SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION report pursuant to section 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -----------------------
SEC File Number 0-23194
First Savings Bancorp of Little Falls, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-3360945
- ---------------------------------------------------------------------
(State or other jurisdiction) (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code (201) 256-2100
---------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check (X) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 100,100.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
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INDEX
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Page Number
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PART I - CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition at September 30, 1996
and December 31, 1995 (unaudited) 1
Consolidated Statements of Operation
for the Three and Nine Months Ended
September 30, 1995 and 1996
(unaudited) 2
Consolidated Statements of Cash Flows
of the Nine Months Ended
September 30, 1995 and 1996 (unaudited) 3 - 4
Notes to Consolidated Financial Statements 5 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9- 22
PART II - OTHER INFORMATION 23-24
SIGNATURES 25
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
Assets December 31, 1995 September 30, 1996
- ------ ----------------- ------------------
Cash and amounts due from
<S> <C> <C>
depository institutions $862,200 $770,500
Interest-bearing demand
deposits in other banks 265,375 733,329
------------ ------------
Total cash and cash equivalents 1,127,575 1,503,829
Securities available for sale, net 35,964,115 38,335,039
Investment and mortgage backed securities
held to maturity, net; estimated fair value of
$18,952,000(1995) and $2,996,000(1996) 19,000,000 3,000,000
Mortgage-backed securities held to maturity,
net; estimated fair value of
$2,538,000(1995) and $17,500,000(1996) 2,545,101 17,658,819
Loans receivable, net of allowance for loan
losses of $388,633(1995) $463,633 (1996) 85,836,007 88,945,874
Premises and equipment, net 2,904,934 2,912,322
Real estate owned, net 3,724,958 3,466,252
Federal Home Loan Bank
of New York stock, at cost 823,300 925,600
Interest and dividends receivable, net 1,427,868 1,187,191
Other assets 1,281,111 1,205,332
------------ ------------
Total assets $154,634,969 $159,140,258
============ ============
Liabilities and stockholder's equity
- ------------------------------------
Liabilities
Deposits $131,636,083 $139,004,898
Federal Home Loan Bank of New York Advances 12,600,000 9,200,000
Advance payments by borrowers for
taxes and insurance 563,262 660,568
Other liabilities 238,715 936,377
------------ ------------
Total liabilities 145,038,060 149,801,843
------------ ------------
Stockholders' Equity
Convertible Preferred Stock (par value $.01 per
share) authorized 1,000,000 shares: issued and
outstanding 34,000 shares 340 340
Common Stock (par value $1.00 per share)
authorized 5,000,000 shares: issued and
outstanding 100,100 shares 100,100 100,100
Additional paid-in capital 4,010,037 4,010,037
Retained earnings-substantially restricted 5,352,463 5,136,759
Unrealized gain on securities availalable for sale 133,969 91,179
------------ ------------
Total stockholders' equity 9,596,909 9,338,415
------------ ------------
Total liabilities and stockholders equity $154,634,969 $159,140,258
============ ============
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE 1
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30 SEPTEMBER 30
1 9 9 5 1 9 9 6 1 9 9 5 1 9 9 6
------- ------- ------- -------
Interest income
<S> <C> <C> <C> <C>
Loans $1,618,435 $1,916,580 $4,839,211 $5,646,612
Mortgage-backed securities 220,198 859,822 877,852 2,405,087
Investments and other 757,843 72,888 1,751,381 438,514
--------- --------- --------- ---------
Total interest income 2,596,476 2,849,290 7,468,444 8,490,213
--------- --------- --------- ---------
Interest expense
Deposits 1,603,632 1,632,289 4,511,067 4,815,377
Borrowed Money 57,781 178,551 57,781 528,654
--------- --------- --------- ---------
Total Interest expense 1,661,413 1,810,840 4,568,848 5,344,031
--------- --------- --------- ---------
Net interest income 935,063 1,038,450 2,899,596 3,146,182
(Recovery of) provision for loan losses (40,694) 25,000 (40,694) 75,000
--------- --------- --------- ---------
Net interest income after (recovery of)
provision of loan losses 975,757 1,013,450 2,490,290 3,071,182
--------- --------- --------- ---------
Non-interest income
Service charges 28,244 23,368 72,464 69,704
Miscellaneous 16,077 19,887 52,126 54,533
--------- --------- --------- ---------
Total non-interest income 44,321 43,255 124,590 124,237
--------- --------- --------- ---------
Non-interest expense
Salaries and employee benefits 339,343 335,301 1,097,393 1,036,742
Net occupancy expense 62,209 60,843 178,261 194,673
Equipment 96,090 86,967 281,193 259,722
Loss on foreclosed real estate 59,409 32,230 57,109 90,338
Federal insurance premium 75,225 924,460 233,599 1,074,198
Advertising and promotion 6,946 15,491 73,974 53,593
Legal fees 23,739 23,409 88,663 112,954
Miscellaneous 162,431 179,218 532,735 510,402
--------- --------- --------- ---------
Total non-interest expenses 825,392 1,657,919 2,542,927 3,332,622
--------- --------- --------- ---------
Income(loss) before income taxes(benefit) 194,686 (601,214) 521,953 (137,203)
Income taxes(benefit) 68,198 (209,770) 182,902 (49,000)
--------- --------- --------- ---------
Net income(loss) 126,488 (391,444) 339,051 (88,203)
Preferred stock dividends 42,500 42,500 127,500 127,500
--------- --------- --------- ---------
Net income(loss) applicable to common share $83,988 ($433,944) $211,551 ($215,703)
========== ========== ========== ==========
Net income(loss) per common share and common
