SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------------
FORM 10-Q
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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 June 30, 1996
and December 31, 1995 (unaudited) 1
Consolidated Statements of Income
for the Three and Six Months Ended
June 30, 1995 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows
of the Six Months Ended
June 31, 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 - 20
PART II - OTHER INFORMATION 22 - 24
SIGNATURES 25
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
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AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1995 June 30, 1996
- ------ ----------------- -------------
Cash and amounts due from (UNAUDITED)
<S> <C> <C>
depository institutions $862,200 $738,477
Interest-bearing demand
deposits in other banks 265,375 801,383
----------------- ------------------
Total cash and cash equivalents 1,127,575 1,539,860
Securities available for sale, net 35,964,115 40,230,731
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 $18,527,000(1996) 2,545,101 18,556,611
Loans receivable, net of allowance for loan
losses of $388,633(1995) $438,633 (1996) 85,836,007 87,989,391
Premises and equipment, net 2,904,934 2,805,336
Real estate owned, net 3,724,958 3,403,373
Federal Home Loan Bank
of New York stock, at cost 823,300 925,600
Interest and dividends receivable, net 1,427,868 1,170,270
Other assets 1,281,111 1,516,394
----------------- ------------------
Total assets $154,634,969 $161,137,566
================= ==================
Liabilities and stockholder's equity
- ------------------------------------
Liabilities
- -----------
Deposits $131,636,083 $134,402,906
Federal Home Loan Bank of New York Advances 12,600,000 16,200,000
Advance payments by borrowers for
taxes and insurance 563,262 673,555
Other liabilities 238,715 100,118
----------------- ------------------
Total liabilities 145,038,060 151,376,579
----------------- ------------------
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 5,570,704
Unrealized gain on securities available for sale 133,969 79,806
----------------- ------------------
Total stockholders' equity 9,596,909 9,760,987
----------------- ------------------
Total liabilities and stockholders' equity $154,634,969 $161,137,566
================= ==================
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE 1
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
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AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30 JUNE 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 $ 1,619,522 $ 1,865,542 $ 3,220,776 $ 3,730,031
Mortgage-backed securities 334,221 878,997 657,654 1,545,264
Investments and other 539,746 77,595 993,538 365,626
----------- ----------- ----------- -----------
Total interest income 2,493,489 2,822,134 4,871,968 5,640,921
----------- ----------- ----------- -----------
Interest Expense
Deposits 1,528,330 1,588,486 2,907,435 3,183,088
Borrowed Money 0 168,778 0 350,103
----------- ----------- ----------- -----------
Total Interest expense 1,528,330 1,757,264 2,907,435 3,533,191
----------- ----------- ----------- -----------
Net interest income 965,159 1,064,870 1,964,533 2,107,730
Provision for loan losses 0 25,000 0 50,000
----------- ----------- ----------- -----------
Net interest income after
provision of loan losses 965,159 1,039,870 1,964,533 2,057,730
----------- ----------- ----------- -----------
Non-interest income
Service charges 23,396 22,288 44,220 46,336
Miscellaneous 16,786 17,645 36,049 34,647
----------- ----------- ----------- -----------
Total non-interest income 40,182 39,933 80,269 80,983
----------- ----------- ----------- -----------
Non-interest expense
Salaries and employee benefits 373,524 349,052 758,050 701,441
Net occupancy expense 56,476 66,302 116,052 133,830
Equipment 93,555 87,208 185,103 172,755
(Income) loss on foreclosed real estate 10,462 35,344 (2,300) 58,108
Federal insurance premium 79,186 75,266 158,374 149,737
Advertising and promotion 43,074 32,033 67,028 38,102
Legal fees 44,834 39,945 84,159 89,545
Miscellaneous 191,604 182,797 351,069 331,183
----------- ----------- ----------- -----------
Total non-interest expenses 892,715 867,947 1,717,535 1,674,701
----------- ----------- ----------- -----------
Income before income taxes 112,626 211,856 327,267 464,012
Income taxes 39,329 72,810 114,704 160,770
----------- ----------- ----------- -----------
Net income 73,297 139,046 212,563 303,242
Preferred stock dividends 42,500 42,500 85,000 85,000
----------- ----------- ----------- -----------
Net income applicable to common shares $ 30,797 $ 96,546 $ 127,563 $ 218,242
=========== =========== =========== ===========
Net income per common share and common
stock equivalents $ 0.17 $ 0.32 $ 0.48 $ 0.69
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.
