - (122) 7,878 154
Westwood Board
of Education
Bond 06/15/00 5.35% 400 409 2 - 411 6
Student Loan
Marketing
Association
Bonds 07/25/00 6.445% 500 500 - (6) 494 6
Federal Home
Loan Mortgage 02/02/99 5.7%
Corporation to to
Bonds 11/20/06 8.04% 13,000 13,000 - (374) 12,626 311
------ ------ ------ ----- ------ --------
Total $38,900 $8,903 $ 5 $ (784) $38,124 $ 743
----- ======= ====== ====== ====== ======= =======
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-15
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 6 - Investments and Accrued Interest: - (continued)
--------------------------------
<TABLE>
<CAPTION>
March 31, 1996
--------------
Gross Gross
Interest Face Amortized Unrealized Unrealized Market Accrued
Maturity Rate Amount Cost Gains Losses Value Interest
-------- ---- ------ ---- ----- ------ ----- --------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Investments held for resale:
Asset Manage-
ment Fund
Adjustable
Rate
Mortgages N/A 5.944% $ 3,500 $ 3,500 $ - $ (14) $ 3,486 $ 18
Overland Express
Variable Rate
Government Fund N/A 4.786% 1,015 1,015 - (79) 936 4
------- ------- ------ ----- ------ ------
$ 4,515 $ 4,515 $ - $ (93) $ 4,422 $ 22
======= ===== ====== ===== ====== ======
2. Investments held to maturity:
Federal Home 5.04%
Loan Bank to
Notes Various 8.31% $ 13,000 $ 12,997 $ - $ (89) $12,908 $ 196
Federal Home 04/08/96 5.13%
Loan Bank to to
Term Deposits 04/22/96 5.66% 2,000 2,000 - - 2,000 18
US Treasury
Note 01/15/99 6.375% 500 496 10 - 506 6
Federal National
Mortgage Assoc.
Bonds Various 8.0% 6,500 6,500 - (52) 6,448 121
First USA Bank
Certificate of
Deposit 03/21/97 5.85% 750 750 - - 750 1
Student Loan
Marketing 10/14/99 6.445%
Association and to
Bonds 03/25/00 7.82% 1,000 1,000 4 - 1,004 24
Federal Home
Loan Mortgage 02/02/99 5.7%
Corporation to to
Bonds 02/27/06 7.584% 2,000 1,999 - (28) 1,971 16
-------- ------- -------- ------- ------- ------
Total $ 25,750 $ 25,742 $ 14 $ (169) $25,587 $ 382
----- ======== ======= ====== ===== ======= ======
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-16
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 6 - Investments and Accrued Interest: (continued)
--------------------------------
Investments held to maturity are scheduled to mature contractually
within the following periods as of March 31, 1997:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Amortized Market
Cost Value
---- -----
<S> <C> <C>
Maturity of one year or less $ 1,000 $ 1,000
Maturity of more than one year through five years 15,905 15,760
Maturity of more than five years through ten years 17,998 17,514
Maturity of more than ten years 4,000 3,850
------ ------
Total $ 38,903 $ 38,124
----- ====== ======
</TABLE>
Note 7 - Mortgage-backed Securities and Accrued Interest:
-----------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997
--------------
Gross Gross
Interest Face Amortized Unrealized Unrealized Market Accrued
Maturity Rate Amount Cost Gains Losses Value Interest
-------- ---- ------ ---- ----- ------ ----- --------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments held to maturity:
Federal National
Mortgage Assoc 1/1/99 6.5%
Participating to to
Certificates 3/1/26 7.5% $ 5,029 $ 3,227 $ - $ (80) $ 3,147 $ 19
Federal Home
Loan Mortgage
Corporation 4/1/96 5.0%
Participating to to
Certificates 1/1/02 8.75% 14,498 5,256 - (119) 5,137 29
Federal Home
Loan Mortgage
Corporation 4/1/17
Participating to
Certificates 9/1/22 ARM 3,184 684 12 - 696 8
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-17
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 7 - Mortgage-backed Securities and Accrued Interest: (continued)
-----------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997
--------------
Gross Gross
Interest Face Amortized Unrealized Unrealized Market Accrued
Maturity Rate Amount Cost Gains Losses Value Interest
