SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| X | EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
---------------------------------
- or -
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| | EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________________ to ______________________
SEC COMMISSION NO. 0-23194
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
New Jersey 22-1284835
- ----------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
7 Center Avenue, Little Falls, New Jersey 07424
- ----------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 256-2100
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
-----------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant - Not Applicable. The Registrant's voting stock is not regulatory
and actively traded in any established market.
As of March 15, 1997, the Registrant had outstanding 440,100 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996. (Parts II and IV)
2. Portion of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III).
<PAGE>
PART I
Item 1. Business
- -----------------
Business of the Corporation. First Savings Bancorp of Little Falls, Inc.
(the "Corporation") is a savings and loan holding company headquartered in
Little Falls, New Jersey and was incorporated in March 1993 under the laws of
New Jersey. The Corporation has one subsidiary, First Bank of Little Falls, FSB
(the "Bank"), a federally chartered stock savings bank. See "--Business of the
Bank." The Corporation owns 100% of the outstanding stock of the Bank.
Business of the Bank. The Bank is a federally chartered stock savings bank
headquartered in Little Falls, New Jersey. The Bank is subject to examination
and comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits have been federally insured by the Savings Association Insurance Fund
("SAIF") and its predecessor, the Federal Savings and Loan Insurance Corporation
since 1934. The Bank is a member of and owns capital stock in the FHLB of New
York, which is one of the 12 regional banks in the FHLB system. The Bank has
investments in two service corporations. See "-- Subsidiary Activities.
Competition. The Bank is one of the many financial institutions serving
its market area consisting of the New Jersey counties of Passaic, Bergen and
Essex. Deposit and loan competition varies depending upon market conditions and
comes from other insured financial institutions, such as commercial banks,
thrift institutions and credit unions.
Lending Activities
The principal lending activity of the Bank is the origination of mortgage
loans secured by one-to- four-family residences and to a lesser extent,
multi-family commercial real estate mortgage loans, construction loans, consumer
loans and commercial loans.
1
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Bank's loan portfolio by type of loan on the dates
indicated.
At December 31,
--------------------------------------------
1996 1995
--------------------- ---------------------
$ % $ %
-------- ------- --------- ---------
Type of Loan (Dollars in Thousands)
Real estate loans:
1-4 family................. $ 78,838 83.22 % $ 70,157 81.73 %
Other dwellings............ 3,311 3.49 5,291 6.16
Non-residential............ 6,817 7.20 5,525 6.44
-------- ------ -------- -------
Total real estate........ 88,966 93.91 80,973 94.33
-------- ------ -------- -------
Commercial loans............. 3,954 4.18 3,576 4.17
-------- ------ -------- -------
Consumer loans:
Savings account loans.... . 814 .86 811 .94
Home improvement loans .... 1,091 1.15 870 1.01
Student loans.............. 116 .12 125 .15
Other loans................ 527 .56 146 .17
-------- ------- -------- -------
Total consumer.......... 2,548 2.69 1,952 2.27
-------- ------- -------- -------
95,468 100.78 86,501 100.77
-------- ------- -------- -------
Less:
Loans in process........... -- -- -- --
Deferred loan origination fees
and discounts............. (211) (.23) (276) (.32)
Allowance for loan losses.. (524) (.55) (389) (.45)
-------- ------- -------- -------
(735) (.78) (665) (.77)
-------- ------- -------- -------
Total loans, net......... $ 94,733 100.00 % $ 85,836 100.00 %
======== ====== ========= =======
2
<PAGE>
Loan Maturity Tables. The following table sets forth the contractual
maturity of the Bank's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- ------
(In Thousands)
<C> <C> <C> <C> <C>
1-4 family and other dwellings $ 837 $ 2,003 $ 79,309 $ 82,149
Commercial real estate........ 1,551 4,715 551 6,817
Consumer and commercial....... 675 2,698 3,129 6,502
------ ------ ------- -------
$ 3,063 $ 9,416 $ 82,989 $ 95,468
====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have predetermined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
1-4 family and other dwellings $ 43,935 $37,377 $ 81,312
Commercial real estate...... 2,255 3,011 5,266
Consumer and commercial..... 1,091 4,736 5,827
------- ------- -------
Total................... $ 47,281 $ 45,124 $ 92,405
======= ======= =======
One-to Four-Family Residential Loans. The Bank's primary lending activity
historically has consisted of the origination of one- to four-family residential
loans secured by owner-occupied property in the Bank primary market area. The
Bank generally originated one-to four-family residential mortgage loans in
amounts up to 80% of the lesser of the appraised value or selling price of the
mortgage property. With private mortgage insurance obtained for the borrower,
the maximum loan to value ratio is increased to 90%. However, the Bank generally
does not originate loans where the loan to value ratio exceeds 80%. When lending
is over $200,000, the maximum loan to value ratio is reduced to 70%. The maximum
loan amount for such loans is handled on a case by case basis. Mortgage loans
originated and held by the Bank in its portfolio generally include due-on-sale
clauses which provide the Bank with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers ownership
of the property without the Bank consent.
The Bank typically offers adjustable-rate mortgage loans (ARM's) at
initial rates that are below the market rate ("teaser rates"). The Bank requires
for all adjustable-rate mortgage loans that the borrower qualify at a rate that
is 2.75% above the initial contractual rate. The Bank offers ARM's that reprice
annually with interest rate adjustment limitations of 2% per year and 6% over
the life of the loan, which most loans have terms between 15 and 30 years. The
Bank offers ARMS's using the weekly average yield on U.S. Treasury securities
plus 275 basis points.
3
<PAGE>
Adjustable-rate mortgage loans decrease the risks associated with changes
in interest rates by more closely reflecting these changes, but involve other
risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same time,
the marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the adjustable-rate mortgage loan documents, thereby potentially
limiting their effectiveness during periods of rising interest rates. These
risks have not had an adverse effect on the Bank.
Commercial Real Estate. Commercial real estate loan portfolio consist
solely of loans secured by real estate, such as small business facilities,
office buildings and other non-residential buildings. Loans secured by
commercial property may be in amounts up to 75% (80% in special limited cases)
of the appraised value for a maximum term of 20 years. Commercial lending
entails significant additional risks when compared with one-to four-family
residential lending. For example, commercial loans typically involve larger loan
balances to single borrowers or groups of related borrowers, the payment
experience on such loans typically is dependent on the successful operation of
the project and these risks can be significantly impacted by the cash flow of
the borrowers and supply and demand conditions in the market for commercial
office, retail and warehouse space.
Consumer Loans. Consumer loans portfolio primarily consist of savings
account loans, home improvement loans and second mortgage loans and to a much
lesser extent student loans and other personal loans. Savings account loans are
offered subject to a 90% loan to value ratio and home improvement loans and
second mortgage loans are offered subject to a 70% loan to value ratio.
Loan Approval Authority and Underwriting. All loans must be approved by
one or more loan committees. Loans for amounts over $500,000 must be approved by
the Board of Directors of the Bank.
Upon receipt of a completed loan application from a prospective borrower,
a credit report is generally ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal of the real estate intended to be used as security for the proposed
loan is obtained. Appraisals are obtained from independent fee appraisers. For
each estate loans the Bank requires either title insurance or a title opinion.
Borrowers must also obtain fire and casualty insurance (for loans on property
located in a flood zone, flood insurance is required) prior to the closing of
the loan.
Loan Commitments. The Bank issues written commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of issuance. At December 31, 1996, the
Bank had $1.2 million of commitments to cover originations. Management believes
that virtually all of the Bank's commitments will be funded.
Loans to One Borrower. Regulations limit loans-to-one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus of the Bank.
The Bank is authorized to lend up to an additional 10% of unimpaired capital and
unimpaired surplus if the loan is fully secured by readily marketable
collateral. Savings banks are authorized to make loans to one borrower, for any
purpose, in an amount up to $500,000. The Bank's maximum loan-to-one borrower
limit was approximately $1.4 million at December 31, 1996. At December 31, 1996,
the aggregate loans outstanding to our three largest borrowers, in excess of
$500,000, were approximately $970,000, $902,000 and $792,000, respectively. As
of the that date these loans were secured loans and were within our lending
limit.
4
<PAGE>
Non-Performing and Problem Assets
Loan Delinquencies. Loans are reviewed on a regular basis and are placed
on a non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential and commercial mortgage loans are
placed on non-accrual status when either principal or interest is 90 days or
more past due and management considers the interest uncollectible or when the
Bank commences foreclosure proceedings. Interest accrued and unpaid at the time
a loan is placed on non-accrual status is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned ("REO") until such time
as it is sold. When REO is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair market value less estimated
selling costs. Any write-down of REO is charged to the allowance for real estate
losses. At December 31, 1996, the Bank owned approximately $2.9 million, net of
valuation reserves, of property classified as REO.
The following table sets forth information regarding non-performing loans
and real estate owned.
At December 31,
----------------------
1996 1995
--------- ---------
(In Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Loans secured by 1-4 dwelling units................. $ 476 $ 842
All other mortgage loans............................ 1,076 136
Non-mortgage loans:
Consumer............................................ 87 167
------ ------
Total............................................. $ 1,639 $ 1,146
------ ------
Restructured loans:
Mortgage............................................ 1,313 1,348
------ ------
Total non-accrual and restructured loans.............. $ 2,952 $ 2,494
------ ------
Real estate owned, net................................ 2,906 3,725
------- ------
Total non-performing assets (1)....................... $ 5,858 $ 6,219
====== ======
- ------------------
(1) In 1996 and 1995, there were no accruing loans which were contractually
past due 90 days or more.
Interest income that would have been recorded on loans on a non-accrual status,
under the original terms of such loans, would have totaled $303,000 for the year
ended December 31, 1996. Actual income recorded on these loans during the year
ended December 31, 1996 totaled $230,000.
5
<PAGE>
Real Estate Owned. The following is a summary of significant properties in the
Bank's REO portfolio as of December 31, 1996.
Cambridge Court Condominiums, Fort Lee, New Jersey. The original loan
amount for the construction of these 18 condominium units was $7,000,000. The
loan was originated in December, 1988 and the property was appraised at
$9,679,000 at that time. The original borrowers were unable to meet the loan
payments due to insufficient cash flow. The Bank has sold 15 of the 18 units,
and rented one unit and is expected the sell or rent the remaining two units in
1997. The net book value as of December 31, 1996 is $523,000.
Office Building in Fairfield, New Jersey (Chief Plaza). The original loan, made
in June, 1989, on this three story office building was in the amount of $500,000
with a total loan commitment of $2,500,000. In November 1996, the property was
appraised at $1,600,000. As of December 31, 1996, the book value of this
property was $1.5 million. The Company is planning to develop this property into
senior citizen housing.
Allowance for Loan Losses. 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 collectibility 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.
The following table sets forth information with respect to the Bank's
allowance for loan losses for the periods indicated.
At December 31,
------------------
1996 1995
----- ------
(Dollars in
Thousands)
Allowance balances (at beginning of period)...... $ 389 $ 377
Provision (credit)............................... 142 80
Charge-offs:
Mortgage ...................................... -- (71)
Consumer and commercial........................ (7) --
------- -------
(7) (71)
Recoveries of loans previously charged off....... -- 3
------- -------
Allowance balance (at end of period)............. $ 524 $ 389
======= =======
Net loans charged off as a percent of average
loans outstanding.............................. .01% .08%
Allowance as a percentage of:
Total loans ................................... .55% .45%
Non performing loans .......................... 17.75% 15.60%
6
<PAGE>
The following table sets forth information with respect to the Bank's
allocation of allowance for loan losses for the periods indicated.
At December 31
-------------------------------------------
1996 1995
------------------- ---------------------
(Dollars in Thousands)
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
$ Total Loans $ Total Loans
---- ------------- ----- -------------
Real estate-mortgage........... $ 248 93.18% $ 256 93.61%
Commercial..................... 247 4.15 107 4.13
Consumer....................... 29 2.67 26 2.26
---- ------ ---- ------
$ 524 100.00% $ 389 100.00%
==== ====== ==== ======
The following table sets forth information with respect to the Bank's
allowance for losses on real estate owned.
At December 31,
1996 1995
(Dollars in Thousands)
Total real estate owned................ $ 3,444 $ 4,027
======= =======
Allowance balances - beginning......... $ 303 $ 1,462
Provision.............................. 256 130
Charge-offs............................ (21) (1,289)
------- -------
Allowance balances - ending............ $ 538 $ 303
======= =======
Investment Activities
Investment Securities. The Bank is required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. The Bank has generally
maintained a liquidity portfolio well in excess of regulatory requirements.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of future yield levels, as well as management's projections as to
the short-term demand for funds to be used in the Bank's loan origination and
other activities.
7
<PAGE>
The investment securities "available for sale" and "held to maturity"
portfolios at December 31, 1996 did not contain securities of any issuer with an
aggregate book value in excess of 10% of the Bank's liquity, excluding those
issued by the United States or its agencies.
Mortgage-Backed Securities. To supplement lending activities, the Bank has
invested in mortgage- backed securities. Mortgage-backed securities can serve as
collateral for borrowings and, through repayments, as a source of liquidity.
Mortgage-backed securities represent a participation interest in a pool of
single-family or other type of mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include Federal Home Loan Mortgage
Association ("FHLMC"), Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), and Small Business
Administration ("SBA").
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, (i.e., fixed-rate or adjustable-rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, GNMA, SBA make up a majority of the
pass-through certificates market.
Investment Portfolio. The following table sets forth the carrying value of
the Company's investment securities portfolio and mortgage-backed securities at
the dates indicated.
At December 31,
---------------------
1996 1995
-------- --------
(In Thousands)
Held to Maturity
Investment Securities:
U.S. Government Agency Securities......... $ 2,000 $19,000
------ ------
Total Investment Securities............ $ 2,000 $19,000
====== ======
Mortgage-Backed Securities................ $12,805 $ 2,545
------ ------
Total................................... $12,805 $ 2,545
====== ======
At December 31,
---------------------
1996 1995
-------- --------
Available for Sale
Mortgage-backed securities................ $37,507 $35,964
====== ======
8
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, market value and weighted average yields for the
Bank's investment securities portfolio at December 31, 1996. The table does not
take into consideration the effects of scheduled repayments or the effects of
possible prepayments.