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AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1,995 1,996
----- -----
Cash flows from operating activities:
- -------------------------------------
<S> <C> <C>
Net income $ 212,563 $ 303,242
Adjustments to reconcile net income to
--------------------------------------
net cash provided by operating activities:
-------------------------------------------
Depreciation 164,532 141,182
Amortization (accretion) of premiums, discounts and fees, net (15,811) 119,675
Recovery of losses on loans (1,165) --
Provision for loan losses -- 50,000
Provision for Real Estate Owned losses -- 45,500
Net gain on sales of real estate owned (55,335) (37,287)
(Increase)decrease in interest and dividends receivable, net (115,616) 257,598
Increase in other assets (112,792) (228,964)
Decrease (increase) in accrued interest payable 55,001 (83,905)
Decrease in other liabilities (35,951) (3,548)
Amortization of branch premium 16,668 16,666
------------ ------------
Net cash provided by operating activities 112,094 580,159
------------ ------------
Cash flows from investing activities:
- -------------------------------------
Purchase of securities available for sale -- (7,128,915)
Purchase of investment securities held fo maturity (7,595,683) --
Proceeds from maturities of term deposits 13,250,000 --
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 10,986 --
Investment securities available for sale repayments -- 2,638,665
Mortgage-backed securities held to maturity repayments 1,186,829 626,277
Net decrease (increase) in loans receivable 248,916 (2,380,314)
Additions to premises and equipment (296,777) (41,584)
Additions to real estate owned (96,850) (117,500)
Payments received on real estate owned 5,000 7,400
Proceeds from sales of real estate owned 660,460 630,370
Purchase of Federal Home Loan Bank of NY stock (151,300) (102,300)
------------ ------------
Net cash used in investment activities (9,649,051) (6,508,845)
------------ ------------
Cash flows from financing activities:
- -------------------------------------
Net increase in deposits 5,812,204 2,850,728
Increase in Federal Home Loan Bank Advances 1,500,000 3,600,000
Increase in advance payments by
borrowers for taxes and insurance 73,263 110,293
Preferred stock dividends paid (170,000) (170,000)
Common stock dividends paid (50,050) (50,050)
------------ ------------
Net cash provided by financing activities 7,165,417 6,340,971
------------ ------------
Net decrease in cash and cash equivalents (2,371,540) 412,285
Cash and cash equivalents -- beginning 3,559,346 1,127,575
------------ ------------
Cash and cash equivalents -- ending $ 1,187,806 $ 1,539,860
============ ============
</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>
Six Months Ended June 30,
-------------------------
1,995 1,996
----- -----
Supplemental disclosures of cash flows information:
- ---------------------------------------------------
Cash paid during the period for:
- ---------------------------------
<S> <C> <C>
Interest $2,852,434 $3,617,096
========== ==========
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 $ 3,784 $ 54,163
===== ========== ==========
Loans transferred to real estate owned -- $ 206,898
========== ==========
Payment of stock dividend, declared in prior periods $ 135,050 $ 135,050
========== ==========
</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 six months ended June 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 June 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, Six months ended June 30,
--------------------------------------------------
1995 1995 1996
---- ---- ----
Balance - beginning $ 377,315 $ 377,315 $ 388,633
Provision charged 80,228 --- 50,000
Loans charged off (70,605) --- ---
Recoveries 1,695 58,535 ---
----------------------------------------
Balance - ending $388,633 $ 318,750 $ 438,633
=======================================
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):
December 31, June 30,
-----------------------------
1995 1995 1996
---- ---- ----
Recorded investment in impaired loans:
With recorded allowances $--- $--- ---
Without recorded allowances 281 511 226
-------------------------
Total impaired loans 281 511 226
Related allowance for loan losses --- --- ---
Net impaired loans $281 $511 $226
==========================
For the year ended December 31, 1995, and the six months ended June 30, 1995 and
1996, the average recorded investment in impaired loans totaled $355,000,
$511,000 and $226,000, respectively, while interest income recognized on such
loans during the time each was impaired totaled $7,000, $2,000 and $1,500,
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 $18.7 million or 12.4% as of June 30 1996,
which was available for investment, mortgage originations, or deposit outflows.
The Bank also has an $13.3 million line of credit with the Federal Home Loan
Bank of New York (FHLB) of which $6.7 million had been used as of June 30, 1996.
The Bank's liquidity portfolio as of June 30, 1996 consisted of $738,000 of
cash on hand and amounts due from depository institutions, $801,000 of interest
earning deposits at FHLB, and $17.2 million of investments and mortgage backed
securities maturing in less than five years.