-------- ---- ------ ---- ----- ------ ----- --------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments held to maturity:
Government National
Mortgage Assoc
Participating
Certificate 5/15/01 8% 9 9 - - 9 -
Government National 11/20/22 5.0%
Mortgage to to
Association 3/20/27 7.125% 10,040 9,208 27 - 9,235 44
Federal National
Mortgage Assoc 1/1/17
Participating to
Certificates 11/1/22 ARM 2,129 1,344 13 - 1,357 8
------ ------ ----- ----- ------ ----
Total $ 34,889 $ 19,728 $ 52 $ (199) $ 19,581 $ 108
----- ====== ====== ===== ==== ====== ====
</TABLE>
Mortgage-backed securities held to maturity are scheduled to mature
contractually within the following periods as of March 31, 1997:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Amortized Market
Cost Value
---- -----
<S> <C> <C>
Maturity of one year or less $ 394 $ 393
Maturity of more than one year through five years 6,244 6,101
Maturity of more than five years through ten years - -
Maturity of more than ten years 13,090 13,087
------ ------
Total $ 19,728 $ 19,581
----- ====== ======
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-18
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 7 - Mortgage-backed Securities and Accrued Interest:- (continued)
-----------------------------------------------
<TABLE>
<CAPTION>
March 31, 1996
--------------
Gross Gross
Interest Face Amortized Unrealized Unrealized Market Accrued
Maturity Rate Amount Cost Gains Losses Value Interest
-------- ---- ------ ---- ----- ------ ----- --------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments held to maturity:
Federal National
Mortgage
Association 1/1/99 6.5%
Participating to to
Certificates 3/1/26 7.5% $ 4,015 $ 2,597 $ - $ (41) $ 2,556 $ 15
Federal Home
Loan Mortgage
Corporation 4/1/96 5%
Participating to to
Certificates 1/1/02 8.75% 14,763 6,527 - (55) 6,472 36
Federal Home
Loan Mortgage
Corporation 4/1/17
Participating to
Certificates 9/1/22 ARM 4,696 853 19 - 872 10
Government National
Mortgage
Association
Participating
Certificates 5/15/01 8% 11 11 1 - 12 -
Government National
Mortgage 11/20/22 to
Association 10/24/24 7.25% 2,015 1,661 47 - 1,708 10
Federal National
Mortgage
Association 1/1/17
Participating to
Certificates 11/1/22 ARM 2,129 1,632 14 - 1,646 10
------ ------ ---- ------ ------ ----
Total $ 27,629 $ 13,281 $ 81 $ (96) $ 13,266 $ 81
----- ====== ====== ===== ===== ====== =====
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-19
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 8 - Property and Equipment:
----------------------
Office property and equipment consist of the following at March 31:
1997 1996
---- ----
(in thousands)
Land $ 165 $ 165
Building and building improvements 370 363
Furniture, fixtures
and equipment 403 357
Leasehold improvements 158 158
----- -----
1,096 1,043
Less, accumulated depreciation
and amortization 362 293
----- -----
Total $ 734 $ 750
----- ===== ======
Depreciation expense was $69,726 and $60,012 for the years ended March
31, 1997 and 1996, respectively.
Note 9 - Deposits:
--------
Deposits, which include demand and savings accounts, certificates of
deposit, and individual retirement accounts are classified as follows
at March 31:
1997 1996
-------------- ----------------
Balances by Interest Rate Amount % Amount %
($ in thousands)
Demand accounts (1.5 to 3.0%) $ 13,111 15 $ 12,631 16
Savings accounts (2.53 to 3.1%) 17,817 20 17,459 21
------ --- ------ ---
30,928 35 30,090 37
------ --- ------ ---
Certificates and Individual
Retirement Accounts:
3.02 to 4.14% 537 1 759 1
4.15 to 5.5% 27,754 32 32,243 40
5.55 to 7.0% 28,514 32 16,682 21
7.10 to 7.82% - - 466 1
--------- ---- ------- ---
56,805 65 50,150 63
------ --- ------ ---
Accrued interest 124 - 116 -
------- ---- ------- ----
Total $ 87,857 100 $ 80,356 100
----- ====== === ====== ===
Included in deposits as of March 31, 1997 and 1996 were $3,011,000 and
$3,037,000, respectively, of individual deposits greater than
$100,000.
