SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
-----------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
------------ ------------
Commission File No. 0-23194
First Savings Bancorp of Little Falls, Inc.
--------------------------------------------------
(Name of Small Business Issuer in Its Charter)
New Jersey 22-1284835
- ------------------------------------------ -----------------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
7 Center Avenue, Little Falls, New Jersey 07424
- ----------------------------------------- ----------
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (973) 256-2100
---------------
Securities registered under to Section 12(b) of the Exchange Act: None
----
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO .
----- ------
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $794,112
The registrant's voting common stock is not regularly or actively
traded in any established market. Approximately 90% of the common stock is held
by affiliates. There is no non-voting common stock issued or outstanding.
As of March 1, 1998, there were issued and outstanding 440,100 shares
of common stock.
Transition Small Business Disclosure Format (check one):
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal
Year ended December 31, 1997. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended December 31, 1997.
(Part III)
<PAGE>
PART I
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC. (THE "COMPANY") MAY FROM
TIME TO TIME MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING
STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-KSB AND THE EXHIBITS
THERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE
COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATE, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE
SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES, ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED
IN THE FOREGOING.
THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD- LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE COMPANY.
Item 1. Business
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General
In March 1993, First Savings Bancorp of Little Falls, Inc., a New
Jersey Corporation, (the "Company") became a unitary savings and loan holding
company upon the completion of the reorganization of First Savings Bank of
Little Falls, F.S.B. ("First Savings" or the "Savings Bank") into
1
<PAGE>
a holding company form of ownership. At that time, the Company acquired all of
the outstanding common stock of the Savings Bank. The Savings Bank's common
stock was originally issued in connection with the Savings Bank's conversion
from mutual to stock form in September 1992. The principal asset of the Company
consists of 100% of the issued and outstanding shares of common stock of the
Savings Bank. At December 31, 1997, the Company had total assets of $178.1
million, total deposits of $166.8 million and total stockholders equity of $9.9
million.
The principal business of the Savings Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and the purchase of mortgage-backed securities. The
Savings Bank also originates home equity loans.
Competition
The Savings Bank's primary market area consists of Bergen and Passaic
counties in northern New Jersey, and is one of many financial institutions
serving its market area. The competition for deposit products comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions in the Savings Bank's market area. Deposit competition also
includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition comes from other insured financial institutions such
as commercial banks, thrift institutions and credit unions.
Lending Activities
Loan Portfolio Data. Set forth below is selected data relating to the
composition of the Savings Bank's loan portfolio by type of loan as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of deferred loan origination fees and costs, net and allowance for
loan losses.
2
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1997 1996
------------------------ -------------------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Type of Loan Real estate loans:
1-4 family.............................. $83,317 78.38% $ 74,157 77.68%
Other dwellings......................... 5,021 4.72 3,311 3.47
Non-residential......................... 6,222 5.85 6,817 7.14
Commercial loans........................ 4,655 4.38 3,954 4.15
Consumer loans:
Home equity............................. 4,399 4.14 4,681 4.90
Savings account loans................... 629 .59 814 .85
Home improvement loans.................. 1,346 1.27 1,091 1.14
Student loans........................... 91 .09 116 .12
Other loans............................. 619 .58 527 .55
-------- ------ ------- ------
Total gross loans.................... 106,299 100.00% 95,468 100.00%
-------- ====== ------- ======
Less:
Deferred loan origination fees
and costs, net......................... (236) (211)
Allowance for loan losses............... (596) (524)
-------- -------
(832) (735)
-------- -------
Total loans, net..................... $105,467 $94,733
======== =======
</TABLE>
Loan Maturity Tables. The following table sets forth the contractual
maturity of the Savings Bank's loan portfolio at December 31, 1997. The table
does not include prepayments or scheduled principal repayments. All mortgage
loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- ------
(In Thousands)
<S> <C> <C> <C> <C>
1-4 family and other dwellings............. $ 932 $2,213 $85,193 $ 88,338
Non-residential............................ 1,416 4,303 503 6,222
Commercial and consumer.................... 745 2,981 8,013 11,739
------ ------ ------- --------
$3,093 $9,497 $93,709 $106,299
====== ====== ======= ========
</TABLE>
3
<PAGE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have predetermined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
(In Thousands)
<S> <C> <C> <C>
1-4 family and other dwellings ....... $ 51,351 $ 36,055 $ 87,406
Non-residential ...................... 1,238 3,568 4,806
Commercial and consumer .............. 2,352 8,642 10,994
-------- -------- --------
Total ............................ $ 54,941 $ 48,265 $103,206
======== ======== ========
</TABLE>
One- to Four-Family Residential Loans. The Savings Bank's primary
lending activity consists of the origination of one- to four-family residential
mortgage loans secured by property located in the Savings Bank's primary market
areas. Typically, such residences are single family homes that serve as the
primary residence of the owner. Additionally, this loan category includes a
relatively small amount of loans collateralized by mixed use properties which
are primarily residential, but have some commercial use as well. The Savings
Bank generally originates owner-occupied one- to four-family residential
mortgage loans in amounts up to 80% of the lesser of the appraised value or
selling price of the mortgaged property ("the loan to value ratio") without
requiring mortgage insurance. When a loan origination is over $300,000, 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. First Savings also originates mortgage
loans in an amount up to 90% of the lesser of the appraised value or selling
price of a mortgaged property, however, mortgage insurance is required for the
amount in excess of 80% of such value. The Savings Bank originates
adjustable-rate and fixed-rate mortgage loans which generally have terms between
15 and 30 years.
During 1998, the Savings Bank plans to become a service seller of loans
with either the Federal Home Loan Mortgage Association ("FHLMC") or the Federal
National Mortgage Association ("FNMA"). The Savings Bank will sell the majority
of fixed-rate 30 year loans it originates and retain the servicing of these
loans. As of December 31, 1997, the Savings Bank had applications on file with
both FHLMC and FNMA.
The Savings Bank requires the borrower to qualify for an adjustable
rate mortgage loan at a rate that is 2.75% above the interest rate at loan
origination. The Savings Bank's adjustable rate loans generally reprice annually
with interest rate adjustment limitations of 2% per year and 6% over the life of
the loan. The Savings Bank offers adjustable-rate mortgage loans with initial
interest rates set below the fully indexed rate.
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 Savings Bank.
4
<PAGE>
Non-Residential Loans. The non-residential real estate loans consist of
multi-family loans, including loans on apartment complexes. These loans are
generally originated in amounts up to 80% of the appraised value for a maximum
term of 20 years.
Multi-family loans generally provide higher interest rates than can be
obtained from single-family mortgage loans. Multi-family lending, however,
entails significant additional risks when compared with one- to four-family
residential lending. For example, multi-family 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 real estate project, and these risks can be significantly impacted by supply
and demand conditions in the market for multi-family residential units.
Commercial Loans. Commercial loans, other than non-residential real
estate loans, consist of, among other things, equipment loans and loans secured
by real estate, such as small office building loans. Loans secured by commercial
property may be in amounts up to 80% of the appraised value for a maximum term
of 25 years.
Commercial lending entails significant additional risks when compared
with one- to four-family residential lending. For example, non-residential 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. The Savings Bank offers consumer loans in order to
provide a wider range of financial services to its customers. Savings account
loans are offered subject to a 90% loan to value ratio and home improvement
loans are offered subject to a 70% loan to value ratio.
Loan Approval Authority and Underwriting. Loans under $25,000 may be
approved by a loan officer. Loans of $25,000 up to $500,000 must be approved by
the Loan Committee which is comprised of the Chairman of the Board, the
President, the loan officer and mortgage underwriter. Loans for amounts over
$500,000 must be approved by the Board of Directors of the Savings 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 real estate loans, the Savings 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 Savings 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, 1997, the Savings Bank had $975,000 of commitments to cover
originations. Management believes that virtually all of the Savings 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 Savings
Bank. The Savings Bank is authorized to lend up to an additional 10% of
unimpaired capital and unimpaired surplus if the loan is fully secured
5
<PAGE>
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 Savings Bank's
maximum loan-to-one borrower limit was approximately $1.5 million at December
31, 1997. At December 31, 1997, the aggregate loans outstanding to our three
largest borrowers, in excess of $800,000, were approximately $939,000, $881,000
and $836,000, respectively. These loans were secured loans and were within our
lending limit.
Non-Performing 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 Savings 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 Savings Bank as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired, it is recorded at the fair value at the date of
foreclosure less estimated costs of disposition.
The following table sets forth information regarding non-performing
loans and real estate owned.
At December 31,
-------------------
1997 1996
------ ------
(In Thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
1-4 family ......................................... $1,450 $ 476
All other real estate loans ........................ 1,027 1,076
Commercial and consumer ............................ 124 87
------ ------
Total non-accrual loans .......................... $2,601 $1,639
------ ------
Restructured loans:
Real estate loans .................................. 406 1,313
------ ------
Total non-accrual and restructured loans ............. $3,007 $2,952
------ ------
Real estate owned, net ............................... 1,640 2,906
------ ------
Total non-performing assets (1) ...................... $4,647 $5,858
====== ======
- ------------------
(1) In 1997 and 1996, there were no accruing loans which were contractually
past 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 $292,000 for
the year ended December 31, 1997. Actual income recorded on these loans during
the year ended December 31, 1997 totaled $161,000.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected
6
<PAGE>
by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
In accordance with its classification of assets policy, the Savings
Bank regularly reviews the problem assets in its portfolio to determine whether
any assets require classification in accordance with applicable regulations. On
the basis of management's review of its assets, at December 31, 1997, the
Savings Bank had classified $4.0 million of assets as substandard, no assets as
doubtful, and $1.2 million of assets as special mention.