stock equivalents $0.29 ($0.89) $0.77 ($0.20)
Weighted average number of common
shares and common stock
equivalents outstanding 440,100 440,100 440,100 440,100
</TABLE>
See notes to unaudited consolidated financial statements
Page 2
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1996
----- -----
Cash flows from operating activities:
<S> <C> <C>
Net income(loss) $339,051 ($88,203)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Depreciation 241,579 212,918
Amortization (accretion) of premiums, discounts and fees, net 25,778 221,170
( Recovery of)provision for losses on loans (45,934) 75,000
Provision for Real Estate Owned losses ---- 45,500
Net gain on sales of real estate owned (14,640) (37,287)
(Increase)decrease in interest and dividends receivable, net (316,185) 240,677
(Decrease) increase in other assets (42,142) 64,864
Decrease (increase) in accrued interest payable 81,750 (90,795)
(Increase)decrease in other liabilities (71,562) 790,210
Amortization of branch premium 25,017 27,777
---------- ---------
Net cash provided by operating activities 222,712 1,461,831
---------- ---------
Cash flows from investing activities:
Purchase of securities available for sale ---- (7,128,915)
Purchase of investment securities held fo maturity (17,954,449) ----
Proceeds from maturities of term deposits 17,250,000 ----
Term deposits purchased (14,750,000) ----
Proceeds from Investment securities held to maturity matured or called ---- 16,000,000
Mortgage-backed securities held to maturity purchased (2,120,632) (16,640,944)
Investment securities held to maturity repayments 203,677 ----
Securities available for sale repayments ---- 4,444,566
Mortgage-backed securities held to maturity repayments 2,035,077 1,520,071
Net increase in loans receivable (1,335,976) (3,594,973)
Additions to premises and equipment (340,876) (220,306)
Additions to real estate owned (96,850) (145,822)
Payments received on real estate owned 9,500 10,400
Proceeds from sales of real estate owned 701,247 835,780
Purchase of Federal Home Loan Bank of NY stock (151,300) (102,300)
---------- ---------
Net cash used in investment activities (16,550,582) (5,022,443)
---------- ---------
Cash flows from financing activities:
Net increase in deposits 6,606,941 7,459,610
Increase (decrease) in Federal Home Loan Bank Advances 7,100,000 (3,400,000)
Increase in advance payments by
borrowers for taxes and insurance 16,594 97,306
Preferred stock dividends paid (170,000) (170,000)
Common stock dividends paid (50,050) (50,050)
---------- ---------
Net cash provided by financing activities 13,503,485 3,936,866
---------- ---------
Net (increase)decrease in cash and cash equivalents (2,824,385) 376,254
Cash and cash equivalents -- beginning 3,559,346 1,127,575
---------- ---------
Cash and cash equivalents -- ending $734,961 $1,503,829
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements
PAGE 3
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1996
----- -----
Supplemental disclosures of cash flows information:
- ---------------------------------------------------
Cash paid during the period for:
---------------------------------
<S> <C> <C>
Interest $4,429,317 $5,177,310
========== ==========
Income taxes $75,599 $0
========== ==========
Supplemental disclosure of noncash activities:
- ----------------------------------------------
Increase in unrealized loss on securities available for sale(1995), decrease in
unrealized gain on securities(1996), net of deferred income taxes $12,944 $42,790
========== ==========
Loans transferred to real estate owned $229,216 $449,865
========== ==========
Payment of stock dividend, declared in prior periods $92,500 $92,500
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements
Page 4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. BASIS OF PRESENTATION
- -------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and do not include information or
footnotes necessary for a complete presentation of financial condition, results
of operations, and cash flows in conformity with generally accepted accounting
principles. Reference is made to First Savings Bancorp of Little Falls, Inc.
(Bancorp) and Subsidiary's annual report to stockholders for information
regarding the audited consolidated financial statements for year ended December
31, 1995. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results of operations
for the three and nine months ended September 30, 1996 are not necessarily
indicative of the results which may be expected for the entire fiscal year or
any other period. Bancorp's primary activity is holding the stock of the Bank,
therefore the business and operations of the Bank are essentially those of
Bancorp on a consolidated basis.
2. NET INCOME PER COMMON SHARE AND COMMON STOCK EQUIVALENTS
- -----------------------------------------------------------
Net income per common share and common stock equivalents is based on net income
and the average number of common shares and common stock equivalents outstanding
during the period. The calculation assumes the exercise of all convertible
preferred stock, which is considered a common stock equivalent.
3. CHANGE IN ACCOUNTING POLICY
- ------------------------------
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS 114 generally requires all creditors to account for
impaired loans, except for large groups of smaller-balance homogenous loans that
are collectively evaluated for impairment and those loans that are accounted for
at fair value or at the lower of cost or fair value, at the present value of the
expected future cash flows discounted at the loan's effective interest rate.
SFAS 114 also provides that in-substance foreclosed loans should not be included
in real estate owned for financial reporting purposes, but rather should be
included in the loan portfolio. SFAS 114 is effective for fiscal years beginning
after December 15, 1994.