<PAGE>
Westwood Financial Corporation and Subsidiary F-20
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 10 - Time Deposits:
-------------
While frequently renewed at maturity rather than paid out, certificate
amounts are scheduled to mature contractually within the following
periods as of March 31, 1997:
(In Thousands)
Maturity of one year or less $ 50,151
Maturity of more than one year 5,676
Maturity of more than two years 506
Maturity of more than three years
through five years 472
Maturity of more than five years through
ten years -
Maturity of more than 10 years -
-------
Total $ 56,805
----- =======
Note 11 - Loans Payable
-------------
Balance at March 31:
--------------------
1997 1996
---- ----
(in thousands)
Federal Home Loan Bank of New York
$10,000,000 advance dated November 25, 1996
due November 25, 1998 with interest at 5.96%
paid monthly, secured by qualifying one to
four family first lien mortgages held by
the Company. $ 10,000 $ - - -
======== ========
Note 12 - Commitments and Contingencies:
Operating Leases:
Effective June 1, 1991 the Bank entered into a ten year lease for
office space. This lease calls for minimum rents of $50,700 the first
year escalating to $93,660 in the final year of the lease. The Bank is
also liable for its proportionate share of property taxes as well as
certain Merchant Association dues.
<PAGE>
Westwood Financial Corporation and Subsidiary F-21
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 12 - Commitments and Contingencies: - (continued)
-----------------------------
Operating Leases:
-----------------
The future minimum rental payments are as follows at March 31, 1997:
($ in thousands)
----------------
1998 $ 80
1999 84
2000 89
2001 93
Thereafter 16
---
Total $ 362
----- ===
Rental expense under operating leases for the years ended March 31,
1997 and 1996 was $91,728 and $89,902, respectively.
Financial Instruments with Off-Balance Sheet Risk
-------------------------------------------------
In the ordinary course of the business of meeting the financial needs
of its customers, the Bank is party to various financial instruments
which are properly not reflected in the financial statements. These
financial instruments include unused portions of lines of credit and
commitments to extend various types of credit.
These instruments involve, to varying degrees, elements of credit risk
in excess of the amounts recognized in the financial statements. The
Bank seeks to limit any exposure of credit loss by applying the same
credit underwriting standards it uses for on-balance sheet lending
facilities. The following table provides a summary of financial
instruments with off-balance sheet risk at March 31, 1997.
<TABLE>
<CAPTION>
Contract
Amount
------
($ in thousands)
<S> <C>
Commitments under unused lines of credit $ 2,127
Outstanding loan commitments 1,052
-----
Total financial instruments with off-balance sheet risk $ 3,179
------------------------------------------------------- =======
</TABLE>
Litigation
----------
In the normal course of business, the Bank may be a party to various
legal proceedings and claims. In the opinion of management, the
financial position or results of operations of the Bank will not be
materially affected by the outcome of such legal proceedings and
claims.
<PAGE>
Westwood Financial Corporation and Subsidiary F-22
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 13 - Federal Income Taxes:
--------------------
The Small Business Job Protection Act of 1996 (1996 Act) repealed the
"percentage of income method" for accounting for the provision for bad
debts. The Bank has used this method consistently in developing their
bad debt provision and reserve for income tax purposes through March
31, 1996. The 1996 Act requires the Bank to recapture any addition to
this reserve made subsequent to 1987. The Bank has approximately
$392,000 of post 1987 reserves for which no deferred income tax
liability, approximately $145,000, has be recognized.