Potential Problem Loans.
Hazlett, Gas Station/Car Wash, Fort Lee, New Jersey. The original loan
was made in the amount of $900,000 in March 1991 and is secured by a gas station
and car wash facility. As of December 31, 1997, the loan had an outstanding
balance of $881,000. The loan has been restructured and is presently classified
as special mention.
Real Estate Owned. The following is a summary of significant properties
in the Savings Bank's real estate owned portfolio as of December 31, 1997.
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 1997, the
property was appraised at $1,600,000. As of December 31, 1997, 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 Savings Bank, the amount of the Savings Bank's
classified assets, the status of past due principal and interest payments,
general economic conditions, particularly as they relate
7
<PAGE>
to the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. Management of the Savings
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 Savings
Bank's allowance for loan losses and real estate owned for the periods
indicated.
At December 31,
-------------------
1997 1996
---- -----
(In Thousands)
Allowance balances (at beginning of period) .......... $ 524 $ 389
Provision:
Real estate ........................................ 101 142
Commercial and consumer ............................ --
Charge-offs:
Real estate ........................................ -- --
Commercial and consumer ............................ (37) (7)
------ ------
Recoveries ........................................... 8 --
------ ------
Allowance balance (at end of period) ................. $ 596 $ 524
====== ======
Net loans charged off as a percent of average
loans outstanding .................................. .03% .01%
Allowance as a percent of:
Total loans ........................................ .56% .55%
Non performing loans ............................... 19.83% 17.75%
At December 31,
------------------------
1997 1996
------- -------
(In Thousands)
Total real estate owned, gross ............... $ 1,675 $ 3,444
======= =======
Allowance balances - beginning ............... $ 538 $ 303
Provision .................................... 37 256
Charge-offs .................................. (540) (21)
------- -------
Allowance balances - ending .................. $ 35 $ 538
======= =======
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<PAGE>
Analysis of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance by
category, which management believes can be allocated only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future loss and does not restrict the use of the allowance to
absorb losses in any category:
<TABLE>
<CAPTION>
At December 31
-----------------------------------------------------
1997 1996
------ -----
(Dollars In Thousands)
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
$ Total Loans $ Total Loans
--- ----------- --- -----------
<S> <C> <C> <C> <C>
Real estate .............. $408 88.96% $248 88.29%
Commercial ............... 107 4.38 247 4.15
Consumer ................. 81 6.66 29 7.56
---- ------ ---- ------
Total .............. $596 100.00% $524 100.00%
==== ====== ==== ======
</TABLE>
Investment Activities and Mortgage-Backed Securities
General. The Savings 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 Savings 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 Savings Bank's loan
origination and other activities.
The Savings Bank's investment securities and mortgage-backed securities
portfolios at December 31, 1997 did not contain securities of any issuer with an
aggregate book value in excess of 10% of the Savings Bank's liquidity, excluding
those issued by the United States or its agencies.
Mortgage-Backed Securities. To supplement lending activities, the
Savings 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
Savings Bank. Such quasi-governmental agencies, which guarantee the payment of
principal and interest to investors, primarily include FHLMC, FNMA, Government
National Mortgage Association ("GNMA"), and Small Business Administration
("SBA").
9
<PAGE>
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.
Real Estate Mortgage Investment Conduits ("REMIC") are typically issued
by a special purpose entity, which may be organized in a variety of legal forms,
such as a trust, a corporation or a partnership. The entity aggregates pools of
pass-through securities or mortgage loans, which are used to collateralize the
mortgage related securities. Once combined, the cash flows can be divided into
"tranches" or "classes" of individual securities, thereby creating more
predictable average lives for each security than the underlying pass-through
pools of mortgage loans. Accordingly, under this security structure, all
principal paydowns from the various mortgage pools or mortgage loans are
allocated to a mortgage-related securities' class or classes structured to have
priority until it has been paid off. These securities generally have fixed
interest rates, and as a result, changes in interest rates generally would
affect the market value and possibly the prepayment rates of such securities.
The characterization of a mortgage-related security as a REMIC relates solely to
the tax treatment of the mortgage related security under the Internal Revenue
Code.
Investment Activities
The following table sets forth the carrying value of the Company's
investment portfolio, mortgage-backed securities, and Federal Home Loan Bank
("FHLB") stock at the dates indicated. At December 31, 1997, the market value of
the investment securities that are held to maturity was $19.6 million and the
market value of investment securities available for sale was $31.2 million, with
a cost basis of $30.8 million.
10
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------
1997 1996
------- ------
(In Thousands)
Investment Securities:
<S> <C> <C>
U.S. government agency securities held to maturity ......... $19,644 $ 2,000
------- -------
Atlantic Central Bank Stock (Common Stock) available for
sale ....................................................... 30 --
------- -------
Mortgage-backed securities available for sale (1):
GNMA ..................................................... 10,065 12,317
FNMA ..................................................... 2,121 3,641
FHLMC .................................................... 681 1,655
SBA ...................................................... 16,409 19,894
FNMA-REMIC ............................................... 1,920 --
------- -------
Total mortgage-backed securities available for sale ... 31,196 37,507
------- -------
Total available for sale .............................. 31,226 37,507
------- -------
Mortgage-backed securities held to maturity:
GNMA ..................................................... 32 39
FNMA ..................................................... 1,540 1,809
FHLMC .................................................... 7,843 9,957
FHLMC - REMIC ............................................ 1,000 1,000
------- -------
10,415 12,805
------- -------
FHLB - New York Stock ...................................... 1,107 823
------- -------
Total .................................................. $62,392 $53,135
======= =======
</TABLE>
(1) Carried at market value.
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<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, market value and weighted average yields for the
Savings Bank's investment securities portfolio at December 31, 1997. The table
does not take into consideration the effects of scheduled repayments or the
effects of possible prepayments.
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------------------------------------------------------------------------
More than One to More than Five to
---------------- -----------------
One Year or Less Five Years Ten Years More than Ten Years Total Investment Securities
---------------- ---------- --------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government agency
securities held to
maturity................$1,000 7.87% $ 2,000 6.98% $ 7,000 7.11% $9,644 7.59% $19,644 7.37% $19,619
Atlantic Central Bank
Stock ................... 30 8.00 -- -- -- -- -- -- 30 8.00 30
Mortgage-backed securities
available for sale:
GNMA.................... -- -- -- -- -- -- 10,065 6.99 10,065 6.99 10,065
FNMA.................... -- -- -- -- -- -- 2,121 6.42 2,121 6.42 2,121
FHLMC................... -- -- -- -- -- -- 681 6.12 681 6.12 681
SBA..................... -- -- 1,854 9.55 6,290 8.81 8,265 7.23 16,409 8.10 16,409
FNMA - REMIC............ -- -- -- -- -- -- 1,920 6.79 1,920 6.79 1,920
Mortgage-backed securities
held for sale:
GNMA.................... -- -- -- -- 26 8.50 6 11.00 32 9.00 32
FNMA.................... -- -- 1,540 6.09 -- -- -- -- 1,540 6.09 1,540
FHLMC................... -- -- 7,843 6.32 -- -- -- -- 7,843 6.32 7,866
FHLMC - REMIC........... -- -- -- -- -- -- 1,000 7.25 1,000 7.25 1,000
FHLB - New York........... 1,107 6.25 -- -- -- -- -- -- 1,107 6.25 1,107
------ ---- ------- ---- ------- ---- ------- ---- ------- ---- -------
$2,137 7.03% $13,237 6.85% $13,316 7.92% $33,702 7.16% $62,392 7.25% $62,390
====== ==== ======= ==== ======= ==== ======= ==== ======= ==== =======
</TABLE>
12
<PAGE>
Subsidiary Activity
The Savings 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.
First Service Corporation
First Service Corporation ("First Service") was formed in 1996 and is a
wholly-owned subsidiary of the Savings Bank. The purpose of First Service is to
facilitate the licensing of representatives of the Savings Bank to sell
annuities and insurance products to the Savings Bank's customers. At December
31, 1997, First Service provided fees to the Savings Bank in the amount of
$6,000 and had total assets of $33,000.
Redeem, Inc.
Redeem, Inc. ("Redeem") was formed in 1993 and is wholly-owned
subsidiary of the Savings Bank. The purpose of Redeem is to hold title to real
estate owned properties. As of December 31, 1997, Redeem, Inc. does not hold
title to any property and has no loans outstanding from the Savings Bank. Redeem
has no significant assets or liabilities.
Sources of Funds
General. Deposits are the major source of the Savings 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 Savings 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 Savings Bank regularly evaluates the internal cost of funds,
surveys rates offered by competing institutions, reviews the Savings Bank's cash
flow requirements for lending and liquidity and executes rate changes when
deemed appropriate. The Savings Bank does not obtain funds through brokers, nor
does it actively solicit funds outside of the State of New Jersey.