Page 5
<PAGE>
In October 1994, the FASB amended certain provisions of SFAS 114 via the
issuance of SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS 118 amends SFAS 114 by eliminating provisions
describing how a creditor should report income on an impaired loan and
increasing disclosure requirements as to information on related interest income.
The effective date of SFAS 118 is the same as for SFAS 114. The provisions of
SFAS 114, as amended by SFAS 118, were adopted effective January 1, 1995. Such
adoption did not have a material adverse effect on the consolidated financial
condition or results of operations.
4. IMPACT OF NEW ACCOUNTING STANDARDS
- --------------------------------------
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. SFAS No. 121 does not apply to financial instruments, long-term
customer relationships of a financial institution (i.e. core deposit
intangibles), mortgage and other servicing rights, or deferred tax assets. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In such cases, an impairment loss is to be recognized if the
carrying value of such asset exceeds its fair value. In regard to long-lived
assets to be disposed of either through sales or abandonment, such assets are to
be carried at the lower of cost or fair value less costs to sell. SFAS No. 121
is effective for fiscal years beginning after December 15, 1995 and restatement
of previously issued financial statements is not permitted. SFAS 121 was
implemented effective January 1, 1996. Such implementation did not have a
material adverse effect on Bancorp's consolidated financial condition or results
of operations.
Page 6
<PAGE>
In September 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights". SFAS No. 122 amends FASB Statement No. 65, "Accounting for
Certain Mortgage Banking Activities", to require that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others, however those servicing rights were acquired, should such loans be sold
or securitized and the related mortgage servicing rights retained. The servicing
rights are to be recorded based upon an allocation of the total investment in
related loans to the relative fair values of the loans and the separated
servicing rights retained, providing it is practical to estimate those fair
values. SFAS No. 122 is effective prospectively in fiscal years beginning after
December 15, 1995. Retroactive capitalization of mortgage servicing rights
retained in transactions in which a mortgage banking enterprise originates
mortgage loans and sells or securitizes those loans before the adoption of this
statement is prohibited. SFAS 122 was implemented effective January 1, 1996.
Such implementation did not have a material adverse effect on the Bancorp's
consolidated financial condition or results of operations.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation". SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amount based on the price of the employer's stock. SFAS No. 123 defines a fair
value based method of accounting for and employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all their employee stock compensation plans. However, it also allows an entity
to continue to measure compensation costs for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for stock Issued to Employees". Entities electing to continue the use of the
accounting method under Opinion 25 must make pro forma disclosures of net income
and, if presented, earning per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. SFAS No. 123 is effective
for transactions entered into during fiscal years that begin after December 15,
1995. SFAS 123, does not have any effect on the Bancorp's consolidated financial
conditions or results of operations as the Bancorp does not currently utilize
stock-based compensation.
Page 7
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
- ------------------------------
An analysis of the allowance for loan losses is as follows:
Year ended December 31, Nine months ended September 30,
----------------------- -------------------------------
1995 1995 1996
---- ---- ----
Balance - beginning $ 377,315 $ 377,315 $ 388,633
Provision charged 80,228 --- 75,000
Loans charged off (70,605) --- ---
Recoveries 1,695 58,535 ---
--------- --------- ---------
Balance - ending $ 388,633 $ 318,750 $ 463,633
========= ========= =========
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):
December 31, Sept. 30,
------------ --------------
1995 1995 1996
---- ---- ----
Recorded investment in impaired loans:
With recorded allowances $--- $--- ----
Without recorded allowances 281 511 468
---- ---- ----
Total impaired loans 281 511 468
Related allowance for loan losses ---- ---- ----
Net impaired loans $281 $511 $468
==== ==== ====
For the year ended December 31, 1995, and the nine months ended September 30,
1995 and 1996, the average recorded investment in impaired loans totaled
$355,000, $511,000 and $309,000, respectively, while interest income recognized
on such loans during the time each was impaired totaled $7,000, $2,000 and
$7,500, respectively, all of which was recorded on the cash basis.
Page 8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FIRST SAVINGS BANCORP OF LITTLE FALLS INC. AND SUBSIDIARY
---------------------------------------------------------
LIQUIDITY
- ---------
The Bank is required to maintain minimum levels of liquid assets as defined
by the Office of Thrift Supervision (OTS) regulations. This requirement is
currently 5% and is based upon a percentage of deposits and short term
borrowings. The Bank's liquidity was $17.3 million or 11.8% as of September 30,
1996, which was available for investment, mortgage originations, or deposit
outflows. The Bank also has an $17.6 million line of credit with the Federal
Home Loan Bank of New York (FHLB) of which $5.2 million had been used as of
September 30, 1996.
The Bank's liquidity portfolio as of September 30, 1996 consisted of $771,000
of cash on hand and amounts due from depository institutions, $773,000 of
interest earning deposits at FHLB, and $15.8 million of investments and mortgage
backed securities maturing in less than five years.
The Bank utilized the FHLB for borrowings during the first three quarters of
1996 to fund investment purchases and loan originations. The types of borrowings
the Bank utilized were a line of credit which matures daily and several one
month non-prepayable advances. As of September 30, 1996 the Bank had an
outstanding one month advance of $4.0 million with a rate of 5.50% which matures
in October 1996, at that time the Bank will have the option to rollover the
borrowings or change the term. The Bank expects to continue the use of borrowed
funds during the remaining fiscal year ended December 31, 1996 to supplement
liquidity and investing needs.
