SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
January 31, 2000
Date of Report (Date of earliest event reported)
ROEBLING FINANCIAL CORP., INC.
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(Exact name of Registrant as specified in its Charter)
United States 000-29257 (Applied for)
- ---------------------------- ----------------- --------------
(State or other jurisdiction (File No.) (IRS Employer
of incorporation) Identification
Number)
Route 130 South and Delaware Avenue
Roebling, New Jersey 08554
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 499-0355
--------------
Not Applicable
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(Former name or former address, if changed since last Report)
<PAGE>
ROEBLING FINANCIAL CORP, INC.
INFORMATION TO BE INCLUDED IN REPORT
------------------------------------
Item 5. Other Events
------------
On January 31, 2000, Roebling Bank, a federally chartered savings bank
("Bank"), completed its stock holding company reorganization, whereby the Bank
became the wholly owned subsidiary of Roebling Financial Corp, Inc., a federally
chartered stock holding company ("Roebling Financial"). Roebling Financial is
majority owned by Roebling Financial Corp., MHC, a federal mutual holding
company.
Pursuant to an Agreement and Plan of Reorganization dated November 4,
1998, each share of Bank common stock, by operation of law, became one share of
common stock of Roebling Financial Corp, Inc.
Registrar and Transfer Company, Cranford, New Jersey is Reobling
Financial's transfer agent.
The common stock of the Company has been registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
("Exchange Act"), and its common stock succeeded the Bank's common stock on the
OTC Bulletin Board and trade under the symbol "ROEB."
The Bank previously filed Exchange Act reports with the office of
Thrift Supervision, Business Transactions Division, 1700 G Street, N.W.,
Washington, D.C. 20052.
A copy of a press release issued January 31, 2000 by the Registrant is
attached hereto as Exhibit 99 and is incorporated herein by reference in its
entirety.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
-----------------------------------------
(c) Exhibits.
2.0 Agreement and Plan of Reorganization*
3.1 Federal Stock Charter*
3.2 Bylaws*
4.0 Form of Stock Certificate*
10.1 Stock Option Plan*
10.2 Restricted Stock Plan*
13.0 Annual Report on Form 10-KSB of Roebling Bank for
the year ended September 30, 1999 as filed with the
Office of Thrift Supervision on December 29, 1999.
99.0 Press Release dated January 31, 2000*
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* Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROEBLING FINANCIAL CORP, INC.
Date: February 24, 2000 By: /s/ Kent C. Lufkin
------------------
Kent C. Lufkin
President
EXHIBIT 13
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
FORM 10-KSB
(Mark One)
Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required)
For the fiscal year ended September 30, 1999
------------------
[X} Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
--------------- ---------------
OTS Docket Number: 6923
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ROEBLING BANK
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(Name of Small Business Issuer in Its Charter)
United States 21-0550051
- -------------------------------------- ------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Route 130 and Delaware Avenue, Roebling, New Jersey 08554
- --------------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
(609) 499-0355
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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. [ ]
State issuer's revenues for its most recent fiscal year: $ 3,821,318
The registrant's voting stock is traded on the Electronic Bulletin
Board under the symbol "ROEB." The aggregate market value of the voting stock
held by non-affiliates of the registrant, based on the sale price of the
registrant's Common Stock as reported by the Electronic Bulletin Board on
December 13, 1999, was $2,206,020 ($15.00 per share based on 147,068 shares of
Common Stock outstanding).
As of December 31, 1999, the registrant had 425,500 shares of Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Parts I and II -- Portions of the Registrant's 1999 Annual Report to
Stockholders.
2. Part III -- Portions of the Registrant's Proxy Statement for the 1999
Annual Meeting of Stockholders.
<PAGE>
PART I
Item 1. Description of Business
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General
The Bank attracts deposits from the general public and uses such
deposits primarily to invest in one- to four-family residential home equity and
commercial loans, as well as mortgage-backed and other securities. During the
past few years, the Bank has sought to diversify its portfolio by placing
greater emphasis on commercial real estate and consumer lending, while
continuing to promote a wide range of mortgage products. The principal sources
of funds for the Bank's lending and investing activities are deposits, the
repayment and maturity of loans and sale, maturity, and call of securities, and
FHLB advances. The principal source of income is interest on loans and
mortgage-backed and investment securities and the principal expenses are
interest paid on deposits and general operations.
Since October 2, 1997, the Bank has operated under the federally
chartered mutual holding company of Roebling Financial Corp., MHC (the
"Company"). The Company owns approximately 54% (229,540 shares) of the Bank's
outstanding Common Stock, with the remaining shares owned by the general public
and the Bank's Employee Stock Ownership Plan. Pursuant to applicable
regulations, the Company is required to own more than a majority of the Common
Stock, and therefore the Company is able to elect the Board of Directors and
otherwise direct the affairs of the Bank. Voting and liquidation rights in the
Company are held by the depositors of the Bank. Accordingly, the depositors
indirectly control the affairs of the Bank as a result of their authority to
direct the Board of Directors and otherwise control the affairs of the Company.
Any conversion of the Company to stock form would require the approval of
qualifying depositors of the Bank.
Market Area/Competition
The Bank operates three offices, two located in Roebling and one
located New Egypt, New Jersey. From these locations, the Bank primarily serves
the towns of Roebling, Florence Township and New Egypt. The Bank's secondary
market includes Burlington City, Cream Ridge, Wrightstown, Bordentown City and
Springfield, Mansfield, Bordentown, Plumsted, New Hanover and North Hanover
Townships.
Economic growth in the Bank's market area remains dependent upon the
local economy. The deposit and loan activity of the Bank is significantly
affected by economic conditions in its market area. The economy in the Bank's
market area consists primarily of service industries, professionals,
corporations, light industries and some agriculture.
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions (including savings
banks), credit unions and multi-state regional banks in the Bank's market areas.
Competition for funds 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. The Bank maintains and attracts customers by
offering competitive interest rates and a high level of personal service.
-2-
<PAGE>
Lending Activities
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------
1999 1998
----------------------------- ---------------------------
$ % $ %
--- --- --- ---
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
- -------------
Real Estate:
1-4 family................................. $17,080 47.26% $14,500 52.05%
Construction............................... 454 1.26 1,192 4.28
Commercial (1)............................. 4,624 12.80 3,102 11.14
----- ----- ----- -----
Total real estate loans.................. 22,158 61.32 18,794 67.47
------ ----- ------ -----
Consumer and commercial loans:
Home equity................................ 5,766 15.96 4,199 15.08
Second mortgage............................ 7,468 20.66 4,257 15.28
Savings account............................ 93 0.26 119 0.43
Automobile................................. 238 0.66 172 0.62
Other...................................... 415 1.14 313 1.12
------ ------ ------ ------
Total consumer loans......................... 13,980 38.68 9,060 32.53
------ ------ ------ ------
Total loans.................................. 36,138 100.00% 27,854 100.00 %
------ ====== ------ ======
Less:
Loans in process........................... 251 260
Deferred loan origination fees and (costs). (33) 13
Allowance for loan losses.................. 175 279
------ ------
Total loans, net........................... $35,745 $27,302
====== ======
</TABLE>
- -----------
(1) 1999 total includes commercial loans of approximately $122,000 which were
secured by business receivables and business equipment.
-3-
<PAGE>
Loan Maturity Table. The following table sets forth the maturity of the
Bank's loan portfolio at September 30, 1999. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $6.6 million and $6.8 million, for the
years ended September 30, 1999 and 1998, respectively. Adjustable-rate loans are
shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Home
Equity
1-4 Family and
Real Estate Commercial Second Other
Mortgage Construction Real Estate Mortgage Consumer Total
--------- ------------ ----------- -------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts Due:
3 months or less..................... $1,486 $106 $534 $5,734 $63 $7,923
More than 3 months through 1 year.... 3,739 97 728 251 31 4,846
More than 1 year through 3 years..... 4,190 - 950 368 328 5,836
More than 3 years through 5 years.... 409 - 1,082 2,288 263 4,042
More than 5 years through 10 years... 478 - 1,064 3,885 61 5,488
More than 10 years through 20 years.. 4,001 - 266 708 - 4,975
Over 20 years........................ 2,777 - - - - 2,777
------ ----- ----- ------ --- ------
Total due after one year............. $11,855 $ - $3,362 $7,249 $652 $23,118
------- ----- ------ ------ ---- -------
Total amount due..................... $17,080 $203 $4,624 $13,234 $746 $35,887
======= ==== ====== ======= ==== =======
Less:
Allowance for loan loss.............. 175
Deferred loan fees................... (33)
------
Loans receivable, net.............. $35,745
======
</TABLE>
The following table sets forth the amount of all loans due after
September 30, 2000, which have pre-determined interest rates or
floating/adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four-family............... $7,755 $4,100 $11,855
Construction...................... - - -
Commercial real estate............ 1,888 1,474 3,362
Home equity and second mortgages.. 7,249 - 7,249
Other consumer.................... 652 - 652
--- --- ---
Total........................... $17,544 $5,574 $23,118
======= ====== =======
-4-
<PAGE>
The following table shows the total loan originations, repayments and
sales activity by the Bank for the periods indicated:
Year Ended September 30,
-------------------------
1999 1998
-------------------------
(In thousands)
Total loans receivable at beginning of period $ 27,302 $ 26,737
======= =======
Loans originated:
1-4 family residential real estate $14,935 $ 9,295
Construction 378 1,300
Commercial real estate 1,501 751
Consumer 981 670
------ ------
Total loans originated 17,795 12,016
------ ------
Total loans purchased 96 -
Total loans sold 1,982 3,050
Loan principal repayments 6,430 7,103
Other (net) (1,036) (1,298)
------ ------
Net loan activity $8,443 $565
====== ======
Loans receivable, net at end of period $35,745 $27,302
====== ======
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 fixed-rate mortgage
loans with terms up to 30 years as well as 1 and 3-1 adjustable-rate mortgage
("ARM") loans with terms up to 30 years. ARM loans are qualified at the fully
indexed mortgage rate as of the date of the commitment. The Bank offers ARM
loans 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 balloon mortgage loans with maturities of one to
five years on non-owner occupied one- to four-family residences. Renewal of
balloon mortgage loans is based on the credit history as well as the current
qualification of the borrower at the time of renewal. Loan origination fees on
loans are generally 0% to 3% of the loan amount depending on the market rate and
customer demand.
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.
The Bank both retains fixed-rate loans in portfolio and sells
qualifying fixed-rate loans to the Federal National Mortgage Association
("FNMA") and retains the servicing rights. Generally, fixed-rate portfolio loans
have a 15 to 30 year term. Non-conforming, fixed-rate loans are both retained in
the Bank's portfolio or sold in the secondary market to private entities,
servicing released.
Construction Lending. The Bank also originates residential construction
loans. Construction loans are classified as either residential or speculative
real estate loans at the time of origination, depending on whether a buyer is
under contract of sale. The Bank's construction lending activities generally are
limited to the Bank's primary market area.
-5-
<PAGE>
The Bank's construction loans are made to local individuals for the
purpose of constructing their primarily single-family residence and real estate
builders and developers for the purpose of constructing primarily single-family
residential developments.
Upon application, credit review and analysis of personal and corporate
financial statements, the Bank will grant local builders lines of credit up to
designated amounts. These credit lines may be used for the purpose of
construction of speculative (or unsold) residential properties. In some
instances, lines of credit will also be granted for purposes of acquiring
finished lots and developing speculative residential properties thereon. Once
approved for a construction line, a developer must submit, on a regular basis,
reports regarding work performed in order to reutilize the line of credit. The
Bank also inspects construction projects on a regular basis. The Bank had no
speculative residential construction loans at September 30, 1999.
The Bank's construction loans generally have maturities of 6 to 12
months, with payments being made monthly on a interest-only basis. Speculative
residential construction loan rates adjust monthly based on the prime rate plus
a margin of 1.0% to 2.0%, while owner-occupied residential construction loan
rates tend to be fixed. Residential and speculative real estate construction
loans are generally made with maximum loan-to-value ratios of 80% and 70%,
respectively.
Depending on market and economic conditions, the Bank intends to
increase its involvement in residential construction lending within its primary
market area. Such loans afford the Bank the opportunity to increase the interest
rate sensitivity of its loan portfolio. Construction lending is generally
considered to involve a higher level of risk as compared to single-family
residential lending, due to the concentration of principal in a limited number
of loans and borrowers and the effects of general economic conditions on
developers and builders. Moreover, a construction loan can involve additional
risks because of the inherent difficulty in estimating both a property's value
at completion of the project and the estimated cost (including interest) of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. In addition, speculative construction loans
to a builder are not necessarily pre-sold and thus pose a greater potential risk
to the Bank than construction loans to individuals on their personal residences.
The Bank has attempted to minimize the foregoing risks by, among other
things, limiting the extent of its construction lending generally and by
limiting its construction lending to primarily residential properties. In
addition, the Bank has adopted underwriting guidelines which impose
loan-to-value, debt service and other requirements for loans which are believed
to involve higher elements of credit risk, by limiting the geographic area in
which the Bank will do business and by working with builders with whom it has
established relationships. Furthermore, the Bank will sell participation in
construction loans with large balances.
Commercial Loans and Services. To accomplish its mission to become a
full service community financial institution, the Bank has expanded its products
and services offerings to the small to medium size businesses within its market
area. Within the past year the Bank has added experienced personnel and
implemented a sales call program, credit analysis guidelines, technology
upgrades, commercial lending policies and new products and services. The Bank
plans to satisfy not only the borrowing needs of new prospective business
customers, but plans to have the full complement of deposit services and
customer services related to the checking, savings and cash management needs of
these businesses.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property with a value that tends to
be more easily ascertainable, commercial business loans typically are made on
the basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As
-6-
<PAGE>
a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself
(which is likely to be dependent upon the general economic environment). The
Bank's commercial business loans are sometimes, but not always, secured by
business assets, such as accounts receivable, equipment and inventory, as well
as real estate. However, the collateral securing the loans may depreciate over
time, may be difficult to appraise, and may fluctuate in value based on the
success of the business. The Bank believes that the higher yields and shorter
terms compensate the Bank for the increased credit risk associated with such
loans. Furthermore, in accordance with the Bank's Classification of Assets
policy and procedure, the Bank requests annual financial statements on all
commercial loans.
The Bank's commercial business lending policy emphasizes (1) credit
file documentation, (2) analysis of the borrower's character, (3) analysis of
the borrower's capacity to repay the loan, (4) adequacy of the borrower's
capital and collateral, and (5) evaluation of the industry conditions affecting
the borrower. Analysis of the borrower's past, present and future cash flows is
also an important aspect of the Bank's credit analysis. The Bank plans to
continue to expand its commercial business lending, subject to market
conditions.
The majority of the commercial loans originated by the Bank have been
commercial real estate loans secured by commercial properties located within its
primary market area. The Bank's commercial real estate loans are permanent loans
secured by improved property such as office buildings, churches, 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 loans. The
Bank does seek commercial loans and considers applications submitted by local
organizations, businesses or persons within its lending area. At September 30,
1999, the largest commercial real estate loan had an aggregate balance of
$633,000. Commercial real estate loans are generally originated in amounts of up
to 70% of the appraised value of the mortgaged property. The commercial real
estate loans in the Bank's portfolio generally consist of balloon or ARM loans
which were originated at prevailing market rates.
Consumer Loans. The Bank offers consumer loans in order to provide a
wider range of financial services to its customers and because the shorter terms
and normally higher interest rates on such loans help maintain a profitable
spread between its average loan yield and its cost of funds. In connection with
consumer loan applications, the Bank verifies the borrower's income and reviews
a credit bureau report. In addition, the relationship of the loan to the value
of the collateral is considered. Federal savings institutions are permitted to
make secured and unsecured consumer loans up to 35% of their assets. In
addition, savings institutions have lending authority above the 35% limitation
for certain consumer loans, such as home equity, home improvement, mobile home,
and account or passbook loans.
The Bank originates home equity loans secured by single-family
residences. These loans generally are originated as fixed-rate loans with terms
of one to fifteen years. These loans are made only on owner-occupied,
single-family residences. The loans are generally subject to a 80% combined
loan-to-value limitation, including any other outstanding mortgages or liens.