Borrowings. The Savings 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 Savings Bank's stock in the FHLB and a portion of
the Savings Bank's mortgage-backed securities.
13
<PAGE>
The following table sets forth certain information as the Savings
Bank's short-term FHLB advances at the dates indicated.
As of and for the Years Ended
-----------------------------
1997 1996
--------- ----------
(Dollars In Thousands)
Maximum balance ............................ $ 568 $12,600
Average balance ............................ 305 10,767
Balance at end of period ................... 551 --
Weighted average rate:
at end of period ......................... 6.70% --%
during the period ........................ 6.70% 5.50%
Employees
As of December 31, 1997, the Savings Bank had 40 full-time and 5
part-time employees. The employees are not represented by a collective
bargaining agreement. The Savings 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 Savings 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 Savings 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 Savings 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 Savings
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 Savings Bank -- Qualified Thrift Lender Test."
14
<PAGE>
Regulation of the Savings Bank
General. As a federally chartered, SAIF-insured savings association,
the Savings 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 Savings Bank is also subject to
certain reserve requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Savings
Bank and prepares reports for the consideration of the Savings Bank's Board of
Directors on any deficiencies that they find in the Savings Bank's operations.
The Savings 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 Savings Bank's
mortgage documents.
The Savings 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 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 Savings Bank
and their operations.
Insurance of Deposit Accounts. The Savings Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator. The FDIC may also prohibit an insured
depository institution from engaging in any activity the FDIC determines poses a
serious threat to the SAIF.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase deposit insurance rates on a
semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC. Prior to
September 30, 1996, savings associations paid within a range of .23% to .31% of
domestic deposits and the SAIF was substantially underfunded. By comparison,
prior to September 30, 1996, members of the Savings Bank Insurance Fund ("BIF"),
predominantly commercial banks, were required to pay substantially lower, or
virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Savings Bank of
approximately .657% of deposits held on March 31, 1995. The Savings Bank
recorded a $845,000 pre-tax expense for this assessment at September 30, 1996.
15
<PAGE>
Beginning January 1, 1997, deposit insurance assessments for SAIF members were
reduced to approximately .064% of deposits on an annual basis; this rate may
continue through the end of 1999. During this same period, BIF members are
expected to be annually assessed approximately .013% of deposits. Thereafter,
assessments for BIF and SAIF members should be the same and the SAIF and BIF may
be merged. It is expected that these continuing assessments for both SAIF and
BIF members will be used to repay outstanding Financing Corporation bond
obligations. As a result of these changes, beginning January 1, 1997, the rate
of deposit insurance assessed the Savings Bank substantially declined.
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.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Savings 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, 1997, the Savings Bank was a Tier 1 institution. In the event the
Savings 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 Savings
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.
Qualified Thrift Lender Test. Savings institutions must meet a QTL
test. If the Savings 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, 1997, the
Savings Bank was in compliance with its QTL requirement.
16
<PAGE>
Federal Home Loan Bank System. The Savings 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 Savings 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.
Liquidity Requirements. All savings associations are required to
maintain a daily balance of liquid assets equal to a certain percentage of the
sum of its daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings associations. At December 31, 1997, the Savings Bank's required
liquid asset ratio was 4.00%.
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, 1997, the Savings Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Description of Properties
- ----------------------------------
(a) Properties.
The Savings 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 Savings Bank owns all of its properties.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Savings
Bank's investment policies and any regulatory or Board of Directors' percentage
of assets limitations regarding certain investments. The Savings Bank's
investments are primarily acquired to produce income, and to a lesser extent,
possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See
"Item 1. Business - Lending Activities and - Regulation of the Savings Bank,"
and "Item 2. Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities and - Regulation of the Savings Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities
and - Regulation of the Savings Bank."
(c) Description of Real Estate and Operating Data.
Not Applicable.
17
<PAGE>
Item 3. Legal Proceedings
- --------------------------
The Savings 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
Savings 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 Company'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 executive officers
and directors of the Company. The market for the common stock is illiquid, with
few purchases and sales of stock. The last known sale of the common stock
involved 1,055 shares at $10.00 a share on April 18, 1995.
The Company's ability to pay dividends to shareholders is dependent
upon the earnings from investments and dividends it receives from the Savings
Bank. Accordingly, restrictions on the Savings Bank ability to pay cash
dividends directly affect the payment of cash dividends by the Company. The
Savings Bank may not declare or pay a dividend if the effect would cause the
Savings Bank's regulatory capital to be reduced below the amount required for
the liquidation account established in connection with the Savings Bank's
conversion from mutual to stock form or the regulatory capital requirements
imposed by the FDIC.
Cash dividends of $1.00 per share were declared in 1997. The four
largest shareholders whose combined holdings exceed 90% of the total shares of
common stock outstanding waived dividends due them. Cash dividends of $170,000,
in the aggregate, were paid on preferred stock then outstanding in 1996. There
are 440,100 common shares outstanding which are held by 42 holders as of the
voting record date, March 15, 1998.
Item 6. 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 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements listed in Item 13
herein are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
18
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
- --------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "I - Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and " - Biographical Information" in the "Proxy
Statement" is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as
part of this report.
(1) The consolidated balance sheets of First Savings
Bancorp of Little Falls, Inc. and subsidiaries as of
December 31, 1997 and 1996 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,
1997, together with the related notes and the
independent auditors' report of Radics & Co., LLC,
independent certified public accountants.
(2) Schedules omitted as they are not applicable.
19
<PAGE>
(3) Exhibits
The following exhibits are filed as part of this report.
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, 1997
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.
(b) Not applicable.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
FIRST SAVINGS BANCORP OF
LITTLE FALLS, INC.
By: /s/ Haralambos S. Kostakopoulos
-------------------------------
Haralambos S. Kostakopoulos
President, Chief Executive
Officer and Director (Duly
Authorized Representative)
</TABLE>
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 as of March 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Haralambos S. Kostakopoulos By: /s/ Emanuel M. Kontkokosa
--------------------------------------- ----------------------------------
Haralambos S. Kostakopoulos Emanuel M. Kontokosta
President, Chief Executive Officer Chairman of the Board
and Director
(Principal Financial Officer)
By: /s/ Brian McCourt By: /s/ Frederick J. Tedeschi
----------------------------------- ----------------------------------
Brian McCourt Frederick J. Tedeschi
Vice President and Controller Vice Chairman of the Board
(Principal Accounting Officer)
By: /s/ Nikos P.Mouyiaris By: /s/ Paul D. Oesterle, Jr.
---------------------------------- ----------------------------------
Nikos P. Mouyiaris Paul D. Oesterle, Jr.
Vice Chairman of the Board Director
By: /s/ Anthony J. Sansiveri
----------------------------------
Anthony J. Sansiveri
Director
</TABLE>
Exhibit No. 13
<PAGE>
1997 ANNUAL REPORT
1910 SERVING THE COMMUNITY FOR 87 YEARS 1997
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC
<PAGE>
Dear Fellow Stockholder,
In 1997, the Savings Bank recorded a pre-tax income of $1.23 million compared to
pre-tax loss of $179,110 in 1996. The income in 1997 compared to a loss in 1996
is attributable to a decrease in federal insurance premium of $1.0 million which
included a one time payment into the deposit insurance fund(SAIF) of $845,000
during the 1996 period and a $333,000 increase in net interest income. The
corresponding after-tax earnings are $794,100 in 1997, and a $120,100 loss in
1996.
Net interest income increased by $333,000 or 7.8% to $4.6 million in 1997
compared to $4.3 million in 1996; provisions for loan losses decreased by
$41,300 in 1997, compared to $142,500 in 1996, resulting in an increase in net
interest income after provisions for loan losses of $374,000 to $4.5 million in
1997 compared to $4.1 million in 1996. Non-interest income decreased to $167,000
in 1997 compared to $180,000 in 1996, reflecting decreased collection of
mortgage late fees and DDA fees. Non-interest expense decreased $1.0 million to
$3.4 million in 1997 compared to $4.5 million in 1996, primarily because of a
decrease of $1.0 million in federal insurance premium which included the
$845,000 non-recurring special SAIF assessment paid in 1996.
Your bank was the unsuccessful bidder in an auction for 75% of the stock of a
small commercial bank based in Brooklyn, New York. The Board of Directors is
continuing to explore an initial public offering.
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 "Company" 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 "Bank") in connection with the reorganization of the Bank into
the holding company form of 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, 1997, 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 $15,509 and $17,882 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 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 purchase
securities and 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, 1997, the 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,
1998, Redeem Inc. does not hold title to any property, and has no loans
outstanding from First Savings. Redeem has no significant 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 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 Bank to pay dividends, since the Bancorp's main asset is
the stock of the Savings Bank. The ability of the Bank to pay dividends is
restricted by the regulations of the OTS and tax considerations. The 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 1997, a dividend of
$1.00 per share was declared to the owners of Common Stock.
There are 42 holders of the Common Stock of the Bancorp as of March 31, 1998.
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.