The Bank experienced a net increase in deposits before interest credited
during the first nine months of 1996 totaling $2.6 million.
The Bank is presently active in the mortgage loan origination market and is
currently offering competitive residential loan rates. The Bank closed $2.0
million, $8.3 million, and $4.5 million of loans for the three month periods
ended March 1996, June 1996, and September 1996 respectively. The Bank had no
outstanding loan commitments as of September 30, 1996. The Bank expects the
volume of loan originations to be low for the fourth quarter and should start to
increase more during the second quarter of 1997. The Bank anticipates that it
will have sufficient funds available to fund loan commitments and investment
purchases.
Page 9
<PAGE>
RESULTS OF OPERATIONS
---------------------
Three Months ended September 30, 1995 and 1996
----------------------------------------------
Net Income
- ----------
Net loss for the three month period ended September 30, 1996 was $391,000
compared to a net income of $126,000 for the three month period ended September
30, 1995. The primary reasons for the decrease in earnings were a provision for
loan losses of $25,000 during the three month period ended September 30, 1996
compared to a $41,000 recovery during the three month period ended September 30,
1995, and an increase in non-interest expenses of $833,000, which were partially
offset by a increase of $103,000 for net interest income and a $210,000 income
tax benefit during the three month period ended September 30, 1996 compared to a
$68,000 expense for the same period last year.
Interest Income
- ---------------
Interest income increased $253,000 from $2.6 million for the three month period
ended September 30, 1995 to $2.8 million for the three month period ended
September 30, 1996. The primary reason for the increase was that the average
balances of the securities and loan portfolio increased $30.9 million due to
asset growth from purchases of whole loans and securities. The majority of the
asset growth came from $9.8 million of whole loans purchased from the Resolution
Trust Corporation(RTC) during the fourth quarter of 1995 and Small Business Loan
securities that were purchased during the last half of fiscal year 1995. The
increase in return on loans and securities also contribute to the increase in
interest income. The average return on loans and securities increased from 7.62%
during the three month period ended September 30, 1995 to 7.72% during the three
month period ended September 30, 1996.
Interest Expense
- ----------------
Interest expense increased $149,000 from $1.7 million for the three month period
ended September 30, 1995 to $1.8 million for the three month period ended
September 30, 1996. The primary reason for the increase was that the average
balances of deposits and borrowings were $17.0 million higher during the three
month period ended September 30, 1996 compared to the same period last year. The
Bank maintained an average balance of FHLB borrowings totalling $12.9 million
during the three month period ended September 30, 1996 compared to $1.3 million
of borrowings for the same period last year. The lower cost of funds partially
offset the increased interest expense. The cost of funds decreased from 4.90%
during the three month period ended September 30, 1995 to 4.80% during the
current period.
Page 10
<PAGE>
Net Interest Income
- -------------------
The Bank's net interest income increased $103,000 to $1.0 million for the three
month period ended September 30, 1996 compared to $935,000 for the same period
in 1995. The increase was due to a higher level of net interest earning assets
during the three month period ended September 30, 1996 compared to the same
period last year. The higher level of net interest earning assets resulted from
the purchase of whole loans and investment securities that were funded by
deposit growth and short term FHLB borrowings. The increase was also helped by
the increase in the net interest margin which increased from 2.72% for the three
month period ended September 30, 1995, to 2.92% for the three month period ended
September 30, 1996.
Provision for Loan Losses
- -------------------------
The Bank had a $25,000 provision for loan losses during the three month period
ended September 30, 1996 compared to a negative provision for loan losses of
$41,000 during the three month period ended September 30, 1995. Based on the
factors set forth below, the Bank chose to increase its general loan loss
provision during the three month period ended September 30, 1996 and this
provision was not identified by any one asset. The provisions were increased
because the loan portfolio has increased through originations and purchases of
loans. The negative provision for loans losses during the three month period
ended September 30, 1995 was taken because a review of total loans and
non-performing assets resulted in management concluding that the Bank had more
than adequate level of reserves at that time. See "Comparison of Financial
Condition--Loans Receivable" for analysis of allowance for loan loss levels.
It is management's policy to provide for estimated losses on its loan portfolio.
Provisions for loan losses are charged to earnings to bring the total allowance
for loan losses to a level considered appropriate by management based on
historical experience, the volume and type of lending conducted by the Bank, the
amount of the Bank's classified assets, the status of past due principal and
interest payments, general economic conditions, particularly as they relate to
the Bank's market area, and other factors related to the collectability of the
Bank's loan portfolio. Management of the Bank assesses the allowance for loan
losses on a quarterly basis and will make provisions for loan losses as deemed
appropriate by management in order to maintain the adequacy of the allowance for
loan losses. However, there can be no assurance that the allowance for loan
losses will be adequate to cover losses which may in fact be realized in the
future and that additional provisions for loan losses will not be required.
Page 11
<PAGE>
Non-Interest Income
- -------------------
Non-interest income remained relatively unchanged at $43,000 for the three month
period ended September 30, 1996 compared to $44,000 for the same period last
year because the Bank maintained its fee schedule from the previous year.