Since November 1989, the Bank has offered a variable rate home equity open-end
revolving line of credit based on the prime rate as published in the Wall Street
Journal with minimum and maximum rates of 5.99% and 16.9%, respectively. Rate
changes are limited to one per 30-day period. Rates are competitively priced,
and the Bank will, at times, offer special promotional rates.
The Bank also offers high loan to value fixed-rate and, non-owner
occupied fixed-rate equity loans. Such loans are generally subject to loan to
value limitations of 90% and 70%, respectively, including any
-7-
<PAGE>
other outstanding mortgages or liens. These loans are for terms of one to seven
years. In no instance will the Bank take a position lower than a second lien.
The Bank's remaining consumer loans consist primarily of new and used
mobile home loans, new and used automobile loans, account loans and unsecured
personal loans.
Due to the type and nature of the collateral and, in some cases the
absence of collateral, consumer lending generally involves more credit risk
compared to one- to four-family residential lending. Consumer lending
collections are typically dependent on the borrower's continuing financial
stability, and thus, are more likely to be adversely affected by job loss,
divorce, illness and personal bankruptcy. Generally, collateral for consumer
loans depreciates rapidly and often does not provide an adequate source of
repayment of the outstanding loan balance. The remaining deficiency often
warrants litigation against the borrower and is usually turned over to a
collection agency or law firm which is costly to the Bank. The Bank attempts to
limit its exposure in consumer lending by emphasizing home equity loans with the
Board determining loan-to-value ratios.
Loan Originations and Approval Authority. Loan originations are
generally obtained from existing customers, members of the local community, and
referrals from real estate brokers, lawyers, accountants, and current and past
customers within the Bank's lending area.
Upon receipt of any loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal or valuation determination, subject to regulatory requirements, of the
real estate intended to secure the proposed loan is undertaken. The President of
the Bank has lending authority to make secured and unsecured loans of up to
$100,000 and $5,000, respectively, while the Bank's Branch Administrator,
Commercial Loan and Loan officer have lesser lending authorities to make secured
and unsecured loans. All other loans must be approved by the Board of Directors.
All loans originated or purchased are underwritten and processed by a lending
officer, subject to the loan underwriting policies as approved by the Board of
Directors. All purchased and originated loans are approved or ratified by the
Board of Directors.
Loan applicants are promptly notified of the decision of the Bank,
setting forth the terms and conditions of the decision. If approved, these terms
and conditions include the amount of the loan, interest rate basis, amortization
term, a brief description of the real estate to be mortgaged to the Bank, and
the notice requirement of insurance coverage to be maintained to protect the
Bank's interest. The Bank requires title insurance or a title opinion on first
mortgage loans and fire and casualty insurance on all properties securing loans,
which insurance must be maintained during the entire term of the loan. The Bank
also requires flood insurance, if appropriate, in order to protect the Bank's
interest in the security property. Mortgage loans originated and purchased by
the Bank in its portfolio generally include due-on-sale clauses that 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.
Loan Servicing and Sales. The Bank services the loans it originates for
its loan portfolio. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, making inspections as required
of mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults, and
generally administering the loans. Funds that have been escrowed by borrowers
for the payment of mortgage-related expenses, such as property taxes and hazard
and mortgage insurance premiums, are maintained in escrow accounts at the Bank.
-8-
<PAGE>
Furthermore, the Bank generally underwrites fixed-rate one- to
four-family mortgage loans pursuant to Federal National Mortgage Association
("FNMA") guidelines to facilitate sale in the secondary market. Fixed-rate
mortgage loans are generally sold with servicing retained unless the loan was
originated for community reinvestment purposes. Non-conforming, fixed-rate loans
are sold in the secondary market to private entities, with servicing released.
Subject to market conditions, the Bank seeks to expand its secondary market
investor relationship by originating non-conforming loans. During the years
ended September 30, 1999 and 1998, the Bank sold $1,982,000 and $3,050,000 of
whole loans, respectively.
The Bank recognized loan servicing fees of $41,000 and $41,000 for the
years ended September 30, 1999 and 1998, respectively. As of September 30, 1999,
loans serviced for others totaled $17.3 million.
Loan Commitments. The Bank issues written commitments to prospective
borrowers on all approved mortgage loans which generally expire within 30 days
of the date of issuance. The Bank charges no commitment fees to secure
commitments. The Bank charges one point to lock in mortgage rates. In some
instances, after a review of the rate, terms, and circumstances, commitments may
be renewed or extended up to 60 days. At September 30, 1999, the Bank had $3.4
million of outstanding commitments to fund loans and $3.7 million of unused home
equity lines of credit.
Loans-to-One Borrower. Regulations limit loans-to-one borrower or an
affiliated group of borrowers in an amount equal to the greater of $500,000 or
15% of unimpaired capital and unimpaired surplus of the Bank. The Bank is
authorized to lend up to an additional 10% of unimpaired capital and unimpaired
surplus if the loan is fully secured by readily marketable collateral. At
September 30, 1999, the Bank's maximum loan-to-one borrower limit was $738,900.
At September 30, 1999, the Bank's largest lending relationship
consisted of one loan with an aggregate outstanding balance of $633,000, which
was secured by a commercial property located in the Bank's market area. At
September 30, 1999, this loan was performing in accordance with its terms.
Non-Performing and Problem Assets
Loan Delinquencies. The Bank's collection procedures provide that when
a loan is 30 days past-due, a delinquent notice is sent to the borrower and a
late charge is imposed in accordance with the mortgage. If payment is still
delinquent after approximately 60 days, the borrower will receive a notice of
default establishing a date by which the borrower must bring the account current
or foreclosure proceedings will be instituted. Written notices are supplemented
with telephone calls to the borrower. Late charges are also imposed in
accordance with the mortgage. If the loan continues in a delinquent status for
90 days and no repayment plan is in effect, the account is turned over to an
attorney for collection or foreclosure and the borrower is notified when
foreclosure has been commenced.
Loans are reviewed on a monthly basis and are placed on non-accrual
status when considered doubtful of collection by management. Generally, loans
past-due 90 days or more as to principal or interest which, in the opinion of
management, are not adequately secured to insure the collection of the entire
outstanding balance of the loan including accrued interest are placed on
non-accrual status. Interest accrued and unpaid over 90 days delinquent at the
time a loan is placed on non-accrual status is charged against interest income.
-9-
<PAGE>
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, accruing loans which are past due 90 days or more
as to principal or interest payments, and foreclosed assets. As of the dates
indicated, the Bank had no loans categorized as troubled debt restructurings.
At September 30,
----------------
1999 1998
-------------------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
1-4 family residential real estate ................ $ 417 $ 427
(1)
Construction and commercial real estate ........... -- --
Non-mortgage loans:
Home equity and second mortgages .................. 8 7
Other consumer .................................... -- --
------ -----
Total non-accrual loans ............................. $ 425 $ 434
====== =====
Accruing loans which are contractually past due
90 days or more:
Mortgage loans:
1-4 family residential real estate ................ $ -- $--
Construction and commercial real estate ........... -- --
Non-mortgage loans:
Home equity and second mortgages .................. -- --
Other consumer .................................... -- --
------ -----
Total accruing loans which are contractually past due
90 days or more ................................... $ -- $--
====== =====
Total non-accrual and accruing past due loans ....... $ 425 $ 434
====== =====
Real estate owned ................................... $ 210 $--
====== =====
Total non-performing assets ......................... $ 635 $ 434
====== =====
Total non-accrual loans to net loans ................ 1.19% 1.59%
====== =====
Total non-accrual and accrual loans to total assets . 0.73% 0.93%
====== =====
Total non-performing assets to total assets ......... 1.09% 0.93%
====== =====
- -------------
(1) Includes deficit escrow of $32,000.
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans was $59,039 and
$56,594 for the years ended September 30, 1999 and 1998, respectively of which
$27,700 and $11,800 was collected and included in the Bank's interest income for
the years ended September 30, 1999 and 1998, respectively.
The Bank's largest non-performing loan is a first mortgage on a
single-family residence with an outstanding balance of $120,399 at September 30,
1999.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected by the current equity and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make
-10-
<PAGE>
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as loss are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets may be designated "special mention" because of potential
weakness that does not currently warrant classification.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
equal to 100% of that portion of the asset so classified or to charge off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the OTS,
which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful or to cover risks
of lending in general may be included as part of an institution's regulatory
capital, while specific allowances generally do not qualify as regulatory
capital.
In accordance with its classification of assets policy, the Bank
regularly reviews the problem assets in its portfolio to determine whether any
assets require classification in accordance with applicable regulations. On the
basis of management's review of its assets, at September 30, 1999, the Bank had
classified $635,000 of loans as substandard (including $210,000 of REO) and no
loans were classified as doubtful or loss. A total of $0 of loans were
categorized as special mention.
Allowance for Loan Losses. Management regularly performs an analysis to
identify the inherent risk of loss in the Bank's loan portfolio. Provisions for
losses on loans are charged to operations in an amount that results in an
allowance for loan losses sufficient, in management's judgment, to cover losses
based on management's periodic evaluation of known and inherent risks in the
loan portfolio, past and expected future loss experience of the Bank, current
economic conditions, industry loss reserve levels, adverse situations which may
affect the borrower, the estimated value of any underlying collateral and other
relevant factors.
The Bank will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, 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, the Bank's determination as
to the amount of its allowance for loan losses is subject to review by the OTS,
as part of its examination process, which may result in the establishment of an
additional allowance based upon the judgment of the OTS after a review of the
information available at the time of the OTS examination.
Analysis of Allowance for Loan Losses. The following table sets forth
information with respect to the Bank's allowance for loan losses at the dates
indicated:
-11-
<PAGE>
<TABLE>
<CAPTION>
Year Ended
September 30,
-------- --------
1999 1998
-------- -------- ----
(Dollars in thousands)
<S> <C> <C>
Total loans outstanding(1) ....................................... $ 35,920 $ 27,581
======== ========
Average loans outstanding ........................................ $ 31,818 $ 26,609
======== ========
Allowance balances (at beginning of period) ...................... 279 291
Provisions ....................................................... 21 (12)
Charge offs:
1-4 family ..................................................... 122 57
Commercial real estate ......................................... -- --
Consumer ....................................................... 6 2
Recoveries:
1-4 family ..................................................... -- 59
Consumer ....................................................... 3 --
-------- --------
Allowance balance (at end of period) ............................. $ 175 $ 279
======== ========
Allowance for loan losses as a percent of total loans outstanding 0.49% 1.01%
Net loans charged off as a percentage of average loans outstanding 0.39% 0.00%
</TABLE>
- -------------
(1) Excludes allowance for loan losses.
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------
1999 1998
------------------------------ -------------------------------
Percent of Loans Percent of Loans
in Each Category in Each Category
Amount to Total Loans Amount to Total Loans
------ -------------- ------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1-4 family real estate (1)... $107 84.48% $ 57 83.18%
Construction................. 2 .57 3 3.38
Commercial real estate....... 46 12.87 11 11.25
Consumer..................... 7 2.08 4 2.19
Unallocated.................. 13 - 204 -
--- ------ ---- ------
Total...................... $175 100.00% $279 100.00%
=== ====== ==== ======
</TABLE>
- ----------------------
(1) Including home equity and second mortgage loans.
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure, judgment or deed in lieu of foreclosure is classified as real
estate owned until it is sold. When property is so acquired, it is recorded at
the lower of the cost or fair value. At September 30, 1999, the Bank had
$210,000 of real estate owned.
Investment Activities
-12-
<PAGE>
Investment Securities. The Bank invests excess liquidity in
mortgage-backed securities and government and corporate obligations. The Bank
classifies its investments as available-for-sale or held-to-maturity in
accordance with SFAS No. 115. At September 30, 1999, the Bank's investment
portfolio policy allowed investments in instruments such as U.S. Treasury
obligations, U.S. federal agency or federally sponsored agency obligations,
State, county and municipal obligations, mortgage-backed and asset-backed
securities, banker's acceptances, certificates of deposit, federal funds,
including FHLB overnight and term deposits (up to six months), as well as
investment grade corporate bonds and commercial paper. The Board of Directors
may authorize additional investments.
The Bank's investment portfolio at September 30, 1999, did not contain
securities of any issuer with an aggregate book value in excess of 10% of the
Bank's equity, excluding those issued by the United States Government or its
agencies.
Mortgage-Backed Securities. The Bank invests in residential
mortgage-backed securities. Mortgage-backed securities can serve as collateral
for borrowings and, through repayments, as a source of liquidity.
Mortgage-backed securities represent a participation interest in a pool of
single-family or other type of mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally government sponsored or quasi-governmental agencies) that pool and
repackage the participation interests in the form of securities, to investors
such as the Bank. Such quasi-governmental agencies, which guarantee the payment
of principal and interest to investors, primarily include FHLMC, Government
National Mortgage Association ("GNMA") and FNMA.
The Bank's mortgage-backed securities at September 30, 1999, were all
issued by GNMA, FNMA and FHLMC and represented participating interests in direct
pass-through pools of long-term mortgage loans. Expected maturities will differ
from contractual maturities due to scheduled repayments and because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties.
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. The interest rate risk characteristics of the
underlying pool of mortgages (i.e., fixed-rate or adjustable-rate), as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages.
Collateralized Mortgage Obligations. Purchases of CMOs are restricted
principally to U.S. Government agencies and corporations that have passed
various regulatory standards associated with mortgage extension or prepayment
risk. All CMOs are subject to at least annual examination to ensure compliance
with regulatory standards. CMOs which fail to meet these standards are disclosed
to the Board of Directors and are subjected to special review and monitoring
procedures.
-13-
<PAGE>
Investment Portfolio. The following table sets forth the carrying value
of the Bank's investment and mortgage-backed securities portfolio and short-term
investments at the dates indicated. The table does not include investment in
FHLB stock. At September 30, 1999, the market value of the Bank's investment
securities portfolio and mortgage-backed securities portfolio (including those
available-for-sale) were $9.5 million and $6.2 million, respectively.
At September 30,
----------------
1999 1998
------------------
(In thousands)
Investment securities held-to-maturity:
U.S. government securities (including agencies) $ 6,782 $ 7,244
Corporate debt instruments (1) ................ 2,875 1,244
------- -------
Total investment securities held-to-maturity .... 9,657 8,488
------- -------
Investment securities available-for-sale
FHLMC stock ................................... -- 101
FNMA stock .................................... 24 26
------- -------
Total investment securities available-for-sale .. 24 127
------- -------
Mortgage-backed securities held-to-maturity ..... 6,294 3,844
------- -------
Total investments ............................... $15,975 $12,459
======= =======
- ---------------------------
(1) Consists of various corporate debt securities with "A" or above investment
grades.
-14-
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------------------------------------------------------------------------
Total
One Year or Less One to Five Years Five to Ten Years More Than Ten Years 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government obligations... $ 242 7.09% - - - - - $ 242 7.09% $244
U.S. agency obligations....... - - 4,302 5.87% 5.97% 6.11% 6,540 5.92% 6,384
1,499 739
Corporate notes and bonds..... 993 5.39% 1,882 5.94% - - - - 2,875 5.75% 2,843
Equity securities............. 24 1.08% - - - - - - 24 1.08%
24
Mortgage-backed securities.... - - 6.58% 1,696 6.40% 4,432 5.97% 6,294 6.10% 6,197
- ----- ----- ----- -----
166
Total....................... $1,259 5.63% $ 6,350 5.91% $ 3,195 6.20% $ 5,171 5.99% $15,975 5.97% $15,692
===== ====== ====== ====== ====== ======
</TABLE>
-15-
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. The Bank also derives funds from the (1)
amortization and prepayment of loans and (2) sales, maturities, and calls of
securities. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions. The
Bank can also borrow funds from the FHLB. See also "Borrowings."
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market areas through the offering of a selection
of deposit instruments including savings accounts, interest and non-interest
checking accounts, money market deposit accounts, and certificate of deposit
accounts. Deposit account terms vary according to the minimum balance required,
the time period the funds must remain on deposit, and the interest rate, among
other factors.