<TABLE>
<CAPTION>
As of December 31, 1996
--------------------------------------------------------------------------------------------------------
More than One to More than Five to Total
One Year or Less Five Years Ten Years More than Ten Years Investment Securities
------------------ ------------------ ---------------- -------------------- -------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thsands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Obligations $ -- % $ -- % $ -- % $ 2,000 7.35% $ 2,000 7.35% $ 2,000
Mortgage-backed securities 638 5.82 11,665 6.41 11,541 7.20 26,468 6.74 50,312 6.76 50,319
---- ---- ------- ---- ------- ---- ------- ---- ------- ---- -------
Total............... $638 5.82% $11,665 6.41% $ 11,541 7.20% $28,468 6.78% $52,312 6.78% $52,319
==== ==== ======= ==== ======== ==== ======= ==== ======= ==== =======
</TABLE>
9
<PAGE>
Subsidiary Activities of the Bank
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. At December 31, 1996, the
Bank had investments in two service corporation, incorporated under New Jersey
law, First Service Corporation of Little Falls and Redeem, Inc.
First Service was formed in 1996 as a service corporation to facilitate
the licensing of representatives of the Bank to sell annuities and insurance
products to the Bank's customers. At December 31, 1996, First Service provided
fees to the Bank in the amount of $7,000 and had total assets of $27,000. The
Bank owns 100% of the stock of both companies.
Redeem, Inc. was formed in 1993 as a service corporation to serve as an REO
subsidiary in connection with taking title to REO properties. As of December 31,
1996, Redeem, Inc. does not hold title to any property and has no loans
outstanding from the Bank. In addition, Redeem, Inc. has no significant assets
or liabilities.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, First Savings derives funds
from amortization and prepayment of loan and mortgage-backed securities
principal, operations and, if needed, advances from the FHLB of New York.
Scheduled loan and mortgage-backed securities principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
and mortgage-backed securities prepayments are significantly influenced by
general interest rates and market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources or on a longer term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including NOW, regular savings, money market deposit,
term certificate accounts (including negotiated jumbo certificates in
denominations of $100,000 or more) and individual retirement accounts. Deposit
account terms vary according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. The
Bank regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it actively solicit funds outside of
the State of New Jersey.
10
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the amount
and maturities of time deposits at December 31, 1996.
Amount Due
-------------------------------------------------------
Less Than 1-2 2-4 After
One Year Years Years 4 Years Total
---------- --------- --------- ------- -------
(In thousands)
Weighted average rate:
4.00% or less.... $ 583 $ 252 $ -- $ -- $ 835
4.01% - 6.00%.... 56,107 16,711 6,329 2,122 81,269
6.01% - 8.00%.... 32,040 1,332 1,697 3,164 38,233
8.01% - 10.00%... -- -- -- -- --
------- -------- ------ ------- -------
Total.......... $88,730 $ 18,295 $8,026 $ 5,286 $120,337
======= ======== ====== ======= =======
Deposits Accounts of $100,000 or More. The following table indicates the
amount of the Bank's time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1996:
Maturity Period Amount Due
- --------------- ----------
(Dollars in Thousands)
Three months or less....................... $3,589
Three through six months................... 1,611
Six through twelve months.................. 2,449
Over twelve months......................... 1,754
-------
$ 9,403
=======
Borrowings. The Bank, if the need arises, may rely upon advances from the
FHLB of New York to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB of New York are typically
secured by the Bank's stock in the FHLB and a portion of the Bank's
mortgage-backed securities.
The following table sets forth certain information as the Bank's
short-term FHLB advances at the dates indicated.
As of and for the Years Ended
-----------------------------
1996 1995
----------- ----------
(Dollars in Thousands)
Maximum balance............ $ 12,600 $12,600
Average balance............ 10,767 2,225
Balance at end of period... -- 12,600
Weighted average rate:
at end of period......... --% 5.78%
during the period........ 5.50% 5.89%
11
<PAGE>
Employees
As of December 31, 1996, the Bank had 34 full-time and 7 part-time
employees. The employees are not represented by a collective bargaining
agreement. The Bank believes its employee relations are good.
Regulation
Set forth below is a brief description of certain laws which relate to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "Regulation
of the Bank -- Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for
12
<PAGE>
the protection of the SAIF and depositors. The regulatory structure also gives
the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulations, whether by the OTS, the FDIC or the Congress could have a material
adverse impact on the Company, the Bank and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The FDIC
may also prohibit an insured depository institution from engaging in any
activity the FDIC determines to pose a serious threat to the SAIF. The
management of the Bank is unaware of any practice, condition, or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. Under
this system, a savings association pays within a range of 23 cents to 31 cents
per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates on a semi-annual basis if it determines
that such action is necessary to cause the balance in the SAIF to reach the
designated reserve ratio of 1.25% of SAIF-insured deposits within a reasonable
period of time. The SAIF was substantially underfunded at September 30, 1996. In
addition, the FDIC may impose special assessments on SAIF members to repay
amounts borrowed from the U.S. Treasury or for any other reason deemed necessary
by the FDIC. The Bank's federal deposit insurance premium expense for the year
ended December 31, 1996 amounted to approximately $1.1 million. By comparison,
at December 31, 1996, members of the BIF were required to pay substantially
lower, or virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. The Bank recorded a $845,000 pre-tax
expense for this assessment at September 30, 1996, and such assessment was paid
on November 27, 1996. Beginning January 1, 1997, deposit insurance assessments
for a significant portion of SAIF members are expected to be reduced to
approximately .064% of deposits on an annual basis through the end of 1999.
During this same period, BIF members are expected to be assessed approximately
0.13% of deposits. Thereafter, assessments for BIF and SAIF members should be
the same and the SAIF and BIF may be merged. It is expected that these
continuing assessments for both SAIF and BIF members will be used to repay
outstanding Financing Corporation bond obligations. Assuming these changes
occur, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank will decline by approximately 70%.
13
<PAGE>
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
The following table sets forth the Bank's regulatory capital position at
December 31, 1996, as compared to the minimum regulatory capital requirements
imposed on the Bank by the OTS at that date.
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Actual capital.................... $8,608 5.19%
Regulatory requirement............ 2,490 1.50
----- ----
Excess.......................... $6,118 3.69%
===== ====
Core Capital:
Actual capital.................... $8,608 5.19%
Regulatory requirement............ 4,980 3.00
----- ----
Excess.......................... $3,628 2.19%
===== ====
Risk-Based Capital:
Actual capital.................... $9,424 13.17%
Regulatory requirement............ 5,725 8.00
----- ----
Excess.......................... $3,699 5.17%
===== ====
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
December 31, 1996, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
14
<PAGE>
Qualified Thrift Lender Test. Savings institutions must meet a QTL test.
If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of New York. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. The method for measuring compliance with the QTL test is on a
monthly basis in nine out of every 12 months. As of December 31, 1996, the Bank
was in compliance with its QTL requirement.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. As a member,
the Bank is required to purchase and maintain stock in the FHLB of New York in
an amount equal to at least 1% of its aggregate unpaid residential mortgage
loans, home purchase contracts, or similar obligations at the beginning of each
year.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 1996, the Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Properties
- -------------------
The Bank conducts its business through three offices, two of which are
located in Passaic County and one of which is located in Bergen County. The Bank
owns all of its properties.
Item 3. Legal Proceedings
- --------------------------
The Bank, from time to time, is a party to routine legal proceedings,
which arise in the ordinary course of business. In the opinion of management,
such legal proceedings in the aggregate are immaterial to the Bank's financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
- -------
The information contained under the section captioned "Market Price of
Stock and Related Security Holder Matters" in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996 (the "Annual Report"),
is incorporated herein by reference.
15
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The information contained in the section captioned "Selected Financial
Data" in the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
The Company's consolidated financial statements listed in Item 13 herein
are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- -------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
For information concerning the Board of Directors of the Corporation, the
information contained under the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Proposal I "Information with Respect to the
Nominee For Director, Directors Continuing In Office, and Executive Officers" in
the "Proxy Statement" incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Directors and
Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Principal
Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- "Information With
Respect to the Nominee for Director, Director Continuing in Office,
and Executive Officers" in the Proxy Statement.
(c) Management of the Bank knows of no arrangements, including any
pledge by any person of securities of the Bank, the operation of
which may at a subsequent date result in a change in control of the
Registrant.
16
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Certain Relationships and Related Transactions" in the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a)(1) The Consolidated Financial Statements and Independent Auditors'
Report included in the Annual Report, listed below, are incorporated
herein by reference.
Independent Auditors' Report
(a) Consolidated Statements of Financial Condition as of December
31, 1996 and 1995
(b) Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
(c) Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
(d) Consolidated Statements of Cash Flows for each the years ended
December 31, 1996, 1995 and 1994
(e) Notes to Consolidated Financial Statements
(a)(2) All schedules have been omitted, because the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
(b) Reports on Form 8-K.
None
(c) Exhibits.
3(i) Articles of Incorporation of First Savings Bancorp of
Little Falls, Inc.*
3(ii) Bylaws of First Savings Bancorp of Little Falls, Inc.*
4(i)(a) Specimen Stock Certificate - Common Stock*
10(i) Employment Agreement with Haralambos S. Kostakopoulos*
10(ii) Shareholders' Agreement*
10(iii) Investor Agreement*
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1996
21 Subsidiaries of the Company (See Item 1. Business)
27 Financial Data Schedule**
- ----------------
* Incorporated by reference to the registration statement on Form S-4 (File
No. 33-61632), filed with the SEC on April 3, 1993.
** Electronic filing only.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST SAVINGS BANCORP OF
LITTLE FALLS, INC.
Dated: March 31, 1997 By: /s/ Haralambos S. Kostakopoulos
-----------------------------------
Haralambos S. Kostakopoulos
President, Chief Executive
Officer and Director (Duly
Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Haralambos S. Kostakopoulos By: /s/ Emanuel M. kontokosta
---------------------------------- -----------------------------------
Haralambos S. Kostakopoulos Emanuel M. Kontokosta
President, Chief Executive Officer, Chairman of the Board
Principal Financial Officer
and Director
Dated: March 31, 1997 Dated: March 31, 1997
By: /s/ Brian McCourt By:
---------------------------------- ----------------------------------
Brian McCourt Frederick J. Tedeschi
Vice President, Controller and Vice Chairman of the Board
Principal Accounting Officer
Dated: March 31, 1997 Dated: March ____, 1997
By: By: /s/ Paul D. Oesterle, Jr.
---------------------------------- -----------------------------------
Nikos P. Mouyiaris Paul D. Oesterle, Jr.
Vice Chairman of the Board Director
Dated: March ____, 1997 Dated: March 31, 1997
By: /s/ Anthony J. Sansiveri
----------------------------------
Anthony J. Sansiveri
Director
Dated: March 31, 1997
Exhibit No. 13
<PAGE>
1996 ANNUAL
REPORT
1910 Serving The Community 85 Years 1996
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
<PAGE>
Dear Fellow Stockholder,
In 1996, the Savings Bank recorded a pre-tax loss of $179,110 compared to
pre-tax earnings of $738,454 in 1995. The loss is attributable to a one-time
payment into the deposit insurance fund [SAIF] of $845,000 (or $549,250 after
taxes). The corresponding after-tax earnings are negative $120,071, and $362,886
in 1995. Excluding the special SAIF assessment, net income would have increased
by $66,000 or 18% from 1995. Your Board of Directors will determine when to pay
the 5% dividend sometime before June 30,1997.
Net interest income increased by $154,000 or 3.7% to $4.3 million in 1996
compared to $4.1 million in 1995; provisions increased by $142,500 in 1996,
compared to $80,228 in 1995, resulting in an increase in net interest income
after provisions for loan losses of $92,000 to $4.1 in 1996 compared to $4.0 in
1995. Non-interest income rose to $180,065 in 1996 compared to $159,700 in 1995,
reflecting increased loan and deposit transaction volume. Non-interest expense
increased $1,030,097 to $4.5 in 1996 compared to $3.4 million in 1995, primarily
because of the $845,000 non-recurring special SAIF assessment, $396,168 in REO
expense compared to $156,663 in 1995, and $170,763 in legal expense compared to
$123,141 in 1995.
We are continuing to work on a stock offering, as we mentioned in our last
letter. The offering is either a public offering of common stock if it involves
an acquisition of a commercial bank in New York; or the offering is a private
placement of some kind of preferred stock. In the case of the public offering,
your stock will be liquid, while in the case of the private placement, each
shareholder will have a chance to cash out a portion of their investment, or
change some of their common stock to a coupon-paying preferred stock.
In closing, the loyalty and support of our stockholders and customers is deeply
appreciated by the Board of Directors, officers and staff. We pledge to you our
diligent efforts for the continued improvement of First Savings Bank in the
forthcoming year.
Emanuel M. Kontokosta Dr. H.S. Kostakopoulos
Chairman of the Board President and Chief Executive Officer
Nikos P. Mouyiaris Frederick J. Tedeschi
Vice Chairman Vice Chairman
<PAGE>
BUSINESS OF THE COMPANY
First Savings Bancorp of Little Falls, Inc. (the "Corporation" or "Bancorp") is
a savings and loan holding company incorporated under the laws of the State of
New Jersey in March 1993, for the sole purpose of acquiring all of the issued
and outstanding Common Stock of First Savings Bank of Little Falls, S.L.A.
("First Savings" or the "Savings Bank") in connection with the reorganization of
the Bank into the holding company form or organization (the "Reorganization").
On January 7, 1994, after receipt of all required approvals, the Reorganization
was consummated and common and preferred stock of the Savings Bank was exchanged
on a one-for-one basis for shares of the Corporation's Common and Preferred
Stock. On December 31, 1996 Preferred Stock shares were converted to Common
Stock shares on a one-for-ten basis. As of December 31, 1996, the unconsolidated
assets of the Company consisted of all of the issued and outstanding shares of
the Savings Bank's Common Stock, organizational costs of $22,949 and $17,397 in
cash. Therefore, the discussion regarding operating results refers to the
Savings Bank.