Non-Interest Expense
- --------------------
Non-interest expenses increased $833,000 to $1.7 million for the three months
ended September 30, 1996 from $825,000 for the same prior year period.
Salaries and employee benefits decreased $4,000 to $335,000 for the three month
period ended September 30, 1996 as compared to $339,000 the same period last
year. The decrease was mostly due to the reduced medical benefits expense.
Loss on foreclosed real estate decreased $27,000 during the three month period
ended September 30, 1996 compare to the same period in 1995. The change was
primarily due to an $41,000 loss on sale of real estate owned during the three
month period ended September 30, 1995 compared to no losses during the current
period.
Federal insurance premium increased $849,000 from $75,000 for the three month
period ended September 30, 1995 to $924,000 for the three month period ended
September 30, 1996. On September 30, 1996 the President of the United States
signed a regulatory relief package which recapitalized the SAIF. All SAIF
members, including the Bank, were required to be charged a one time assessment
to recapitalized the fund. The assessment was calculated at 65.7 basis points of
the total savings deposit base as of March 31, 1995. The Bank recorded a one
time expense of $845,000 and the normal expense of $79,000 for the three month
period ended September 30, 1996. Because of the one-time assessment, the Bank
should pay lower premiums during 1997 and there after. Based on deposits as of
September 30, 1996, the Bank expects a expense reduction of $230,000 on a annual
basis.
During the three months ended September 30, 1996 non-interest expenses other
than salaries and employee benefits, loss on foreclosed real estate and federal
insurance premium increased $15,000 or 4.3% to $367,000 from $352,000 in the
prior year quarter. Much of the increase was related to the increase in
advertising.
Page 12
<PAGE>
Income Taxes
- ------------
Income taxes were $68,000 or 35.0% of income before income taxes for the three
months ended September 30, 1995, compare to a $210,000 or 34.9% of loss before
income tax benefit for the three month period ended September 30, 1996.
Page 13
<PAGE>
RESULTS OF OPERATIONS
---------------------
Nine Months Ended September 30, 1995 and 1996
---------------------------------------------
Net Income
- ----------
Net loss for the nine month period ended September 30, 1996 was $88,000
compared to a net income of $339,000 for the nine month period ended September
30, 1995. The primary reasons for the decrease in earnings were a provision for
loan losses of $75,000 during the nine month period ended September 30, 1996
compared to a $41,000 recovery during the nine month period ended September 30,
1995, and an increase in non-interest expenses of $790,000, which were partially
offset by a increase of $247,000 for net interest income and a $183,000 income
tax expense during the nine month period ended September 30, 1995 compared a
$49,000 income tax benefit during the current period.
Interest Income
- ---------------
Interest income increased $1.0 million from $7.5 million for the nine month
period ended September 30, 1995 to $8.5 million for the nine month period ended
September 30, 1996. The primary reasons for the increase were an increase in the
average balance of earning assets and an increase in the average return on these
assets. The average balance of the Bank's loan and investment portfolio
increased $30.0 million for the nine month period ended September 30, 1996
compared to the same period in 1995. The average return on loans and investments
increased from 7.55% during the nine month period ended September 30, 1995 to
7.79% during the nine month period ended September 30, 1996.
Interest Expense
- ----------------
Interest expense increased $775,000 from $4.6 million for the nine month period
ended September 30, 1995 to $5.3 million for the nine month period ended
September 30, 1996. The increase was due to average balance of deposits and
borrowed funds being approximately $25.0 million higher during the nine month
period ended September 30, 1996 compared to the same period in 1995. The average
cost of funds increased from 4.73% during the nine month period ended September
30, 1995 to 4.85% for the nine month period ended September 30, 1996 due to
general increases in market rates of interest and the greater use of generally
higher costing advances.
Page 14
<PAGE>
Net Interest Income
- -------------------
Net interest income increased $247,000 for the nine month period ended
September 30, 1996 compared to the same period in 1995. The increase was due to
a higher level of net earning assets during the nine month period ended
September 30, 1996 and also the higher net spread compared to the same period in
1995. The Bank's average yield on interest-earning assets, cost of funds, and
net interest spread during the periods indicated was as follows:
AVERAGE For Nine Months September 30, 1995 September 30, 1996
- ----------------------------------- -------------------- -------------------
YIELD ON INTEREST EARNING ASSETS 7.55% 7.79%
COST OF FUNDS 4.73% 4.85%
-------------------- -------------------
NET INTEREST SPREAD 2.82% 2.94%
==================== ===================
Provision for Loan Losses
- -------------------------
The Bank had a $75,000 provision for loan losses during the nine month period
ended September 30, 1996 compared to a negative provision for loan losses of
$41,000 during the nine month period ended September 30, 1995. Based on the
factors set forth below, the Bank chose to increase its general loan loss
provision during the nine month period ended September 30, 1996 and this
provision was not identified by any one asset. The negative provision for loans
losses during the nine month period ended September 30, 1995 was taken because a
review of total loans and non-performing assets resulted in management
concluding that the Bank had more than adequate level of reserves at that time.
See "Comparison of Financial Condition--Loans Receivable" for analysis of
allowance for loan loss levels. See also "--Three Months Ended September 30,
1995 and 1996--Provision for Loan Losses.