The interest rates paid by the Bank on deposits are set weekly at the
direction of the President. The Bank determines the interest rate to offer the
public on new and maturing accounts by reviewing the market interest rates
offered by competitors, the Bank's need for funds, and the current cost of
money. The Bank reviews, weekly, the interest rates being offered by other
financial institutions within its market areas.
Deposit Portfolio. Deposits in the Bank at September 30, 1999 were
represented by various types of deposit programs described below.
<TABLE>
<CAPTION>
Balance at Percentage of
Category Term Interest Rate(1) September 30, 1999(2) Total Deposits
- -------- --------- ------------- ------------------ --------------
<S> <C> <C> <C> <C>
Interest checking None 1.25% $ 7,559 15.11%
Non-interest checking None - 6,844 13.68
Passbook & club accounts None 2.50 12,976 25.93
Money market None 2.45 4,919 9.83
------ -----
32,298 64.55
------ -----
Certificates of Deposit:
- -----------------------
Fixed term, fixed rate 1-3 Months 4.22 4,335 8.66
Fixed term, fixed rate 4-6 Months 4.76 5,500 10.99
Fixed term, fixed rate 7-12 Months 4.75 4,495 8.98
Fixed term, fixed rate 13-24 Months 5.18 2,864 5.72
Fixed term, fixed rate 25-36 Months 4.87 249 .50
Fixed term, fixed rate 36-48 Months 5.42 295 .60
5.08 $ 17,738 35.45
------- -----
Total $ 50,036 100.00%
======= ======
</TABLE>
- -------------
(1) Weighted average interest rate as of September 30, 1999
(2) Dollars in thousands
-16-
<PAGE>
The following table sets forth the amounts of certificates of deposit classified
by rate at the dates indicated.
At September 30,
1999 1998
------------------ -------------
(In thousands)
Interest Rate:
3.50 - 4.49%................ $4,336 $496
4.50 - 5.49%................ 12,858 13,139
5.50 - 6.49%................ 544 3,108
6.50 - 7.49%................ - -
Total.................... $17,738 $16,743
====== ======
The following table sets forth the amount and maturities of
certificates of deposit at September 30, 1999.
<TABLE>
<CAPTION>
Amount Due
On or before After On or before After
September 30, September 30, September 30, September 30,
Interest Rate 2000 2000 2001 2001 Total
-------------- ------------- ------------- ---------------- ----------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
3.50 - 4.49%.......... $ 4,336 $ - $ - $ - $ 4,336
4.50 - 5.49%.......... 9,996 2,862 - - 12,858
5.50 - 6.49%.......... - - - 544 544
6.50 - 7.49%.......... - - - - -
- - - - -
------- ------ ------ ---- -------
Total............ $14,317 $2,863 $ - $544 $17,738
======= ===== ====== ==== =======
</TABLE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of September 30, 1999. The Bank has never used brokered
deposits.
Jumbo
Certificates
Maturity Period of
Deposit
-------
(In thousands)
Within three months................... $ 505
Three through six months.............. 1,059
Six through twelve months............. 215
Over twelve months.................... 702
-----
$1,779
======
-17-
<PAGE>
Deposit Activity. The following table sets forth the deposit activities
of the Bank for the periods indicated:
Year Ended September 30,
-------------------------------------
1999 1998
------------------ ----------------
Beginning Balance............... $41,229 $33,983
Interest Credited............... 1,364 1,220
Net increase (decrease)......... 7,443 6,026
----- -----
Ending balance.................. $ 50,036 $ 41,229
======= =======
Borrowings
The Bank may obtain advances from the FHLB of New York to supplement
its supply of lendable funds. Advances from the FHLB of New York are typically
secured by a pledge of the Bank's stock in the FHLB of New York and a portion of
the Bank's mortgage-backed securities portfolio. Each FHLB borrowing has its own
interest rate, which may be fixed or variable, and range of maturities. The
Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At September 30, 1999, the Bank had a $2.0 million FHLB advance
Overnight Line of Credit at a rate of 5.60%.
At September 30, 1999, borrowed money also consisted of the Employee
Stock Ownership Plan debt bearing an interest rate equal to prime rate plus 37.5
basis points. Interest is payable quarterly. The loan requires equal quarterly
principal installments over a ten-year period and matures during 2007. At
September 30, 1999, the debt is secured by 12,544 shares of the Bank's common
stock.
The following table sets forth information concerning the Bank's
borrowings during the periods indicated.
During the
Year Ended September 30,
------------------------
1999 1998
--------- ----------
Average balance outstanding.................. $522 $164
Maximum balance at end of any month.......... 2,125 753
Balance outstanding end of period............ 2,125 141
Weighted average rate during period.......... 7.57% 8.18%
Weighted average rate at end of period....... 5.75% 8.13%
Subsidiary Activity
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. At September 30, 1999,
the Bank had no subsidiaries.
-18-
<PAGE>
Personnel
As of September 30, 1999, the Bank had 20 full-time and 15 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation and Supervision
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank. The description does not purport to be complete and
is qualified in its entirety by reference to applicable laws and regulations.
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with federal and state statutory
and regulatory requirements. The Bank is also subject to reserve requirements of
the Federal Reserve System. Federal 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.
The OTS regularly examines the Bank and prepares reports for
consideration by the Bank's Board of Directors on deficiencies, if any, found in
the Bank's operations. The Bank's relationship with its depositors and borrowers
is also regulated by federal and state law, especially in such matters as the
ownership of savings accounts and the form and content of the Bank's mortgage
documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, and must obtain regulatory approvals prior
to entering into certain transactions such as mergers with or acquisitions of
other financial institutions. Any change in such regulations, whether by the
OTS, the FDIC or the United States Congress, could have a material adverse
impact on the Company and the Bank, and their operations.
Federal Deposit Insurance. The FDIC is an independent federal agency
that insures the deposits, up to prescribed statutory limits, of federally
insured banks and savings institutions and safeguards the safety and soundness
of the banking and savings industries. Two separate insurance funds, the Bank
Insurance Fund ("BIF") for commercial banks, state savings banks and some
federal savings banks, and the SAIF for savings associations, are maintained and
administered by the FDIC. The Bank is a member of the SAIF and its deposit
accounts are insured by the FDIC, up to the prescribed limits. The FDIC has
examination authority over all insured depository institutions, including the
Bank, and has under certain circumstances, authority to initiate enforcement
actions against federally insured savings institutions to safeguard safety and
soundness and the deposit insurance fund.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such assessment rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments are set within a range, based on
the risk the institution poses to its deposit insurance fund. This risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the
-19-
<PAGE>
institution. Total deposit insurance premiums paid by the Bank for the year
ended September 30, 1999 were $24,600.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 4% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The OTS has adopted a rule requiring a deduction from capital for
institutions with certain levels of interest rate risk.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
capital distributions including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank, must file an application or a notice with the
OTS at least 30 days before making a capital distribution. Savings associations
are not required to file an application for permission to make a capital
distribution and need only file a notice if the following conditions are met:
(1) they are eligible for expedited treatment under OTS regulations, (2) they
would remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year to date
added to retained net income for the two preceding years, and (4) the capital
distribution would not violate any agreements between the OTS and the savings
association or any OTS regulations. Any other situation would require an
application to the OTS.
In addition, the OTS could prohibit a proposed capital distribution if,
after making the distribution, by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that the distribution would
constitute an unsafe or unsound practice.
A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
unable to meet any one of its minimum regulatory capital requirements. Further,
a federal savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
-20-
<PAGE>
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of New York. The required percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible assets, property used
by the institution in conducting its business and liquid assets equal to 10% of
total assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings associations may include shares of stock
of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of September
30, 1999, the Bank was in compliance with its QTL requirement.
Congress created a second QTL Test, effective September 30, 1996,
pursuant to which a savings institution may also meet the QTL Test under the
Internal Revenue Code of 1986, as amended (the "Code"), for thrift institution
status. According to the test under the Code, at least 60% of the institution's
assets (on a tax basis) must consist of specified assets (generally loans
secured by residential real estate or deposits, educational loans, cash and
certain governmental obligations). The OTS may grant exceptions to the QTL Test
under certain circumstances. If a savings institution fails to meet the QTL
Test, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
the QTL Test will not be eligible for new FHLB advances.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital and
collateral in specified amounts must usually be provided by affiliates in order
to receive loans from the Bank. Affiliates of the Bank include the Company and
any company which would be under common control with the Bank. In addition, a
savings association may not extend credit to any affiliate engaged in activities
not permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At September 30, 1999, the Bank's required
liquid asset ratio was 4% and the Bank's liquidity ratio for the month ended
September 30, 1999 was 36.21%. Monetary penalties may be imposed upon
associations for violations of liquidity requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1999, the Bank had $293,600 in FHLB
stock, at cost, which was in compliance with this requirement. The FHLB imposes
various
-21-
<PAGE>
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member. For the fiscal year ended September 30, 1999, dividends
paid by the FHLB of New York to the Bank totaled $18,536.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such association. The CRA also requires all institutions to make public
disclosure of their CRA ratings. The Bank received an "Outstanding" CRA rating
in its most recent examination on March 31, 1997.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At September
30, 1999, the Bank was in compliance with these requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at September 30, 1999.
Federal Taxation
Savings institutions are subject to the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), in the same general manner as
other corporations. However, savings institutions such as the Bank, which meet
certain definitional tests and other conditions prescribed by the Code may
benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. The amount of the
bad debt deduction that a qualifying savings institution may claim with respect
to additions to its reserve for bad debts is subject to certain limitations. The
Bank reviews the most favorable way to calculate the deduction attributable to
an addition to its bad debt reserve on an annual basis.
In August 1996, the Code was revised to equalize the taxation of
thrifts and banks. Thrifts, such as the Bank, no longer have a choice between
the percentage of taxable income method and the experience method in determining
additions to bad debt reserves. Thrifts with $500 million of assets or less may
use the experience method, while larger thrifts must use the specific charge off
method regarding bad debts. Any additions to tax bad reserves added after 1987
will be recaptured and taxed over a six year period beginning in 1996; however,
bad debt reserves set aside through 1987 are generally not recaptured. An
institution may delay recapturing its post-1987 bad debt reserves for an
additional two years if it meets a residential-lending test. This law is not
expected to have a material impact on the Bank. At September 30, 1999, the Bank
had $43,000 of post-1987 bad-debt reserves yet to be taxed.
-22-
<PAGE>
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on loans, or (ii) a fill-up to the
institution's base year reserve amount, which is the tax bad debt reserve
determined as of September 30, 1987. The Bank used the percentage of taxable
income method for the tax year ended September 30, 1996.
Earnings appropriated to the Bank's bad debt reserve and claimed as a
tax deduction including the Bank's supplemental reserves for losses will not be
available for the payment of cash dividends or for distribution to stockholders
(including distributions made on dissolution or liquidation), unless the Bank
includes the amount in income, along with the amount deemed necessary to pay the
resulting federal income tax. As of September 30, 1999, the Bank had
approximately $306,000 of accumulated earnings, representing its base year tax
reserve, for which federal income taxes have not been provided. If such amount
is used for any purpose other than bad debt losses, including a dividend
distribution or a distribution in liquidation, it will be subject to federal
income tax at the then current rate.
Generally, for taxable years beginning after 1986, the Code also
requires most corporations, including savings institutions, to utilize the
accrual method of accounting for tax purposes. The Bank, however, is on the cash
basis for tax purposes. Further, for taxable years ending after 1986, the Code
disallows 100% of a savings association's interest expense deemed allocated to
certain tax-exempt obligations acquired after August 7, 1986. Interest expense
allocable to (i) tax-exempt obligations acquired after August 7, 1986 which are
not subject to this rule, and (ii) tax-exempt obligations issued after 1982 but
before August 8, 1986, are subject to the rule which applied prior to the Code
disallowing the deductibility of 20% of the interest expense.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items. Only
90% of AMTI can be offset by net operating loss carryovers of which the Bank
currently has none. AMTI is also adjusted by determining the tax treatment of
certain items in a manner that negates the deferral of income resulting from the
regular tax treatment of those items. Thus, the Bank's AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this adjustment and prior to
reduction for net operating losses).
The Company may exclude from its income 80% of dividends received from
the Bank as a member of the same affiliated group of corporations if the Company
owns more than 20% but less than 80% of the stock of the corporation (the Bank)
paying a dividend.
The Bank's federal income tax returns for the last two tax years have
not been examined by the IRS.
State Taxation
The Bank is taxed under the New Jersey Savings Institution Tax Act.
This Act exempts the Bank from all other taxes imposed by the State for state
income tax purposes, and from all local taxation of tangible personal property
imposed by political subdivisions. The Savings Institutions Tax is an excise tax
upon the privilege of doing business in the State of New Jersey imposed at the
rate of 3% per annum on net income as reported for federal income tax purposes,
with certain modifications.
The Holding Company is taxed under the New Jersey Corporation Business
Tax Act. If it meets certain tests, the Holding Company would be taxed as an
investment company at an effective annual rate of approximately 2.25% of New
Jersey taxable income. If it fails to meet such tests, it will be taxed at an
approximate annual rate of 9% of New Jersey taxable income. To qualify as an
"investment company,"
-23-
<PAGE>
the Company must submit a schedule under the New Jersey Corporation Business Tax
Act showing that it meets a three-part business test and an asset test. These
tests consist of:
(a) Business test: For purposes of the 90 percent requirement,
taxpayer, during the entire period covered by its report, must have derived 90
percent or more of its total income before deductions as reported for Federal
income tax purposes from cash and/or investment assets. In addition, taxpayer
must have derived 90 percent or more of its total income before deductions as
reported for Federal income tax purposes from cash and/or investment assets,
plus interest on Federal, State, municipal and other obligations not otherwise
included in Federal taxable income and exclusive of any capital loss carry back
or carry forward and must have incurred 90 percent or more of its total
deductions as reported for Federal income tax purposes for holding, investing
and reinvesting in cash and/or investment assets.
(b) Assets test: For purposes of the 90 percent requirement, at least
90 percent of the taxpayer's gross assets located in New Jersey, valued at cost,
must consist of cash and/or investment assets, during the period covered.
Although there is no assurance, management believes it will meet these tests and
qualify as an "investment company" for state tax purposes.
Recent Developments - Financial Modernization.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "Act") which will, effective March 11, 2000, permit
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. The Act defines "financial in
nature" to include securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank.
Item 2. Description of Property
- ------- -----------------------
(a) Properties
Currently, the Bank operates from its main office and two branch
offices in Roebling and New Egypt, New Jersey. The Bank owns all of its
facilities. The total net book value of the Bank's investment in premises and
equipment at September 30, 1999 was $1,086,670, net of depreciation of $397,000.
The Bank's electronic data processing is performed under contract by FSI, Glen
Rock, New Jersey.
(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 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 -- Regulation and Supervision" and "Item 2. Description
of Property (a) Properties" above.
-24-
<PAGE>
(2) Investments in Real Estate Mortgages. See "Item 1.
Description of Business -- Lending Activities" and "Item 1. Description of
Business -- Regulation and Supervision."
(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 -- Regulation
and Supervision" and "Item 1. Description of Business -- Subsidiary Activity."
(c) Description of Real Estate and Operating Data. Not Applicable.
Item 3. Legal Proceedings
- ------- -----------------
General. The Bank, from time to time, is a party to ordinary routine
litigation, which arises in the normal course of business, 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 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.
RKA Corporation. On December 20, 1995, the plaintiffs commenced this
action against RKA Corporation ("RKA") and the Bank. Cox v. RKA Corporation and
Richard Niel, Docket No. C-00164-95, Superior Court, Chancery Division, Camden
County, New Jersey. In this action, the plaintiffs sought to compel RKA to
specifically perform under an existing real estate contract. The principal of
RKA filed for bankruptcy and plaintiffs took judgment against him before the
filing of bankruptcy. The plaintiff amended the complaint on March 8, 1996 to
add the Bank as a party seeking to negate the mortgage held by the Bank on the
subject property. On March 19, 1997, the Court held in favor of the plaintiffs
and imposed a constructive lien senior to that held by the Bank. The Bank filed
an appeal in the New Jersey Appellate Division Harry W. Cox v. RKA Corp., et al,
Docket No. A-5089-96T1. The Bank had reserved $80,000 against the loan in
connection with this suit.