BUSINESS OF THE BANK
First Savings Bank of Little Falls, F.S.B. is a federally chartered stock
savings bank located in Little Falls, New Jersey. The Bank was founded in 1928
as the Singac Building & Loan Association. In 1940, the Bank changed its name to
The First Savings and Loan Association of Little Falls and effective November
17, 1992, the Savings Bank's name became the First Savings Bank of Little Falls,
S.L.A. On April 29, 1994, the Bank became a federal savings bank. On May 6,
1994, the Bank purchased from the RTC the deposits and other assets of a branch
in Little Ferry, Bergen County. The Savings Bank's deposits have been federally
insured since 1933 by the Savings Association Insurance Fund ("SAIF") and its
predecessor, the Federal Savings and Loan Insurance Corporation ("FSLIC"). The
Savings Bank has been a member of the Federal Home Loan Bank System since 1934.
On September 28, 1992, the Bank completed its conversion from a New Jersey
chartered mutual savings and loan association to a New Jersey chartered stock
savings association pursuant to the provisions under federal and state law for a
"modified" conversion from mutual to stock form (the "Conversion"). As part of
the Conversion, an Investor Group, consisting of Dr. Haralambos S.
Kostakopoulos, President, Emanuel M. Kontokosta - Chairman of the Board, and
Vice Chairmen Nikos P. Mouyiaris and Frederick J. Tedeschi, along with other
existing officers and directors of the Bank, purchased 56% of the Common Stock
issued in the Conversion. The Investor Group also purchased 100% of the $3.4
million of convertible Preferred Stock issued in the Conversion. As of December
31, 1996 the Preferred Stock was converted to Common Stock at a rate of one
share of Preferred Stock to 10 shares of Common Stock.
Page 1
<PAGE>
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those deposits, together with other funds, to originate
mortgage loans for the purchase or construction of residential properties. To a
lesser extent, the Bank also originates home improvement loans and home equity
lines of credit.
At December 31, 1996, the Savings Bank had two active subsidiaries, The First
Service Corporation of Little Falls, a wholly-owned subsidiary acting as a
general agent selling annuities, and Redeem Inc., a wholly-owned subsidiary
serving as a REO subsidiary in connection with taking title to REO properties.
As of March 31, 1996, Redeem Inc. does not hold title to any property, and has
no loans outstanding from First Savings. Redeem has no assets or liabilities.
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS
The Bancorp's Common Stock is not listed on any stock exchange or on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"). Approximately 90% of the Common Stock is held by current officers
and directors of the Savings Bank and by an Investor Group consisting of
Haralambos S. Kostakopoulos President of the Savings Bank, Emanuel M. Kontokosta
- - Chairman of the Board, and Vice Chairmen Nikos P. Mouyiaris and Frederick J.
Tedeschi. The market for the Common Stock is illiquid, with few purchases and
sales of stock. The last known sale of the Common Stock involved 500 shares at
$14.00 a share on May 6, 1994.
The ability of the Bancorp to pay dividends on its Common Stock is dependent
upon the ability of the Savings Bank to pay dividends, since the Bancorp's main
asset is the stock of the Savings Bank. The ability of the Savings Bank to pay
dividends is restricted by the regulations of the OTS and tax considerations.
The Savings Bank may not pay dividends that would reduce the regulatory capital
of First Savings below the level required for institutions insured by SAIF or
the liquidation account created in connection with the Conversion.. During 1996,
a dividend of $5.00 per share was paid to the owners of the Preferred Stock, and
on December 31, 1996 the Preferred Stock was converted to Common Stock at a rate
of one share of Preferred Stock to 10 shares of Common Stock. There was no
common stock dividends paid in 1996.
There are 42 holders of the Common Stock of the Bancorp as of March 31, 1997.
Page 2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Consolidated Financial Statements and Notes to the Consolidated
Financial Statements elsewhere in this document.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including, primarily, income from customer deposit account
service charges, gains and losses from calls and sales of securities and
non-interest expense, including, primarily, salaries and employee benefits,
federal deposit insurance premiums, office occupancy costs, equipment, and loss
on foreclosed real estate. Our results of operations also are affected
significantly by general and economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond our control.
Asset/Liability Management
- --------------------------
We seek to reduce our exposure to changes in interest rates by
maintaining a balance between assets and liabilities maturing within a one to
three-year time span. Our assets and liabilities may be analyzed by examining
the extent to which our assets and liabilities are interest rate sensitive and
by monitoring the expected effects of interest rate changes on our net portfolio
value.
An asset or liability is interest rate sensitive within a specific time
period, if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to mitigate the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of our earnings to material
and prolonged changes in interest rates.
Page 3
<PAGE>
Net Portfolio Value
- -------------------
In recent years, we have measured our interest rate sensitivity by
computing the "gap" between the assets and liabilities which were expected to
mature or reprice within certain time periods, based on assumptions regarding
loan prepayment and deposit decay rates formerly provided by the OTS. However,
the OTS now requires the computation of amounts by which the net present value
of an institution's cash flow from assets, liabilities and off balance sheet
items (the institution's net portfolio value or "NPV") would change in the event
of a range of assumed changes in market interest rates. These computations
estimate the effect on an institution's NPV from instantaneous and permanent 1%
to 4% increases and decreases in market interest rates. Our Board of Directors
has adopted an interest rate risk policy which establishes maximum decreases in
our estimated NPV of 5%, 10%, 17% and 25% in the event of 1%, 2%, 3% and 4%
increases and decreases in market interest rates, respectively. At December 31,
1996, based on information provided by the OTS, it was estimated that our NPV
would decrease 9%, 21%, 36% and 52% and increase 5%, 6%, 7% and 12% in the event
of 1%, 2%, 3%, and 4% increases and decreases in market rates, respectively.
These calculations indicate that our net portfolio value could be adversely
affected by increases in interest rates but could be favorably affected by
decreases in interest rates. Changes in interest rates also may affect our net
interest income, while increases in rates expected to decrease income and
decreases in rates expected to increase income, our interest-bearing liabilities
would be expected to mature or reprice more quickly than our interest-earning
assets. In addition, we would be deemed to have more than a normal level of
interest rate risk under applicable regulatory capital requirements.
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates to have a
material adverse effect on our NPV or net interest income in the future.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit run-offs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
The board of directors is responsible for reviewing our asset and
liability policies. The Board of Directors meets quarterly to review interest
rate risk and trends, as well as liquidity and capital ratios and requirements.
Management is responsible for administering the policies and determinations of
the Board of Directors with respect to our asset and liability goals and
strategies. Management expects that our asset and liability policies and
strategies will continue as described above so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Page 4
<PAGE>
Financial Condition
- -------------------
Our total consolidated assets increased by $12.1 million or 7.8% from
$154.6 million at December 31, 1995 to $166.7 million at December 31, 1996. Our
total liabilities increased $12.4 million or 8.5% from $145.0 at December 31,
1995 as compared to $157.4 million at December 31, 1996. The increase in assets
primarily reflects the Company deployment of proceeds of the calls of investment
securities held to maturity and deposit growth into our loan portfolio, mortgage
backed securities, and interest-bearing deposits. Comparing balances from
December 31, 1996 to 1995, we increased our loan receivables by $8.9 million,
mortgage-backed securities increased by $10.3 million, our interest-bearing
deposits in banks increased by $9.1, and investment securities held to maturity
decreased by $17 million. Our total liabilities increased $12.4 million or 8.5%,
from $145.0 million at December 31, 1995 to $157.4 million at December 31, 1996.
Deposits increased $25 million and our borrowed funds decreased $12.6. At
December 31, 1996, we had no borrowed funds outstanding.
Results Of Operations for the Years Ending December 31, 1996 and 1995
- ---------------------------------------------------------------------
Net Income(Loss). Net income(loss) decreased $483,000 or 133% from
$363,000 for 1995 to a loss of $120,000 for 1996. The decrease was primarily the
result of the recognition of the one-time SAIF special insurance assessment in
the amount of $541,000(after taxes). Excluding the SAIF special assessment, net
income would have increased $58,000 or 16% from 1995.
Net income decreased $136,000 or 27% from $499,000 for 1994 to $363,000
for 1995. The decrease was primarily attributable to an increase in the
provision for loan loss of $226,000.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets (primarily loans,
investment and mortgage-backed securities) and interest we pay on our
interest-bearing liabilities (primarily deposits and borrowed funds). Net
interest income depends on the volume of and rates earned on interest-earning
assets and the volume of and rates paid on interest-bearing liabilities.
The following table sets forth a summary of average balances of assets
and liabilities with corresponding interest income and interest expense as well
as average yield and cost information. Average balances are derived from monthly
balances, however, we do not believe the use of month-end balances has caused
any material difference in the information presented. There have been no tax
equivalent adjustments made to the yields.
Page 5
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
---------------------
Year Ended December 31,
----------------------------------------------------------------------------------------------
------------------------------ ------------------------------ ------------------------------
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) ......... $ 88,162 $ 7,686 8.72 % $ 75,220 $6,788 9.02% $ 75,118 $ 6,264 8.34%
Mortgage-backed securities . 30,498 1,936 6.35 18,445 1,160 6.29 18,861 983 5.21
Other interest earnings assets 30,024 1,833 6.11 37,230 2,394 6.43 25,530 1,392 5.45
-------- -------- -------- ------ -------- ------
Total interest-earning
assets......... 148,684 11,455 7.70 130,895 10,342 7.90 119,509 8,639 7.23
-------- ------ ------ ------ ------ ------
Non-interest-earning assets ... 9,801 10,419 12,810
-------- -------- --------
Total assets .......... $158,485 $141,314 $132,319
======== ======== ========
Interest-bearing liabilities:
Savings accounts ........... $ 22,435 754 3.36 $ 22,591 756 3.35 $ 22,965 700 3.05
NOW and Money Market .... 14,515 364 2.51 15,368 411 2.67 17,838 477 2.67
Time Deposits ............ 100,479 5,475 5.45 91,505 4,928 5.39 80,283 3,453 4.30
Borrowed money ............ 10,768 592 5.50 2,225 131 5.89 1,784 87 4.88
-------- -------- -------- ------ -------- ------
Total Interest-bearing
liabilities ........ $148,197 $ 7,185 4.85 $131,689 $6,226 4.73 $122,870 $4,717 3.84
-------- ------ ------ ------ ------ ------
Non-interest-bearing liabilities 574 228 265
-------- -------- --------
Total liabilities .......... $148,771 $131,917 $123,135
Retained Earnings ............ 9,714 9,397 9,184
-------- -------- --------
Total liabilities and retained
earnings ............ $158,485 $141,314 $132,319
======== ======== ========
Net interest income ........... $ 4,270 $ 4,116 $3,922
======== ======== ======
Interest rate spread(2) ......... 2.86% 3.17% 3.39%
====== ====== ======
Net yield on Interest-earnings
assets(3) ..................... 2.87% 3.14% 3.28%
====== ====== ======
Ratio of average interest-earning
assets to average interest-
bearing liabilities ..... 1.0033x 0.9940x 0.9726
====== ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
Page 6
<PAGE>
The table below sets forth information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of our interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (changes in
rate multiplied by old volume); (iii) changes in rate-volume (changes in rate
multiplied by the change in volume). Increases and decreases due to both rate
and volume, which cannot be segregated, have been allocated proportionately to
the change due to volume and change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
--------------------------------- --------------------------- -----------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Due to Due to
--------------------------------- --------------------------- -----------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
---------- -------- ---------- ------ ----- ------ ---------- -------- --------
Interest
income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $1,168 ($ 270) $ 898 $ 9 $ 515 $ 524 ($ 72) ($ 457) ($ 529)
Mortgage-backed securities $ 758 $ 18 $ 776 ($ 22) $ 199 $ 177 (549) ($ 231) (780)
Other interest earning assets (463) (98) ($ 561) 638 364 $ 1,002 363 485 848
------- ------- ------- ------ ------- ------- ------- ------- -------
Total interest-earning assets 1,463 ($ 350) $1,113 $ 625 $ 1,078 $ 1,703 ($ 258) ($ 203) ($ 461)
============================= ============================ ==============================
Interest expense:
Savings accounts ($ 5) $ 3 ($ 2) ($ 11) $ 67 $ 56 $ 76 ($ 20) $ 56
NOW and money market ($ 23) ($ 24) ($ 47) ($ 66) $ 0 ($ 66) 3 ($ 45) (42)
Time deposits $ 483 $ 64 $ 547 $ 483 $ 992 $ 1,475 30 ($ 307) (277)
Borrowed money $ 503 (42) $ 461 $ 22 22 $ 44 (142) 1 (141)
------- ------- ------- ------ ------- ------- ------- ------- -------
Total interest-bearing
liabilities 958 1 959 427 1,082 1,509 (33) (371) (404)
============================= ============================ ===============================
Net change in interest income $ 504 ($ 350) $ 154 $ 198 ($ 4) $ 194 ($ 225) $ 168 ($ 57)
============================= ============================ ===============================
</TABLE>
Our net interest income increased $154,000 or 3.7% to $4.3 million in
1996 compared to $4.1 million in 1995. The increase was due primarily to the
growth of average interest-earning assets from $130.8 million in 1995 to $148.7
million in 1996, partially offset by a decline in our interest rate spread from
3.17% in 1995 to 2.86% in 1996. The decline in our interest rate spread had a
corresponding impact on our net interest margin which declined 27 basis points
to 2.87% in 1996.
The increase in our average interest-earning assets of $17.9 million
reflects an increase of $12.9 million in average loans, an increase of $12.0
million in average mortgage-backed securities and a decrease of $7.2 million in
other average interest-earning assets which is made up of small business loan
securities, investment securities, and interest bearing deposits held at banks.
Page 7
<PAGE>
Our interest rate spread and net interest margin decreased in 1996
compared to 1995. This was due to a decline in the yield on average
interest-earning assets from 7.90% in 1995 to 7.70% in 1996 and an increase in
the interest cost of average interest-bearing liabilities from 4.73% in 1995 to
4.85% in 1996.
The yield on our average interest-earning assets decreased in 1996 due
to a decline in the yield on loans and, other interest earning assets, offset by
a slight increase in yield on mortgage-backed securities. As general market
rates of interest were relatively stable during 1995 and 1996, the decline in
the yield on our loans in 1996 reflected the impact of competition for new loan
origination's.