Non-Interest Income
- -------------------
Non-interest income remained unchanged at $124,000 for the nine month periods
ended September 30, 1996 and September 30, 1995. The Bank's basic fee schedule
and collections have remained the same from year to year.
Page 15
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expenses increased by $790,000 during the nine months ended
September 30, 1996. Salaries and employee benefits decreased $61,000 for the
nine month period ended September 30, 1996 compared to the nine month period
ended September 30, 1995. The decrease was mostly due to the reduction of some
staff through normal attrition and reduced medical benefits expense.
Loss on foreclosed real estate increased $33,000 during the nine month period
ended September 30, 199 compared to a the same period in 1995. The change was
primarily due to $15,000 gain on sale of real estate owned properties in 1995,
compared to a $37,000 gain in the current year period, a $25,000 decrease in
operating expenses, and a $7,000 recovery recorded on REO properties in 1995
compared to a $46,000 loss provision during the nine month period ended
September 30, 1996.
Federal insurance premium increased $841,000 from $234,000 for the nine month
period ended September 30, 1995 to $1.1 million for the nine month period ended
September 30, 1996. On September 30, 1996 the President of the United States
signed a regulatory relief package which recapitalized the SAIF. All SAIF
members, including the Bank, were required to be charged a one time assessment
to recapitalized the fund. The assessment was calculated at 65.7 basis points of
the total savings deposit base as of March 31, 1995. The Bank recorded a one
time expense of $845,000 and the normal expense of $229,000 for the nine month
period ended September 30, 1996. Because of the one-time assessment the Bank
should pay lower premiums 1997 and there after. Based on deposits as of
September 30, 1996 the Bank expects a expense reduction of $230,000 on a annual
basis.
Non-interest expense other than salaries and employee benefits, federal
insurance premium, and loss on foreclosed real estate decreased $23,000 for the
nine month period ended September 30, 1996 compared to the same period ended in
1995. Much of the decrease was related to lower advertising, equipment and
miscellaneous expenses.
Income Taxes
- ------------
Income tax benefit was $49,000 or 35.7% of loss before income tax benefit for
the nine month period ended September 30, 1996 compared to $183,000 or 35.0% of
income before income taxes for the nine month period ended September 30, 1995.
Page 16
<PAGE>
COMPARISON OF FINANCIAL CONDITION
---------------------------------
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
----------------------------------------
Cash and Cash Equivalents
- -------------------------
The Bank's cash and cash equivalents increased to $1.5 million at September
30, 1996 from $1.1 million at December 31, 1995.
Securities Available for Sale
- -----------------------------
The Bank's securities available for sale increased to $38.3 million as of
September 30, 1996 from $36.0 million at December 31, 1995. During the first
quarter of 1996, the Bank purchased a Small Business Administration security for
$2.3 million with a rate that adjusts monthly and is tied to the prime rate
index. The Bank also purchased four adjustable rate mortgage backed securities
totaling $4.9 million in the second quarter of 1996. These purchases were
partially offset by $4.4 million in repayments during the nine month period
ended September 30, 1996.
Investment Securities Held to Maturity
- --------------------------------------
During the nine month period ended September 30, 1996, various government
agencies exercised their options to call $16.0 million of step-up securities
before the stated maturity date. The proceeds of these funds were used to reduce
FHLB borrowings and to purchase mortgage backed securities during the first six
months of 1996.
Mortgage Backed Securities Held to Maturity
- -------------------------------------------
As of September 30, 1996 the Bank had $17.7 million of mortgage backed
securities classified as held to maturity with a estimated fair value of $17.5
million compared to $2.5 million and $2.5 million, respectively, as of December
31, 1995. During the first six months of 1996 the Bank purchased $14.6 million
of fixed-rate short-term mortgage-backed securities that had average life
ranging from four to five years and an average yield of 6.21% that will be used
for regulatory liquidity. The Bank also purchased $2.0 million of medium-term
securities that had a average lives of 12 years and an average yield of 6.90%
that will be used for investments. These purchases were partially offset by
principal repayments of $1.5 million. Although the fixed-rate securities present
the Bank with some interest rate risk, management believes its vulnerability to
rising interest rates is within acceptable levels. However, there can be no
assurances that a sharp increase in market rates of interest will not have an
adverse effect on net interest income. See "Asset and Liability Management".
Page 17
<PAGE>
Loans Receivable
- ----------------
Loans receivable increased to $88.9 million at September 30, 1996 from $85.8
million as of December 31, 1995. New loan originations of $14.8 million were
offset by repayments of $11.2 million, transfers of $450,000 to real estate
owned and $75,000 in loan loss provisions. The allowance for loan losses
increased by $75,000 during the first nine months of 1996 to $463,000 or .52% of
loans compared to $389,000 or .45% of loans as of December 31, 1995.