Certain forward-looking statements contained herein are subject to risks and
uncertainties. The Company's actual results may differ materially from those set
forth in such forward-looking statements. Reference is made to the Company's
reports filed with the Securities and Exchange Commission for a discussion of
factors that may cause such differences to occur.
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, 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 11%, 23%, 28% and 37% in the event of 1%, 2%, 3% and 4%
increases and decreases in market interest rates, respectively. At December 31,
1997, based on information provided by the OTS, it was estimated that our NPV
would decrease 17%, 36%, 57% and 77% and increase 15%, 30%, 46% and 68% 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 $11.4 million or 6.8% from
$166.7 million at December 31, 1996 to $178.1 million at December 31, 1997. Our
total liabilities increased $10.9 million or 6.9% from $157.4 million at
December 31, 1996 as compared to $168.3 million at December 31, 1997. The
increase in assets primarily reflects the Company deployment of proceeds from a
reduction in interest bearing deposits, sales of and repayments received on
securities available for sale, and deposit growth into our loan portfolio, and
investment securities held to maturity. Comparing balances from December 31,
1997 to 1996, we increased our loan receivable by $10.7 million, our investment
securities held to maturity increased by $17.6 million, interest bearing
deposits decreased by $7.8 million, and investment securities available for sale
decreased by $6.3 million. Deposits increased $10.2 million and our borrowed
funds increased $551,000.
Results Of Operations for the Years Ending December 31, 1997 and 1996
Net Income(Loss). Net income(loss) increased $914,000 from a loss of
$120,000 for 1996 to an income of $794,000 for 1997. The increase was primarily
the result of a decrease in federal deposit insurance premium of $1.0 million
and increased net interest income.
Net income(loss) decreased $483,000 or 133% from income of $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 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,
---------------------------------------------------------------------------------
------------------------ -------------------------- ------------------------
1997 1996 1995
------------------------ -------------------------- ------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $101,389 $8,639 8.52 % $88,162 $7,686 8.72 % $75,220 $6,788 9.02 %
Mortgage-backed secruities 28,318 1,811 6.40 30,498 1,936 6.35 18,445 1,160 6.29
Other interest earnings assets 34,230 2,257 6.59 30,024 1,833 6.11 37,230 2,394 6.43
------- ------ ------- ------ ------- ------
Total interest-earning
assets 163,937 12,707 7.75 148,684 11,455 7.70 130,895 10,342 7.90
------- ----- ------- ----- ------- ----
Non-interest-earning assets 9,158 9,801 10,419
------ ------ ------
Total assets $173,095 $158,485 $141,314
======== ======== ========
Interest-bearing
liabilities:
Savings accounts $23,574 796 3.38 $22,435 754 3.36 $22,591 756 3.35
NOW and Money Market 14,760 365 2.47 14,515 364 2.51 15,368 410 2.67
Time Deposits 123,927 6,923 5.59 100,479 5,475 5.45 91,505 4,929 5.39
Borrowed money 305 20 6.56 10,768 592 5.50 2,225 131 5.89
---- --- ------- ---- ------ ----
Total Interest-bearing
liabilities 162,566 8,104 4.99 148,197 7,185 4.85 131,689 6,226 4.73
------ ----- ------ ----- ------ ----
Non-interest-bearing liabilities 830 574 228
---- ---- ---
Total liabilities 163,396 148,771 131,917
Retained Earnings 9,699 9,714 9,397
------ ------ -----
Total liabilities and retained
earnings $173,095 $158,485 $141,314
========= ========= =========
Net interest income $4,603 $4,270 $4,116
======= ======== =======
Interest rate spread 2.76 % 2.85 % 3.17 %
======== ========= ========
Net yield on
Interest-earnings
assets 2.81 % 2.87 % 3.14 %
======== ========= ========
Ratio of average interest-earning
assets to average
interest-bearing
liabilities 1.0084 x 1.0033 x 0.9940 x
======== ========= ========
</TABLE>
(1) Includes non-accrual loans.
(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,
-----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------- ----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $1,153 ($200) $953 $1,168 ($270) $898
Mortgage-backed securities (138) 13 (125) 758 18 776
Other interest earning assets 257 167 424 (463) (98) (561)
---- ---- ---- ----- ---- -----
Total interest-earning assets $1,272 ($20) $1,252 $1,463 ($350) $1,113
=============================== ==================================
Interest expense:
Savings accounts $38 $4 $42 ($5) $3 ($2)
NOW and money market 6 (5) 1 (22) (24) (46)
Time deposits 1,278 170 1,448 482 64 546
Borrowed money (575) 3 (572) 503 (42) 461
----- -- ----- ---- ---- ---
Total interest-bearing 747 172 919 958 1 959
=============================== ==================================
liabilities
Net change $525 ($192) $333 $504 ($350) $154
=============================== ==================================
</TABLE>
Our net interest income increased $333,000 or 7.8% to $4.6 million in
1997 compared to $4.3 million in 1996. The increase was due primarily to an
increase of $884,000 in average net interest-earning assets, partially offset by
a decline in our interest rate spread from 2.85% in 1996 to 2.76% in 1997. The
decline in our interest rate spread had a corresponding impact on our net
interest margin which declined 6 basis points to 2.81% in 1997.
The increase in our average interest-earning assets of $15.3 million
reflects an increase of $13.2 million in average loans, an decrease of $2.2
million in average mortgage-backed securities and a increase of $4.2 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.
Offsetting the foregoing was an increase of $14.4 million in average
interest-bearing liabilities, reflecting a $24.8 million increase in average
interest-bearing deposits, primarily time deposits, offset by a $10.5 million
decrease in borrowed money.
Page 7
<PAGE>
Our interest rate spread and net interest margin decreased in 1997
compared to 1996. This was due to a increase in the yield on average
interest-earning assets from 7.70% in 1996 to 7.75% in 1997 and an increase in
the interest cost of average interest-bearing liabilities from 4.85% in 1996 to
4.99% in 1997.
The yield on our average interest-earning assets increased in 1997 due
the deployment of interest bearing deposits into loans and other interest
bearing assets, offset by a slight decrease in yield on loans. As general market
rates of interest were relatively stable during 1996 and 1997, the decline in
the yield on our loans in 1997 reflected the impact of competition for new loan
originations.
The increase in the cost of our average interest-bearing liabilities
was due primarily to a growth in deposits toward certificates of deposits, which
have a higher cost then demand and savings deposits. While the cost of time
deposits rose from 5.45% in 1996 to 5.59% in 1997, the cost of non-certificates
accounts remained steady at 3.03%. The increase in the cost of time deposits
reflects desire for growth and increased competition. The increase in deposits
allowed the Bank to reduce its reliance on borrowed money.
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 $130.9 million in 1995 to $148.7
million in 1996, partially offset by a $16.5 million increase in average
interest-bearing liabilities and a decline in our interest rate spread from
3.17% in 1995 to 2.85% 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 $17.8 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.
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.
Page 8
<PAGE>
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.
Provision for Loan Losses. We recorded a provision for loan losses of
$101,000 in 1997 compared with $143,000 in 1996 and a loan loss provision of
$80,000 in 1995. The increase in our provision for loan losses in 1997, 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 impaired 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 decreased $13,000 in 1997
or 7.3% from $180,000 for the year ended December 31, 1996 to $167,000 for the
year ended December 31, 1997. The decrease was primarily a result of an decrease
in miscellaneous non-interest income from $86,000 in 1996 to $68,000 in 1997.
This decrease was due to an decrease in collection of mortgage late charges
during 1996. The decrease was partially offset by a increase in gain on sales of
securities of $4,000.
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.
Page 9
<PAGE>
Non-Interest Expense. Our non-interest expense decreased by $1.049
million or 23% from $4.49 million for 1996 to $3.44 million for 1997. The
increase was primarily attributable to a decrease of federal deposit insurance
premium of $1.03 million which included the one-time special SAIF assessment of
$845,000 paid in 1996. 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 experienced lower premiums
for deposits in 1997 and expect continued 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 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, 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 increased by $89,000 or
6.5% in 1997 compared to 1996. The increase was a result of some staff increases
in our loan area to accommodate our loan growth. Loss on foreclosed real estate
decreased $235,000 in 1997 as compared to 1996. The decrease was due to $37,000
of loss provisions in 1997 compared to $257,000 of loss provisions in 1996. Our
legal fees increased $128,000 in 1997 as compared to 1996. This increase was the
result of legal fees in connection with a unsuccessful bid to purchase 75% of
the stock of a small commercial Bank based in Brooklyn, New York. The Bank is no
longer pursuing the purchase and should not incur any legal fees regarding this
matter in 1998. Exclusive of the items specifically discussed above, other
elements of non-interest expense totalled $1.44 million in 1997, an increase of
1.4% over the $1.42 million in 1996.
Our non-interest expense increased by $1.03 million or 30% from $3.46
million for 1995 to $4.49 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.
Page 10
<PAGE>
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. See Form 10-K, "Real Estate Owned".
Income Tax Expense. We recognized an income tax expense of $436,000 for
1997 compared to a tax benefit of $59,000 in 1996. The $495,000 increase was the
result of pre-tax loss of $179,000 in 1996 versus pre-tax income of $794,000 in
1997.