The increase in the cost of our average interest-bearing liabilities
was due primarily to a shift in deposits toward certificates of deposits, which
have a higher cost the demand deposits. The cost of NOW and Money Market
accounts fell from 2.67% in 1995 to 2.51% in 1996, and borrowed money fell from
5.89% in 1995 to 5.50% in 1996, while the cost of time deposits rose from 5.39%
in 1995 to 5.45% in 1996. The lower costs of NOW and Money Market accounts
reflects our reduction of deposit rates to match the decrease in interest rates
during 1996 and the decrease in the cost of borrowings reflects the reduction in
average advances from the Federal Home Loan Bank and the decrease in interest
rates. The increase in the cost of time deposits reflects increased competition.
Our net interest income increased $194,000 or 4.9% to $4.1 million in
1995 compared to $3.9 million in 1994. The increase was due primarily to the
growth of average interest-earning assets from $119.5 million in 1994 to $130.8
million in 1995, partially offset by a decline in our interest rate spread from
3.39% in 1994 to 3.17% in 1995. The decline in our interest rate spread had a
corresponding impact on our net interest margin which declined 14 basis points
to 3.14% in 1995.
The increase in our average interest-earning assets of $11.4 million
reflects an increase of $11.7 million in other average interest-earning assets
which was mostly due to a increase in investment securities held to maturity.
Our interest rate spread and net interest margin decreased in 1995
compared to 1994. This was due to an increase in the yield on average
interest-earning assets from 7.23% in 1994 to 7.90% in 1996 and an increase in
the interest cost of average interest-bearing liabilities from 3.84% in 1994 to
4.73% in 1995.
The yield on our average interest-earning assets increased in 1995 due
to an increase in the yield on loans, mortgage-backed securities and other
interest earning assets.
The increase in the cost of our average interest-bearing liabilities
was due primarily to increases in the cost of savings accounts from 3.05% in
1994 to 3.35% in 1996, time deposits from 4.30% in 1994 to 5.39% in 1995, and
borrowed funds from 4.88% in 1994 to 5.89% in 1995. The increase in the cost of
savings accounts and time deposits reflects an increase in average time deposits
due to our promotional activities to increase our deposit base and a shift in
the deposit mix from our lower cost time deposits to our higher cost time
deposits. The increased cost of borrowings reflects the increase of average
borrowed funds during 1995 and the increase in interest rates on these funds.
Page 8
<PAGE>
Provision for Loan Losses. We recorded a provision for loan losses of
$143,000 in 1996 compared with $80,000 in 1995 and a negative loan loss
provision of $145,000. The increase in our provision for loan losses in 1996 and
1995 reflects the increase in the size of our loan portfolio due to internal
loan growth, purchase of residential loans and the increase in our
non-performing loan portfolio.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to: (i) the composition of our loan portfolio, (ii)
observations of the general economic climate and (iii) loan loss expectations
(identification of problem loans and the establishment of specific loan loss
allowances on such loans).
We will continue to monitor our allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. We maintain an allowance for loan losses at a level
that we consider to be adequate to provide for the inherent risk of loss in our
loan portfolio, however, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in future periods. In addition, our determination as to the amount
of our allowance for loan losses is subject to review by the OTS, as part of the
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after review of the information
available at the time of the OTS examination.
Non-Interest Income. Our non-interest income increased $20,000 in 1996
or 12.5% from $160,000 for the year ended December 31, 1995 to $180,000 for the
year ended December 31, 1996. The increase was primarily a result of an increase
in miscellaneous non-interest income from $72,000 in 1995 to $86,000 in 1996.
This increase was due to an increase in collection of mortgage late charges
during 1996.
Our non-interest income increased $54,000 in 1995 or 51% from $106,000
for the year ended December 31, 1994 to $160,000 for the year ended December 31,
1995. The increase was primarily a result of increases in fees and service
charges and miscellaneous income. Fees and service charges increased $32,000
from $61,000 for the year ended December 31, 1994 to $93,000 in 1995.
Miscellaneous non-interest income increased $26,000 from $46,000 in 1994 to
$72,000 in 1996. The increase for fees, service charges, and miscellaneous
non-interest income was due to a higher level of collection of mortgage late
fees, increases in branch, savings and checking fees.
Page 9
<PAGE>
Non-Interest Expense. Our non-interest expense increased by $1.03
million or 30% from $3.46 million for 1995 to $4.44 million for 1996. The
increase was primarily attributable to the one-time special SAIF assessment of
$845,000. Pursuant to the Economic Growth and Paperwork Reduction Act of 1996
(the "Act"), the FDIC imposed a special assessment on SAIF members to capitalize
the SAIF at the designated reserve level of 1.25% as of October 1, 1996. Based
on our deposits as of March 31, 1995, the date for measuring the amount of the
special assessment pursuant to the Act, our special assessment was $845,000. Due
to the recapitalization of the SAIF, we expect lower premiums for deposit
insurance in future periods. See Form 10-K, "Regulation - Regulation of the Bank
Insurance of Deposit Accounts."
Pursuant to the Act, we will pay, in addition to our normal deposit
insurance premium as a member of the SAIF, an annual amount equal to
approximately 6.4 basis points of outstanding SAIF deposits toward the
retirement of the Financing Corporation Bonds ("Fico Bonds") issued in the
1980's to assist in the recovery of the savings and loan industry. Members of
the Bank Insurance Fund ("BIF"), by contrast, will pay, in addition to their
normal deposit insurance premium, approximately 1.3 basis points. Beginning no
later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal
for members of the BIF and the SAIF. The Act also provides for the merging of
the BIF and the SAIF by January 1, 1999 provided there are no financial
institutions still chartered as savings associations at that time. Should the
insurance funds be merged before January 1, 2000, the rate paid by all members
of this new fund to retire the Fico Bonds would be equal.
In addition, our salaries and employee benefits decreased by $61,000 in
1996 compared to 1995. The decrease was a result of some staff reduction through
normal attrition and reduced medical benefits expense. Equipment expense
decreased by $21,000 in 1996 as compared to 1995. Equipment costs increased in
1995 due to the acquisition of Little Ferry Branch in fiscal 1994. There were no
branch acquisitions in 1996. Our legal fees increased $48,000 in 1996 as
compared to 1995. This increase was the result of increased legal fees in
connection with a lawsuit involving one of our real estate owned properties. The
suit was settled in 1996 and did not have a material affect on our consolidated
financial statements.
Our non-interest expense increased by $30,000 or 0.9% from $3.43
million for 1994 to $3.46 million for 1995. Our salaries and employee benefits
increased $200,000 from $1.2 million in 1994 to $1.4 million in 1995. Due to our
acquisition of the Little Ferry Branch, salaries increased $94,000, benefits
increased $25,000, and payroll taxes increased $23,000. We also paid to our
employees incentive payments of $16,000 in 1995. Loss on foreclosed real estate
decreased $154,000 from $312,000 in 1994 to $157,000 as sales of properties
resulted in gains of $73,000 in 1995 versus losses of $87,000 in 1994.
Income Tax Expense. We recognized an income tax benefit of $59,000 for
1996 compared to a tax expense of $376,000 in 1995. The $435,000 decrease was
the result of pre-tax loss of $179,000 in 1996 versus pre-tax income of $738,000
in 1995.
Page 10
<PAGE>
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short term borrowings. The required ratio currently is 5.0% and our
liquidity ratio average was 13.9% and 14.5% at December 31, 1995 and 1996,
respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of New York.
While scheduled repayments of loans and mortgage-backed securities and
maturities of investment securities are predicable sources of funds, deposit
flows and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Net cash provided by our operating activities for the year ended
December 31, 1996 totalled $1.3 million as compared to $784,000 for the year
ended December 31, 1995. Net cash provided by our operating activities for the
year ended December 31, 1995 totalled $784,000 as compared to $1.6 million for
the year ended December 31, 1994.
Net cash used in our investing activities for the year ended December
31, 1996 totalled $4.0 a decrease of $19.4 million from December 31, 1995. The
decrease was primarily attributable to an increase of $17.3 million of net
proceeds from calls and sales of investment securities and mortgage-backed
securities.
Net cash used in our investing activities for the year ended December
31, 1995 totalled $23.4 an increase of $23.0 million from December 31, 1994. The
increase was primarily attributable to the receipt of $12.0 million from a 1994
branch acquisition, and, purchases of $9.0 in loan receivables in 1995.
Net cash provided by our financing activities for 1996 totalled $12.2
million. This was the result of a net increase in deposits of $24.3 million and
repayment of FHLB advances of $12.6.
Net cash provided by our financing activities for 1995 totalled $20.2
million. This was the result of a net increase in deposits of $7.8 million and
of FHLB advances of $12.6.
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Further, the disparity in Fico
Bond interest payments as described herein could result in us losing deposits to
BIF members that have lower costs of funds and therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs and
determines the level desirable, based in part on our commitments to make loans
and management's assessment of our ability to generate funds. We are also
subject to federal regulations that impose certain minimum capital requirements.
Page 11
<PAGE>
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes
presented elsewhere in this document, have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike most industrial companies, nearly all our assets and
liabilities are monetary. As a result, interest rates have a greater impact on
our performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
Recent Accounting Pronouncements
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
after December 31, 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. The FASB has
proposed to defer the effective date of SFAS No. 125 until January 1, 1998 for
certain transactions including repurchase agreements, dollar-roll, securities
lending and similar transactions. FASB 125 will not have a material effect on
our financial statements.
Page 12
<PAGE>
SELECTED FINANCIAL DATA
- -----------------------
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, except for per share
amounts)
TOTAL AMOUNT OF :
<S> <C> <C> <C> <C> <C>
ASSETS $166,734 $154,635 $133,730 $130,574 $131,530
LOANS RECEIVABLE, NET 94,733 85,836 74,277 76,918 81,550
SECURITIES AVAILABLE FOR SALE 37,507 35,964 ----- 15,893 -----
MORTGAGE-BACKED SECURITIES 12,805 2,545 18,289 4,035 23,935
INVESTMENT SECURITIES 2,926 19,823 28,120 10,443 5,942
CASH & CASH EQUIVALENTS 10,673 1,128 3,559 12,345 8,703
DEPOSITS 156,596 131,636 123,656 115,494 123,836
FHLB ADVANCES ----- 12,600 ----- 5,000 -----
RETAINED EARNINGS 5,062 5,352 5,210 4,930 2,473
OTHER EQUITY 4,270 4,245 3,967 4,111 4,110
NET INTEREST INCOME 4,270 4,116 3,922 3,980 3,520
NET (LOSS) INCOME (120) 363 499 2,500 975
EARNINGS PER COMMON SHARE ($0.27) $0.82 $1.13 $5.68 $1.78
COMMON STOCK DIVIDENDS ----- $0.50 $0.50 ----- -----
</TABLE>
Page 13
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1996
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1996
---------------------------------------------------------------
INDEX
-----
Page
----
Management Responsibility Statement 1
Independent Auditors' Report 2
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995 3
Consolidated Statements of Operations for Each of the Years in the
Three-Year Period Ended December 31, 1996 4
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Years in the Three-Year Period Ended December 31, 1996 5
Consolidated Statements of Cash Flows for each of the Years in the
Three-Year Period Ended December 31, 1996 6 - 7
Notes to Consolidated Financial Statements 8 - 34
All schedules are omitted because they are not required or applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
<PAGE>
MANAGEMENT RESPONSIBILITY STATEMENT
-----------------------------------
February 7, 1997
Management of First Savings Bancorp of Little Falls, Inc. and its Subsidiaries
is responsible for the preparation of the consolidated financial statement and
all other consolidated financial information included in this report. The
consolidated financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis. All consolidated
financial information included in this report agrees with the consolidated
financial statements. In preparing the consolidated financial statements,
management makes informed estimates and judgements, with consideration given to
materiality, about the expected result of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.
Management reviews and modifies its systems of accounting and internal control
in light of changes in conditions and operations as well as in response to
recommendations from independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors (the "Board") is responsible for determining that
management fulfills its responsibilities in the preparation of the consolidated
financial statements and in the control of operation. The Board appoints the
independent certified public accountants, approves the overall scope of audit
work and related fee arrangements and reviews audit reports and findings.
/s/H.S. Kostakopoulos
-----------------------------
Dr. H.S. Kostakopoulos
President and Chief Executive
Officer
/s/Brian McCourt
-----------------------------
Brian McCourt
Vice President, Treasurer
and Controller
1.
<PAGE>
[Letterhead]
[LOGO]
Established RADICS & CO., LLC
1933 Certified Public Accountants & Consultants
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
First Savings Bancorp of Little Falls, Inc.
Little Falls, NJ
We have audited the accompanying consolidated statements of financial condition
of First Savings Bancorp of Little Falls, Inc. (the "Corporation") and
Subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of First Savings Bancorp of Little Falls, Inc. and
Subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in note 1 to consolidated financial statements, the Corporation
changed its method of accounting for debt and equity securities during the year
ended December 31, 1994.
2.
/s/ Radics & Co., LLC
February 7, 1997
55 US Highway 46 East, Post Office Box 676, Pine Brook, NJ 07058-0676
201-575-9696 Fax 201-575-9695
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
----------------------------
Assets Note (s) 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 1,319,813 $ 862,200
Interest-bearing deposits in other banks
9,353,526 265,375
------------- -------------
Total cash and cash equivalents 1 and 19 10,673,339 1,127,575
Securities available for sale 1, 3, 11 and 19 37,506,700 35,964,115
Investment securities held to maturity 1, 4, and 19 2,000,000 19,000,000
Mortgage-backed securities held to maturity 1, 5, 11 and 19 12,805,191 2,545,101
Loans receivable 1, 6, and 19 94,732,642 85,836,007
Real estate owned 1 and 7 2,906,034 3,724,958
Premises and equipment 1 and 8 2,956,315 2,904,934
Federal Home Loan Bank of New York stock 11 925,600 823,300
Interest receivable 1, 6, 9 and 19 1,110,765 1,427,868
Other assets 1 and 13 1,117,511 1,281,111
------------- -------------
Total assets $166,734,097 $154,634,969
============= =============
Liabilities and retained earnings
Liabilities
Deposits 10 and 19 $156,596,114 $131,636,083
Borrowed money 11 and 19 - 12,600,000
Advance payments by borrowers for taxes and insurance 633,815 563,262
Other liabilities 171,920 238,715
------------- -------------
Total liabilities 157,401,849 145,038,060
------------- -------------
Commitments and contingencies 15, 16 and 19 - -
Stockholders' equity 1, 2, 12 and 13
Preferred stock - par value $0.01 per share;
authorized
1,000,000 shares; issued and outstanding -0-
shares
(1996) and 34,000 shares (1995) - 340
Common stock - par value $1.00 per share;
authorized 5,000,000 shares; issued and outstanding
440,100 shares (1996) and 100,100 shares (1995) 440,100 100,100
Paid-in capital
3,670,377 4,010,037
Retained earnings - substantially restricted
5,062,392 5,352,463
Unrealized gain on securities available for sale, net 159,379 133,969
------------- -------------
Total stockholders' equity
9,332,248 9,596,909
------------- -------------
Total liabilities and stockholders' equity $166,734,097 $154,634,969
============= =============
</TABLE>
See notes to consolidated financial statements.