On January 1, 1995, the Bank adopted SFAS 114 ("Accounting by Creditors for
Impairment of a Loan") and SFAS 118 ("Accounting by Creditors for Impairment of
a Loan -- Income Recognition and Disclosures") as required by generally accepted
accounting principles. In doing so, the Bank identified loans for which the
provisions of these pronouncements apply and has established criteria to
determine whether such loans are impaired. SFAS 114 provides that provisions of
such Statements are not applicable to large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment. Accordingly,
management has determined that SFAS 114 and 118 do not apply to the following
groups of smaller-balance homogeneous loans:
CATEGORY INVESTMENT
-------- ----------
Mortgage: Residential $200,000 or less
Mortgage: Non-Residential 100,000 or less
Commercial: Unsecured 50,000 or less
Commercial: Secured 100,000 or less
Consumer All loans
Home Equity 75,000 or less
A loan evaluated under SFAS 114 is deemed impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. An insignificant delay, which is defined as up to 90 days by the
Bank, will not cause a loan to be classified as impaired. A loan is not impaired
during a period of delay in payment if the Bank expects to collect all amount
due, including interest accrued at the contractual interest rate for the period
of delay. Thus, a demand loan or other loan with no stated maturity is not
impaired if the Bank expects to collect all amounts due, including interest
accrued at the contractual interest rate, during the period the loan is
outstanding. All loans identified as impaired are evaluated independently. The
Bank does not aggregate such loans for evaluation purposes.
Page 18
<PAGE>
The Bank's policy concerning non-accrual loans states that loans are
placed on a non-accrual status when payments are 90 days delinquent or more.
Therefore, a loan will be considered to be impaired, when it is 90 days
delinquent and it exceeds the balance guidelines for SFAS 114 non-applicability
stated above. It is, therefore, possible for a loan to be on non-accrual status
and not be impaired if the balance falls within the above stated guidelines.
SFAS 114 also requires that loans renegotiated, as part of a troubled
debt restructuring, be classified as impaired and measured for impairment by
discounting the total expected cash flow under the renegotiated terms at the
loan's original effective interest rate. This requirement applies only to loans
renegotiated on or after the effective date of SFAS 114.
Loans, or portions thereof, are charged-off when it is determined that
a loss has occurred. Until such time, an allowance for loan loss is maintained
for estimated losses. With impaired loans, unless they are also non-accrual
loans, the Bank payments first to accrued interest receivable and then to
principal.
As of September 30, 1996, based on the above criteria, the Bank
classified one residential loan and one non-residential loan, totalling $468,000
in the aggregate, as impaired. The impairment of these loans is measured based
on the fair value of the underlying collateral. Based upon such evaluations, $0
has been allocated to the allowance for loan losses for such impairment.
Page 19
<PAGE>
The following schedule sets forth certain information regarding the
Bank's non-accrual, past due and renegotiated loans and other real estate owned
(as such terms are defined in the Bank's Annual Report on Form 10-K for the year
ended December 31, 1995) as of September 30, 1996, and as of December 31 of each
of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
September 30, ---------------------------------------------
1996 1995 1994 1993 1992 1991
----- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............. $ 895 $1,146 $1,470 $ 1,748 $ 4,799 $ 7,593
Past due and accruing loans... --- --- --- --- 450 316
Renegotiated loans............ 1,253 1,343 1,253 215 223 316
----- ------ ------ ------- ------- -------
Total non-accrual, past due
and renegotiated loans $2,148 2,494 2,723 1,963 5,472 8,225
Other real estate owned....... $3,466 3,725 3,943 4,998 5,977 7,385
------ ------ ------ ------- ------- -------
Total..................... $5,614 $6,219 $6,666 $ 6,961 $11,449 $15,610
====== ====== ====== ======= ======= =======
</TABLE>
Included in the above schedule for September 30, 1996 are two
non-accrual loans, totalling $468,000, which represents all loans categorized as
impaired. Therefore, SFAS 114 has no impact on the comparability of data in the
above credit risk table.
At September 30, 1996, non-accrual loans totaled $895,000 a decrease of
$251,000 from the year ended December 31, 1995. Of the total non-accrual loans
at September 30, 1996, all are either in foreclosure, in various stages of
litigation, or on a repayment schedule.
Real Estate Owned(REO)
- ----------------------
REO decreased $259,000 to $3.5 million during the nine month period ended
September 30, 1996. The decrease was due to the sale of four REO properties for
proceeds of $836,000 for a gain of $37,000. These sales were partially offset by
the transfer to REO from loans of $450,000, and the additional cash payment for
two residential properties totalling $146,000 to primary lienholders related to
second mortgages on which the Bank foreclosed. The Bank also received $10,400 in
payments on an REO property and continues to actively seek the resolution of all
REO properties.
Page 20
<PAGE>
KEY NON-PERFORMING
------------------
September 30, 1996 December 31, 1995
------------------ -----------------
Allowance for Loan 8.26% 7.54%
Losses to Non-performing
Loans
Non-performing Loans to 6.31% 6.00%
Total Loans
Non-performing Assets to 3.53% 3.91%
Total Assets
Federal Home Loan Bank of New York Stock
- ----------------------------------------
The Bank purchased $102,300 of stock during the first quarter of 1996 to meet is
required ownership level.
Asset Liability Management
- --------------- ----------
The Bank prepares asset liability reports on a quarterly basis for management
and Board of Directors approval. The Bank utilizes a in-house computer system to
generate reports and also submits data to the OTS for calculations on interest
rate risk. As of June 30, 1996(the most recently available information) the
Bank's net portfolio value (NPV) was $13.2 million and the change in NPV as a
percentage of present value assets when rates rise 200 basis points was -1.25%
which is within the minimum regulatory requirements. The Bank seeks to reduce
this ratio below -1% during the remainder of year, by increasing the maturities
on FHLB borrowings which at present has the majority repriced on a daily basis.