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 4.0% and our
liquidity ratio average was 14.5% and 37.7% at December 31, 1996 and 1997,
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, 1997 totalled $1.4 million as compared to $1.3 million for the year
ended December 31, 1996 and $784,000 for the year ended December 31, 1995.
Net cash used in our investing activities for the year ended December
31, 1997 totalled $18.8 million an increase of $14.8 million from December 31,
1996. The increase was primarily attributable to a $10.1 million excess of loan
originations over repayments in 1997 compared to $2.9 million in 1996 and a
decrease of $8.0 million in net proceeds from calls of investment securities.
Net cash used in our investing activities for the year ended December 31, 1996
totalled $4.0 million 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 provided by our financing activities for 1997 totalled $10.4
million. This was primarily the result of a net increase in deposits of $10.2
million. Net cash provided by our financing activities for 1996 totalled $12.2
million. This was the result of a net increase in deposits of $25.0 million
offset by a repayment of FHLB advances of $12.6 million.
Page 11
<PAGE>
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.
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
deferred 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>
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during period except those resulting
from investments by owners and distributions to owners. Companies will be
required to (a) classify items of other comprehensive income by their nature in
the financial statements and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. Statement
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of prior periods presented and requires
reclassification of prior periods presented. As the requirements of Statement
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of prior periods presented. As the requirements of
Statement No. 130 are disclosure-related, its implementation will have no impact
on the Corporation's consolidated financial condition or results of operations.
Year 2000
The Year 2000 issue concerns the potential impact of historic computer
software code that only utilitizes two digits to represent the calendar
year(e.g. "98" for "1998"). Software so developed could produce inaccurate or
unpredictable results upon the change to January 1, 2000, when current and
future dates represent a lower two digit year number than date in the prior
century. The Bank, similar to most financial institutions, is significantly
subject to the potential impact of the "Year 2000 issue" due to the nature of
financial informatio9n. Potential impact to the Bank may arise from software,
hardware, and equipment both within the Bank's direct control and outside of the
Bank's ownership. Yet with which the Bank electronically or operationally
interfaces (e.g. vendors providing credit bureau information). The Bank has a
year 2000 compliance program in place to ensure that all software applications
will be year 2000 certified compliant. Management expects that it will be able
to satisfy year 2000 compliance issues by the end of 1998. Management intends to
perform testing on all systems throughout 1998 and 1999. The Bank does not
expect that the cost of its year 2000 compliance program will be material to its
financial condition or results of operations. Non-compliance with the year 2000
issue could have an adverse affect of the operations of the business.
Page 13
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the year ended DECEMBER 31,
1997 1996 1995 1994 1993
(In thousands except for per share amounts )
<S> <C> <C> <C> <C> <C>
TOTAL AMOUNT OF :
TOTAL ASSETS $178,144 $166,734 $154,635 $133,730 $130,574
LOANS RECEIVABLE, 105,467 94,733 85,836 74,277 76,918
SECURITIES AVAILABLE FOR SALE 31,226 37,507 35,964 -- 15,893
MORTGAGE-BACKED 10,415 12,805 2,545 18,289 4,035
SECURITIES HELD TO
MATURITY
INVESTMENT 19,644 2,000 19,000 28,120 10,443
SECURITIES,
HELD TO MATURITY
CASH & CASH EQUIVALENTS 3,683 10,673 1,128 3,559 12,345
DEPOSITS 166,759 156,596 131,636 123,656 115,494
BORROWED MONEY 551 -- 12,600 -- 5,000
STOCKHOLDERS EQUITY 9,864 9,332 9,597 9,177 9,041
NET INTEREST INCOME 4,603 4,270 4,116 3,922 3,980
NET INCOME(LOSS) 794 (120) 363 499 2,500
DILUTED EARNINGS PER COMMON SHARE $1.80 ($0.27) $0.82 $1.13 $5.68
COMMON STOCK DIVIDENDS DECLARED $1.00 -- $0.50 $0.50 --
RETURN ON AVERAGE ASSETS 0.46% -0.08% 0.26% 0.38% 1.90%
RETURN ON AVERAGE EQUITY 8.19% -1.24% 3.86% 5.43% 32.22%
DIVIDEND PAYOUT RATIO (1) 55.42% -- 25.95% 15.20% 0.00%
AVERAGE EQUITY TO AVERAGE ASSETS 5.60% 6.13% 6.65% 6.94% 5.88%
RATIO
</TABLE>
(1) Common stock dividends declared as a percentage of net income applicable to
common shares.
<PAGE>
CORPORATE DATA
Directors
Emanuel M. Kontokosta
Chairman of the Board
Principal Owner of Kontokosta
Associates, New York, New York;
an architectural and engineering firm
Dr. H. S. Kostakopoulos
President and CEO of First Savings
Bank of Little Falls, F.S.B.
Nikos P. Mouyiaris
Vice Chairman
Chairman - Executive Committee
Owner and President of Mana Products, Long Island City, New York;
a cosmetics firm
Frederick J. Tedeschi, Esq.
Vice Chairman
Chairman - Investment Committee
Self-employed attorney and Town
Justice, Southold, New York
- -------
Transfer Agent
First Savings Bank of Little Falls, F.S.B.
Officers
Dr. H. S. Kostakopoulos
President & Chief Executive Officer
Brian McCourt
Vice President/Controller, Treasurer
Carlo Pascetta
Senior Loan Officer
John Christensen
Assistant Vice President
Manager/Branch Administration
Pamela E. Skurat
Assistant Vice President
Manager/Loan Administration
Veronica Kingsley
Assistant Vice President
Quality Control
Jo-Ann Palmere
Assistant Secretary
Manager - Main Branch
Elizabeth A. Gallagher
Assistant Secretary
Manager - Singac Branch
Lois D'Ambrosia
Manager - Little Ferry Branch
Sarina Matos
Assistant Vice President
Corporate Secretary
Compliance Officer
<PAGE>
Auditors
Radics & Co., LLC.
P.O. Box 676
U.S. Highway 46 East
Pine Brook, New Jersey 07058
General Counsel
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Special Securities Counsel
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, NW
Suite 700 East
Washington, D.C. 20005
Annual Meeting
The Annual Meeting of Stockholders will be held on April 21, 1998 at Corporate
Headquarters, 1 Center Avenue, Little Falls, New Jersey.
10-KSB Information
A copy of Form 10-KSB including financial statement schedules as filed with the
Securities and Exchange Commission will be furnished without charge to
stockholders as of the record date upon written request to the Secretary, First
Savings Bank of Little Falls, F.S.B., 1 Center Avenue, Little Falls, New Jersey
07424.
Corporate Office
1 Center Avenue
Little Falls, New Jersey 07424
973-256-2100
Branches
115 Main Street
Little Falls, New Jersey 07424
973-256-2100
123 Route 23
Singac, New Jersey 07424
973-256-2100
Little Ferry
100 Washington Avenue
Little Ferry, NJ 07643
201-641-6755
Loan Center
1 Center Avenue
Little Falls, New Jersey 07424
973-256-2100
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1997
------------------------------------
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditor's Report Thereon)
December 31, 1997
--------------------------------------------------------------
INDEX
-----
Page
----
Management Responsibility Statement 1
Independent Auditors' Report 2
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996 3
Consolidated Statements of Operations for Each of the Years in the
Three-Year Period Ended December 31, 1997 4
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Years in the Three-Year Period Ended December 31, 1997 5
Consolidated Statements of Cash Flows for each of the Years in the
Three-Year Period Ended December 31, 1997 6 - 7
Notes to Consolidated Financial Statements 8 - 32
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>
February 20, 1997
MANAGEMENT RESPONSIBILITY STATEMENT
Management of First Savings Bancorp of Little Falls, 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 judgments, 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 operations. The Board appoints the
independent certified public accountants, approves the overall scope of audit
work and related fee arrangements and reviews audit reports and finding.
/s/ Dr. H.S. Kostakopoulos
---------------------------------------
Dr. H.S. Kostakopoulos
President and Chief Executive Officer
/s/ Brian Mccourt
----------------------------------------
Brian Mccourt
Vice President, Treasurer and Controller
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
First Savings Bancorp of Little Falls, Inc.