The case was argued on October 14, 1998, and on December 24, 1998, in a
split decision, the Appellate Division ruled against the Bank. On February 23,
1999, the Bank charged off the loan in the amount of $74,231 against the
previously reserved allowance. The Bank filed an appeal with the New Jersey
Supreme Court on April 15, 1999, Docket No. 47,315. The case was argued on
October 25, 1999 and the Bank is awaiting a ruling.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not Applicable.
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" in the Bank's Annual Report to Stockholders for the year ended
September 30, 1999 (the "Annual Report") is incorporated herein by reference.
The Annual Report is included as Exhibit 13 to this Form 10-KSB.
-25-
<PAGE>
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 Consolidated Financial Statements of the Bank are incorporated by
reference to the following indicated pages of the Annual Report.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 14
Consolidated Statements of Financial Condition as of September 30, 1999 and 1998 15
Consolidated Statements of Income for the Years Ended
September 30, 1999 and 1998 16-17
Statements of Retained Earnings
September 30, 1999 and 1998 18
Statements of Cash Flows for the Years
Ended September 30, 1999 and 1998 19-20
Notes to Consolidated Financial Statements 21-44
</TABLE>
The remaining information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.
Item 8.Changes in and Disagreements with Accountants on Accounting and Financial
- --------------------------------------------------------------------------------
Disclosure
-----------
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(b) of the Exchange Act
--------------------------------------
The required information is on pages 3-4 of the Registrant's Proxy
Statement for the Registrant's Annual Meeting of Stockholders filed with the OTS
on December 29, 1999 (the "Proxy Statement") is incorporated herein by
reference.
-26-
<PAGE>
Item 10. Executive Compensation
- -------- ----------------------
The required information is contained under the section captioned
"Executive Compensation" on pages 7-8 in the Proxy Statement which 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 Section captioned "Voting Securities and
Principal Holders Thereof" on pages 2-3 of the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Election of Directors" on
pages 3-4 of the Proxy Statement.
(c) Change in Control
Not Applicable.
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Indebtedness of Management and Transactions
with Certain Related Parties" on page 9 of the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- -------- --------------------------------------
a. Exhibits
3.1 Federal Stock Charter *
3.2 Bylaws*
4 Specimen Stock Certificate *
10.1 Supplemental Executive Retirement Plan *
10.2 Directors' Retirement Plan *
10.3 Stock Option Plan **
10.4 Restricted Stock Plan **
13 Annual Report to Stockholders for Fiscal Year Ended
September 30, 1999
21 Subsidiaries of the Registrant (See "Item 1 -
Description of Business -- Subsidiary Activity")
-27-
<PAGE>
--------------
* Incorporated by reference to the Registrant's Form 10-KSB
for the fiscal year ended September 30, 1998, filed with the
OTS on December 29, 1997.
**Incorporated by reference to the Registrant's Definitive
Proxy Statement filed with the OTS on December 29, 1998.
b. Reports on Form 8-K
Not Applicable.
<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.
ROEBLING BANK
Date: December 29, 1999 By:/s/Kent C. Lufkin
----------------------------------------
Kent C. Lufkin
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/Kent C. Lufkin /s/John Y. Leacott
- -------------------------------------- -----------------------------------------------
Kent C. Lufkin John Y. Leacott
President and Chief Executive Officer Chief Financial Operating Officer and Treasurer
(Duly Authorized Representative) (Principal Financial and Accounting Officer)
Date: December 29, 1999 Date: December 29, 1999
/s/John F. Ferry /s/George Nyikita
- -------------------------------------- -----------------------------------------------
John F. Ferry George Nyikita
Chairman of the Board and Director Director
Date: December 29, 1999 Date: December 29, 1999
/s/Mark V. Dimon /s/John A. LaVecchia
- -------------------------------------- -----------------------------------------------
Mark V. Dimon John A. LaVecchia
Director Director
Date: December 29, 1999 Date: December 29, 1999
/s/Joan K. Geary /s/Robert R. Semptimphelter
- -------------------------------------- -----------------------------------------------
Joan K. Geary Robert R. Semptimphelter, Sr.
Director and Secretary Director
Date: December 29, 1999 Date: December 29, 1999
</TABLE>
<PAGE>
[** LOGO **]
Roebling Bank
1999 ANNUAL REPORT
<PAGE>
Roebling Bank
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
President's Letter to Stockholders............................................1
Selected Financial, the Reorganization and Other Data.........................2
Corporate Profile and Stock Market Information................................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................4-13
Independent Auditors' Report.................................................14
Consolidated Statements of Financial Condition...............................15
Consolidated Statements of Income.........................................16-17
Consolidated Statements of Retained Earnings.................................18
Consolidated Statements of Cash Flows.....................................19-20
Notes to Consolidated Financial Statements................................21-44
Office Locations and Other Corporate Information.............................45
<PAGE>
[GRAPHIC OMITTED]
Roebling Bank
To Our Shareholders and Customers:
As you will see within this report, fiscal 1999 was a year of outstanding growth
for Roebling Bank. Total assets increased by 24%, deposits increased 21% and
loans increased 31%. Earnings grew 8% over last year, and I am confident that
they will continue to grow as our loan volume and asset size increase, enabling
us to offset the expense of our recent expansion. A number of factors
contributed to our success including a robust local economy, aggressive
marketing of our products and services, a reputation for customer service
excellence, the hard work of a small but dedicated staff of employees and the
continued strong performance of our newest branch in New Egypt. In fact, New
Egypt accounted for almost 50% of the Bank's overall loan growth, 62% of deposit
growth and became profitable within its first year of operation.
During fiscal 1999, Roebling Bank took many pro-active steps to ensure ongoing
growth. Vivian Pepe, a seasoned commercial lender, has joined the Roebling Bank
team and is developing a first-class small business lending program. We have
upgraded of our internal computer systems, connecting them in a network that
allows for the most efficient utilization of time and enhanced customer service.
We have introduced progressive products and services including commercial sweep
accounts, telephone banking and several new commercial loan products. As we
prepare this annual report to our shareholders, Roebling Bank is also working on
a number of new initiatives for the upcoming year which include a MasterMoney
debit card, an enhanced Internet web site, checking account overdraft protection
and the introduction of a traditional statement savings account that can be
accessed through automated teller machines (ATMs).
Another major endeavor throughout 1999 has been ensuring our readiness for the
Year 2000 (Y2K) century date change and I am pleased to inform you that we are
Y2K-ready. Roebling Bank personnel, the banking industry and federal banking
regulators have expended an enormous amount of time and expense to ensure that
our customer's funds and relationships are unaffected by this event. Once Y2K is
behind us, we will be able to redirect those human and financial resources to
the growth and profitability of the Bank.
As we prepare for the exciting opportunities of the new millennium, we remain
grateful to our customers for their business, our employees and Board of
Directors for their tireless efforts and our shareholders for their confidence
and support.
/s/Kent C. Lufkin
Kent C. Lufkin
President and Chief Executive Officer
Since 1922
ROUTE 130 SOUTH & DELAWARE AVENUE PO BOX 66 ROEBLING, NJ 08554 (609) 499-9400
<PAGE>
ROEBLING BANK
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Statements of Financial Condition
- ------------------------------------------------------------------------------------------------------
At September 30, 1999 1998(1) 1997 1996
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets ...................................... $ 57,879 $ 46,615 $ 40,714 $ 32,306
Loans receivable, net ....................... 35,745 27,302 26,737 25,208
Mortgage-backed securities, held-to- maturity 6,294 3,844 441 492
Investment securities, held-to-maturity ..... 9,657 8,488 7,052 3,268
Investment securities, available-for-sale ... 24 127 119 114
Cash and cash equivalents ................... 3,573 2,323 5,064 2,041
Total deposits .............................. 50,036 41,229 33,983 29,023
Stock subscription rights ................... N/A N/A 3,278 N/A
Borrowings .................................. 2,125 141 -- --
Total stockholders' equity .................. 4,943 4,638 2,823 2,637
Summary of Operations
- ------------------------------------------------------------------------------------------------------
Year Ended September 30, .................... 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Interest income ............................. $ 3,497 $ 3,003 $ 2,538 $ 2,386
Interest expense ............................ 1,384 1,236 1,126 1,023
--------- --------- --------- ---------
Net interest income ......................... 2,113 1,766 1,412 1,363
Provision for loan losses ................... 21 (12) 174 22
--------- --------- --------- ---------
Net interest income after
provision for loan losses ................. 2,092 1,778 1,238 1,341
--------- --------- --------- ---------
Total non-interest income ................... 313 239 293 266
--------- --------- --------- ---------
Total non-interest expenses ................. 1,929 1,617 1,238 1,201(2)
--------- --------- --------- ---------
Income before income taxes .................. 476 400 293 406
Provision for income taxes .................. 192 137 109 148
--------- --------- --------- ---------
Net income .................................. $ 284 $ 263 $ 184 $ 258
========= ========= ========= =========
Other Selected Data
- ------------------------------------------------------------------------------------------------------
Year Ended September 30, .................... 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Return on average assets .................... 0.54% 0.64% 0.53% 0.80%
Return on average equity .................... 5.94 5.83 6.74 10.11
Average equity to average assets ............ 9.04 11.05 7.79 7.88
Equity to assets at period end .............. 8.54 9.95 6.93 8.16
Net interest rate spread .................... 4.21 4.37 4.24 4.36
Net yield on average interest-earning assets 4.31 4.61 4.35 4.48
Non-performing loans to total assets ........ 1.09 0.61 0.68 1.32
Non-performing loans to total loans (net) ... 1.19 0.93 1.05 1.70
Earnings per share (1) ...................... $ 0.69 $ 0.64 N/A N/A
Average number of shares outstanding (1) .... 425,500 425,500 N/A N/A
</TABLE>
- -----------------
(1) Effective October 2, 1997, the Bank reorganized into the mutual holding
company form of organization and sold a minority of its common stock.
(2) Includes a one-time special assessment of $191,000 to recapitalize the
Savings Association Insurance Fund.
2
<PAGE>
Roebling Bank
Corporate Profile and Related Information
Roebling Bank (the "Bank") is a federally chartered stock savings bank
conducting business from its main and branch offices located in Roebling, and
New Egypt, New Jersey. The Bank conducts a traditional banking institution
business, attracting deposit accounts from the general public and using those
deposits, together with other funds, primarily to originate and purchase one- to
four-family mortgages, small business loans and home equity loans and to invest
in mortgage-backed and investment securities. Deposits at the Bank are insured
up to the legal maximum by the Savings Association Insurance Fund ("SAIF") as
administered by the Federal Deposit Insurance Corporation ("FDIC").
Since October 2, 1997, the Bank has been a stock savings bank which is
approximately 54% owned by Roebling Financial Corp., MHC, a federally chartered
mutual holding company (the "Company"). Pursuant to applicable regulations, the
Company is required to own more than a majority of the common stock, and
therefore the Company is able to elect the Board of Directors and otherwise
direct the affairs of the Bank. Voting and liquidation rights in the Company are
held by the depositors of the Bank. Accordingly, the depositors indirectly
control the affairs of the Bank as a result of their authority to direct the
Board of Directors and otherwise control the affairs of the Company. Any
conversion of the Company to stock form would require the approval of qualifying
depositors of the Bank.
Stock Market Information
On October 2, 1997, the Bank became a public company and its common
stock is currently traded on the Electronic Bulletin Board under the trading
symbol of "ROEB." The number of shareholders of record of common stock as of
December 13, 1999 was approximately 197. This includes the number of persons or
entities who held stock in nominee name through various brokerage firms.
The following table summarizes the high and low prices since October 2,
1997. Price quotations reflect inter-dealer prices; without retail mark-up,
mark-down or commission and may not represent actual transactions.
High Low
---- ---
October 2, 1997 - December 31, 1997 $19 3/4 $16 1/2
January 1, 1998 - March 31, 1998 22 1/4 18 15/16
April 1, 1998- June 30, 1998 28 21
July 1, 1998 - September 30, 1998 25 1/2 18
October 1, 1998 - December 31, 1998 20 12
January 1, 1999 - March 31, 1999 16 1/2 12 1/4
April 1, 1999 - June 30, 1999 14 3/4 12 1/4
July 1, 1999 - September 30, 1999 15 13 1/8
The Bank may not declare or pay a cash dividend on any of its stock if
the effect thereof would cause the Bank's regulatory capital to be reduced below
the regulatory capital requirements imposed by the Office of Thrift Supervision
("OTS"). The Bank has not declared or paid any dividends since issuing stock.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes," "anticipates," "contemplates," "expects," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions. The Bank undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
The largest components of the Bank's net income are net interest
income, which is the difference between interest income and interest expense,
and non-interest income derived primarily from fees. Consequently, the Bank's
earnings are dependent on its ability to originate loans, net interest income,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net income is also affected by its provision for loan
losses and foreclosed real estate as well as the amount of non-interest
expenses, such as compensation and benefit expense, occupancy and equipment
expense and deposit insurance premium expenses. Earnings of the Bank also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Changes in Financial Condition
Total assets increased by $11.3 million or 24% to $57.9 million at
September 30, 1999, from $46.6 million at September 30, 1998. This increase is
primarily due to growth in net loans receivable of $8.4 million or 31%,
principally due to increased home equity lending. Securities held-to-maturity
increased due to purchases of $1.0 million of collateralized mortgage
obligations, $3.9 million in mortgage-backed securities, $4.7 million in
government agency securities and $2.0 million in corporate notes, offset
somewhat by $4.1 million in calls.
The Bank's deposits increased by $8.8 million or 21% to $50.0 million
at September 30, 1999 from $41.2 million at September 30, 1998. Deposits, after
interest credited, increased due primarily to the growth of the Bank's newest
location in New Egypt. The Bank's existing branches also experienced increases
in deposits.
Stockholders' equity increased $0.3 million due primarily to retained
earnings for the year.
4
<PAGE>
Average Balance Sheet, Interest Rates and Yield
The following tables set forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are generally derived from month-end
balances. Management does not believe that the use of month-end balances instead
of daily average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
For the Year Ended September 30, For the Year Ended September 30,
-------------------------------- -----------------------------------
1999 1998
--------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Actual) (Actual)
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)....................... $31,818 $2,505 7.87% $26,609 $2,232 8.39%
Mortgage-backed securities................ 5,375 287 5.34 2,769 162 5.85
Investment securities..................... 67 3 4.48 124 7 5.64
available-for-sale.........................
Investment securities held-to-maturity.... 9,302 577 6.20 7,341 502 6.83
Other interest-earning assets(2).......... 2,500 125 5.00 1,498 99 6.61
------- ------ ------- ------
Total interest-earning assets............ 49,062 $3,497 7.13 38,341 $3,002 7.83
------ ------
Non-interest-earning assets................ 3,863 2,508
------- -------
Total assets............................. $52,925 $40,849
======= =======
Interest-bearing liabilities:
Non-interest-bearing deposits............ $6,184 $ - - % $3,829 $ - - %
NOW accounts............................. 7,648 110 1.43 5,268 97 1.84
Savings accounts......................... 11,578 291 2.51 8,021 214 2.67
Money market accounts.................... 4,344 133 3.06 3,114 114 3.66
Certificates of deposit.................. 17,284 835 4.83 15,297 796 5.20
Borrowings............................... 303 15 4.95 164 16 9.76
------- ------ ------- ------
Total interest-bearing liabilities....... 47,341 $1,384 2.92 35,693 $1,236 3.46
------ ------
Other non-interest-bearing liabilities..... 800 641
------- -------
Total liabilities........................ 48,141 36,334
Capital.................................... 4,784 4,515
------- -------
Total liabilities and capital............ $52,925 $40,849
======= =======
Net interest income........................ $2,113 $1,766
====== ======
Interest rate spread(3).................... 4.21% 4.37%
Net yield on interest-earning assets(4).... 4.31% 4.61%
Ratio of average interest-earning assets
to average interest-bearing
liabilities.............................. 103.63% 107.42%
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and FHLB
stock.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
5
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities, the
table distinguishes between (i) changes attributable to volume (changes in
average volume multiplied by prior period's rate); (ii) changes attributable to
rates (changes in rate multiplied by old average volume); (iii) changes in
rate-volume (changes in average volume multiplied by the change in rate).