The Bank utilized the FHLB for borrowings during the first two 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 June 30, 1996 the Bank had an outstanding
one month advance of $9.5 million with a rate of 5.50% which matures in April
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 small net outflow of deposits before interested
credited during the first half of 1996 totalling $2.8 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, and $8.3 million of loans for the three month periods ended March 1996
and June 1996 respectively. The Bank had $3.1 million of outstanding loan
commitments as of June 30, 1996. Although there can be no assurance, the Bank
expects to continue the marketing of loans in the second half of 1996 in an
effort to produce a higher loan to deposit ratio and increase earnings. 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 June 30, 1995 and 1996
-----------------------------------------
Net Income
- ----------
Net income for the three months ended June 30, 1996 was $139,000 compared to
$73,000 for the three month period ended June 30, 1995. The primary reasons for
the increase in earnings were an increase in net interest income of $100,000 and
a decrease in non-interest expenses of $25,000, which were partially offset by
increases of $25,000 and $33,000 in the provision for loan losses, and income
taxes, respectively.
Interest Income
- ---------------
Interest income increased $329,000 from $2.5 million for the three month period
ended June 30, 1995 to $2.8 million for the three month period ended June 30,
1996. The primary reason for the increase was that the average balances of the
securities and loan portfolio increased $18.9 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. Rising
interest rates also helped contribute to the increase in interest income. The
average return on loans and securities increased from 7.58% during the three
month period ended June 30, 1995 to 7.79% during the three month period ended
June 30, 1996.
Interest Expense
- ----------------
Interest expense increased $229,000 from $1.5 million for the three month period
ended June 30, 1995 to $1.8 million for the three month period ended June 30,
1996. The primary reason for the increase was that the average balances of
deposits and borrowings were $18.0 million higher during the three month period
ended June 30, 1996 compared to the same period last year. The Bank maintained
an average balance of FHLB borrowings totalling $12.6 million during the three
month period ended June 30, 1996 compared to $16,000 of borrowings for the same
period last year.
Page 10
<PAGE>
Net Interest Income
- -------------------
The Bank's net interest income increased $100,000 to $1.1 million for the three
month period ended June 30, 1996 compared to $965,000 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 June 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 2.80% for the three
month period ended June 30, 1995, to 2.96% for the three month period ended June
30, 1996.
Provision for Loan Losses
- -------------------------
The Bank had a $25,000 provision for loan losses during the three month period
ended June 30, 1996 compared to no provision for loan losses during the three
month period ended June 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 June 30, 1996 and this provision was not identified by any one asset. 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.
Non-Interest Income
- -------------------
Non-interest income remained relatively unchanged at $40,000 for the three month
period ended June 30, 1996 compared to the same period last year because the
Bank maintained its fee schedule from the previous year.
Page 11
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expenses decreased $25,000 to $867,000 for the three months ended
June 30, 1996 from $893,000 for the same prior year period.
Salaries and employee benefits decreased $24,000 or 6.6% to $349,000 for the
three month period ended June 30, 1996 as compared to $374,000 the same period
last year. The decrease was mostly due to the reduction of some staff through
normal attrition and reduced medical benefits expense.
During the three month period ended June 30, 1996 the Bank recorded loss of
$35,000 on foreclosed real estate compared to a $10,000 loss during the three
month period ended June 30, 1995. The primary reason for the increase was due to
a $45,500 increase in loss provisions during the three month period ended June
30, 1996 which was offset partially by the gain on sale of two properties
totalling $37,000. During the three month period ended June 30, 1995 the Bank
had no sales of properties and reduced holding expenses.
During the three months ended June 30, 1996 non-interest expenses other than
salaries and employee benefits and loss on foreclosed real estate decreased
$25,000 or 4.9% to $484,000 from $509,000 in the prior year quarter. Much of the
decrease was related to the decrease in advertising, legal and other
miscellaneous expenses that were higher during the same period last year.
Income Taxes
- ------------
Income taxes were $73,000 and $39,000 for the three months ended June 30, 1996
and 1995, respectively. The increase resulted from increased pre-tax earnings.
Page 12
<PAGE>
RESULTS OF OPERATIONS
---------------------
Six Months Ended June 30, 1995 and 1996
---------------------------------------
Net Income
- ----------
Net income for the six month period ended June 30, 1996 was $303,000 compared
to $213,000 for the six month period ended June 30, 1995. The primary reasons
for the increase in earnings were an increase in net interest income of $143,000
and a decrease in non-interest expenses of $43,000, which were partially offset
by increases of $50,000 and $46,000 in the provision for loan losses and income
taxes, respectively.