3.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
NOTE(S) 1996 1995 1994
------------ ------------ ------------ ------------
Interest income:
<S> <C> <C> <C> <C>
Loans 1 and 6 $ 7,686,356 $ 6,788,274 $ 6,264,513
Mortgage-backed securities 1 1,935,936 1,160,130 982,750
Investments 1 1,730,414 2,024,582 958,711
Other interest-earning assets 102,974 368,823 433,246
---------- ---------- ----------
Total interest income 11,455,680 10,341,809 8,639,220
---------- ---------- ----------
Interest expense:
Deposits 10 6,593,393 6,094,747 4,630,203
Borrowed money 591,823 131,038 86,809
---------- ---------- ----------
Total interest expense 7,185,216 6,225,785 4,717,012
---------- ---------- ----------
Net interest income 4,270,464 4,116,024 3,922,208
Provision for (recovery of) loan losses 1 and 6 142,500 80,228 (145,468)
---------- ---------- ----------
Net interest income after
provision for (recovery of) loan losses 4,127,964 4,035,796 4,067,676
---------- ---------- ----------
Fees and service charges 90,606 92,622 60,848
(Loss) on sale of loans - - (483)
(Loss) gain on calls and sales of
securities 1,3,4 and 5 3,575 (4,808) -
Miscellaneous 85,884 71,886 45,566
--------- --------- ----------
Total non-interest income 180,065 159,700 105,931
---------- ---------- ----------
Non-interest expenses:
Salaries and employee benefits 14 1,368,656 1,429,664 1,260,434
Net occupancy expense of premises 1 245,327 241,138 229,366
Equipment 1 361,738 382,817 400,341
Loss on foreclosed real estate 1 and 7 396,168 156,663 311,912
Federal insurance premium 16 1,130,410 307,671 305,196
Advertising and promotion 101,070 84,977 75,561
Consulting fees 113,202 136,708 119,949
Legal fees 170,763 123,141 137,879
Amortization of intangibles 1 33,336 33,333 22,223
Miscellaneous 566,469 560,930 564,426
---------- ---------- ----------
Total non-interest expenses 4,487,139 3,457,042 3,427,287
---------- --------- ---------
(Loss) income before income taxes (benefit) (179,110) 738,454 746,320
Income taxes (benefit) 1 and 13 (59,039) 375,568 247,031
----------- ---------- -------
Net (loss) income (120,071) 362,886 499,289
Preferred stock dividends 170,000 170,000 170,000
----------- ---------- ----------
Net (loss) applicable to common shares $ (290,071) $ 192,886 $ 329,289
=========== ========== ==========
Net (loss) income per common share
and common stock equivalents 1 $ (0.27) $ 0.82 $ 1.13
=========== ========== ==========
Dividends per common share $ - $ .50 $ .50
========== ========== ==========
Weighted average number of common shares
and common stock equivalents outstanding 1 440,100 440,100 440,100
============ ========== ==========
</TABLE>
See notes to consolidated financial statements.
4.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Retained Gain (Loss)
Earnings - on Total
Securities
Preferred Common Paid-in Substantially Available Stockholders'
for
Stock Stock Capital Restricted Sale, Net Equity
----------- ----------- ------------ ------------- ------------ --------------
Balance -
<S> <C> <C> <C> <C> <C> <C>
January 1, $ 340 $100,100 $ 4,010,037 $ 4,930,388 $ - $ 9,040,865
Net income for
the year ended
December 31,
1994 - - - 499,289 - 499,289
Unrealized loss
on securities
available for
sale, net of
income tax
effect - - - - (142,989) (142,989)
Dividend on
preferred
stock - - - (170,000) - (170,000)
Dividend on
common stock - - - (50,050) - (50,050)
------ ---------- ------------ ------------- ------------ --------------
Balance -
December 31,
1994 340 100,100 4,010,037 5,209,627 (142,989) 9,177,115
Net income for
the year ended
December 31,
1995 - - - 362,886 - 362,886
Unrealized gain
on securities
available for
sale, net of
income tax
effect - - - - 276,958 276,958
Dividend on
preferred
stock - - - (170,000) - (170,000)
Dividend on
common stock - - - (50,050) (50,050)
----- ---------- ---------- ------------ --------- -----------
Balance -
December 31,
1995 340 100,100 4,010,037 5,352,463 133,969 9,596,909
Net loss for
the year
ended
December 31,
1996 - - - (120,071) - (120,071)
Unrealized gain
on securities
available for
sale, net of
income tax
effect - - - - 25,410 25,410
Conversion of
preferred
stock
to common
stock (340) 340,000 (339,660) - - -
Dividend on
preferred
stock - - - (170,000) - (170,000)
----- ------- ---------- ------------ --------- -----------
Balance -
December 31,
1996 $ - $ 440,100 $3,670,377 $ 5,062,392 $ 159,379 $ 9,332,248
===== ========= ========== ============ ========= ===========
</TABLE>
See notes to consolidated financial statements.
5.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------- ------------- -------------
Cash lows from operating activities:
Net (loss) income $ (120,071) $ 362,886 $ 499,289
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
<S> <C> <C> <C>
Depreciation 287,849 303,303 369,118
Amortization of premiums, discounts
and fees, net 307,664 97,863 17,071
Amortization of intangibles 33,336 33,333 22,223
Deferred income taxes (84,255) 414,735 23,383
Provision for (recovery of) losses
on loans and real estate owned 399,000 210,000 (54,770)
Net loss (gain) on sales of assets 4,965 (73,360) 87,351
Loss on calls of investment securities
held to maturity - 4,808 -
Decrease (increase) in interest
receivable, net 317,103 (501,478) (263,115)
Decrease (increase) in refundable
income taxes 212,449 (212,449) 909,482
(Increase) decrease in other assets (17,763) 90,235 137,133
Increase (decrease) in accrued interest
payable 966 144,560 (3,513)
(Decrease) in other liabilities (16,745) (90,782) (129,171)
--------- --------- ---------
Net cash provided by operating
activities 1,324,498 783,654 1,614,481
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturities of term deposits - 8,500,000 9,500,000
Proceeds from calls of investment securities
held to maturity 17,000,000 4,000,000 -
Purchases of:
Term deposits - (6,000,000) (2,500,000)
Securities available for sale (12,189,859) - -
Investment securities held to
maturity - - (26,856,360)
Mortgage-backed securities held
to maturity (12,491,176) (21,723,449) -
Loans receivable (6,135,880) (9,055,000) -
Premises and equipment (339,230) (346,237) (218,085)
Principal repayments on:
Securities available for sale 6,442,347 - 525,724
Investment securities held to
maturity - 20,927 1,907,322
Mortgage-backed securities held
to maturity 1,817,557 3,715,596 824,443
Proceeds from sales of:
Securities available for sale 3,924,166 - -
Mortgage-backed securities held to
maturity 403,979 - -
Loans 64,615 - 454,423
Real estate owned 638,401 458,697 1,246,302
Net (increase) decrease in loans receivable (2,929,591) (2,697,732) 2,003,589
Additions to real estate owned (104,711) (159,948) -
Payments applied to real estate owned 13,380 11,500 39,445
(Purchase) redemption of Federal Home Loan Bank
of New York stock (102,300) (151,300) 271,200
Net proceeds in connection with the acquisition
of branch office - - 12,332,929
--------- --------- ----------
Net cash (used in) investment
activities (3,988,302) (23,426,946) (469,068)
--------- --------- ----------
</TABLE>
See Notes to consolidates financial statements.
6.
<PAGE>
<TABLE>
<CAPTION>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----------------- ------------- -------------
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase (decrease) in deposits $ 24,959,065 $ 7,835,814 $(4,697,694)
Proceeds net of repayments from borrowed
money (12,600,000) 12,600,000 (5,000,000)
Increase (decrease) in advance payments
by borrowers for taxes and insurance 70,553 (4,243) (63,298)
Cash dividend paid on preferred stock (170,000) (170,000) (170,000)
Cash dividend paid on common stock (50,050) (50,050) -
------------- ------------ -----------
Net cash provided by (used in)
financing activities 12,209,568 20,211,521 (9,930,992)
------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents 9,545,764 (2,431,771) (8,785,579)
Cash and cash equivalents - beginning 1,127,575 3,559,346 12,344,925
----------- ----------- -----------
Cash and cash equivalents - ending $ 10,673,339 $ 1,127,575 $ 3,559,346
============ ============ =============
Supplemental disclosures for cash flows information:
Cash paid (refunded) during the year for:
Interest $ 7,195,772 $ 6,069,703 $ 4,720,525
============ ============ =============
Income taxes $ (210,459) $ 225,111 $ (605,898)
============ ============ =============
Supplemental disclosure of noncash activities:
Investment securities held to maturity
transferred to available for sale $ - 1,921,218 -
============ ============ ============
Mortgage-backed securities held to
maturity transferred to (from) available
for sale $ - 33,654,187 $(15,105,404)
============ ============ =============
Unrealized gain (loss) on securities, net:
Upon initial adoption of Statement of
Financial Accounting Standards No. 115 $ - $ - 80,113
Subsequent change 25,410 276,658 (223,102)
----------- ----------- -----------
25,410 276,958 (142,989)
============ ============ =============
Loans transferred to real estate owned $ 493,186 $ 405,461 $ 817,460
============ ============ =============
Loans originated to facilitate the sale
of real estate owned $ 500,000 $ 256,500 $ 409,500
============ ============ =============
Dividends declared but not paid:
Common stock $ - $ 50,050 $ 50,050
Preferred stock 42,500 42,500 42,500
----------- ----------- -----------
42,500 92,550 92,550
============ ============ =============
Preferred stock converted to common stock $ 339,660 $ - $ -
============ ============ =============
Branch acquisition:
Assets acquired $ - $ - $ 30,387
Liabilities assumed - - (12,863,316)
Excess of cost over net assets
acquired - - 500,000
------------ ------------ -----------
$ - $ - (12,332,929)
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
7.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
Basis of consolidated financial statement presentation
------------------------------------------------------
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiary, First Savings Bank of Little Falls, FSB (the
"Savings Bank"), and the Savings Bank's wholly owned subsidiaries, The First
Service Corporation of Little Falls (the "Service Corp.") and Redeem, Inc.,
and have been prepared in conformity with generally accepted accounting
principles. All significant intercompany accounts and transactions have been
eliminated in consolidation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of consolidated financial
condition and revenues and expenses for the period then ended. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes
in the near-term relate to the determination of the allowance for loan
losses, the valuation of real estate owned and the determination of the
amount of deferred tax assets which are more likely than not to be realized.
Management believes that the allowance for loan losses is adequate, real
estate owned is appropriately valued and deferred tax assets recorded are
more likely than not to be realized. While management uses available
information to recognize losses on loans and real estate owned, future
additions to the allowance for loan losses or further writedowns of real
estate owned may be necessary based on changes in economic conditions in the
Savings Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowance for
loan losses and real estate owned valuations. Such agencies may require the
Savings Bank to recognize additions to the allowance or additional writedowns
based on their judgments about information available to them at the time of
their examination.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks with original
maturities of three months or less.
8.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
Investment and mortgage-backed securities
-----------------------------------------
Pursuant to Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("Statement") No. 115, investments in debt
securities that the Corporation has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized holding
gains and losses included in earnings. Debt and equity securities not
classified as trading securities nor as held-to-maturity securities are
classified as available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of deferred income taxes, reported in
a separate component of stockholders' equity.
The initial application of Statement No. 115, effective January 1, 1994,
resulted in an increase to stockholders' equity, net of deferred taxes, of
approximately $80,000, but had no effect on operations. On April 1, 1994,
management transferred the entire securities available for sale portfolio,
having a carrying value of approximately $15,105,000, to held to maturity. As
required, the unrealized loss at the date of transfer was capitalized for
subsequent amortization over the remaining lives of the related securities.
As permitted by the FASB's "A guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities", the
Savings Bank reassessed the classification it its held to maturity
portfolios. Effective December 31, 1995, as a result of such reassessment,
the Savings Bank transferred securities with an approximate book value,
including approximately $189,000 of unrealized losses remaining from the
April 1, 1994 transfer, of $35,575,000 and an approximate fair value of
$35,964,000, from held to maturity to available for sale. In connection with
such transfer, an unrecognized gain, net of deferred income taxes, of
approximately $253,000 was recognized and classified as a separate component
of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using the
interest method. Interest and dividend income on securities, which includes
amortization of premiums and accretion of discounts, is recognized in the
consolidated financial statements when earned. The adjusted cost basis of an
identified security sold or called is used for determining security gains and
losses recognized in the consolidated statements of operations.
9.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances less the allowance
for loan losses and deferred loan fees and discounts. Interest is calculated
by the use of the actuarial method.
The Savings Bank defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield over
the contractual lives of the related loans. Discounts on loans purchased are
recognized as income by use of a method which approximates the level-yield
method over the terms of the respective loans.
Uncollectible interest on loans that are contractually past due is charged
off and the related loans placed on nonaccrual status. Income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is probable, in which case the loan is returned to an
accrual status.
Allowance for loan losses
-------------------------
An allowance for loan losses is maintained at a level considered adequate to
absorb future loan losses. Management of the Savings Bank, in determining the
allowance for loan losses, considers the risks inherent in its loan portfolio
and changes in the nature and volume of its loan activities, along with the
general economic and real estate market conditions.