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended September 30,
---------------------------------- ----------------------------------
1999 vs. 1998 1998 vs. 1997
---------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- ----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ------- ------ ----- ------ ----- ------ ---
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 437 $(137) $ (27) $ 273 $ 26 $ 77 $ 3 $ 106
Mortgage-backed securities 154 (17) (16) 121 142 (1) (4) 137
Investment securities,
available-for-sale (3) (1) -- (4) 1 (1) -- --
Investment securities,
held-to-maturity 133 (43) (11) 79 213 13 11 237
Other interest-earning assets 66 (24) (16) 26 7 (21) (1) (15)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets $ 787 $(222) $ (70) $ 495 $ 389 $ 67 $ 9 $ 465
===== ===== ===== ===== ===== ===== ===== =====
Interest-bearing liabilities:
NOW accounts 44 (21) (10) 13 35 (16) (7) 12
Savings accounts 95 (13) (5) 77 17 (4) -- 13
Money market accounts 45 (19) (7) 19 23 (11) (3) 9
Certificates of deposit 104 (57) (7) 40 68 (7) -- 61
Borrowings 14 (8) (7) (1) 9 1 5 15
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing
liabilities $ 302 $(118) $ (36) $ 148 $ 152 $ (37) $ (5) $ 110
===== ===== ===== ===== ===== ===== ===== =====
Net interest income $ 485 $(104) $ (34) $ 347 $ 237 $ 104 $ 14 $ 355
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
6
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998
Net Income. Net income increased $21,000 to $284,000 for the year ended
September 30, 1999, as compared to $263,000 for the year ended September 30,
1998. An increase of $347,000 and an increase of $74,000 in net interest income
and non-interest income, respectively, are primarily responsible for the
favorable variance between periods. These increases were partially offset by an
increase of $312,000 in non-interest expenses and an increase of $33,000 for
provision for loan losses.
Net Interest Income. Net interest income increased $347,000 or 19% to
$2.1 million for the year ended September 30, 1999. The increase was primarily
due to higher average balances of mortgage- backed securities and net loans.
The Bank's interest rate spread, which is the difference between the
yield on average interest- earning assets and the cost of average
interest-bearing liabilities, decreased to 4.21% for the year ended September
30, 1999, from 4.37% for the year ended September 30, 1998. The decrease in
interest rate spread is primarily due to lower yields on securities held to
maturity (from 6.57% to 5.88%), and loans receivable (from 8.39% to 7.87%). The
decrease in yields were slightly offset by lower costs of funds for money market
accounts (from 3.66% to 3.06% and certificates of deposit (from 5.20% to 4.83%).
Interest Income. Interest income increased to $3.5 million for the year
ended September 30, 1999, from $3.0 million for the year ended September 30,
1998. The increase was largely the result of increased income from the Bank's
investment portfolio and loans receivable.
Interest on loans receivable increased $273,000 or 12%. This increase
was primarily the result of a $5.2 million increase in the average balances.
Interest income on investments and mortgage-backed securities increased
$301,000 to $972,000 for the year ended September 30, 1999, from $671,000 for
the year ended September 30, 1998. The increase in interest income on securities
is primarily due to the investment of excess liquidity in securities. The yields
on the average balance of interest-earning assets were 7.13% and 7.83% for the
years ended September 30, 1999 and 1998, respectively.
Interest Expense. Interest expense increased by approximately $148,000
or 12% to $1.4 million for the year ended September 30, 1999, from $1.2 million
for the year ended September 30, 1998, primarily due an increase in the average
balance of all types of deposit accounts.
Provision for Loan Losses. The Bank's management continually monitors
and adjusts its allowance for loan losses based upon its analysis of the loan
portfolio. Provisions for losses on loans are charged to operations in an amount
that results in a sufficient allowance for loan losses. In management's
judgment, a sufficient allowance for loan losses covers losses based on
management's periodic evaluation of known and inherent risks in the loan
portfolio, past and expected future loss experience of the Bank, current
economic conditions, industry loss reserve levels, adverse situations which may
affect the borrower, the estimated value of any underlying collateral and other
relevant factors. However, there can be no assurance that additions to the
allowance for loan losses will not be required in future periods or that actual
losses will not exceed estimated amounts. The Bank's ratio of non-performing
loans to total assets was 1.09% and 0.61% at September 30, 1999 and 1998,
respectively. The allowance for loan losses for the year ended September 30,
1999 decreased from $279,000 for the year ended September 30, 1998, to $175,000,
primarily due to a $74,000.00 charge-off of a construction loan that had been in
litigation since 1997. Roebling Bank lost its appeal of the original ruling on
December 24, 1998. A loss provision in
7
<PAGE>
the amount of $80,000 for this loan had been previously made in 1997. Also
contributing was a partial charge-off of $15,000 related to a first mortgage
loan foreclosure.
Non-interest Income. Non-interest income increased to $313,000 for the
year ended September 30, 1999, as compared to $239,000 for the year ended
September 30, 1998, due to increases in loan fees and fees received for deposit
account servicing.
Non-interest Expenses. Non-interest expenses increased by $312,000 or
19%. Compensation and employee benefits expense increased by $202,000 or 24% to
$1,031,000. The increase in compensation and benefits expense during fiscal 1999
was primarily the result of additional salary and benefits expense related to
the first full year of operation of the Bank's New Egypt Branch, general cost of
living and merit raises to Bank employees and officers, an increase in the
director compensation package and ESOP administration. The compensation plans
provide supplemental post-retirement benefits for the CEO and directors of the
Bank who serve the Bank for a minimum number of years. Service bureau and data
processing expenses increased $49,000 as a result of the above mentioned growth
in the number of accounts at the new location and existing locations of the
Bank.
Other expenses increased $58,000 over fiscal year 1998 due to an
increase in legal expenses of $21,000 for costs associated with an enhanced
level of legal representation, aggressive action related to delinquency and
foreclosure, and the formation of the middle-tier holding company approved at
the January 25, 1999 meeting of shareholders. The transaction is expected to
close in the first quarter of calendar 2000. Also contributing to increased
expenses are higher stationery & supply expenses of $3,000 and an increase in
audit fees of $7,000.
Management believes that compensation and benefits expenses will
increase in future periods due to stock benefit plans and continued growth and
expansion of the Bank.
Year 2000 Compliance. The Year 2000 problem exists because many
computer programs used only the last two digits to refer to a year. This
convention could affect date-sensitive calculations that treat "00" as the year
1900, rather than 2000. An additional issue is that 1900 was not a leap year,
whereas the year 2000 is. Therefore, some programs may not properly provide for
February 29, 2000. This anomaly could result in miscalculations when processing
critical date-sensitive information after December 31, 1999.
The following discussion of the implications of the Year 2000 problem
contains numerous forward-looking statements based on inherently uncertain
information. The Bank places a high degree of reliance on computer systems of
third parties, such as customers, suppliers and other financial and governmental
institutions. Although the Bank has and continues to assess the readiness of
these third parties and has prepared contingency plans, there can be no
guarantee that the failure of these third parties to adequately modify their
systems in advance of December 31, 1999 would not have a material adverse effect
on the Bank.
Year 2000 issues expose the Bank to a number of risks, any one of which
if realized, could have a material adverse effect upon the Bank's business,
results, operations or financial condition. These risks include the possibility
that to the extent certain vendors fail to adequately address Year 2000 issues,
the Bank may suffer disruptions in important services on which the Bank depends
such as telecommunications, electrical power and data processing. Year 2000
issues could affect the Bank's liquidity if customer withdrawals in anticipation
of the Year 2000 are greater than expected or if the Bank lenders are unable to
provide the Bank with funds as needed by the Bank. Year 2000 issues could also
create additional credit risk
8
<PAGE>
to the Bank insofar as the failure of the Bank's customers and the counter
parties to adequately address Year 2000 issues could increase the likelihood
that these customers and counter parties become delinquent or default on the
obligations to the Bank. In addition to increasing the Bank's risk exposure to
problem loans, credit losses and liquidity problems, Year 2000 issues
potentially expose the Bank to increased risk of litigation losses and expenses
related to the foregoing.
During fiscal 1998, the Bank adopted a Year 2000 Compliance Plan (the
"Plan") and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Bank for the new
millennium. As recommended by the OTS, the Plan encompasses the following
phases: Awareness, Assessment, Renovation, Validation and Implementation. These
phases will enable the Bank to identify risks, develop an action plan, perform
adequate testing and complete affirmation that its processing systems will be
Year 2000-ready. Execution of the Plan is currently on target. The Validation
phase was completed on July 30, 1999 and the Implementation phase was completed
on September 30, 1999. The goal of the Implementation phase was to certify that
systems are Year 2000-ready, along with assurances that any new systems are
compliant on a going-forward basis. Prioritization of the most critical
applications has been addressed, along with contract and service agreements. The
material data processing functions for the Bank are performed and maintained by
a third party vendor. The Bank has maintained ongoing contact with this vendor
so that modification of the software for Year 2000 readiness is a top priority
and has been accomplished, though there is no assurance. The Bank has contacted
all other material vendors and suppliers regarding their Year 2000 state of
readiness. Each of these third parties has delivered written assurance to the
Bank that they expect to be Year 2000 compliant prior to the Year 2000. The Bank
has completed contacting all material customers and non-information technology
suppliers (i.e., utility systems, telephone systems and security systems)
regarding their Year 2000 state of readiness. We are unable to test the Year
2000 readiness of our significant suppliers of utilities. We are relying on the
utility company's internal testing and representations to provide the required
services that drive our systems.
The Bank has developed and implemented remediation contingency plans
and business resumption contingency plans specific to the Year 2000. These plans
establish the procedures and guidelines by which we continually monitor Bank and
external vendor activities to prepare for the millennium date change, and the
actions to be implemented if critical business functions cannot be carried out
in the normal manner upon entering the next century due to system or supplier
failure.
Monitoring and managing the Year 2000 project has resulted in
additional direct and indirect costs to the Bank. Direct costs have included
charges by third party software vendors for product enhancements, costs involved
in testing software products for Year 2000 compliance, and costs for developing
and implementing contingency plans for critical software products which are not
enhanced. Indirect costs have principally consisted of the time devoted by
existing employees in managing software vendor progress, testing enhanced
software products and implementing any necessary contingency plans. Direct costs
as of September 30, 1999 were $14,000 and are estimated not to exceed a total of
$16,000. All actual costs to date have been charged to earnings as incurred.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Bank, such as customers, utilities, vendors, payment system providers
and other financial institutions, makes it impossible to assure that a failure
to achieve compliance by one or more of these entities would not a have material
adverse impact on the operations of the Bank.
9
<PAGE>
Provision for Income Taxes. The provision for income taxes increased
$55,000 to $192,000 for the year ended September 30, 1999, from $137,000 for the
year ended September 30, 1998. The increase was the result of the increase in
income before taxes. The effective tax rates for fiscal 1999 and 1998 were 40%
and 34%, respectively.
Asset/Liability Management
General. The Bank's net interest income is sensitive to changes in
interest rates, as the rates paid on its interest-bearing liabilities generally
change faster than the rates earned on its interest-earning assets. As a result,
net interest income will frequently decline in periods of rising interest rates
and increase in periods of decreasing interest rates. Therefore, the interest
rate sensitivity of the Bank demands constant refinement and further
restructuring to maintain an asset and liability structure which can be managed
for interest rate risk that exists in the markets currently in existence.
To mitigate the impact of changing interest rates on its net interest
income, the Bank monitors the interest rate sensitivity of its assets and
liabilities on an ongoing basis. Historically, the Bank has managed interest
rate risk by shortening the repricing and maturity characteristics of its assets
and lengthening the repricing and maturity characteristics of its retail deposit
base. The Bank utilizes the quarterly analysis performed by the OTS as the
primary tool for monitoring its interest rate risk.
Rates on deposits are primarily based on the Bank's need for funds and
on a review of rates offered by other financial institutions in the Bank's
market areas. Rates on certificate accounts tend to be competitive in order to
retain deposits which face increased competition from financial institutions,
stockbrokers, insurance companies and others. Interest rates on loans are
primarily based on the interest rates offered by other financial institutions in
the Bank's primary market areas as well as the Bank's cost of funds.
The Bank manages the interest rate sensitivity of its assets and
liabilities through the determination and adjustment of asset/liability
composition and pricing strategies. The Bank then monitors the impact on the
interest rate risk and earnings consequences of such strategies for consistency
with the Bank's liquidity needs, growth and capital adequacy. The Bank's
principal strategy is to reduce the interest rate sensitivity of its
interest-earning assets and to match, as closely as possible, the maturities of
interest-earning assets with interest-bearing liabilities. In an effort to
reduce interest rate risk and protect itself from the negative effects of rapid
or prolonged changes in interest rates, the Bank has instituted certain asset
and liability management measures, including (i) maximizing spreads without
exposure to undue risk, and (ii) coordinating interest rate risk policies and
procedures with the Bank's strategic plans.
Net Portfolio Value. In order to encourage savings associations to
reduce their interest rate risk, the OTS adopted a rule incorporating an
interest rate risk ("IRR") component into the risk-based capital rules. The IRR
component is a dollar amount that will be deducted from total capital for the
purpose of calculating an institution's risk-based capital requirement and is
measured in terms of the sensitivity of its net portfolio value ("NPV") to
changes in interest rates. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated present value of total assets
("PV") will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution. The Bank, based on asset size and risk-based
capital, has been informed by the OTS that it is exempt from this rule.
Nevertheless, the following table presents the Bank's NPV at September 30, 1999
and the estimated effect
10
<PAGE>
thereon of various interest rate changes, as calculated by the OTS, based on
quarterly information voluntarily provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Net Portfolio Equity Value NPV as % of PV of Assets
-------------------------- ----------------------------
Change in
Interest Rates $ Change in
in Basis Points Market Value % Change
(Rate Shock) Amount (1) From Base NPV Changes (3)
------------ ------ ------------ ------------ ---------- -----------
Ratio(2)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
400 $ - 0 0% 0.00% 0 bp
300 6,186 -690 -10% 10.49% -97 bp
200 6,499 -377 -5% 10.49% -51 bp
100 6,751 -125 -2% 11.29% -16 bp
0 6,876 11.46%
(100) 6,866 -10 0% 11.42% -4 bp
(200) 6,959 83 +1% 11.53% +7 bp
(300) 7,239 363 +5% 11.91% +45 bp
(400) - 0 0% 0.00% 0 bp
</TABLE>
- ----------------
(1) Represents the increase/(decrease) of the estimated NPV at the
indicated change in interest rates compared to the NPV assuming no
change in interest rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV"). The Bank's PV is the estimated present value of total
assets.
(3) Calculated as the increase/(decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
The following table is provided by the OTS and is based on the
calculations in the above table. It sets forth the IRR capital component that
will be deducted from capital in determining the level of risk-based capital. At
September 30, 1999, the change in NPV as a percentage of portfolio value of
total assets is negative 1.29%, which is less than negative 2%, indicating that
the Bank has a less than "normal" level of interest rate risk. As mentioned
earlier, the Bank is exempt from any additional capital requirements; however,
had the Bank been subject to the IRR capital component, its IRR capital
component at September 30, 1999, would be $0.
11
<PAGE>
September 30,
1999
----
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets......... 11.46%
Exposure Measure: Post-Shock NPV Ratio................ 10.94%
Sensitivity Measure: Change in NPV Ratio.............. 51 bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets.................... -1.29%
Interest Rate Risk Capital Component ($0) (1)......... $0.
- -------------------
(1) No amounts are shown on the interest rate risk capital component line
because the Bank is exempt from the IRR capital component.
Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations were employed in preparing the previous table.
These assumptions related to interest rates, loan prepayment rates, deposit
decay rates, and the market values of certain assets under the various interest
rate scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. The calculation methodology used by the OTS has certain
shortcomings which include, among others, that not all OTS assumptions apply
equally to all savings institutions and the repricing of both loans and deposits
is often discretionary and under the control of the Bank's customers. Even if
interest rates change in the designated amounts, there can be no assurance that
the Bank's assets and liabilities would perform as projected by the OTS.