Interest Income
- ---------------
Interest income increased $769,000 from $4.9 million for the six month period
end June 30, 1995 to $5.6 million for the six month period ended June 30, 1996.
The primary reason for the increase was an increase in the average balance of
the Bank's loan and investment portfolio which increased $18.7 million for the
six month period ended June 30, 1996 compared to the same period in 1995. The
average return on loans and investments increased from 7.52% during the six
month period ended June 30, 1995 to 7.83% during the six month period ended June
30, 1996.
Interest Expense
- ----------------
Interest expense increased $626,000 from $2.9 million for the six month period
ended June 30, 1995 to $3.5 million for the six month period ended June 30,
1996. The increase was due to average balance of deposits and borrowed funds
being approximately $18.0 million higher during the six month period ended June
30, 1996 compared to the same period in 1995. The average cost of funds
increased from 4.64% during the six month period ended June 30, 1995 to 4.87%
for the six month period ended June 30, 1996 due to general increases in market
rates of interest and the greater use of generally higher costing advances.
Page 13
<PAGE>
Net Interest Income
- -------------------
Net interest income before provision for loan losses increased $143,000 for
the six month period ended June 30, 1996 compared to the same period in 1995.
The increase was due to a higher level of net earning assets during the six
month period ended June 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:
<TABLE>
<CAPTION>
AVERAGE For Six Months JUNE 30, 1995 JUNE 30, 1996
================================= ============================== ==============================
<S> <C> <C>
YIELD ON INTEREST EARNING ASSETS 7.52% 7.83%
================================= ------------------------------ ==============================
COST OF FUNDS 4.64% 4.87%
================================= ============================== ==============================
NET INTEREST SPREAD 2.88% 2.96%
================================= ============================== ==============================
</TABLE>
Provision for Loan Losses
- -------------------------
The Bank had a $50,000 provision for loan losses during the six month period
ended June 30, 1996, compared to no provision in the six month period ended June
30, 1995. Based on the factors set forth below, the Bank chose to increase its
general loan loss provision during the six month period ended June 30, 1996 and
this provision was not identified by any one asset. See "Comparison of Financial
Condition--Loans Receivable" for analysis of allowance for loan loss levels. See
also "-Three Months Ended June 30, 1995 and 1996--Provision for Loan Losses."
Non-Interest Income
- -------------------
Non-interest income increased $1,000 for the six month period ended June 30,
1996 compared the six month period ended June 30, 1995 because the Bank
maintained its fee schedule from the previous year.
Page 14
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expenses decreased by $43,000 during the six months ended June
30, 1996. Salaries and employee benefits decreased $57,000 for the six month
period ended June 30, 1996 compared to the six month period ended June 30, 1995.
The decrease was mostly due to the reduction of some staff through normal
attrition and reduced medical benefits expense.
Income on foreclosed real estate of $2,000 was recorded during the six month
period ended June 30, 1995 compared to a loss of $58,000 in the same period in
1996. The change was primarily due to $73,000 gain on sale of real estate owned
properties in 1995, compared to a $37,000 gain in the current year period,
partially offset by a $7,000 recovery recorded on REO properties in 1995
compared to a $45,500 loss provision during the six month period ended June 30,
1996.
Non-interest expense other than salaries and employee benefits and loss on
foreclosed real estate decreased $46,000 for the six month period ended June 30,
1996 compared to the same period ended in 1995. Much of the decrease was related
to lower advertising, deposit insurance, and miscellaneous expenses.
Income Taxes
- ------------
Income taxes were $161,000 and $115,000 for the six months ended June 30, 1996
and 1995, respectively. The increase is the result of increased pre-tax
earnings.
Page 15
<PAGE>
COMPARISON OF FINANCIAL CONDITION
---------------------------------
DECEMBER 31, 1995 AND JUNE 30, 1996
-----------------------------------
Cash and Cash Equivalents
- -------------------------
The Bank's cash and cash equivalents increased to $1.5 million at June 30, 1996
from $1.1 million at December 31, 1995.
Securities Available for Sale
- -----------------------------
The Bank's securities available for sale increased to $40.2 million as of June
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 $2.6 million in repayments during the six months ended June 31, 1996.
Investment Securities Held to Maturity
- --------------------------------------
During the six month period ended June 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.