The Savings Bank utilizes a two-tier approach: (1) identification of problem
loans and establishment of specific loss allowances on such loans; and (2)
establishment of general valuation allowances on the remainder of its loan
portfolio. The Savings Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of
potential problem loans. Such system takes into consideration, among other
things, delinquency status, size of loans, type and estimated fair value of
collateral and financial condition of the borrowers. Specific loan loss
allowances are established for identified loans based on a review of such
information. General loan loss allowance are based upon a combination of
factors including, but not limited to, actual loan loss experience,
composition of loan portfolio, current economic conditions and management's
judgment.
Although management believes that adequate specific and general loan loss
allowances are established, actual losses are dependent upon future events
and, as such, further additions to the level of the allowance for loan losses
may be necessary.
Effective January 1, 1995, the Savings Bank adopted FASB Statements No. 114,
"Accounting by Creditors for Impairment of a Loan" and No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures".
The provisions of these statements are applicable to all loans,
uncollateralized as well as collateralized, except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment and loans that are measured at fair value or at the lower of cost
or fair value.
10.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
Allowance for loan losses (Cont'd)
-------------------------
The Statements require that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loans observable market
price or fair value of the collateral if the loan is collateral dependent. A
loan evaluated for impairment is deemed to be impaired when, based on current
information and events, it is probable that the Savings Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. All loans identified as impaired are evaluated independently. The
Savings Bank does not aggregate such loans for evaluation purposes.
Payments received on impaired loans are applied first to accrued interest
receivable and then to principal.
Real estate owned
-----------------
Real estate owned consists of real estate acquired by foreclosure or deed in
lieu of foreclosure. Real estate owned is recorded at the lower of cost or
fair value at date of acquisition and thereafter carried at the lower or such
initially recorded amount or fair value less estimated selling costs.
Costs incurred in developing or preparing properties for sale are
capitalized. Income and expense related to the holding and operating of
properties are recorded in operations. Gains and losses from sales of such
properties are recognized as incurred.
Concentration of risk
---------------------
The Savings Bank's real estate and lending activity is concentrated in real
estate and loans secured by real estate located primarily in the State of New
Jersey.
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings,
building improvements, furniture, fixtures and equipment, at cost, less
accumulated depreciation. Depreciation charges are computed on the
straight-line method over the following estimated useful lives:
Building and improvements 40 to 50 years
Furniture, fixtures and equipment 3 to 10 years
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to operations in the
year incurred. Rental income is netted against occupancy costs in the
consolidated statements of operations.
11.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- ---------------------------------------------
Income Taxes
------------
The Corporation and its subsidiaries file a consolidated federal income tax
return. Income taxes are allocated based on the contribution of income to the
consolidated income tax return. Separate state income tax returns are filed.
The accrual basis of accounting is used for both financial and income tax
reporting. Provisions for income taxes reflected in the consolidated
financial statements differ from the amounts reflected in the income tax
returns due to temporary differences in the reporting of certain items for
financial reporting and tax reporting purposes and the recognition of net
operating loss carryforwards for financial reporting purposes. The income tax
provision shown in the consolidated financial statements relates to items of
income and expense in those statements irrespective of temporary variances
for income tax reporting purposes. The tax effect of these temporary
variances is accounted for as deferred income taxes applicable to future
years. A valuation allowance is provided for deferred tax assets when it is
more likely than not that a portion of the deferred tax assets will not be
realized.
Interest rate risk
------------------
The Savings Bank is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with
borrowings and other funds, to purchase securities and to make loans secured
by real estate. The potential for interest-rate risk exists as a result of
the generally shorter duration of interest-sensitive liabilities compared to
the generally longer duration of interest-sensitive assets. In a rising rate
environment, liabilities will reprice faster than assets, thereby reducing
the market value of long-term assets and net interest income. For this
reason, management regularly monitors the maturity structure of interest
sensitive assets and liabilities in order to measure its level of
interest-rate risk and to plan for future volatility.
Excess of cost over assets acquired
------------------------------------
The cost in excess of fair value of net assets (goodwill) acquired in 1994
through the acquisition of a branch office is amortized to expense over a
period of fifteen years by use of the straight-line method. The remaining
unamortized balance amounted to $411,000 and $444,000 at December 31, 1996
and 1995, respectively, and is included in other assets.
Net income per common share and common stock equivalents
--------------------------------------------------------
Net income per common share and common stock equivalents is based on the
average number of common shares and common stock equivalents outstanding
during that period. The calculation assumes the exercise of the convertible
preferred stock, which is considered a common stock equivalent, as of the
first day of the period.
Reclassification
----------------
Certain amounts for the years ended December 31, 1995 and 1994 have been
reclassified to conform to current year's presentation.
12.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
2. STOCKHOLDERS' EQUITY
- -----------------------
For the purpose of granting to eligible account holders a priority over
stockholders in the event of future liquidation, the Savings Bank, at the
time of its conversion to stock form, established a liquidation account in an
amount equal to its total net worth of $1,579,000 at March 31, 1992. In the
event of future liquidation of the converted Savings Bank (and only in such
event), an eligible account holder who continues to maintain his/her deposit
account shall be entitled to receive a distribution from the liquidation
account. The total amount of the liquidation account will be decreased (but
never increased) in an amount proportionately corresponding to decreases in
the deposit account balances of eligible account holders as of each
subsequent year end. No dividends may be paid to stockholders if such
dividends would reduce the net worth of the converted Savings Bank below the
amount required by the liquidation account. The balance of the liquidation
account at December 31, 1996 has not been determined.
The preferred stock issued in the conversion was non-cumulative. Each share
was permitted to be converted at stockholder option into ten shares of common
stock. Effective December 31, 1996, all 34,000 outstanding shares of
preferred stock were converted into 340,000 shares of common stock. The
holders of preferred stock received dividends at the annual rate of $5.00 per
share. Holders of the non-cumulative preferred stock had no voting rights and
liquidation rights subordinate to those of holders of common stock.
The ability of the Corporation to pay dividends to stockholders is dependent
upon its receiving dividends from the Savings Bank. The Savings Bank may pay
dividends and/or capital distributions, as defined by regulations, during a
calendar year up to one-hundred percent of its net income to date during such
year plus an amount which would reduce by fifty percent its excess capital
over its regulatory capital requirements at the beginning of such year.
3. SECURITIES AVAILABLE FOR SALE
- ---------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Amortized Gross Unrealized Carrying
----------------------
Value Gains Losses Value
------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $12,174,754 $ 144,707 $ 2,541 $12,316,920
Federal National Mortgage Association 3,688,379 10,471 57,757 3,641,093
Federal Home Loan Mortgage Corporation 1,635,735 24,632 5,822 1,654,545
Small Business Administration 19,762,634 155,708 24,200 19,894,142
------------- ---------- --------- -------------
$37,261,502 $ 335,518 $90,320 $37,506,700
============= ========== ========= =============
</TABLE>
13.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE (Cont'd)
- ------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------
Amortized Gross Unrealized Carrying
-----------------------
Value Gains Losses Value
------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $10,417,212 $ 79,525 $17,396 $10,479,341
Federal National Mortgage Association 2,590,585 3,876 21,451 2,573,010
Federal Home Loan Mortgage Corporation 1,955,837 6,248 6,724 1,955,361
Small Business Administration 20,800,526 161,877 6,000 20,956,403
------------- ---------- --------- -------------
$35,764,160 $251,526 $51,571 $35,964,115
============= ========== ========= =============
</TABLE>
The foregoing securities are not due at a single maturity date as they are
subject to periodic repayment. Accordingly, such securities will generally repay
at a more rapid rate than reflected in the following table of securities by
final maturity date.
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Amortized Gross Unrealized Carrying
-----------------------
Value Gains Losses Value
------------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Due after one year through five years $ 1,484,193 $ 17,451 $ 5,783 $ 1,495,861
Due after five years through ten years 10,537,900 94,618 14,810 10,617,708
Due after ten years 25,239,409 22,349 69,727 25,399,131
------------- ---------- --------- --------------
$37,261,502 $335,518 $90,320 $37,506,700
============= ========== ========= ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Amortized Gross Unrealized Carrying
-----------------------
Value Gains Losses Value
------------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Due after five years through ten years $11,585,314 $100,029 $ 5,999 $11,679,344
Due after ten years 24,178,846 151,497 45,572 24,284,771
------------- ---------- --------- --------------
$35,764,160 $251,526 $51,571 $35,964,115
============= ========== ========= ==============
</TABLE>
As permitted by "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities", issued by the FASB,
management performed a reassessment of the appropriateness of the classification
of the Savings Bank's securities. As a result, effective December 31, 1995,
investment securities with a carrying value of $1,921,218 and mortgage-backed
securities with a carrying value of $33,654,187 were reclassified from held to
maturity to available for sale.
14.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE (Cont'd)
- ---------------------------------
During the year ended December 31, 1996, proceeds from sales of securities
available for sale totalled $3,924,166 and resulted in gross gains of $4,548.
There were no sales of securities available for sale during the years ended
December 31, 1995 and 1994.
A security available for sale, having a carrying value of $360,000 at December
31, 1996, is pledged to secure public funds on deposit. Additionally, at
December 31, 1996, securities available for sale with an aggregate carrying
value of $1,134,000 are pledged to secure customer deposits.
4. INVESTMENT SECURITIES HELD TO MATURITY
- ------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Carrying Gross Unrealized Estimated
-----------------------
Value Gains Losses Fair Value
------------- ---------- --------- -------------
U.S. Government Agencies due after ten
<S> <C> <C> <C> <C>
years $ 2,000,000 $ - $ - $ 2,000,000
============= ========== ========= =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------
Estimated
Carrying Gross Unrealized Fair
----------------------
Value Gains Losses Value
------------- ---------- --------- -------------
U.S. Government Agencies:
<S> <C> <C> <C> <C>
Due after one year through five years $15,000,000 $ 1,120 $ 50,170 $14,950,950
Due after five years through ten years 2,000,000 1,080 - 2,001,080
Due after ten years 2,000,000 - - 2,000,000
------------- ---------- --------- -------------
$19,000,000 $2,200 $50,170 $18,952,030
============= ========== ========= =============
</TABLE>
There were no sales of investment securities held to maturity during the years
ended December 31, 1996, 1995, and 1994. During the years ended December 31,
1996 and 1995, proceeds from calls of investment securities held to maturity
totalled $17,000,000 and $4,000,000, respectively, and resulted in no gross
gains or losses in 1996 and gross losses of $4,808 in 1995.
15.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- ------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Estimated
Carrying Gross Unrealized Fair
---------------------
Value Gains Losses Value
------------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 39,023 $ 1,047 $ 280 $ 39,790
Federal National Mortgage Association 1,809,078 29,263 - 1,838,341
Federal Home Loan Mortgage Corporation 9,957,090 20,147 42,601 9,934,636
Federal Home Loan Mortgage Corporation
REMIC 1,000,000 - - 1,000,000
------------ ------- -------- -----------
$ 12,805,191 $50,457 $ 42,881 $12,812,767
============ ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------
Estimated
Carrying Gross Unrealized Fair
-----------------------
Value Gains Losses Value
------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Government National Mortgage Association $ 53,502 $ 1,429 $ 356 4 54,575
Federal National Mortgage Association 488,259 383 527 488,115
Federal Home Loan Mortgage Corporation 1,003,340 3,150 11,658 994,832
Federal Home Loan Mortgage Corporation
REMIC 1,000,000 - - 1,000,000
------------- ---------- --------- ------------
$2,545,101 $ 4,962 $12,541 $ 2,537,522
============= ========== ========= ============
</TABLE>
During the year ended December 31, 1996, proceeds from sales of mortgage-backed
securities held to maturity totalled $403,979 and resulted in gross losses of
$973. There were no sales of mortgage-backed securities held to maturity during
the years ended December 31, 1995 and 1994.
A mortgage-backed security held to maturity with a carrying value $172,000 at
December 31, 1995 was pledged to secure public finds on deposit.
16.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
6. LOANS RECEIVABLE
- --------------------
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
-------------- -------------
Real estate mortgage:
<S> <C> <C>
One-to-four family $74,156,889 $64,755,370
Multi-family 3,311,210 5,290,641
Non-residential 6,775,830 5,225,500
Land 41,373 299,505
-------------- -------------
84,285,302 75,571,016
-------------- -------------
Commercial loans 3,954,014 3,576,368
-------------- -------------
Consumer:
Equity 4,681,054 5,402,231
Home improvement and second mortgages 1,090,470 869,847
Passbook or certificate 814,064 810,807
Student education 115,908 125,100
Other loans 527,256 145,746
-------------- -------------
7,228,752 7,353,731
-------------- -------------
Total loans 95,468,068 86,501,115
-------------- -------------
Less: Allowance for loan losses 523,715 388,633
Deferred loan fees and discounts 211,711 276,475
-------------- -------------
735,426 665,108
-------------- -------------
$94,732,642 $85,836,007
============== =============
</TABLE>
The Savings Bank has granted loans to its officers and directors and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than the
normal risk of collectibility. The aggregate dollar amount of these loans,
exclusive of loans to any officer or director and their affiliates which total
less than $60,000, was $775,000 and $843,000 at December 31, 1996 and 1995,
respectively. Activity during the year ended December 31, 1996 included new
loans of $34,000 and repayments of $48,000.
17.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
6. LOANS RECEIVABLE (Cont'd)
- ------------------------------
An analysis of the allowance for loan losses is as follows:
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- --------- ----------
Balance - beginning $ 388,633 $ 377,315 $ 547,330
Provision charged (recovery
credited) to operations 142,500 80,228 (145,468)
Loans charged off (7,418) (70,605) (29,521)
Recoveries -- 1,695 4,974
--------- --------- ---------
Balance - ending $ 523,715 $ 388,633 $ 377,315
========= ========= =========
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows: (in thousands):
December 31,
--------------------
1996 1995
-------- --------
Recorded investment in impaired loans:
With recorded allowance $ 1,277 $ -
Without recorded allowances - 281
-------- --------
Total impaired loans 1,277 281
Related allowance for loan losses 155 -
-------- --------
Net impaired loans $ 1,122 $ 281
======== ========
For the years ended December 31, 1996 and 1995, the average recorded investment
in impaired loans totalled $559,000 and $355,000, respectively. Interest income
recognized on such loans during the time each was impaired totalled $28,000 and
$7,000, respectively, all of which was recorded on the cash basis.