Little Falls, New Jersey
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, 1997 and 1996 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, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/Radics & Co., LLC
February 20, 1998
2.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONS
-----------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------
Assets Note (s) 1997 1996
- ------ ------------------- ----------------- ----------------
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 2,142,413 $ 1,319,813
Interest-bearing deposits in other banks 1,540,810 9,353,526
----------------- ----------------
Total and cash and cash equivalents 1 and 21 3,683,223 10,673,339
Securities available for sale 1, 4, 12 and 21 31,226,440 37,506,700
Investment securities held to maturity 1, 5 and 21 19,643,589 2,000,000
Mortgage-backed securities held to maturity 1, 6, 12 and 21 10,414,679 12,805,191
Loans receivable 1, 7 and 21 105,467,485 94,732,642
Real estate owned 1 and 8 1,640,004 2,906,034
Premises and equipment 1 and 9 2,775,060 2,956,315
Federal Home Loan Bank of New York stock 12 1,106,600 925,600
Interest receivable 1, 7, 10 and 21 1,379,628 1,110,765
Other assets 1 and 14 807,631 1,117,511
----------------- ----------------
Total assets $ 178,144,339 $ 166,734,097
================= ================
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
- -----------
Deposits 11 and 21 $ 166,758,857 $ 156,596,114
Borrowed money 12 and 21 551,132 -
Advance payments by borrowers for taxes and insurance 769,354 633,815
Other liabilities 200,537 171,920
----------------- ----------------
Total liabilities 168,279,880 157,401,849
----------------- ----------------
Commitments and contingencies 17, 18 and 21 - -
Stockholders' equity 1, 3, 13 and 14
- --------------------
Preferred stock - par value $0.01 per share; authorized
1,000,000 shares; issued and outstanding -0- shares - -
Common stock - par value $1.00 per share;
authorized 5,000,000 shares;
issued and outstanding 440,100 shares 440,100 440,100
Paid-in capital 3,670,377 3,670,377
Retained earnings - substantially restriced 5,458,904 5,062,392
Unrealized gain on securities available for sale, net 295,078 159,379
----------------- ----------------
Total stockholders' equity 9,864,459 9,332,248
----------------- ----------------
Total liabilities and stockholders' equity $ 178,144,339 $ 166,734,097
================= ================
</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) 1997 1996 1995
--------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest income:
Loans 1 and 7 $ 8,638,815 $ 7,686,356 $ $ 6,788,274
Mortgage-backed securities 1 1,810,796 1,935,936 1,160,130
Investments 1 1,853,970 1,730,414 2,024,582
Other interest-earning assets 403,835 102,974 368,823
-------------- --------------- -----------------
Total interest income 12,707,416 11,455,680 10,341,809
-------------- --------------- -----------------
Interest expense:
Deposits 11 8,083,690 6,593,393 6,094,747
Borrowed money 20,332 591,823 131,038
-------------- --------------- -----------------
Total interest expense 8,104,022 7,185,216 6,225,785
-------------- --------------- -----------------
Net interest income 4,603,394 4,270,464 4,116,024
Provision for loan losses 1 and 7 101,174 142,500 80,228
-------------- --------------- -----------------
Net interest income after provision for loan losses 4,502,220 4,127,964 4,035,796
-------------- --------------- -----------------
Non-interest income:
Fees and service charges 90,980 90,606 92,622
Gain (loss) on calls and sales of securities 1, 4, 5 and 6 7,836 3,575 (4,808)
Miscellaneous 68,060 85,884 71,886
-------------- --------------- -----------------
Total non-interest income 166,876 180,065 159,700
-------------- --------------- -----------------
Non-interest expenses:
Salaries and employee benefits 15 1,457,573 1,368,656 1,429,664
Net occupancy expense of premises 1 243,005 245,327 241,138
Equipment 1 375,333 361,738 382,817
Loss on foreclosed real estate 1 and 8 161,599 396,168 156,663
Federal insurance premium 18 98,312 1,130,410 307,671
Advertising and promotion 104,217 101,070 84,977
Consulting fees 121,928 113,202 136,708
Legal fees 276,148 170,763 123,141
Amortization of intangibles 1 33,336 33,336 33,333
Miscellaneous 567,160 566,469 560,930
-------------- --------------- -----------------
Total non-interest expenses 3,438,611 4,487,139 3,457,042
-------------- --------------- -----------------
Income (loss) before income taxes (benefit) 1,230,485 (179,110) 738,454
Income taxes (benefit) 1 and 14 436,373 (59,039) 375,568
-------------- --------------- -----------------
Net income (loss) 794,112 (120,071) 362,886
Preferred stock dividends - 170,000 170,000
-------------- --------------- -----------------
Net income (loss) applicable to common shares $ 794,112 $ (290,071) $ 192,886
============== =============== =================
Net income (loss) per common share: 1 and 16
Basic $ 1.80 $ (2.90) $ 1.93
Diluted 1.80 (0.27) 0.82
============== =============== =================
Dividends declared per common share 3 $ 1.00 $ - $ 0.50
============== =============== =================
</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 Securities Total
Preferred Common Paid-in Substantially Available for Stockholders'
Stock Stock Capital Restricted Sale, Net Equity
------------ ------------ -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 $ 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 loss 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
Net income for the year
ended December 31, 1997 - - - 794,112 - 794,112
Unrealized gain on
securities available
for sale, net of
income tax effect - - - - 135,699 135,699
Dividend on common stock - - - (397,600) - (397,600)
------------ ------------ -------------- --------------- -------------- -----------------
Balance - December 31, 1997 $ - $ 440,100 $ 3,670,377 $ 5,458,904 $ 295,078 $ 9,864,459
============ ============ ============== =============== ============== =================
</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,
--------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 794,112 $ (120,071) $ 362,886
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 284,052 287,849 303,303
Amortization of premiums, discounts and fees, net 183,675 307,664 97,863
Amortization of intangibles 33,336 33,336 33,333
Deferred income taxes 147,493 (84,225) 414,735
Provision for losses on loans and real estate owned 138,511 399,000 210,000
Net (gain) loss on sales of assets (8,817) 4,965 (73,360)
Loss on calls of investment securities held to maturity - - 4,808
(Increase) decrease in interest receivable (268,863) 317,103 (501,708)
Decrease (increase) in refundable income taxes - 212,449 (212,449)
Decrease (increase) in other assets 55,198 (17,763) 90,235
Increase (decrease) in accrued interest payable 12,111 966 144,560
Increase (decrease) in other liabilities 68,040 (16,745) (90,782)
--------------- ---------------- ----------------
Net cash provided by operating activities 1,438,848 1,324,498 783,654
--------------- ---------------- ----------------
Cash flows from investing activities:
Proceeds from maturities of term deposits - - 8,500,000
Proceeds from calls of investment securities held to maturity 9,000,000 17,000,000 4,000,000
Purchases of:
Term deposits - - (6,000,000)
Securities available for sale (3,202,687) (12,189,859) -
Investment securities held to maturity (26,607,569) - -
Mortgage-backed securities held to maturity - (12,491,176) (21,723,449)
Loans receivable - (6,135,880) (9,055,000)
Premises and equipment (102,797) (339,230) (346,237)
Federal Home Loan Bank of New York stock (181,000) (102,300) (151,300)
Principal repayments on:
Securities available for sale 6,085,224 6,442,347 -
Investment securities held to maturity - - 20,927
Mortgage-backed securities held to maturity 2,393,587 1,817,557 3,715,596
Proceeds from sales of:
Securities available for sale 3,340,764 3,924,166 -
Mortgage-backed securities held to maturity - 403,979 -
Loans receivable - 64,615 -
Real estate owned 612,029 638,401 458,697
Net (increase) in loans receivable (10,121,440) (2,929,591) (2,697,732)
Additions to real estate owned (51,355) (104,711) (159,948)
Payments applied to real estate owned 6,000 13,380 11,500
--------------- ---------------- ----------------
Net cash (used in) investment activities (18,829,244) (3,988,302) (23,426,946)
--------------- ---------------- ----------------
</TABLE>
See notes to consolidated financial statements.
6.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 10,153,709 $ 24,959,065 $ 7,835,814
Proceeds net of repayments from short-term borrowed money - (12,600,000) 12,600,000
Proceeds of long-term debt 568,000 - -
Repayments of long-term debt (16,868) - -
Increase (decrease) in advance payments
by borrowers for taxes and insurance 135,539 70,553 (4,243)
Cash dividend paid on preferred stock (42,500) (170,000) (170,000)
Cash dividend paid on common stock (397,600) (50,050) (50,050)
---------------- --------------- ---------------
Net cash provided by financing activities 10,400,280 12,209,568 20,211,521
---------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (6,990,116) 9,545,764 (2,431,771)
Cash and cash equivalents - beginning 10,673,339 1,127,575 3,559,346
---------------- --------------- ---------------
Cash and cash equivalents - ending $ 3,683,223 $ 10,673,339 $ 1,127,575
================ =============== ===============
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the year for:
Interest $ 8,091,911 $ 7,195,772 $ 6,069,703
================ =============== ===============
Income taxes $ 240,792 $ (210,459) $ 225,111
================ =============== ===============
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
================ =============== ===============
Unrealized gain on securities available for sale, net $ 135,699 $ 25,410 $ 276,958
================ =============== ===============
Loans transferred to real estate owned $ - $ 493,186 $ 405,461
================ =============== ===============
Loans originated to facilitate the sale of real estate owned $ 663,000 $ - $ $ 256,500
================ =============== ===============
Dividends declared but not paid:
Common stock $ - $ - $ 50,050
Preferred stock - 42,500 42,500
---------------- --------------- ---------------
$ - $ 42,500 $ 92,550
================ =============== ===============
Preferred stock converted to common stock $ - $ 339,660 $ -
================ =============== ===============
</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 periods then ended.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes
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 with other financial institutions
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
-----------------------------------------
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.
As permitted by the Financial Accounting Standards Board's ("FASB") "A guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities", the Savings Bank, in 1995, reassessed the
classification of 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 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.
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.
9.
<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
-------------------------
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 impaired 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 impaired 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.
Impaired loans are 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 of
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.
10.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- ----------------------------------------------
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.