Mortgage Backed Securities Held to Maturity
- -------------------------------------------
As of June 30, 1996 the Bank had $18.6 million of mortgage backed securities
classified as held to maturity with a estimated fair value of $18.5 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 $626,000. 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 16
<PAGE>
Loans Receivable
- ----------------
Loans receivable increased to $88.0 million at June 30, 1996 from $85.8 million
as of December 31, 1995. New loan originations of $10.3 million were offset by
repayments of $7.9 million, transfers of $207,000 to real estate owned and
$50,000 in loan loss provisions. The allowance for loan losses increased by
$50,000 during the first six months of 1996 to $439,000 or .50% 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 17
<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 June 30, 1996, based on the above criteria, the Bank classified
one residential loan, totalling $226,000, as impaired. The impairment of this
loan is measured based on the fair value of the underlying collateral. Based
upon such evaluations, $0 has been allocated to the allowance for loan losses
for such impairment.
Page 18
<PAGE>
The following schedule sets forth certain information regarding the
Bank's non-accrual, past due and renegotiated loans and other real estate owned
(as such terms are defined in the Bank's Annual Report on Form 10-K for the year
ended December 31, 1995) as of June 30, 1996, and as of December 31 of each of
the last five years:
June 30, DECEMBER 31,
-----------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(In Thousands)
Non-accrual loans.............$ 932 $1,146 $1,470 $ 1,748 $ 4,799 $ 7,593
Past due and accruing loans... --- --- --- --- 450 316
Renegotiated loans............ 1,253 1,348 1,253 215 223 316
-------------------------------------------
Total non-accrual, past due
and renegotiated loans $2,185 2,494 2,723 1,963 5,472 8,225
Other real estate owned.......$3,403 3,725 3,943 4,998 5,977 7,385
------- ------------------------------------
Total..................... $5,588 $6,219 $6,666 $ 6,961 $11,449 $15,610
====== =====================================
Included in the above schedule for June 30, 1996 is one non-accrual
loan, totalling $226,000, 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 June 30, 1996, non-accrual loans totaled $932,000 a decrease of
$214,000 from the year ended December 31, 1995. Of the total non-accrual loans
at June 30, 1996, all are either in foreclosure, in various stages of
litigation, or on a repayment schedule.
Real Estate Owned(REO)
- ----------------------
REO decreased $322,000 to $3.4 million during the six month period ended June
30, 1996. The decrease was due to the sale of three REO properties for proceeds
of $630,000 for a gain of $37,000. These sales were partially offset by the
transfer to REO from loans of $207,000, and the additional cash payment for a
residential loan totalling $118,000 for a second mortgage which the Bank
foreclosed on. The Bank also received $7,400 in payments on an REO property and
continues to actively seek the resolution of all REO properties.
Page 19
<PAGE>
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, which at present is exempt from filing. As of March 31, 1996 the
Bank's net portfolio value (NPV) was $13.7 million and the change in NPV as a
percentage of present value assets when rates rise 200 basis points is -1.38%
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 decreased $416,000 or 0.3%, excluding the effect of $3.2 million in
interest credited, during the first six months of 1996.
Page 20
<PAGE>
Stockholder's Equity
- --------------------
Stockholders equity increased $164,000 during the six month period ended June
30, 1996 to $9.8 million. The increase was due to net income of $303,000 for the
six months ended June 30, 1996, and a $54,000 decrease in unrealized gains on
securities available for sale, which more than offset $85,000 in preferred stock
dividends declared during the first six months of 1996. There was no common
stock dividends declared during the first six months of 1996.
REGULATORY CAPITAL
------------------
(dollars in thousands)
----------------------
ACTUAL REQUIRED EXCESS
------ -------- ------
TANGIBLE $8,978 5.61% $2,399 1.50% $6,579 4.11%
CORE 8,978 5.61 4,799 3.00 4,179 2.61
RISK-BASED 9,730 14.65 5,313 8.00 4,417 6.65
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 21
<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
At the Annual meeting of Stockholders of Bancorp held on May 7,
19965, Radics & Co, LLC was appointed as auditors for Bancorp for the
1996 fiscal year and two directors of the Bancorp were re-elected to
the board for another term. Paul D. Oesterle, Jr. and Anthony J.