Non accrual loans totalled approximately $1,639,000, $1,146,000 and $1,470,000
at December 31, 1996, 1995 and 1994, respectively. Renegotiated loans for which
interest has been reduced totalled approximately $1,313,000, $1,348,000 and
$1,253,000 at December 31, 1996, 1995 and 1994, respectively. Interest income
that would have been recorded under the original terms of such loans and the
interest income actually recognized are summarized below:
Year Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- -------
(In Thousands)
Interest income that would have been $303 $ 250 $ 289
recorded
Interest income recognized 230 184 162
-------- -------- -------
Interest income foregone $ 73 $ 66 $ 127
======== ======== =======
18.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
7. REAL ESTATE OWNED
- ---------------------
December 31,
------------------------------
1996 1995
------------- -------------
Acquired in settlement of loans $ 3,443,636 $ 4,027,495
Allowance for losses
(537,602) (302,537)
-------------- ------------
$ 2,906,034 $ 3,724,958
============= =============
The following is an analysis of the allowance for losses:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Balance - beginning $ 302,537 $ 1,461,991 $1,496,920
Provision charged to operations 256,500 129,772 90,698
Losses charged off (21,435) (1,289,226) (125,627)
------------- ----------- ------------
Balance - ending $ 537,602 $ 302,537 $1,461,991
============= ============== =============
</TABLE>
The following is an analysis of loss on foreclosed real estate:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------- ---------------- -----------
<S> <C> <C> <C>
Provision for losses $256,500 $129,772 $ 90,698
Operating expenses, net of rental income 131,128 100,251 134,346
Loss (gain) on disposition 8,540 (73,360) 86,868
------------- ------------ ----------
$396,168 $156,663 $311,912
============= ============ ===========
</TABLE>
19.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
8. PREMISES AND EQUIPMENT
- --------------------------
December 31,
---------------------------
1996 1995
----------- ------------
Land $ 547,867 $ 547,867
----------- ------------
Buildings and improvements 3,060,894 2,838,213
Less accumulated depreciation 1,065,155 963,274
----------- ------------
1,995,739 1,874,939
----------- ------------
Furniture, fixtures and equipment 1,625,564 2,061,277
Less accumulated depreciation 812,855 1,579,149
----------- ------------
412,709 482,128
----------- ------------
$2,956,315 $2,904,934
=========== ============
9. INTEREST RECEIVABLE
- -----------------------
December 31,
---------------------------
1996 1995
----------- ------------
Loans $ 640,131 $ 744,285
Securities 470,634 681,465
Other interest-earning assets - 2,118
----------- ------------
$1,110,765 $1,427,868
=========== ============
10. DEPOSITS
- ------------<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1996 1995
---------------------------- -------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand 0.00% $ 1,985,234 0.00% $ 1,493,296
NOW and Super NOW 2.03% 4,204,758 2.02% 3,874,953
Money Market 3.38% 8,102,117 3.29% 8,707,747
Savings and Realty Trust 3.35% 21,967,044 3.32% 21,998,935
Certificates of deposit 5.62% 120,336,961 5.53% 95,561,152
------------ ------------
5.02% $156,596,114 4.84% $131,636,083
============ ============
</TABLE>
20.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
10. DEPOSITS (Cont'd)
- -------------
Interest expense on deposits is summarized as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------ ----------- -----------
(In Thousands)
Savings and Realty Trust $ 754 $ 756 $ 700
NOW and Money Market 364 410 477
Certificates of deposit 5,475 4,929 3,453
------------ ----------- -----------
$ 6,593 $ 6,095 $ 4,630
============ =========== ===========
A summary of certificates of deposit by time remaining until maturity follows:
December 31,
--------------------------
1996 1995
------------ -----------
(In Thousands)
Within one year $ 88,730 $ 66,352
After one year through two years 18,295 11,956
Thereafter 13,312 17,253
------------ -----------
Total $ 120,337 $ 95,561
============ ===========
A summary of certificates of deposit of $100,000 or more by time remaining to
maturity follows:
December 31,
--------------------------
1996 1995
------------ ----------
(In Thousands)
Within three months $ 3,589 $ 1,571
After three through six months 1,611 1,225
After six through twelve months 2,449 1,120
After twelve months 1,754 2,229
------------ ----------
$ 9,403 $ 6,145
============ ==========
11. BORROWED MONEY
Borrowed money at December 31, 1995 consisted of $12,600,000 in advances from
the Federal Home Loan Bank of New York ("FHLB") carrying an average interest
rate of 5.78% and maturing within three months.
21.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
11. BORROWED MONEY (Cont'd)
- -------------------
At December 31, 1996 and 1995, the Savings Bank had available to it overnight
lines of credit of $25,117,000 and $15,576,200, respectively, granted by the
FHLB. The unused amount of credit available to the Savings Bank under these
lines, which may continue until terminated by either the Savings Bank or the
FHLB, was $25,117,000 at December 31, 1996.
Collateral pledged to secure the foregoing credit facilities consists of FHLB
stock of $925,600 and $823,300 at December 31, 1996 and 1995, respectively, and
mortgage-backed securities with an aggregate carrying value of $21,245,000 and
$24,786,000 at December 31, 1996 and 1995, respectively.
12.REGULATORY CAPITAL
- ---------------------
The Savings Bank is subject to capital requirements prescribed by the Office of
Thrift Supervision ("OTS") consisting of three separate measurements of capital
adequacy (the "Capital Rule"). The Capital Rule requires each saving institution
to maintain tangible capital equal to at least 1.5% of its total tangible assets
and core capital equal to at least 3.0% of its adjusted total assets. The
Capital Rule further requires each savings institution to maintain total capital
equal to at least 8.0% of its risk-weighted assets.
The following table sets forth the capital position of the Savings Bank as
calculated under the Capital Rule as of December 31, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
-------------------- ------------------ ---------------------
Amount Percent Amount Percent Amount Percent
--------- -------- -------- ------- --------- --------
(Dollars on Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP stockholder's equity $ 9,372 5.65 $ 9,372 5.65 $ 9,372 13.10
Deduct non-includable
portion of:
Deferred tax asset (194) (.12) (194) (.12) (194) (.27)
Intangible asset (411) (.25) (411) (.25) (411) (.58)
Unrealized gain on
securities, net (159) (.09) (159) (.09) (159) (.22)
Add: General valuation
allowance - - - - 816 1.14
--------- -------- -------- ------- --------- --------
Regulatory capital as
calculated 8,608 5.19 8,608 5.19 9,424 13.17
Regulatory capital as
required 2,490 1.50 4,980 3.00 5,725 8.00
--------- -------- -------- ------- --------- --------
Excess $ 6,118 3.69 $ 3,628 2.19 $ 3,699 5.17
========= ======== ======== ======= ========= ========
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes increased requirements on the operations of financial institutions and
mandated the development of regulations designed to empower regulators to take
prompt corrective action with respect to institutions that fall below certain
capital standards. FDICIA stipulates that an institution with less than 4% core
capital is deemed to be undercapitalized. Quantitative measures established by
FDICIA to ensure capital adequacy require the Savings Bank to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1996, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
22.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
12. REGULATORY CAPITAL (Cont'd)
- -----------------------
As of March 11, 1996, the most recent notification from the OTS, the Savings
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Savings
Bank must maintain minimum total, risk-based, and Tier I leverage ratios of 10%,
6%, and 5%, respectively. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
13. INCOME TAXES
- -----------------
The Savings Bank qualifies as a Savings Institution under the provisions of the
Internal Revenue Code and was therefore permitted, prior to January 1, 1996, to
deduct from taxable income an allowance for bad debts based on the greater of:
(1) actual loan losses (the "experience method"); or (2) eight percent of
taxable income before such bad debt deduction less certain adjustments (the
"percentage of taxable income method"). The percentage of taxable income method
was repealed effective January 1, 1996. For the year ended December 31, 1996,
the Saving Bank must use either the experience method or the specific charge off
method. For the years ended December 31, 1995 and 1994, the deduction for bad
debts was computed using the percentage of taxable income method. Retained
earnings at December 31, 1996 includes approximately $3.5 million of such bad
debt allowance, for which income taxes have not been provided.
The components of income taxes (benefit) are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
-------------- ---------- ------------
<S> <C> <C> <C>
Current $ 25,216 $(39,167) $ 223,648
-------------- ------------ ---------
Deferred:
Temporary differences (105,845) 393,068 1,870
Net operating loss
carryforward 21,590 21,667 21,513
-------------- ------------ ----------
(84,255) 414,735 23,383
-------------- ----------- ----------
$ (59,039) $ 375,568 $ 24,031
============== =========== =========
</TABLE>
23.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
13. INCOME TAXES (Cont'd)
- -----------------
Deferred income taxes result from temporary differences in the recognition of
income and expense for tax and financial statement purposes. The sources of
these temporary differences and the tax effects are as follows:
Year Ended December 31,
------------------------------------
1996 1995 1994
----------- --------- ----------
Allowance for losses on loans and $(125,575) 405,495 $ 3,739
real estate owned
Deferred loan fees 8,639 8,902 (8,929)
Nonaccrual interest 25,477 (7,887) 19,781
Interest on refundable income taxes -- -- (58,338)
Depreciation (6,400) (8,536) (8,698)
Net operating loss carryforward 21,590 21,667 21,513
Other (7,986) (4,906) (15,685)
--------- --------- ---------
$ (84,255) $ 414,735 $ 23,383
========= ========= =========
The components of the net deferred tax asset are as follows:
December 31,
-----------------------
1996 1995
---------- ---------
Deferred tax assets:
Allowance for losses on loans and
real estate owned $ 381,862 $256,287
Net operating loss carryforward 215,900 237,490
Nonaccrual interest 29,382 54,859
Deferred loan fees, net 39,578 48,217
Other 13,313 5,327
---------- ---------
680,035 602,180
---------- ---------
Deferred tax liabilities:
Depreciation 55,769 62,169
Unrealized gain on securities 85,819 65,986
available for sale
---------- ---------
141,588 128,155
---------- ---------
Net deferred tax assets $ 538,447 $474,025
========== =========
24.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
13. INCOME TAXES (Cont'd)
- -----------------
For income tax reporting purposes, at December 31, 1996, the Corporation has net
operating loss carryforwards totalling approximately $635,000 that will expire
on December 31, 2006.
The following table presents a reconciliation between the reported income tax
expense (benefit) and the income tax expense (benefit) which would be computed
by applying the federal statutory rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Federal income taxes (benefit) $ (60,897) $ 251,074 $ 253,749
Increase (reduction) of income
taxes
resulting from:
Change in permanent difference
relating to base year tax
bad debt reserves - 100,541 (12,824)
State income taxes, net of
federal income tax effect (3,216) 21,967 13,934
Other 5,074 1,986 (7,828)
------------ ----------- -----------
$ (59,039) $ 375,568 $ 247,031
============= ========== ==========
</TABLE>
14. RETIREMENT PLAN
- --------------------
The Savings Bank has a 401(k) plan covering all eligible employees. Under this
plan, participants may elect to contribute up to 15% of their compensation, not
to exceed applicable limits as per the Internal Revenue Code. The Savings Bank
has elected to match 50% of employees' contributions, up to a maximum 6% of each
respective employee's compensation. The 401(k) plan expense was $18,000, $22,000
and $22,000 for the years ended December 31, 1996 , 1995 and 1994, respectively.
15. COMMITTMENTS AND CONTINGENCIES
- ----------------------------------
The Savings Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments primarily include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated statement of
financial condition. The contract or notional amounts of those instruments
reflect the extent of involvement the Savings Bank has in particular classes of
financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Savings
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
25.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
15. COMMITTMENTS AND CONTINGENCIES (Cont'd)
- -----------------------------------
The Savings Bank has outstanding various commitments to originate loans as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Commitments expiring in three months or less $ 1,216,000 $1,158,000
============= ============
</TABLE>
At December 31, 1996, the outstanding commitments consist of $185,000 for fixed
rate first mortgage loans with rates ranging from 7.875% through 8.375% ,
$196,000 for fixed rate second mortgage loans with rates ranging from 8.375% to
9.50%, $200,000 for a commercial mortgage loan having a rate which will adjust
monthly to the prime rate plus 3.50%, $600,000 for a fifteen year commercial
mortgage loan which will carry a fixed rate at 11.00% for the first five years
and then adjust each fifth year to the five year U.S. treasury rate plus 4.00%
and $35,000 for an equity line of credit.
At December 31, 1996 and 1995, undisbursed funds from approved home equity lines
of credit amounted to approximately $2,529,000 and $3,074,000, respectively.
Unless they are specifically cancelled by notice from the Savings Bank, these
funds represent firm commitments available to the respective borrowers on
demand. The interest rate charged for any month on funds disbursed is generally
1.00% to 2.00% above the prime rate. Certain lines are subject to an
introductory rate of 2% below the prime rate for the first year. The Saving Bank
also offers unsecured credit lines in conjunction with a credit card program. At
December 31, 1996, unused amounts under these lines of credit totalled $90,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Savings Bank evaluates each customer's
creditworthiness on a case-by case basis. The amount of collateral obtained if
deemed necessary by the Savings Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held generally
includes residential and commercial real estate. Management does not anticipate
losses on any of these transactions.
In the conduct of their business, the Corporation, the Savings Bank and the
Savings Bank's subsidiaries are involved in normal litigation matters. In the
opinion of management, the ultimate disposition of such litigation should not
have a material adverse effect on the consolidated financial position or
operations of the Corporation.
26.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
15. COMMITMENTS AND CONTINGENCIES (Cont'd)
- ---------------------------------
The Savings Bank has been named as the sole defendant in a suit brought by the
owners of several condominiums in a particular condominium development. The suit
primarily seeks redress for alleged construction defects affecting the
condominium. The Plaintiffs purchased the condominiums from the Savings Bank.
The Savings Bank had taken title to the condominiums in 1992 pursuant to a
settlement of contested litigation with its borrower who had filed a bankruptcy
petition. The Savings Bank proceeded to complete the Public Offering Statement
and obtain approval from the New Jersey Department of Community Affairs to sell
the condominiums. Although the Savings Bank did not construct the condominiums,
the plaintiffs claim that the Savings Bank has liability for alleged
construction defects as a sponsor. The Plaintiffs also allege other causes of
action such as fraud and negligence.