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1997 1996
----------------- -----------------
($ in thousands) Amount % Amount %
-------- ----- ------- ---
<S> <C> <C> <C> <C>
Computed statutory federal tax expense $ 258 34.0% $ 289 34.0%
--- ---- --- ----
Changes in tax expense resulting from:
Benefit of state income tax deduction (4) (.5) (9) (1.0)
Bad debt deductions - - (25) (2.9)
Dividend income exclusion (7) (.9) (7) (0.9)
Other 34 4.4 24 2.8
Non-deductible capital loss 33 4.3 - -
----- ---- ---- ---
56 7.3 (17) (2.0)
----- ---- ---- ----
Federal income tax expense $ 314 41.3% $ 272 32.0%
-------------------------- ===== ==== === ====
</TABLE>
Note 14 - Capital Adequacy:
----------------
A reconciliation of shareholders' equity as reported in the
accompanying financial statements in accordance with generally
accepted accounting principles (GAAP) to the three components of
regulatory capital required by the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA) of 1989 is as follows as of
March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- -----------------------------------
Tier 1 Risk- Tier 1 Risk-
GAAP Leverage or Core Based GAAP Leverage or Core Based
Capital Capital Capital Capital Capital Capital Capital Capital
------- ------- ------- ------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net worth reported for financial
statement purposes: $ 8,385 $ 8,385 $ 8,385 $ 8,385 $ 6,126 $ 6,126 $ 6,126 $ 6,126
===== =====
Adjustments to arrive at regulatory capital:
Non-allowable capital (160) (160) (160) (112) (112) (112)
Non-allowable assets (1,132) (1,132) (1,132) (1,238) (1,238) (1,238)
General loan valuation allowance - - 218 - - 169
----- ----- ----- ----- ----- -----
Computed regulatory capital 7,093 7,093 7,311 4,776 4,776 4,945
Minimum capital requirement 3,124 1,531 3,063 2,520 1,320 2,639
----- ----- ----- ----- ----- -----
Regulatory capital-excess $ 3,969 $ 5,562 $ 4,248 $ 2,256 $ 3,456 $ 2,306
------------------------- ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
Westwood Financial Corporation and Subsidiary F-23
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 15 - Treasury Stock:
--------------
On January 10, 1997, the Company completed a "Modified Dutch Auction"
self-tender offering which commenced on November 25, 1996. A total of
1,431 shares were purchased at a price of $15.00 per share plus costs
of the offering of $31,000 and held as treasury stock. The Board of
Directors approved the retirement of the shares held as treasury stock
which resulted in a reduction of additional paid in capital of
$51,000.
Note 16 - Interest on Deposits:
--------------------
Interest expense on customer deposits is summarized as follows at
March 31:
1997 1996
---------- ----------
(in thousands)
Interest expense on:
Certificates of deposit and
other time deposits $ 2,920 $ 2,693
Savings accounts 416 387
NOW accounts 230 238
------ ------
3,566 3,318
Less, penalties for early
withdrawal (6) (4)
------ ------
Total $ 3,560 $ 3,314
----- ====== ======
Note 17 - Loan Commitments:
----------------
The Bank had open loan commitments at March 31, 1997 and 1996 of
$1,052,000 and $1,073,000, respectively. All loan commitments expire
thirty to sixty days from the date issued. These commitments, which
are not reflected in the accompanying financial statements, are broken
down by interest rate as follows:
Years Ended March 31,
Rate 1997 1996
---------- ------------ --------
(in thousands)
6.5 - 6.9 $ 22 $ 430
7.0 - 7.4 405 378
7.5 - 8.0 273 -
8.1 - 8.5 110 265
8.6 - 9.0 230 -
9.1 -10.0 12 -
----- -----
$ 1,052 $ 1,073
===== =====
<PAGE>
Westwood Financial Corporation and Subsidiary F-24
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 18 - Loans to Related Parties:
------------------------
The Bank has had, and expects to have in the future, banking
transactions conducted in the ordinary course of business with
directors, executive officers and their affiliates on the same terms
as those prevailing for comparable transactions with other borrowers.
These loans amounted to $371,824 and $257,366 at March 31, 1997 and
1996, respectively, and do not involve more than normal risks of
repayment. At March 31, 1997 and 1996, these loans represented 3.7%
and 4.2%, respectively, of shareholders' equity.
Note 19 - Employee Benefit Plan:
---------------------
As of January 1, 1994 the bank adopted a financial institution thrift
plan pursuant to IRS Section 401(K). Employees of the bank may
participate in the 401(K) plan whereby they may elect to make
contributions pursuant to a salary reduction agreement upon meeting a
length of service requirement. The bank matched the employee
contribution at a rate of 25% of up to 4% of the employees salary. As
of January 1, 1996 the bank began matching the employee contribution
at a rate of 50% of up to 4% of the employees salary. The bank's
contributions to the plan for the years ended March 31, 1997 and 1996
were $7,214 and $5,011, respectively.