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 carry forwards 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) is amortized to
expense over a period of fifteen years by use of the straight-line method.
The remaining unamortized balance amounted to $378,000 and $411,000 at
December 31, 1997 and 1996, respectively, and is included in other assets.
11.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- ---------------------------------------------
Net income per common share
---------------------------
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share".
Statement No. 128 is effective for years ending after December 15, 1997 and
requires that prior period data be restated. Per share amounts are reported
in accordance with Statement No. 128.
Basic net income per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted
net income per share is calculated by adjusting the weighted average number
of shares of common stock outstanding to include the effect of convertible
preferred stock.
See Note 16 for a reconciliation of such amounts.
Reclassification
----------------
Certain amounts for the years ended December 31, 1996 and 1995 have been
reclassified to conform to current year's presentation.
2. IMPACT OF NEW ACCOUNTING STANDARDS
- --------------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as the "change in equity [net assets] of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners". Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997 and requires reclassification of prior periods presented. As the
requirements of Statement No. 130 are disclosure-related, its implementation
will have no impact on the Corporation's consolidated financial condition or
results of operations.
4. 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, 1997 has not
been determined.
12.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. STOCKHOLDERS' EQUITY (Cont'd.)
- -------------------------
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.
During the year ended December 31, 1997, the Corporation declared cash dividends
to common shareholders of $440,100, or $1.00 per share. The four largest
shareholders, whose combined holdings exceed 90% of the total shares of common
stock outstanding, waived $42,500 of such dividends due them. As such, dividends
actually paid totalled $397,600.
4. SECURITIES AVAILABLE FOR SALE
- ---------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage Asociation $ 9,913,396 $ 151,585 $ - $ 10,064,981
Federal National Mortgage Association 2,135,837 4,898 19,523 2,121,212
Federal Home Loan Mortgage Corporation 665,900 15,132 - 681,032
Federal National Mortgage Association REMIC 1,920,246 - 59 1,920,187
--------------- ------------- ------------ ---------------
14,635,379 171,615 19,582 14,787,412
Small Business Administration 16,111,311 297,717 - 16,409,028
Common stock 25,000 5,000 - 30,000
--------------- ------------- ------------ ---------------
$ 30,771,690 $ 474,332 $ 19,582 $ 31,226,440
=============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Government National Mortgage Asociation $ 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
--------------- ------------- ------------ ---------------
17,498,868 179,810 66,120 17,612,558
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
------------------------------------------
4. SECURITIES AVAILABLE FOR SALE (Cont'd.)
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, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Carrying
---------------------------
Value Gains Losses Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Due after one year through five years $ 2,184,043 $ 51,484 $ - $ 2,235,527
Due after five years through ten years 7,123,438 174,670 - 7,298,108
Due after ten years 21,439,209 243,178 19,582 21,662,805
Equity security 25,000 5,000 - 30,000
--------------- ------------- ------------ ---------------
$ 30,771,690 $ 474,332 $ 19,582 $ 31,226,440
=============== ============= ============ ===============
</TABLE>
<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 25,239,409 223,449 69,727 25,393,131
--------------- ------------- ------------ ---------------
$ 37,261,502 $ 335,518 $ 90,320 $ 37,506,700
=============== ============= ============ ===============
</TABLE>
During the years ended December 31, 1997 and 1996, proceeds from sales of
securities available for sale totalled $3,340,764 and $3,924,166, respectively,
and resulted in gross gains of $45,337 and $4,548, respectively, and, during the
year ended December 31, 1997, gross losses of $37,501. There were no sales of
securities available for sale during the year ended December 31, 1995.
A security available for sale, having a carrying value of $360,000 at December
31, 1996, was pledged to secure public funds on deposit. Additionally, at
December 31, 1997 and 1996, securities available for sale with an aggregate
carrying value of $2,593,000 and $1,134,000, respectively, are pledged to secure
customer deposits.
14.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. INVESTMENT SECURITIES HELD TO MATURITY
- ------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Carrying Gross Unrealized Estimated
---------------------------
Value Gains Losses Fair Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Government Agencies:
Due after one year through five years $ 1,999,587 $ 3,485 $ - $ 2,003,072
Due after five years through ten years 8,000,000 - - 8,000,000
Due after ten years 9,644,002 2,591 2,482 9,644,111
--------------- ------------- ------------ ---------------
$ 19,643,589 $ 6,076 $ 2,482 $ 19,647,183
=============== ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Carrying Gross Unrealized Estimated
---------------------------
Value Gains Losses Fair Value
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Government Agencies due after ten years $ 2,000,000 $ - $ - $ 2,000,000
=============== ============= ============ ===============
</TABLE>
There were no sales of investment securities held to maturity during the years
ended December 31, 1997, 1996 and 1995. During the years ended December 31,
1997, 1996 and 1995, proceeds from calls of investment securities held to
maturity totalled $9,000,000, $17,000,000 and $4,000,000, respectively, and
resulted in no gross gains or losses in 1997 and 1996 and gross losses of $4,808
in 1995.
6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- -------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Carrying Gross Unrealized Estimated
--------------------------
Value Gains Losses Fair Value
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 31,453 $ 630 $ - $ 32,083
Federal National Mortgage Association 1,540,181 - 167 1,540,014
Federal Home Loan Mortgage Corporation 7,843,045 25,541 2,864 7,865,722
Federal National Mortgage Association REMIC 1,000,000 - - 1,000,000
--------------- ------------ ----------- ---------------
$ 10,414,679 $ 26,171 $ 3,031 $ 10,437,819
=============== ============ =========== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Carrying Gross Unrealized Estimated
--------------------------
Value Gains Losses Fair 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 National Mortgage Association REMIC 1,000,000 - - 1,000,000
--------------- ------------ ----------- ---------------
$ 12,805,191 $ 50,457 $ 42,881 $ 12,812,767
=============== ============ =========== ===============
</TABLE>
15.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY (Cont'd.)
- -------------------------------------------------
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, 1997 and 1995.
Mortgage-backed securities held to maturity with a carrying value of $414,000 at
December 31, 1997 were pledged to secure public finds on deposit.
7. LOANS RECEIVABLE
- ----------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Real estate mortgage:
One-to-four family $ 83,317,259 $ 74,156,889
Multi-family 5,020,506 3,311,210
Non-residential 6,182,670 6,775,830
Land 38,949 41,373
---------------- ----------------
94,559,384 84,285,302
---------------- ----------------
Commercial loans 4,655,264 3,954,014
---------------- ----------------
Consumer:
Equity 4,398,584 4,681,054
Home improvement and second mortgages 1,346,046 1,090,470
Passbook or certificate 629,681 814,064
Student education 90,750 115,908
Other loans 619,456 527,256
---------------- ----------------
7,084,517 7,228,752
---------------- ----------------
Total loans 106,299,165 95,468,068
---------------- ----------------
Less: Allowance for loan losses 596,230 523,715
Deferred loan fees and discounts 235,450 211,711
---------------- ----------------
831,680 735,426
---------------- ----------------
$ 105,467,485 $ 94,732,642
================ ================
</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 $868,000 and $775,000 at December 31, 1997 and 1996,
respectively. Activity during the year ended December 31, 1997 included new
loans of $174,000 and repayments of $81,000.
16.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. LOANS RECEIVABLE (Cont'd)
- ---------------------
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance - beginning $ 523,715 $ 388,633 $ 377,315
Provision charged to operations 101,174 142,500 80,228
Loans charged off (37,374) (7,418) (70,605)
Recoveries 8,715 - 1,695
------------ ------------ ------------
Balance - ending $ 596,230 $ 523,715 $ 388,633
============ ============ ============
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows: (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowance $ 696 $ 1,277
Without recorded allowances - -
------------ ------------
Total impaired loans 696 1,277
Related allowance for loan losses 35 155
------------ ------------
Net impaired loans $ 661 $ 1,122
============ ============
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the average recorded
investment in impaired loans totalled $1,321,000, $559,000 and $355,000,
respectively. Interest income recognized on such loans during the time each was
impaired totalled $118,000, $28,000 and $7,000, respectively, all of which was
recorded on the cash basis.