Sansiveri were re-elected as directors of the Bancorp for a term to
expire in 1999 by the following vote:
For Withheld
------------------ -----------------
Number Percentage Number Percentage
of of of of
Votes Shares Votes Shares
----- ------ ----- ------
Paul D. Oesterle 78,625 78.55% -0- -0-
Anthony J. Sansiveri 78,625 78.55 -0- -0-
Page 22
<PAGE>
Item 5. Other Information
Potential One-Time Assessment. Current regulations require the Bank
to pay an insurance premium to the Federal Deposit Insurance
Corporation ("FDIC") between .23% to .31% of its total deposits. In
August, 1995, The FDIC announced that it will lower the insurance
premium for members of the BIF, primarily commercial banks, to a
range of between 0.04% and 0.31% of deposits, with the result that
most commercial banks will pay the lowest rate of 0.04%. This
reduction in insurance premiums for BIF members could place SAIF
members, primarily savings associations, such as the Bank, at a
material competitive disadvantage to BIF members and, for the reasons
set forth below, could have a material adverse effect on the results
of operations and financial condition of the Bank in future periods.
The disparity in insurance premiums between those required for the
Bank and BIF members could allow BIF members to attract and retain
deposits at a lower effective cost than that possible for the Bank
and Put competitive pressure on the Bank to raise its interest rates
paid on deposits thus increasing its cost of funds and possibly
reducing net interest income. The resultant competive disadvantage
could result in the Bank losing deposits to BIF members who have a
lower cost of funds and are therefore able to pay higher costs than
those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity have recently been proposed by the U.S. Congress,
federal regulators, industry lobbyists and the Administration. One
plan that has gained support of several sponsors would require all
SAIF member institutions, including the Bank, to pay a one-time fee
of up to 85 basis points on the amount of deposits held by the member
institution to recapitalize the SAIF. If this proposal is enacted by
Congress, the effect would be to immediately reduce the capital of
the SAIF-member institutions by the amount of the fee, and such
amount would be immediately charged to earnings, unless the
institutions are permitted to amortize the expense of the fee over a
period of years. Management of the Bank is unable to predict whether
this proposal or any similar proposal will be enacted or whether
ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums.
Page 23
<PAGE>
Recent Legislation - Recapture of Post-1987 Bad-Debt Reserves. On
August 2, 1996, both the U.S. House of Representatives and the U.S.
Senate passed the Small Business Job Protection Act of 1996. This bill
will, if signed by the President, among other things, equalize the
taxation of thrifts and banks. Previously, thrifts, had been able to
deduct a portion of their bad-debt reserves set aside to cover
potential loan losses ("bad-debt reserves"). Furthermore, the bill
will repeal current law mandating recapture of thrifts' bad debt
reserves if they convert to banks. Bad debt reserves set aside through
1987 will not be taxed, however, any reserves taken since January 1,
1988 will be taxed over a six year period beginning in 1997.
Institutions can delay these taxes for two year if they meet a
residential-lending test. At June 30, 1996, the Bank had $3.8 million
of post 1987 bad-debt reserves . Any recapture of the Bank's bad-debt
reserves may have an adverse effect on net income.
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: August 14, 1996 /s/Haralambos S. Kostakopoulos
------------------------------
Haralambos S. Kostakopoulos
President
Chief Executive Officer
Date: August 14, 1996 /s/Brian McCourt
------------------------------
Brian McCourt
Vice President
Treasurer
Page 25
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 738
<INT-BEARING-DEPOSITS> 801
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,231
<INVESTMENTS-CARRYING> 21,557
<INVESTMENTS-MARKET> 21,523
<LOANS> 87,989
<ALLOWANCE> 439
<TOTAL-ASSETS> 161,138
<DEPOSITS> 134,403
<SHORT-TERM> 16,200
<LIABILITIES-OTHER> 774
<LONG-TERM> 0
0
0
<COMMON> 100
<OTHER-SE> 4,010
<TOTAL-LIABILITIES-AND-EQUITY> 161,138
<INTEREST-LOAN> 3,730
<INTEREST-INVEST> 1,545
<INTEREST-OTHER> 366
<INTEREST-TOTAL> 5,641
<INTEREST-DEPOSIT> 3,183
<INTEREST-EXPENSE> 350
<INTEREST-INCOME-NET> 2,108
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,675
<INCOME-PRETAX> 464
<INCOME-PRE-EXTRAORDINARY> 464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303
<EPS-PRIMARY> .69
<EPS-DILUTED> .50
<YIELD-ACTUAL> 2.96
<LOANS-NON> 932
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,253
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 389
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 439
<ALLOWANCE-DOMESTIC> 439
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 439
</TABLE>