Note 20 - Stock Bonus Plans:
-----------------
Effective December 9, 1993, in connection with the reorganization of
Westwood Savings Bank, the Bank established three Management Stock
Bonus Plans ("MSBPs") to reward certain key directors, officers and
employees with proprietary interest in the Bank as compensation for
future professional service. The Bank contributed 24,000 shares of
common stock to the Plans, and accordingly, recorded no proceeds for
the issuance of the common stock. Shares are granted at the discretion
of a committee appointed by the Board of Directors and vested at a
rate of 20% per year over 5 years. The Bank will record compensation
expense and equity as individual employees vest in allocated shares.
After the conversion of Westwood Financial Corporation and Subsidiary,
the 24,000 shares were exchanged for 39,216 shares. As of March 31,
1997 and 1996 the Plan had granted 39,216 and 24,000 shares,
respectively, to employees of which 26,235 and 9,989 shares have been
vested as of March 31, 1997 and 1996, respectively. Compensation
expense recorded for the MSBP's shares totaled $48,000 for the years
ended March 31, 1997 and 1996. The expense is being recognized pro
rata over a sixty month period starting from the date of
reorganization (December 9, 1993) for financial statement purposes.
<PAGE>
Westwood Financial Corporation and Subsidiary F-25
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 21 - Stock Option Plan:
-----------------
In December 1995, in connection with the 1993 option plans, the
remaining options (8,003 shares) were granted to officers and
directors at an exercise price of $13.25 per share. After the
conversion of Westwood Financial Corporation and Subsidiary, the
exercise price was adjusted to $8.11. No options granted under 1993
option plans have been exercised as of March 31, 1997.
Financial Accounting Standards Board (FASB) Statement on Accounting
for Stock-Based Compensation - In October 1995, FASB issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation." SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby
compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period. FASB encourages
all entities to continue the use of the "intrinsic value based method"
prescribed by Accounting Principles Board ("APB") Opinion No. 25.
Under the intrinsic value based method, compensation cost is the
excess of the market price of the stock at the grant date over the
amount an employee must pay to acquire the stock. However, most stock
option plans have no intrinsic value at the grant date and, as such,
no compensation cost is recognized under APB Opinion No. 25. Entities
electing to continue use of the accounting treatment of APB Opinion
No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No.
123 are effective for transactions entered into in fiscal years
beginning after December 15, 1995. Pro forma disclosures must include
the effects of all awards granted in fiscal years beginning December
15, 1994. The Bank anticipates to continue using the "intrinsic value
based method" as prescribed by APB Opinion No. 25. Had compensation
cost for the Company's stock option plans been determined based on the
fair value at the dates of the awards under those plans consistent
with the method of SFAS No. 123, the effect on the Company's net
income and income per share would be immaterial to the financial
statements.
<PAGE>
Westwood Financial Corporation and Subsidiary F-26
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 22 - Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" (SFAS 107), requires
disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. 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
in a forced or liquidation sale. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Bank.
Fair value estimates are made at a specific point in time based on
relevant market information and information about the financial
instrument. In cases where the quoted market prices are not available,
fair values are based on estimates using present value or other
valuation techniques. 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. Those techniques
are significantly affected by the assumptions used, including the
discount rate and estimated future cash flows, and judgements
regarding expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors.
These estimates involve uncertainties and are subjective in nature,
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off balance sheet
financial instruments, without attempting to estimate the value of
anticipated future business, and the value of assets and liabilities
that are not considered financial instruments. Tax implications
related to the realization of the unrealized gains and losses have a
significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents and accrued interest receivable:
The fair value for cash and cash equivalents and accrued interest
receivable are equal to the carrying amounts reported in the financial
statements.
Securities:
The fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
<PAGE>
Westwood Financial Corporation and Subsidiary F-27
Notes to the Consolidated Financial Statement
March 31, 1997 and 1996
- --------------------------------------------------------------------------------
Note 22 - Fair Value of Financial Instruments (continued)
-----------------------------------
Loans:
-----
The fair values of loans are estimated by discounting future cash
flows, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Deposits:
--------
The fair value of demand and savings deposits are equal to the
carrying amounts reported in the financial statements. For
certificates of deposit, fair value is estimated using the rates
currently offered for deposits of similar maturities.