There can be no assurances, however, that the Bank will be successful in
reaching such goal.
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations are employed in calculating NPV. These assumptions relate
to interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under the various interest rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
Deposits
- --------
Deposits increased $2.6 million or 1.94%, excluding the effect of $4.8 million
in interest credited, during the first nine months of 1996.
Page 21
<PAGE>
Other Liabilities
- -----------------
Other liabilities increased $698,000 during the nine month period ended
September 30, 1996. Accounts payable as of September 30, 1996 included $845,000
for the special assessment to recapitalized the SAIF. The special assessment is
expected to be paid by November 30, 1996.
Stockholder's Equity
- --------------------
Stockholders equity decreased $258,000 during the nine month period ended
September 30, 1996 to $9.3 million. The decrease was due to net loss of $88,000
for the nine months ended September 30, 1996, and a $43,000 decrease in
unrealized gains on securities available for sale, and $127,500 in preferred
stock dividends declared during the first nine months of 1996. There were no
common stock dividends declared during the first nine months of 1996.
REGULATORY CAPITAL
------------------
(dollars in thousands)
----------------------
ACTUAL REQUIRED EXCESS
------ -------- ------
TANGIBLE $8,549 5.41% $2,369 1.50% $6,180 3.91%
CORE 8,549 5.41 4,738 3.00 3,811 2.41
RISK-BASED 9,276 13.91 5,333 8.00 3,943 5.91
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of Bancorp and notes thereto, presented
elsewhere herein, have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of Bankcorp's operations. Unlike most industrial companies,
nearly all the assets and liabilities of Bancorp are financial. As a result,
interest rates have a greater impact of Bancorp's performance that do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the prices of goods and services.
Page 22
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
-------------------------------------------
PART II
-------
Item 1. Legal Proceedings
Bancorp and the Bank are not engaged in any legal proceedings of a
material nature at the present time. From time to time, the Bank is
a party to legal proceedings wherein it enforces its security
interest in loans.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Page 23
<PAGE>
Item 5. Other Information
Recapture of Post-1987 Bad-Debt Reserves. Prior to the enactment
of the Small Business Jobs Protection Act, which was signed into
law on August 21, 1996, certain thrift institutions such as the
Bank were allowed deductions for bad debts under methods more
favorable than those granted to other taxpayers. The Small Business
Job Protection Act repealed the Code Section 593 reserve method of
accounting for bad debts by thrift institutions, effective for
taxable years beginning after 1995. Thrift institutions that are
treated as small banks are allowed to utilized the experience
method applicable to such institutions, while thrift institutions
that are treated as large banks are required to use only the
specific charge off method.
The amount of the applicable excess reserves will be taken into
account ratably over a six taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential
loan requirement described below.
A small bank, like the Bank, the amount of the institution's
applicable excess reserves generally is the excess of (I) the
balances of its reserve for losses on qualifying real property
loans and its reserve for losses on non-qualifying loans as of the
close of its last taxable year beginning before January 1, 1996,
over (ii) the greater of the balance of (a) its pre-1988 reserves
or (b) what the Bank's reserves would have been at the close of its
last tax year beginning before January 1, 1996, had the Bank always
used the experience method. At September 30, 1996, the Bank had
$3.5 million of pre 1988 bad-debt reserves. Since the percentage of
taxable income method for tax bad debt deduction and corresponding
increase in the tax bad debt reserve in excess of the base year
have been recorded as temporary differences pursuant to SFAS 109,
this change in the tax law is not expected to have a material
effect on the Company's or the Bank's financial statements.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
Page 24
<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.
FIRST SAVINGS BANCORP OF LITTLE FALLS INC.
------------------------------------------
(Registrant)
Date: November 14, 1996 /s/Haralambos S. Kostakopoulos
------------------------------
Haralambos S. Kostakopoulos
President
Chief Executive Officer
Date: November 14, 1996 /s/Brian McCourt
----------------
Brian McCourt
Vice President
Treasurer
- --------------------------------------------------------------------------------
Page 25
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 771
<INT-BEARING-DEPOSITS> 733
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,335
<INVESTMENTS-CARRYING> 20,659
<INVESTMENTS-MARKET> 20,496
<LOANS> 88,946
<ALLOWANCE> 464
<TOTAL-ASSETS> 159,140
<DEPOSITS> 139,005
<SHORT-TERM> 9,200
<LIABILITIES-OTHER> 1,597
<LONG-TERM> 0
0
0
<COMMON> 100
<OTHER-SE> 4,010
<TOTAL-LIABILITIES-AND-EQUITY> 159,140
<INTEREST-LOAN> 5,647
<INTEREST-INVEST> 2,405
<INTEREST-OTHER> 439
<INTEREST-TOTAL> 8,490
<INTEREST-DEPOSIT> 4,815
<INTEREST-EXPENSE> 529
<INTEREST-INCOME-NET> 3,146
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,333
<INCOME-PRETAX> (137)
<INCOME-PRE-EXTRAORDINARY> (137)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.49)
<YIELD-ACTUAL> 2.94
<LOANS-NON> 895
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,253
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 389
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 464
<ALLOWANCE-DOMESTIC> 464
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 464
</TABLE>