Based on the OTS analysis, net interest income should decrease with an
instantaneous 100 basis point increase in interest rates while net interest
income should increase with instantaneous declines in interest rates. Generally,
during periods of increasing interest rates, the Bank's liabilities are expected
to reprice faster than its assets, causing a decline in the Bank's interest rate
spread. This would result from an increase in the Bank's cost of funds that
would not be immediately offset by an increase in its yield on earning assets.
An increase in the cost of funds without an equivalent increase in the yield on
earning assets would tend to reduce net interest income. The Bank's net interest
rate spread decreased during fiscal year ended September 30, 1999 to 4.21% from
4.37%.
In times of decreasing interest rates, fixed rate assets are expected
to increase in value and the lag in repricing of interest rate sensitive assets
is expected to have a positive effect on the Bank's net interest income.
Management believes that strategies employed to respond to changing
interest rate environments can have a significant impact upon the net value of
assets and extent of earnings fluctuations. Also, management believes that a
strong equity capital position and existence of the corporate authority to raise
additional capital are valuable tools to absorb interest rate risk.
Liquidity and Capital Requirements
The Bank is required by OTS regulations to maintain, for each calendar
month, a daily average balance of cash and eligible liquid investments of not
less than 4%. This liquidity requirement may be changed from time to time by the
OTS to any amount within the range of 4% to 10%. The Bank's average liquidity
ratio was 36.21%, and 43.47% for the months ended September 30, 1999 and 1998,
respectively.
12
<PAGE>
The Bank has maintained a liquidity portfolio in excess of regulatory
requirements. Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other opportunities
and its expectation of future yield levels, as well as management's projections
as to the short term demand for funds to be used in the Bank's loan origination
and other activities.
The Bank's sources of liquidity include cash flows from operations,
maturities and prepayments of investments and mortgage-backed securities,
principal and interest payments and prepayments on loans, deposit inflows, and
borrowings from the FHLB of New York. During fiscal 1999 and 1998, the primary
sources of funds were cash flows from increases in deposits of $8.8 million, and
an increase of $2.0 million in borrowings from the FHLB of New York. These
increases were largely offset by the purchase of held-to-maturity investment
securities and mortgage-backed securities of $3.6 million and an increase of
$8.4 million in loan balances (net of repayments).
In the past, the Bank has borrowed funds from the FHLB of New York to
supplement its cash flows. For the years ended September 30, 1999 and 1998, the
Bank had $2.0 million and $0 in outstanding borrowings from the FHLB,
respectively.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors and similar matters. Management
monitors projected liquidity needs and determines the level desirable, based in
part on the Bank's commitments to make loans and management's assessment of the
Bank's ability to generate funds.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see Note 13 to
Financial Statements.
13
<PAGE>
Fontanella and Babitts
CERTIFIED PUBLIC ACCOUNTANTS 534 Union Boulevard
Totowa Boro, New Jersey 07512
Tel: (973) 595-5300
Fax: (973) 595-5890
To the Board of Directors
Roebling Bank
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying statements of financial condition of Roebling
Bank, as of September 30, 1999 and 1998, and the related statements of income,
comprehensive income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Roebling Bank, at September 30,
1999 and 1998, and the results of its operations and cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/Fontanella and Babbits
October 29, 1999
14
<PAGE>
ROEBLING BANK
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
September 30,
------------------------
Assets 1999 1998
- ------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,835,868 $ 2,008,630
Interest bearing deposits 737,339 314,341
----------- -----------
Total cash and cash equivalents 3,573,207 2,322,971
FHLB term deposits 250,000 2,700,000
Certificates of deposit 300,000 -
Securities available for sale 24,475 126,750
Securities held to maturity; approximate fair
value of $9,471,000 (1999) and $8,564,000 (1998) 9,656,934 8,488,137
Mortgage-backed securities held to maturity,
approximate fair value of $6,196,000 (1999) and
$3,872,000(1998) 6,293,910 3,843,896
Loans receivable, net 35,745,242 27,302,451
Real estate owned 210,549 -
Accrued interest receivable 374,728 334,074
Federal Home Loan Bank of New York stock, at cost 293,600 244,000
Premises and equipment 1,086,670 1,145,522
Other assets 69,551 107,027
----------- -----------
$57,878,866 $46,614,828
=========== ===========
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
- -----------
Deposits $50,036,141 $41,229,316
Borrowed funds 2,125,440 141,120
Advances from borrowers for taxes and
insurance 419,986 386,515
Accrued interest payable 49,317 45,966
Other liabilities 304,918 173,691
----------- -----------
Total liabilities 52,935,802 41,976,608
----------- -----------
Commitments and contingencies - -
Stockholders' equity
- --------------------
Serial preferred stock, no par value,
authorized 1,000,000 shares, no shares issued - -
Common stock; par value $.10; authorized
4,000,000 shares; shares issued and
outstanding 425,500; 42,550 42,550
Additional paid-in-capital 1,651,789 1,645,612
Unallocated employee stock ownership plan shares (125,440) (141,120)
Retained earnings - substantially restricted 3,360,351 3,075,965
Accumulated other comprehensive income -
unrealized gain on securities available for
sale, net of tax 13,814 15,213
----------- -----------
Total stockholders' equity 4,943,064 4,638,220
----------- -----------
$57,878,866 $46,614,828
=========== ===========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
ROEBLING BANK
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------
1999 1998
----------- -------
<S> <C> <C>
Interest income:
Loans receivable $ 2,505,644 $ 2,232,599
Securities available for sale 2,572 6,720
Securities held to maturity 577,233 501,907
Mortgage-backed securities held to maturity, net 286,766 161,998
Other interest earning assets 125,457 99,284
----------- -----------
Total interest income 3,497,672 3,002,508
----------- -----------
Interest expense:
Deposits 1,369,440 1,220,029
Borrowed funds 14,780 16,361
----------- -----------
Total interest expense 1,384,220 1,236,390
----------- -----------
Net interest income 2,113,452 1,766,118
Provision for loan losses 21,000 (12,000)
----------- -----------
Net interest income after
provision for loan losses 2,092,452 1,778,118
----------- -----------
Non-interest income:
Loan fees 61,539 59,038
Account servicing and other 244,058 163,636
Gain on sale of loans 7,457 16,354
----------- -----------
Total non-interest income 313,054 239,028
----------- -----------
Non-interest expenses:
Compensation and benefits 1,030,665 828,573
Occupancy and equipment 167,778 156,628
Service bureau and data processing 223,795 175,084
Federal Insurance premiums 24,585 21,195
Loss on sale of foreclosed real estate - 10,743
Other 482,745 424,504
----------- -----------
Total non-interest expenses 1,929,568 1,616,727
----------- -----------
Income before income taxes 475,938 400,419
Income taxes 191,552 137,287
----------- -----------
Net income $ 284,386 $ 263,132
=========== ===========
Basic and fully diluted earnings per share .69 .64
=== ===
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
ROEBLING BANK
STATEMENTS OF COMPREHENSIVE INCOME
----------------------------------
Year Ended
September 30,
--------------------------
1999 1998
----------- -------------
Net income 284,386 263,132
Other comprehensive income, net of income taxes:
Unrealized holding gains (losses) on
securities available for sale, net of income
taxes (benefit) of $(219) and $2,549,
respectively $ (1,399) $ 4,950
----------- -----------
Comprehensive income $ 282,987 $ $268,082
=========== ===========
See accompanying notes to financial statements.
17
<PAGE>
ROEBLING BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Unallocated Other
Common paid-in ESOP Retained Comprehensive
stock capital shares earnings Income Total
--------- ---------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1997 $ - $ - $ - $2,812,833 $ 10,263 $2,823,096
Net income - - - 263,132 - 263,132
Common stock issued 42,550 1,745,612 - - - 1,788,162
Capitalization of mutual
holding company - (100,000) - - - (100,000)
Common stock acquired
by ESOP - - (156,800) - - (156,800)
Amortization of ESOP shares - - 15,680 - - 15,680
Change in unrealized gain
on securities available
for sale, net of tax - - - - 4,950 4,950
--------- ---------- ---------- ----------- ---------- ----------
Balance - September 30, 1998 42,550 1,645,612 (141,120) 3,075,965 15,213 4,638,220
Net income - - - 284,386 - 284,386
Amortization of ESOP shares - 6,177 15,680 - - 21,857
Change in unrealized gain
on securities available
for sale, net of tax - - - - (1,399) (1,399)
--------- ---------- ---------- ----------- ---------- ----------
Balance - September 30, 1999 $ 42,550 $1,651,789 $ (125,440)$ 3,360,351 $ 13,814 $4,943,064
========= ========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
ROEBLING BANK
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------
1999 1998
----------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 284,386 $ 263,132
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 70,640 72,775
Amortization of premiums (discounts) on
investment securities held to maturity 16,750 (189)
Amortization of deferred loan fees (82,736) (70,480)
Amortization of premiums on mortgage-backed
securities 42,590 21,334
Provision for loan losses 21,000 (12,000)
Provision for losses on real estate owned 16,021 -
Loss on foreclosed property - 10,743
Gain on sale of loans (7,457) (16,354)
Decrease in other assets 37,476 181,159
Increase in accrued interest receivable (40,654) (79,148)
Increase in accrued interest payable 3,351 6,988
Increase in other liabilities 132,103 99
Allocation of ESOP shares 21,857 15,680
----------- -----------
Net cash provided by operations 515,327 393,739
----------- -----------
Cash flows from investing activities:
Net decrease (increase) in FHLB term deposits 2,450,000 (200,000)
Purchase of certificates of deposit (300,000) -
Proceeds from call of securities available
for sale 100,000 -
Purchase of securities held to maturity (6,770,547) (6,410,808)
Proceeds from maturities of securities
held to maturity 5,585,000 3,840,000
Purchase of mortgage-backed securities
held to maturity (4,911,299) (3,012,741)
Proceeds from principal repayments of
mortgage-backed securities held to maturity 2,418,695 723,420
Loan originations, net of principal repayments (10,581,673) (3,586,762)
Proceeds from sale of loans 1,981,505 3,050,126
Proceeds from sale of real estate owned - 60,000
Purchase of Federal Home Loan Bank Stock (49,600) (2,300)
Purchase of premises and equipment (18,788) (703,561)
Proceeds from sale of premises and equipment 7,000 -
----------- ------
Net cash used in investing activities (10,089,707) (6,242,626)
----------- -----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
ROEBLING BANK
STATEMENTS OF CASH FLOWS (Cont'd)
---------------------------------
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------
1999 1998
----------- -------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 8,806,825 7,246,715
Proceeds from borrowed money 2,000,000 156,800
Repayment of borrowed money (15,680) (15,680)
Increase (decrease) in advance payments by
borrowers for taxes and insurance 33,471 (33,374)
(Decrease) in stock subscriptions payable - (3,278,191)
Net proceeds from stock offering - 1,688,162
Purchase of shares by ESOP - (156,800)
----------- -----------
Net cash provided by financing activities 10,824,616 5,607,632
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,250,236 (241,255)
Cash and cash equivalents - beginning 2,322,971 2,564,226
----------- -----------
Cash and cash equivalents - ending $ 3,573,207 $ 2,322,971
=========== ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid for:
Interest on deposits and advances $ 1,380,869 $ 1,236,390
=========== ===========
Income taxes $ 119,000 $ 32,837
=========== ===========
Supplemental Schedule of Noncash Investing Activities
- -----------------------------------------------------
Transfers from loans receivable to real estate owned $ 226,570 $ 70,743
=========== ===========
Change in unrealized gain on securities
available for sale, net of tax $ (1,399) $ 4,950
=========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-- ------------------------------------------
Basis of Financial Statement Presentation
- -----------------------------------------
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the statement of
financial condition and revenues and expenses for the period then ended. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term relate to
the determination of the allowance for loan losses, the valuation of foreclosed
real estate and the assessment of prepayment risks associated with
mortgage-backed securities. Management believes that the allowance for loan
losses is adequate, foreclosed real estate is appropriately valued and
prepayment risks associated with mortgage-backed securities are properly
recognized. While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowance for loan
losses or further writedowns of foreclosed real estate may be necessary based on
changes in economic conditions in the Bank's market area. Additionally,
assessments of prepayment risks related to mortgage-backed securities are based
upon current market conditions, which are subject to frequent change.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and foreclosed real estate. Such agencies may require the Bank to recognize
additions to the allowance for loan losses or additional writedowns on
foreclosed real estate based on their judgements about information available to
them at the time of their examination.
Concentration of Risk
- ---------------------
The Bank's lending and real estate activity is concentrated in real estate and
loans secured by real estate located in the State of New Jersey.
The Bank's loan portfolio is predominantly made up of 1 to 4 family unit first
mortgage loans in Burlington County. These loans are typically secured by first
lien positions on the respective real estate properties and are subject to the
Bank's loan underwriting policies. In general, the Bank's loan portfolio
performance is dependent upon the local economic conditions.
Interest-Rate Risk
- ------------------
The Bank is principally engaged in the business of attracting deposits from the
general public and using these deposits to make loans secured by real estate
and, to a lesser extent, consumer loans and to purchase mortgage-backed and
investment securities. The potential for interest-rate risk exists as a result
of the shorter duration of the Bank's interest-sensitive liabilities compared to
the generally longer duration of interest-sensitive assets.
21
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- -----------------------------------------------
Interest-Rate Risk (Cont'd)
- ------------------
In a rising interest rate environment, liabilities will reprice faster than
assets, thereby reducing the market value of long-term assets and net interest
income. For this reason, management regularly monitors the maturity structure of
the Bank's assets and liabilities in order to measure its level of interest-rate
risk and to plan for future volatility.
Cash Equivalents
- ----------------
Cash equivalents include cash and amounts due from depository institutions,
interest-bearing accounts and federal funds sold. For the purpose of the
statements of cash flows, the Bank considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
Investments and Mortgage-backed Securities
- ------------------------------------------
Debt securities over which there exists positive intent and ability to hold to
maturity are classified as held-to-maturity securities and reported at amortized
cost. Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized holding gains and losses included in
earnings. Debt and equity securities not classified as trading securities, nor
as held-to-maturity securities, are classified as available-for-sale securities
and reported at fair value, with unrealized holding gains or losses, net of
deferred income taxes, reported in a separate component of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
financial statements when earned. The adjusted cost basis of an identified
security sold or called is used for determining security gains and losses
recognized in the statements of income.
Loans Receivable
- ----------------
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees and discounts.
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for estimated
prepayments based on the Bank's historical prepayment experience.
22
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- -----------------------------------------------
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgement, the borrower's
ability to make periodic interest and principal payments is reestablished, in
which case the loan is returned to accrual status.
Premises and Equipment
- ----------------------
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation and amortization. Significant renovations and additions
are capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income for the period. The cost of maintenance and
repairs is charged to expense as incurred. The Bank computes depreciation on a
straight-line basis over the estimated useful lives of the assets.
Real Estate Owned
- -----------------
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at the lower of cost or fair value at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.
Subsequent valuations are periodically performed by management, and an allowance
for losses is established by a charge to operations if the carrying value of a
property exceeds its fair value less estimated selling cost. Gains and losses
from sale of these properties are recognized as they occur. Income from
operating properties is recorded in operations as earned.
Income Taxes
- ------------
Federal income taxes and state taxes have been provided on the basis of reported
income. Deferred income taxes are provided for certain items in income and
expenses which enter into the determination of income for financial reporting
purposes in different periods than for income tax purposes.
23
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- -----------------------------------------------
Fair Values of Financial Instruments
- ------------------------------------
The following methods and assumptions were used by the Bank in estimating fair
values of financial instruments as disclosed herein:
Cash and Short-Term Instruments
-------------------------------
The carrying amounts of cash and short-term instruments approximate their
fair value.
Available-for-Sale and Held-to-Maturity Securities
--------------------------------------------------
Fair values for securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
Loans Receivable
----------------
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair
values for certain mortgage loans and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flows analyses or underlying collateral values, where
applicable.