Commitments to extend credit:
----------------------------
These off-balance sheet instruments are comprised of unfunded loan
commitments which are generally priced at market at the time of
funding, therefore, the fair values of these items are substantially
similar to the related notional amounts.
The carrying values and estimated fair values of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
(In Thousands) (In Thousands)
March 31, 1997 March 31, 1996
------------------ --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,408 $ 5,408 $ 5,208 $ 5,208
Securities available for sale 2 2 4,422 4,422
Securities held to maturity 59,207 58,281 39,463 39,293
Loans 40,666 40,137 34,838 35,098
Accrued interest receivable 1,077 1,077 699 699
Financial liabilities:
Deposits 87,733 84,961 80,240 80,243
Accrued interest payable 124 124 116 116
Loan payable - FHLB 10,000 10,000
</TABLE>
<PAGE>
WESTWOOD FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Directors Officers
- --------- --------
<S> <C>
William J. Woods* William J. Woods
Chairman of the Board Chief Executive Officer and
President
Joanne Miller*
Vice President Joanne Miller
Vice President and
Paul F. Becker* Secretary
Consultant to Quinn Funeral Service
George E. Niemczyk
John M. Caruso* Vice President/Controller
Home Restoration and Repair Company
William J. Durgin*
New York Life Insurance Agent
Sidney J. Hagan*
Retired construction official
* Also serves as Director of
Westwood Savings Bank.
WESTWOOD SAVINGS BANK OFFICERS
William J. Woods Margaret Flood
Chairman of the Board Asst. Vice President/Branch Manager - Westwood
Joanne Miller Lynne Kopp
President Asst. Vice President/Branch Manager - Haworth
Robert L. Pierson Catherine Solimando
Vice President Secretary
George E. Niemczyk
Vice President/Controller
Corporate Counsel Special Counsel
- ----------------- ---------------
Harry Randall, Jr. Malizia, Spidi, Sloane, & Fisch, P.C.
Randall, Randall, & Stevens One Franklin Square
287 Kinderkamack Road 1301 K Street, N.W. Suite 700E
Westwood, NJ 07675 Washington, DC 20005
Auditor Transfer Agent and Registrar
- ------- ----------------------------
RD Hunter and Company, LLP Registrar and Transfer Company
One Mack Center Drive 10 Commerce Drive
Paramus, NJ 07652 Cranford, NJ 07016
</TABLE>
The Corporation's Annual Report for the Year Ended March 31, 1997 filed with the
Securities and Exchange Commision on Form 10- KSB without exhibits is available
without charge upon written request. For a copy of the Form 10-KSB or any other
investor information, please write the Secretary of the Corporation at 700-88
Broadway, Westwood, New Jersey 07675. The Annual Meeting of Stockholders will be
held on July 15, 1997 at 4:00 PM at the main office of Westwood Savings Bank.
12
<PAGE>
WESTWOOD FINANCIAL
CORPORATION
WESTWOOD SAVINGS BANK
700-88 Broadway 139 Terrace Street
Westwood, NJ 07675 Haworth, NJ 07641
(201) 666-5002 (201) 387-6777
[FDIC LOGO] [EQUAL HOUSING LENDER LOGO]
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 459
<INT-BEARING-DEPOSITS> 4,949
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2
<INVESTMENTS-CARRYING> 58,633
<INVESTMENTS-MARKET> 57,707
<LOANS> 40,596
<ALLOWANCE> 218
<TOTAL-ASSETS> 107,981
<DEPOSITS> 87,857
<SHORT-TERM> 0
<LIABILITIES-OTHER> 10,174
<LONG-TERM> 0
0
0
<COMMON> 65
<OTHER-SE> 9,885
<TOTAL-LIABILITIES-AND-EQUITY> 107,981
<INTEREST-LOAN> 3,008
<INTEREST-INVEST> 3,640
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,648
<INTEREST-DEPOSIT> 3,560
<INTEREST-EXPENSE> 215
<INTEREST-INCOME-NET> 2,873
<LOAN-LOSSES> 52
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,211
<INCOME-PRETAX> 759
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 2.74
<LOANS-NON> 0
<LOANS-PAST> 149
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 218
<CHARGE-OFFS> 3
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 218
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