In December 1996, a settlement in principal was reached with the plaintiffs.
Under this settlement, the plaintiffs have agreed to execute a general release
in favor of the Savings Bank to dismiss the litigation in exchange for a $31,000
cash payment by the Savings Bank and a matching $31,000 payment by the Savings
Bank's insurance carrier. While this settlement has been agreed to, definitive
settlement documents have not yet been signed.
16. LEGISLATIVE MATTERS
- -----------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Savings Bank, to recapitalize the
SAIF and spread the obligation for payment of Financial Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special
assessment being levied amounts to 65.7 basis points on SAIF assessable deposits
held as of March 31, 1995. The special assessment was recognized in the third
quarter of 1996 and is tax deductible. The Savings Bank took a charge of
$845,000 as a result of the special assessment. This legislation will eliminate
the substantial disparity between the amount that BIF and SAIF members had been
paying for deposit insurance premiums.
Beginning on January 1, 1997, the FDIC has estimated that, in addition to normal
deposit insurance premiums, BIF members will pay a portion of the FICO payment
equal to 1.3 basis points on BIF -insured deposits compared to 6.4 basis points
by SAIF members on SAIF-insured deposits. All institutions will pay a pro-rata
share of the FICO payment on the earlier of January 1, 2000 or the date upon
which the last savings association ceases to exist. The legislation also
requires BIF and SAIF to be merged by January 1, 1999 provided that legislation
is adopted to eliminate the saving association charter and no savings
associations remain as of that time.
The FDIC has recently lowered SAIF assessments to a range comparable to that of
BIF members, although SAIF members must also make the FICO payments described
above. Management cannot predict the level of FDIC insurance assessments on an
ongoing basis or whether the BIF and SAIF will eventually be merged.
27.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
16. LEGISLATIVE MATTERS (Cont'd)
- -----------------------
On August 21, 1996, legislation was enacted to allow for the recapture of
post-1987 tax bad debt reserves. Prior to enactment certain thrift institutions
such as the Savings Bank were allowed deductions for bad debts under methods
more favorable than those granted to other taxpayers. This legislation 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 utilize 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.
For small institutions such as the Savings Bank, the amount of the institution's
applicable excess reserves generally is the excess of (1) the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying 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 tax
reserves or (b) what the reserves would have been at the close of its last year
beginning before January 1, 1996, had the Savings Bank always used the
experience method. At December 31, 1996, the Savings Bank had no excess
reserves.
17.. PARENT CORPORATION FINANCIAL INFORMATION
- -----------------------------------------------
The following condensed financial statements of the Corporation should be read
in conjunction with the Notes to Consolidated Financial Statements.
STATEMENTS OF FINANCIAL CONDITION
December 31,
---------------------------
1996 1995
------------ -----------
Assets
Cash and cash equivalents $ 17,397 $ 16,923
Investment in subsidiary 9,372,123 9,679,868
Organization costs 22,949 30,389
------------ -----------
Total assets $9,412,469 $9,727,180
============ ===========
28.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
17. PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
- ---------------------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
December 31,
---------------------------
1996 1995
------------ -----------
Liabilities and stockholders' equity
Liabilities
Dividends payable $ 42,500 $ 92,550
Due to subsidiary 37,721 37,721
------------ -----------
Total liabilities 80,221 130,271
------------ -----------
Stockholders' equity
Preferred stock - 340
Common stock 440,100 100,100
Paid-in-capital in excess of par value 3,670,377 4,010,037
Retained earnings - substantially
restricted 5,221,771 5,486,432
------------ -----------
Total stockholders' equity 9,332,248 9,596,909
------------ -----------
Total liabilities and
stockholders' equity $ 9,412,469 $9,727,180
============ ===========
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
January 7, 1994
Year Ended December 31, (Date of Inception)
--------------------------
1996 1995 to December 31, 1994
------------ ----------- ---------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 220,050 $ 220,050 $ 42,500
Interest income 474 460 1,462
------------ ----------- ----------
Total income 220,524 220,510 43,962
Expenses 7,440 505 6,826
------------ ----------- ----------
213,084 220,005 37,136
Equity in undistributed (loss)
earnings of subsidiaries (333,155) 142,881 461,252
------------- ---------- ----------
(Loss) income before income taxes (120,071) 362,886 498,388
Income taxes - - -
------------ ----------- ----------
Net (loss) income $ (120,071) $362,886 $498,388
============= ========== =========
</TABLE>
29.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
17. PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
- ---------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
January 7, 1994
Year Ended December 31, (Date of
Inception)
-------------------------------
1996 1995 to December
31,1994
-------------- ------------- --------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (120,071) $ 362,886 $ 498,388
Adjustments to reconcile net
(loss) income to
net cash provided by
operating activities:
Equity in undistributed
loss (earnings)
of subsidiary 333,155 (142,881) (461,252)
Amortization of
organization costs 7,440 - 6,826
Increase in due to
subsidiary - 506 -
---------- ----------- -----------
Net cash provided by
operating activities 220,524 220,511 43,962
---------- ----------- -----------
Cash flows from financing activities:
Paid in capital received from
subsidiary - - 100,000
Cash dividends paid (220,050) (220,050) (127,500)
---------- ----------- -----------
Net cash (used in)
financing activities (220,050) (220,050) (27,500)
---------- ----------- -----------
Net increase in cash and cash
equivalents 474 461 16,462
Cash and cash equivalents - beginning 16,923 16,462 -
---------- ----------- -----------
Cash and cash equivalents - ending $ 17,397 $ 16,923 $ 16,462
========== =========== ===========
</TABLE>
30.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Total interest income $2,818,787 $2,822,134 $2,849,290 $2,965,469
Total interest expense 1,775,928 1,757,264 1,810,840 1,841,184
---------- ---------- ---------- ----------
Net interest income 1,042,859 1,064,870 1,038,450 1,124,285
Provision for loan losses 25,000 25,000 25,000 117,500
Total non-interest income 41,050 39,933 43,255 55,827
Total non-interest expenses 806,754 867,947 1,657,919 1,104,519
Income taxes (benefit) 87,960 72,810 (209,770) (10,039)
---------- ---------- ---------- ----------
Net income (loss) $ 164,195 $ 139,046 $ (391,444) $ (31,868)
========== ========== ========== ==========
Net income (loss) per common
share and common stock
equivalents $ .37 $ .32 $ (.89) $ (.07)
========== ========== ========== ==========
Dividends per common share $ - $ - $ - $ -
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Total interest income $2,378,479 $2,493,489 $2,596,476 $2,873,825
Total interest expense 1,379,105 1,528,330 1,661,413 1,657,397
---------- ---------- ----------- -----------
Net interest income 999,374 965,159 935,063 1,216,428
Provision for loan losses - - - 80,228
Total non-interest income 40,087 40,182 44,321 35,110
Total non-interest expenses 824,820 892,715 784,698 954,809
Income taxes 75,375 39,329 68,198 192,666
---------- ---------- ----------- -----------
Net income $ 139,266 $ 73,297 $ 126,488 $ 23,835
============ ============ ================ ==============
Net income per common share
and common stock equivalents $ .31 $ .17 $ .29 $ .05
========== ========== =========== ===========
Dividends per common share $ - $ - $ - $ .50
========== ========== =========== ===========
</TABLE>
31.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. For those loans and deposits with floating
interest rates, it is presumed that estimated fair values generally approximate
their recorded book balances. The estimation methodologies used and the
estimated fair values and carrying values of the financial instruments are set
forth below.
Cash and cash equivalents, interest receivable and borrowed money
-----------------------------------------------------------------
The carrying amounts for cash and cash equivalents, interest receivable and
borrowed money approximate fair value as a result of their short-term
nature.
Securities
----------
The fair values for securities are based on quoted market prices or dealer
prices, if available. If quoted market prices or dealer prices are not
available, fair value is estimated using quoted market prices or dealer
prices for similar securities.
Loans
-----
The fair value of loans is estimated by discounting future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
Deposits
--------
For demand, savings and club accounts, fair value is the carrying amount
reported in the consolidated financial statements. For fixed-maturity
certificates of deposit, fair value is estimated using the rates currently
offered for deposits of similar remaining maturities.
Commitments
-----------
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the present creditworthiness of the
coutnerparties. For fixed-rate loan commitments, fair value also considers
the difference between the current levels of interest rates and the
committed rates.
32.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd)
- -------------------------------------------------
The carrying values and estimated fair values of financial instruments are as
follows.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1996 1995
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair value Value Fair value
---------- ----------- ----------- -----------
(in thousands)
Financial assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $10,673 $ 10,673 $ 1,128 $ 1,128
Securities available for sale 37,507 37,507 35,964 35,964
Investment securities held to maturity 2,000 2,000 19,000 18,952
Mortgage-backed securities held to 12,805 12,813 2,545 2,538
maturity
Loans receivable 94,733 94,552 85,836 87,702
Accrued interest receivable 1,111 1,111 1,428 1,428
Financial liabilities
Deposits 156,596 157,818 131,636 132,500
Borrowed money - - 12,600 12,600
Commitments
To originate and fund loans 3,835 3,835 4,162 4,162
</TABLE>
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, other real estate owned and advance payments by borrowers for taxes
and insurance. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of these estimates.
33.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd)
- -------------------------------------------------
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to those estimated fair values.
20. IMPACT OF NEW ACCOUNTING STANDARDS
- --------------------------------------
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Statement No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes the financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. A transfer of financial assets in which
the transferor surrenders control, as defined, over those assets is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in exchange. Statement No. 125 requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value, if
practicable, and requires that servicing assets and other retained interests in
the transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and retained interest, if any, based on the
relative fair values at the date of the transfer. Further, servicing assets and
liabilities must be subsequently measured by (a) amortization in proportion to
and over the period of estimated net servicing income or loss and (b) assessment
for asset impairment or increased obligation based on their values. Statement
No. 125 requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets. Statement No. 125 is effective for transactions occurring after
December 31, 1996, with the exception of certain provisions which have had their
effective date delayed an additional year via FASB Statement No. 127. The
application the provisions of Statement No. 125 is not expected to have a
material adverse effect on the Corporation's consolidated financial condition of
results of operations.
34.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Officers
CORPORATE DATA
Dr. H. S. Kostakopoulos
Directors President & Chief Executive Officer
Emanuel M. Kontokosta Brian McCourt
Chairman of the Board Vice President/Controller, Treasurer
Principal Owner of Kontokosta
Associates, New York, New York; John Christensen
an architectural and engineering firm Assistant Vice President
Manager/Branch Administration
Dr. H. S. Kostakopoulos
President and CEO of First Savings Pamela E. Skurat
Bank of Little Falls, F.S.B. Assistant Vice President
Manager/Loan Administration
Nikos P. Mouyiaris
Vice Chairman Veronica Kingsley
Chairman - Executive Committee Assistant Vice President
Owner and President of Mana Products, Long Island City, New York; Quality Control
a cosmetics firm
Jo-Ann Palmere
Frederick J. Tedeschi, Esq. Assistant Secretary
Vice Chairman Loan Officer
Chairman - Investment Committee
Self-employed attorney and Town Lisa Polidori
Justice, Southold, New York Assistant Secretary
Manager - Main Branch
Paul D. Oesterle, Jr.
Program Manager, Digital Equipment Elizabeth A. Gallagher
Corp., New York, New York Assistant Secretary
Manager - Singac Branch
Anthony J. Sansiveri
Self-employed Certified Public Lois D'Ambrosia
Accountant, Clifton, New Jersey Manager - Little Ferry Branch
Sarina Matos
Assistant Vice President
Corporate Secretary
Compliance Officer
</TABLE>
- -------
Transfer Agent
First Savings Bank of Little Falls, F.S.B.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Auditors Annual Meeting
Radics & Co., LLC. The Annual Meeting of Stockholders will be held on April 16, 1997 at Corporate
P.O. Box 676 Headquarters, 7 Center Avenue, Little Falls, New Jersey.
U.S. Highway 46 East
Pine Brook, New Jersey 07058 10-K Information
General Counsel A copy of Form 10-K including financial statement schedules as filed with the
Securities and Exchange Commission will be furnished without charge to
McCarter & English stockholders as of the record date upon written request to the Secretary, First
Four Gateway Center Savings Bank of Little Falls, F.S.B., 7 Center Avenue, Little Falls, New Jersey
100 Mulberry Street 07424.
Newark, New Jersey 07102
Corporate Office
Special Securities Counsel
7 Center Avenue
Malizia, Spidi, Sloane & Fisch, P.C. Little Falls, New Jersey 07424
1301 K Street, NW 201-256-2100
Suite 700 East
Washington, D.C. 20005 Branches
115 Main Street
Little Falls, New Jersey 07424
201-256-2100
123 Route 23
Singac, New Jersey 07424
201-256-2100
Little Ferry
100 Washington Avenue
Little Ferry, NJ 07643
201-641-6755
Loan Center
7 Center Avenue
Little Falls, New Jersey 07424
201-256-2100
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,320
<INT-BEARING-DEPOSITS> 9,354
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,507
<INVESTMENTS-CARRYING> 14,805
<INVESTMENTS-MARKET> 14,813
<LOANS> 94,733
<ALLOWANCE> 524
<TOTAL-ASSETS> 166,734
<DEPOSITS> 156,596
<SHORT-TERM> 0
<LIABILITIES-OTHER> 806
<LONG-TERM> 0
0
0
<COMMON> 440
<OTHER-SE> 3,670
<TOTAL-LIABILITIES-AND-EQUITY> 166,734
<INTEREST-LOAN> 7,686
<INTEREST-INVEST> 3,666
<INTEREST-OTHER> 103
<INTEREST-TOTAL> 11,456
<INTEREST-DEPOSIT> 6,593
<INTEREST-EXPENSE> 592
<INTEREST-INCOME-NET> 4,270
<LOAN-LOSSES> 143
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 4,487
<INCOME-PRETAX> (179)
<INCOME-PRE-EXTRAORDINARY> (179)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
<YIELD-ACTUAL> 2.59
<LOANS-NON> 1,639
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,313
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 389
<CHARGE-OFFS> 7
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 524
<ALLOWANCE-DOMESTIC> 524
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 524
</TABLE>