Deposit Liabilities
-------------------
The fair values disclosed for demand deposits are, by definition, equal to
the amount payable on demand at the reporting date. The carrying amounts
of variable-rate, fixed-term money-market accounts and certificates of
deposit (CDS) approximate their fair values at the reporting date. Fair
values for fixed-rate CDS are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-Term Borrowings
---------------------
The carrying amounts of federal funds purchased, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair
values of other short-term borrowings are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
24
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- -----------------------------------------------
Fair Values of Financial Instruments (Cont'd)
- ------------------------------------
Long-Term Debt
--------------
The fair values of the Bank's long-term debt are estimated using
discounted cash flow analysis based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued Interest Receivable
---------------------------
The carrying amounts of accrued interest approximate their fair values.
Off-Balance-Sheet Instruments
-----------------------------
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
Earnings Per Share
- ------------------
Earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding during the period. Such shares amounted to
412,172 and 409,824 for the years ended September 30, 1999 and 1998,
respectively. Shares outstanding do not include shares of Bank Common Stock
purchased and held by the Bank's employee stock ownership plan ("ESOP") and
unallocated in accordance with SOP 93-6 "Employers' Accounting for Employee
Stock Ownership Plans." Diluted earnings per share did not differ from basic
earnings per share because the outstanding options' exercise price was greater
than the average market price of the common shares during the period.
Reporting Comprehensive Income
- ------------------------------
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income" as of October 1,
1998. This statement requires disclosure of, as a component of comprehensive
income, amounts from transactions and other events which are currently excluded
from the statement of income and are recorded directly to stockholder's equity.
This statement addresses disclosure requirements only and therefore did not
impact the Bank's financial condition or results of operations.
Reclassification
- ----------------
Certain amounts, for the year ended September 30, 1998 have been reclassified to
conform to the current year's presentation.
25
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
2. INVESTMENT SECURITIES
- -- ---------------------
Securities Available For Sale
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------------------
Gross Unrealized
Amortized ---------------------- Carrying
Cost Gains Losses Value
----------- ---------- ---- -----------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association Stock $ 2,888 $ 21,587 $ - $ 24,475
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------
Gross Unrealized
Amortized ---------------------- Carrying
Cost Gains Losses Value
----------- ---------- ---- -----------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation Stock $ 100,000 $ 500 $ - $ 100,500
Federal National Mortgage
Association Stock 2,888 23,362 - 26,250
----------- ---------- ---------- -----------
$ 102,888 $ 23,862 $ - $ 126,750
=========== ========== ========== ===========
</TABLE>
Securities Held to Maturity
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------
Gross Unrealized
Carrying ---------------------- Estimated
Value Gains Losses Fair Value
----------- ---------- ---- -----------
<S> <C> <C> <C> <C>
U.S. Government
(including agencies):
Due in one year or less $ 242,358 $ 1,835 $ - $ 244,193
Due after one year through
five years 4,301,916 - 77,316 4,224,600
Due after five years 2,237,586 5,856 84,161 2,159,281
Corporate Debt Instruments
Due after one year through
five years 2,875,074 136 31,815 2,843,395
----------- ---------- ---------- -----------
$ 9,656,934 $ 7,827 $ 193,292 $ 9,471,469
=========== ========== ========== ===========
</TABLE>
26
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
2. INVESTMENT SECURITIES (Cont'd)
- -------------------------
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------
Gross Unrealized
Carrying ---------------------- Estimated
Value Gains Losses Fair Value
----------- ---------- ----- -----------
<S> <C> <C> <C> <C>
U.S. Government
(including agencies):
Due in one year or less $ 848,829 $ 2,456 $ - $ 851,285
Due after one year through
five years 6,394,906 55,613 - 6,450,519
Corporate Debt Instruments
Due after one year through
five years 1,244,402 18,255 458 1,262,199
----------- ---------- ---------- -----------
$ 8,488,137 $ 76,324 $ 458 $ 8,564,003
=========== ========== ========== ===========
</TABLE>
Securities with a carrying value of $242,000 and $244,000 as of September 30,
1999 and 1998, respectively are pledged as security for deposits of governmental
entities under the provisions of the Governmental Unit Deposit Protection Act
(GUDPA). Securities with a carrying value of $550,000 and $499,000, as of
September 30, 1999 and 1998, are pledged as security for borrowings from the
Federal Reserve Bank.
There were no sales of securities during the years ended September 30, 1999 and
1998.
3. MORTGAGE-BACKED SECURITIES, HELD TO MATURITY
-- --------------------------------------------
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------
Gross Unrealized
Carrying ---------------- Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CMO $2,232,305 $ 1,776 $ 41,075 $2,193,006
GNMA 1,628,910 154 30,896 1,598,168
FHLMC 1,284,436 701 13,848 1,271,289
FNMA 1,148,259 1,507 15,853 1,133,913
---------- ---------- ---------- ----------
$6,293,910 $ 4,138 $ 101,672 $6,196,376
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
---------------------------------------------------
Gross Unrealized
Carrying ---------------- Estimated
Value Gains Losses Fair Value
----- ----- ------ ----------
<S> <C> <C> <C> <C>
CMO $1,809,627 $ 21,123 $ 250 $1,830,500
GNMA 590,057 2,732 -- 592,789
FHLMC 831,698 3,766 1,308 834,156
FNMA 612,514 2,126 -- 614,640
---------- ---------- ---------- ----------
$3,843,896 $ 29,747 $ 1,558 $3,872,085
========== ========== ========== ==========
</TABLE>
There were no sales of mortgage-backed securities during the years ended
September 30, 1999 and 1998.
27
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. ACCRUED INTEREST RECEIVABLE
-- ---------------------------
September 30,
-----------------------
1999 1998
----------- ----------
Loans receivable $ 196,772 $ 186,216
Mortgage backed securities 38,260 23,263
Investments 139,696 124,595
----------- -----------
$ 374,728 $334,074
=========== =========
5. LOANS RECEIVABLE, NET
-- ---------------------
September 30,
-------------------------
1999 1998
----------- ------------
First mortgage loans:
Secured by one to four
family residences $17,080,654 $14,500,225
Construction 454,100 1,191,962
Commercial 4,623,675 3,101,823
----------- -----------
22,158,429 18,794,010
Consumer and other loans:
Automobile 238,372 172,157
Secured by deposits 92,947 119,473
Home equity 5,766,425 4,198,526
Second mortgage 7,468,121 4,256,998
Student 23,609 10,625
Unsecured 278,376 262,256
Mobile home 112,536 40,000
----------- -----------
13,980,386 9,060,035
Total loans 36,138,815 27,854,045
----------- -----------
Less:
Loans in process 251,098 259,354
Net deferred loan origination (costs) fees (32,922) 13,100
Allowance for loan losses 175,397 279,140
----------- -----------
393,573 551,594
----------- -----------
$35,745,242 $27,302,451
=========== ===========
See Note 9 regarding loans pledged to secure borrowings.
28
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
5. LOANS RECEIVABLE, NET (Cont'd)
- --------------------------
At September 30, 1999 and 1998, non-accrual loans for which interest had been
discontinued totalled approximately $385,000 and $427,000, respectively.
Interest income actually recognized is summarized as follows:
Year Ending
September 30,
------------------------
1999 1998
----------- -----------
Interest income if performing in
accordance with original terms $ 59,039 $ 56,594
Interest income actually recorded 27,727 11,804
----------- -----------
Interest income lost $ 31,312 $ 44,790
=========== ===========
Activity in the allowance for loans losses is summarized as follows:
Year Ending
September 30,
--------------------------
1999 1998
----------- -------------
Balance - beginning $ 279,140 $ 290,743
Provision charged to income 21,000 (12,000)
Charge offs (124,743) (59,123)
Recoveries - 59,520
----------- -----------
Balance - ending $ 175,397 $ 279,140
=========== ===========
The activity with respect to loans to directors, officers and associates of such
persons is as follows:
Year Ending
September 30,
------------------------
1999 1998
----------- -----------
Balance - beginning $ 240,544 $ 174,741
Loans originated 4,150 166,518
Collection of principal (21,293) (100,715)
----------- -----------
Balance - ending $ 223,401 $ 240,544
=========== ===========
All loans are collateralized by deposits and/or real estate.
29
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
6. PREMISES AND EQUIPMENT
-------------------------
September 30,
--------------------------
1999 1998
----------- -------------
Land $ 379,435 $ 386,435
Buildings and improvements 856,389 847,757
Furniture, fixtures and equipment 247,508 401,115
----------- -----------
1,483,332 1,635,307
Less accumulated depreciation 396,662 489,785
----------- -----------
$ 1,086,670 $ 1,145,522
=========== ===========
Useful lives used in the calculation of depreciation are as follows:
Buildings 25 to 50 years
Paving and other building
related additions 7 to 10 years
Furniture and equipment 5 to 7 years
7. LOAN SERVICING
-- --------------
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of these loans
are summarized as follows:
September 30,
------------------------
1999 1998
----------- -----------
Mortgage loan portfolios serviced for:
FNMA $17,293,000 $18,129,000
=========== ===========
Custodial escrow balances maintained in connection with the foregoing loan
servicing totalled approximately $241,000 and $247,000, at September 30, 1999
and 1998, respectively.
30
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
8. DEPOSITS
-- --------
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1999 1998
------------------------- ---------------------------
Weighted Weighted
Average Average
Yield Amount Yield Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Non-interest
bearing deposits - $ 6,844,089 - $ 4,468,850
NOW accounts 1.15 7,558,924 1.60 7,413,868
Super NOW and
money market accounts 2.15 4,919,430 2.60 2,388,560
Passbook and club accounts 2.50 12,975,756 2.50 10,215,354
Certificates of deposits 4.64 17,737,942 5.08 16,742,684
----------- -----------
Total deposits 2.67 $50,036,141 3.12 $41,229,316
=========== ===========
</TABLE>
The aggregate amount of deposits, with a balance of $100,000 or more, totalled
approximately $2,401,000 and $1,758,000 at September 30, 1999, and 1998,
respectively.
Scheduled maturities of certificates of deposit are as follows:
September 30,
-----------------
1999 1998
--------- ------
(In Thousands)
Less than 1 year $ 14,332 $ 11,882
1 year to 3 years 2,862 4,317
Over 3 years 544 544
--------- ---------
$ 17,738 $ 16,743
========= =========
Interest expense on deposits is summarized as follows:
Year Ending
September 30,
------------------------
1999 1998
----------- -----------
NOW accounts $ 108,167 $ 96,676
Super NOW and MMDA 135,008 114,152
Passbook and club accounts 291,443 213,679
Certificates of deposit 834,822 795,522
----------- -----------
Total $ 1,369,440 $ 1,220,029
=========== ===========
31
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
9. BORROWED FUNDS
-- --------------
Borrowings consist of the following:
September 30,
--------------------- Interest
1999 1998 Rate
---- ---- ----
Advance from the Federal
Home Loan Bank of New York
maturing on October 1, 1999 $2,000,000 $ - 5.60%
ESOP debt requiring quarterly
principal payments of $3,920,
plus interest, maturing during 2007 125,440 141,120 prime +.375%
---------- ---------
$2,125,440 $ 141,120
========== =========
At September 30, 1999 and 1998, the FHLB advances were secured by pledges of the
Bank's investment in the capital stock of the FHLB totalling $293,600 and
$244,000 and loans receivable with a carrying value of $4,177,000 and
$2,414,000, respectively.
The ESOP debt is secured by shares of the Bank's common stock.
10. INCOME TAXES
- --- ------------
The Bank qualifies as a savings institution under the provisions of the Internal
Revenue Code and was therefore, prior to September 30, 1996, permitted to deduct
from taxable income an allowance for bad debts based upon eight percent of
taxable income before such deduction, less certain adjustments. Retained
earnings at September 30, 1999, include approximately $306,000 of such bad debt,
which, in accordance with FASB Statement No. 109, "Accounting for Income Taxes,"
is considered a permanent difference between the book and income tax basis of
loans receivable, and for which income taxes have not been provided. If such
amount is used for purposes other than for bad debt losses, including
distributions in liquidation, it will be subject to income tax at the then
current rate.
32
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES (Cont'd)
- -----------------
The components of income taxes are summarized as follows:
Year Ended
September 30,
------------------
1999 1998
-------- --------
Current tax expense:
Federal income $128,276 $ 60,789
State income 5,966 6,194
-------- --------
134,242 66,983
Deferred tax expense:
Federal income 52,531 64,386
State income 4,779 5,918
-------- --------
57,310 70,304
$191,552 $137,287
======== ========
The provision for federal income taxes differs from that computed at the federal
statutory rates of 34% as follows:
Year Ended
September 30,
------------------
1999 1997
-------- --------
Tax at statutory rates $161,819 $136,142
Increase in tax resulting from:
State taxes, net of federal tax effect 7,092 7,994
Other items 22,641 (6,849)
-------- --------
$191,552 $137,287
======== ========
Effective rate 40% 34%
======== ========
33
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
10. INCOME TAXES (Cont'd)
- -----------------
The following temporary differences gave rise to deferred tax assets and
liabilities:
September 30,
------------------
1999 1998
-------- --------
Deferred tax assets:
Allowance for loan losses $ 53,607 $ 89,334
Deferred loan origination fees, net 16,458 2,376
Depreciation 9,717 2,259
-------- --------
Total deferred tax assets 79,782 93,969
-------- --------
Deferred tax liabilities:
Appreciation of securities available
for sale 8,430 8,649
Accrual to cash adjustment 128,154 81,558
Discounts on investments 2,142 5,615
-------- --------
Total deferred tax liabilities 138,726 95,822
-------- --------
Net deferred tax (liability)
included in other liabilities $(58,944) $ (1,853)
======== ========
11. COMMITMENTS AND CONTINGENCIES
- --- -----------------------------
Loan Commitments
- ----------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing need of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit. Those instruments involve,to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statements of financial condition. The contract or
notional amounts of those instruments reflect the extent of the Bank's
involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other security
to support financial instruments with credit risk.
34
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
11. COMMITMENTS AND CONTINGENCIES (Cont'd)
- ----------------------------------
Loan Commitments (Cont'd)
- ----------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank has approved equity lines of credit
unused but accessible to borrowers totalling $3,677,000 and $3,459,000, at
September 30, 1999 and 1998, respectively. The Bank's experience has been that
approximately 60 percent of loan commitments are drawn upon by customers.
At September 30, 1999 the Bank had outstanding commitments to originate mortgage
loans as follows:
Commercial construction Prime + 1.0% $ 750,000
Commercial mortgages Adjustable rate loans
with rates from 8.25%
to Prime + 1.0% 2,276,500
Commercial lines of credit Prime + 1.5% 20,000
First mortgages Fixed rate loans with
rates from 7.875% to 8.00% 253,000
Home equity credit line Prime - .50% 60,000
Home equity fixed 7.00% 21,000
Other 8.75% 16,000
----------
$3,396,500
==========
Commitments are for 30 days for variable rate mortgages, 25 days for fixed rate
mortgages and 60 days for construction loans and commercial mortgages. There are
no commitments to sell any of the loans which have already been originated.
12. REGULATORY CAPITAL
- --- ------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and, possible additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
35
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
12. REGULATORY CAPITAL (Cont'd)
- -----------------------
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items, as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of tangible and core capital (as defined in the regulations) to
total assets and of total capital (as defined) to risk-weighted assets (as
defined). Management believes, as of September 30, 1999, that the Bank meets all
capital adequacy requirements to which it is subject.
As of August 1999, the most recent notification from the Office of Thrift
Supervision (OTS) categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as "well
capitalized," the Bank must maintain minimum total risk-based, core, and
tangible ratios, as set forth in the accompanying table. There are no conditions
or events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
There is no deduction from capital for interest-rate risk.
<TABLE>
<CAPTION>
To be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999:
Risk-based capital $ 5,104 14.91% $ 2,738 8.00% $ 3,422 10.00%
Core capital 4,926 8.47% 2,327 4.00% 3,490 6.00%
Tangible capital 4,926 8.47% 873 1.50% 2,909 5.00%
As of September 30, 1998:
Risk-based capital $ 4,822 17.50% $ 2,204 8.00% $ 2,754 10.00%
Core capital 4,623 9.89% 1,868 4.00% 2,802 6.00%
Tangible capital 4,623 9.89% 701 1.50% 2,335 5.00%
</TABLE>
36
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS
- --- -------------
Deferred Compensation Plan
- --------------------------
On October 1, 1993 a deferred compensation plan was adopted and put into effect
for both the directors and employees.
The directors' arrangement is an individual contract between the Bank and each
participating director and can be terminated at any time. Directors may
participate at their own discretion. The Bank secures each separate deferred
compensation agreement by purchasing an investment grade life insurance contract
on each participating director. The Bank is the owner and beneficiary of each
contract. The use of the investment grade insurance contracts as the funding
source of the program allows the Bank to take advantage of preferential tax
treatment provided to insurance contracts qualified under IRS Sections 101 and
7702.
The employees' arrangement meets the requirements of Sections 401(a) and 401(k)
of the Internal Revenue Code. Employees generally become eligible when they have
attained age 21 and have one year of service. Each participant may elect to have
their compensation reduced up to 10%. The reduction is contributed to the plan.
The Bank will match 50% of the amount of salary reduction the participant elects
to defer. However, in applying this matching percentage, only salary reductions
of up to 6% of the participant's compensation will be considered. All
participants become 100% vested upon entering the plan. Contributions to the
plan by the Bank totalled $8,400 and $6,400 for the years ended September 30,
1999 and 1998, respectively.
Directors Consultation and Retirement Plan
- ------------------------------------------
During March 1997 the Bank adopted a Directors Consultation and Retirement Plan
("DRP") to provide retirement benefits to directors of the Bank who are not
officers or employees ("Outside Directors"). Any director who has served as an
Outside Director shall be a participant in the DRP, and payments under the DRP
commence once the Outside Director retires as a director of the Bank. The DRP
provides a retirement benefit based on the number of years of service to the
Bank. Outside Directors who have completed not less than 12 years of service
shall receive a benefit equal to (50%) + 2.889% times the number of years of
service in excess of 12, multiplied by the average monthly Board Fee in effect
at the time of retirement. The maximum benefit shall be 85% of such monthly
Board Fee. Benefits shall be paid for a maximum of 84 months to the retired
directors, a surviving spouse, or the director's estate.
37
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS (Cont'd)
- ------------------
Directors Consultation and Retirement Plan (Cont'd)
- ------------------------------------------
<TABLE>
<CAPTION>
At or for
the Year Ending
September 30,
-----------------------
1999 1998
---------- -----------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 160,843 $ 147,129
Service cost 8,953 9,025
Interest cost 10,599 11,035
Actuarial (gain) (6,450) (6,346)
Annuity payments (7,650) -
---------- ------
Benefit obligation at end of year 166,295 160,843
---------- ----------
Change in plan assets:
Market value of assets - beginning - -
Employer contributions 7,650 -
Annuity payments (7,650) -
---------- ----------
Market value of assets - ending - -
---------- ----------
Funded status (166,295) (160,843)
Amount contributed during fourth quarter 2,550 -
Unrecognized (gain) (12,796) (6,346)
Unrecognized past service liability 118,041 128,850
---------- ----------
Accrued plan cost included in other liabilities $ (58,500) $ (38,339)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Net periodic plan cost included the following components:
Service cost $ 8,953 $ 9,025
Interest cost 10,599 11,035
Amortization of past service cost 10,809 10,809
---------- ----------
Net periodic plan cost included in compensation
and benefits $ 30,361 $ 30,869
========== ==========
</TABLE>
A discount rate of 7.5% and 6.75% and a rate of increase in future compensation
levels of 5.5% and 4.5% were assumed in the plan valuation for the years ended
September 30, 1999 and 1998, respectively.
38
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS (Cont'd)
- ------------------
Supplemental Executive Retirement Plan
- --------------------------------------
During March 1997, the Bank adopted a supplemental retirement plan ("SERP") for
the benefit of the Chief Executive Officer (CEO). The purpose of the SERP is to
encourage the retention of the CEO by providing a form of deferred compensation
to supplement the other retirement benefits provided to all employees. Benefits
under the SERP, at age 65, will equal $850 per month for five years. Such
benefits shall be reduced by $57 for each year that the CEO retires prior to age
65. Benefits payable prior to age 62 shall also be subject to reduction at the
rate of 5% per year for each year of retirement prior to age 62. Benefits under
the SERP are immediately payable upon death or disability of the participant, or
upon the termination of the participant (other than for cause) after a change in
control of the Bank.
<TABLE>
<CAPTION>
At or for
the Year Ending
September 30,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 1,591 $ 948
Service cost 434 343
Interest cost 107 71
Actuarial loss (525) 229
---------- ----------
Benefit obligation at end of year (1,607) 1,591
Plan assets - -
---------- ------
Funded status (1,607) (1,591)
Unrecognized loss (301) 229
Unrecognized past service liability 730 784
---------- ----------
Accrued plan cost included in other liabilities $ (1,178) $ (578)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Net periodic plan cost included the following components:
Service cost $ 434 $ 343
Interest cost 107 71
Amortization of past service cost 54 54
Unrecognized (gain) loss 5 -
---------- ----------
Net periodic plan cost included in compensation
and benefits $ 600 $ 468
========== ==========
</TABLE>
A discount rate of 7.50% and 6.75% was assumed in the plan valuation for the
years ended September 30, 1999 and 1998, respectively.
39
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS (Cont'd)
- ------------------
Stock Option Plan
- -----------------
On January 25, 1999, the stockholders of the Bank approved a stock option plan
(the "Plan"). The Plan provides for authorizing the issuance of an additional
19,596 shares of common stock by the Bank upon the exercise of stock options
awarded to officers, directors, key employees, and other persons providing
services to the Bank. The Bank may also purchase shares through the open market.
The 19,596 shares of options under the Plan constitute either Incentive Stock
Options or Non-Incentive Stock Options. The following table summarizes the
options granted and exercised under the Plan, during the year ended September
30, 1999, and their respective weighted average exercise price:
Weighted
Number Average
of Exercise
Shares Price
------ -----
Outstanding at beginning of period - $ -
Granted 14,308 14.25
Exercised - -
------ -----
Outstanding at end of period 14,308 $ 14.25
====== =======
Options exercisable at year end 7,154
======
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), if fully adopted, requires companies to measure
employee stock compensation plans based on the fair value method of accounting.
The Bank has adopted the disclosure-only provisions of SFAS 123. Accordingly,
the Bank applies Accounting Principles Board Opinion No. 25,"Accounting for
Stock Issued to Employees," ("APB 25") and related interpretations in accounting
for its plans. In accordance with APB 25, no compensation expense has been
recognized for its stock-based compensation plans other than for restricted
stock. Pro forma disclosures as if the Bank fully adopted the cost recognition
requirements under SFAS 123 are presented below.
The estimated weighted average fair value of each stock option granted during
fiscal 1999 was estimated as $5.30 on the date of grant. The fair value of
options at the date of grant was estimated using the Black-Scholes model with
the following weighted average assumptions: stock volatility of 16%; risk free
interest rate of 3.875%; and an expected life of 10 years. Had compensation cost
for the grants been determined based upon the fair value at the grant date
consistent with the methodology prescribed under SFAS 123, the Bank's fiscal
1999 pro forma net income and earnings per share would have been $243,930 and
$.59, respectively. The pro forma effect on net income is not representative of
the pro forma effect on net income in future years.
40
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS (Cont'd)
- ------------------
Restricted Stock Plan
- ---------------------
On January 25, 1999, the stockholders of the Bank approved a restricted stock
plan (the "Plan") which provides for the purchase of 7,838 shares of common
stock in the open market. All of the Common Stock to be purchased by the Plan
will be purchased at the fair market value on the date of purchase. Awards under
the Plan were made in recognition of expected future services to the Bank by its
directors, officers, and key employees responsible for implementation of the
policies adopted by the Bank's Board of Directors and as a means of providing a
further retention incentive. The expense of the plan will be accrued as shares
vest over a four-year period, beginning February, 1999. As of September 30,
1999, no shares had been purchased for the plan. For the year ended September
30, 1999, the Bank recorded expense of $29,000 related to this plan.
Employee Stock Ownership Plan
- -----------------------------
Effective upon the consummation of the Bank's stock offering, an Employee Stock
Ownership Plan ("ESOP") was established for all eligible employees who had
completed a twelve month period of employment with the Bank and at least 1,000
hours of service, and had attained the age of 21. The ESOP used $156,800 in
proceeds from a term loan to purchase 15,680 shares of Bank common stock during
the stock offering. The term loan principal is payable in equal quarterly
installments through September 30, 2007. Interest on the term loan is variable
at a rate of prime plus 37.5 basis points. Each year, the Bank intends to make
discretionary contributions to the ESOP which will be equal to principal and
interest payments required on the term loan. The loan is further paid down by
the amount of dividends paid, if any, on the common stock owned by the ESOP.
Shares purchased with the loan proceeds were initially pledged as collateral for
the term loan and are held in a suspense account for future allocation among
participants. Contributions to the ESOP and shares released from the suspense
account will be allocated among the participants on the basis of compensation,
as described by the Plan, in the year of allocation.
The ESOP is accounted for in accordance with Statement of Position 93-6,
"Accounting for Employee Stock Ownership Plans," which was issued by the
American Institute of Certified Public Accountants in November 1993.
Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP
shares in the statements of financial condition. As shares are committed to be
released from collateral, the Bank reports compensation expense equal to the
current market price of the shares, and the shares become outstanding for basic
net income per common share computations. ESOP compensation expense was $21,857
and $15,680 for the years ended September 30, 1999 and 1998, respectively.
41
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
13. BENEFIT PLANS (Cont'd)
- ------------------
Employee Stock Ownership Plan (Cont'd)
- -----------------------------
At September 30, 1999 and 1998, the ESOP had unallocated shares of 12,544 and
14,112, respectively. Based upon a $15.00 closing price per share of common
stock on September 30, 1999, the unallocated shares had a fair value of
$188,000.
14. CHARTER CONVERSION, STOCK OFFERING, AND REORGANIZATION
- --- ------------------------------------------------------
On March 24, 1997, the Bank converted from a state-chartered mutual savings and
loan to a federally chartered mutual savings bank.
On February 24, 1997, the Board of Directors of the Bank unanimously adopted the
plan of reorganization whereby the Bank would reorganize into a mutual holding
company form of organization.
The Bank applied to the Office of Thrift Supervision and received approval of
transactions contemplated by the plan of reorganization. The plan of
reorganization authorized the Bank to offer stock in one or more stock offerings
up to a maximum of 49.99% of the issued and outstanding shares of its common
stock.
The reorganization was accomplished on October 2, 1997, whereby the Bank, (i)
exchanged its mutual savings association charter for a federal stock savings
bank charter; and (ii) organized a federally chartered mutual holding company
which owns in excess of 50% of the stock of the stock savings bank. Each savings
account of the Bank, at the time of the reorganization, became a savings account
in the newly-formed bank in the same terms and conditions, except the holder of
each such deposit account has liquidation rights, with respect to the holding
company, rather than the Bank.
As a result of the offering, Roebling Financial Corp., M.H.C. received 229,540
shares of the Bank's stock and $100,000 in cash. The Bank's Employee Stock
Ownership Plan purchased 15,680 shares. Roebling Bank received gross proceeds
from the sale of 195,960 shares to the general public, including the ESOP, of
$1,959,600. Expenses associated with the offering totalled $171,438, resulting
in net capital additions to the Bank of $1,688,162, net of the $100,000 used to
capitalize the mutual holding company.
On January 25, 1999, the Bank's stockholders approved an Agreement and Plan of
Reorganization (the "Plan" or "Reorganization"), providing for the establishment
of a mid-tier stock holding company. The Plan provided for the establishment of
Roebling Financial Corp., Inc. (the Mid-Tier Stock Holding Company) as a stock
holding company parent of the Bank; the stock holding company will be majority
owned by Roebling Financial Corp., MHC, the Bank's mutual holding company. The
former holders of the common stock of the Bank
42
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
14. CHARTER CONVERSION, STOCK OFFERING, AND REORGANIZATION (Cont'd)
- --- ------------------------------------------------------
will become stockholders of Roebling Financial Corp., Inc. and each outstanding
share of common stock (par value $.10 per share) of the Bank will be converted
into shares of common stock of Roebling Financial Corp., Inc. on a one-for-one
basis. The Reorganization was approved by the Bank's regulators, and is expected
to take place during the first quarter of the Year 2000.
15. IMPACT OF NEW ACCOUNTING STANDARDS
- --- ----------------------------------
Accounting for Derivative Instruments and Hedging Activities
- ------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption of SFAS No. 133, the transfer of any
held-to-maturity security into either the available-for-sale or trading
category. Transfers from the held-to-maturity portfolio at the date of initial
adoption will not call into question the entity's intent to hold other debt
securities to maturity in the future. SFAS No. 130 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, and is not expected to
have a material impact on the Bank, which does not intend to adopt SFAS No. 133
earlier than required.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
- --- ------------------------------------
The estimated fair values of the Bank's financial instruments were as follows:
September 30, 1999 September 30, 1998
---------------------- --------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
- ---------------- ---------- ---------- ---------- --------
(In Thousands)
Cash and cash equivalents $ 3,573 $ 3,573 $ 2,323 $ 2,323
FHLB term deposits 250 250 2,700 2,700
Certificates of deposit 300 300 - -
Securities available for sale 24 24 127 127
Securities held to maturity 9,657 9,471 8,488 8,564
Mortgage-backed securities 6,294 6,196 3,844 3,872
Loans receivable 35,745 35,100 27,302 27,852
Accrued interest receivable 375 375 334 334
Financial Liabilities
- ---------------------
Deposit liabilities 50,036 50,318 41,229 41,272
Borrowed funds 2,125 2,125 141 141
43
<PAGE>
ROEBLING BANK
NOTES TO FINANCIAL STATEMENTS
-----------------------------
16. FAIR VALUES OF FINANCIAL INSTRUMENTS (Cont'd)
- --- ------------------------------------
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Fair value
estimates are based on judgements regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Further, the foregoing estimates may not reflect the actual
amount that could be realized if all or substantially all of the financial
instruments were offered for sale.
In addition, the fair value estimates were based on existing on-and-off balance
sheet financial instruments without attempting to value the anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include real estate owned, premises
and equipment, and advances from borrowers for taxes and insurance. In addition,
the tax ramifications 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.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. The lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
44
<PAGE>
Roebling Bank
OFFICE LOCATIONS
Main Office
Route 130 and Delaware Avenue
Roebling, New Jersey 08554
(609) 499-0355
Village Office
34 Main Street
Roebling, New Jersey 08554
New Egypt Office
8 Jacobstown Road
New Egypt, New Jersey 08533
- --------------------------------------------------------------------------------
Board of Directors Executive Officers
John J. Ferry, Chairman Kent C. Lufkin
John A. LaVecchia, Vice Chairman President and Chief Executive Officer
Mark V. Dimon. Treasurer John Y. Leacott
Joan K. Geary, Secretary Vice President and Chief Financial Officer
George Nyikita Carolyn Giberson
Robert R. Semptimphelter, Sr. Vice President and Branch Administrator
Kent C. Lufkin
Special Counsel: Transfer Agent and Registrar:
Malizia Spidi & Fisch Registrar and Transfer Company
One Franklin Square 70 Commerce Drive
1301 K Street, NW, Suite 700 East Cranford, New Jersey 07016-3572
Washington, D.C. 20005 (800) 456-0596
- --------------------------------------------------------------------------------
The Bank's Annual Report for the Year Ended September 30, 1999 filed with the
Office of Thrift Supervision 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 Chief Financial Officer of the Bank at
Route 130 and Delaware Avenue, Roebling, New Jersey 08554. Copies of any
exhibits to the Form 10-KSB are available at cost.
The Annual Meeting of Stockholders will be held on January 24, 2000 at 3:00 p.m.
at the Birch Hollow Condominium Clubhouse, 301 Birch Hollow, Florence, New
Jersey.
45