Nonaccrual loans totalled approximately $2,601,000, $1,639,000 and $1,146,000 at
December 31, 1997, 1996 and 1995, respectively. Renegotiated loans for which
interest has been reduced totalled approximately $406,000, $1,313,000 and
$1,348,000 at December 31, 1997, 1996 and 1995, respectively. Interest income
that would have been recorded under the original terms of such loans and the
interest income actually recognized are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Interest income that would have been recorded $ 292 $ 303 $ 250
Interest income recognized 161 230 184
------------ ------------ ------------
Interest income foregone $ 131 $ 73 $ 66
============ ============ ============
</TABLE>
17.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. REAL ESTATE OWNED
- ---------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Acquired in settlement of loans $ 1,674,616 $ 3,443,636
Allowance for losses (34,612) (537,602)
-------------- --------------
$ 1,640,004 $ 2,906,034
============== ==============
</TABLE>
The following is an analysis of the allowance for losses:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Balance - beginning $ 537,602 $ 302,537 $ 1,461,991
Provision charged to operations 37,337 256,500 129,772
Losses charged off (540,327) (21,435) (1,289,226)
------------- -------------- --------------
Balance - ending $ 34,612 $ 537,602 $ 302,537
============= ============== ==============
</TABLE>
The following is an analysis of loss on foreclosed real estate:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Provision for losses $ 37,337 $ 256,500 $ 129,772
Operating expenses, net of rental income 125,243 131,128 100,251
(Gain) loss on disposition (981) 8,540 (73,360)
------------- -------------- --------------
$ 161,599 $ 396,168 $ 156,663
============= ============== ==============
</TABLE>
18.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. PREMISES AND EQUIPMENT
- --------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Land $ 547,867 $ 547,867
-------------- ---------------
Buildings and improvements 3,112,048 3,060,894
Less accumulated depreciation 1,173,521 1,065,155
-------------- ---------------
1,938,527 1,995,739
-------------- ---------------
Furniture, fixtures and equipment 1,677,207 1,625,564
Less accumulated depreciation 1,388,541 1,212,854
-------------- ---------------
288,666 412,709
-------------- ---------------
$ 2,775,060 $ 2,956,315
============== ===============
</TABLE>
10. INTEREST RECEIVABLE
- ------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Loans $ 652,651 $ 640,131
Securities 707,313 470,634
Other interest-earning assets 19,664 -
-------------- ---------------
$ 1,379,628 $ 1,110,765
============== ===============
</TABLE>
11. DEPOSITS
- -------------
<TABLE>
<CAPTION>
December 31 ,
------------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
------------ ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand 0.00% $ 2,958,852 0.00% $ 1,985,234
NOW and Super NOW 2.04% 4,336,162 2.03% 4,204,758
Money Market 3.51% 8,107,509 3.38% 8,102,117
Savings and Realty Trust 3.39% 24,403,289 3.35% 21,967,044
Certificates of deposit 5.67% 126,953,045 5.62% 120,336,961
---------------- ---------------
5.04% $ 166,758,857 5.02% $ 156,596,114
================= ================
</TABLE>
19.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. DEPOSITS (Cont'd)
- -------------
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Decmber 31,
------------------------------------------
1997 1996 1995
------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Savings and Realty Trust $ 796 $ 754 $ 756
NOW and Money Market 365 364 410
Certificates of deposit 6,923 5,475 4,929
------------ ------------- ------------
$ 8,084 $ 6,593 $ 6,095
============ ============= ============
</TABLE>
A summary of certificates of deposit by time remaining until maturity follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
Within one year $ 97,555 $ 88,730
After one year through two years 18,216 18,295
Thereafter 11,182 13,312
------------- -------------
Total $ 126,953 $ 120,337
============= =============
</TABLE>
A summary of certificates of deposit of $100,000 or more by time remaining to
maturity follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- -------------
(In Thousands)
<S> <C> <C>
Within three months $ 1,984 $ 3,589
After three through six months 2,402 1,611
After six through twelve months 4,534 2,449
After twelve months 2,236 1,754
------------- -------------
$ 11,156 $ 9,403
============= =============
</TABLE>
20.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. BORROWED MONEY
- -------------------
Borrowed money at December 31, 1997 consisted of a ten-year term advance from
the Federal Home Loan Bank of New York ("FHLB"), maturing June 18, 2007,
carrying an interest rate of 6.70% and having a remaining balance of $551,132.
The advance is payable in monthly principal and interest installments of $6,507
through maturity.
At December 31, 1997 and 1996, the Savings Bank had available to it overnight
lines of credit of $16,936,000 and $25,117,000, 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 $16,936,000 at December 31, 1997
Collateral pledged to secure the foregoing credit facilities consists of FHLB
stock of $1,106,600 and $925,600 at December 31, 1997 and 1996, respectively,
and securities with an aggregate carrying value of $16,504,000 and $21,245,000
at December 31, 1997 and 1996, respectively.
13. 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, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
------------------------- ------------------------ -------------------------
Amount Percent Amount Percent Amount Percent
----------- ------------ ----------- ----------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP equity $ 9,897 5.56 $ 9,867 5.56 $ 9,867 12.74
Deduct non-includable portion of:
Deferred tax asset (173) (0.10) (173) (0.10) (173) (0.22)
Intangible asset (378) (0.21) (378) (0.21) (378) (0.49)
Unrealized gain on securities, net (295) (0.16) (295) (0.16) (295) (0.38)
Add: General valuation allowance - - - - 596 0.77
----------- ------------ ----------- ----------- ------------ -----------
Regulatory capital as calculated 9,021 5.09 9,021 5.09 9,617 12.42
Regulatory capital as required 2,660 1.50 5,321 3.00 6,197 8.00
----------- ------------ ----------- ----------- ------------ -----------
Excess $ 6,361 3.59 $ 3,700 2.09 $ 3,420 4.42
=========== ============ =========== =========== ============ ===========
</TABLE>
21.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. REGULATORY CAPITAL (Cont'd)
- -----------------------
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, 1997, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1997, 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.
14. 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 income tax years ended December 31,
1996 and thereafter, the Saving Bank must use either the experience method or
the specific charge off method. Retained earnings at December 31, 1997 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,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Current $ 288,880 $ 25,216 $ (39,167)
------------ ------------- -------------
Deferred:
Temporary differences 125,903 (105,845) 393,068
Net operating loss carryforward 21,590 21,590 21,667
------------ ------------- -------------
147,493 (84,255) 414,735
------------ ------------- -------------
$ 436,373 $ (59,039) $ 375,568
============ ============= =============
</TABLE>
22.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. 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:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Allowance for losses on
loans and real estate owned $ 155,928 $ (125,575) $ 405,495
Deferred loan fees 4,342 8,639 8,902
Nonaccrual interesst (14,965) 25,477 (7,887)
Depreciation (32,715) (6,400) (8,536)
Net operating loss carryforward 21,590 21,590 21,667
Other 13,313 (7,986) (4,906)
------------ ------------- -------------
$ 147,493 $ (84,255) $ 414,735
============ ============= =============
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for losses on
loans and real estate owned $ 225,934 $ 381,862
Net operating loss carryfoward 194,310 215,900
Nonaccrual interest 44,347 29,382
Deferred loan fees, net 35,236 39,578
Other - 13,313
------------- -------------
499,827 680,035
------------- -------------
Deferred tax liabilities:
Depreciation 23,054 55,769
Unrealized gain on securities available for sale 159,672 85,819
------------- -------------
182,726 141,588
------------- -------------
Net deferred tax assets included in other assets $ 317,101 $ 538,447
============= =============
</TABLE>
23.
<PAGE>
FIRST SAVINGS BANCORP, OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
14. INCOME TAXES (Cont'd)
- -----------------
For income tax reporting purposes, at December 31, 1997, the Corporation has net
operating loss carryforwards totalling approximately $571,500 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,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Federal income taxes (benefit) $ 418,365 $ (60,897) $ 251,074
Increase (reduction) of
income taxes resulting from:
Change in permanent difference relating
to base year tax bad debt reserves - - 100,541
State income taxes,
net of federal income tax effect 25,670 (3,216) 21,967
Other (7,662) 5,074 1,986
------------ ------------- -------------
$ 436,373 $ (59,039) $ 375,568
============ ============= =============
</TABLE>
15. 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 $25,000, $18,000
and $22,000 for the years ended December 31, 1997 , 1996 and 1995, respectively.
24.
<PAGE>
FIRST SAVINGS BANCORP, OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
16. NET INCOME (LOSS) PER COMMON SHARE
- --------------------------------------
Year Ended December 31, 1997
----------------------------
Weighted
Average
Net Number Per
Income of Shares Share
------ --------- -----
Basic and diluted net income $794,112 440,100 $1.80
======== ======= =====
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1996 1995
------------------------------ --------------------------
Weighted Weighted
Average Average
Net Number Per Net Number Per
Loss of Shares Share Income of Shares Share
<S> <C> <C> <C> <C> <C> <C>
Basic net income (loss)
applicable to common shares $(290,071) 100,100 $(2.90) $192,886 $100,100 $1.93
====== =====
Assumed conversion of
preferred stock to
common stock 170,000 340,000 170,000 340,000
------- ------- ------- -------
Diluted net income (loss) $(120,071) 440,100 $(0.27) $362,886 440,100 $0.82
========= ======= ====== ======== ======= =====
</TABLE>
17. COMMITMENTS 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
------------------------------------------
17. COMMITMENTS AND CONTINGENCIES (Cont'd)
- ----------------------------------
At December 31, 1997, the Bank had outstanding commitments to originate loans
totalling $975,000, consisting of $691,000 for fixed rate first mortgage loans
with rates ranging from 7.00% through 7.75%, $259,000 for adjustable rate first
mortgage loans with initial rates ranging from 6.875% to 7.65% and $25,000 for
an equity line of credit.
At December 31, 1996, the Bank had outstanding commitments to originate loans
totalling $1,216,000, consisting 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, 1997 and 1996, undisbursed funds from approved home equity lines
of credit amounted to approximately $2,686,000 and $2,529,000, 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 Savings
Bank also offers unsecured credit lines in conjunction with a credit card
program. At December 31, 1997 and 1996, unused amounts under these lines of
credit totalled $137,000 and $90,000, respectively.
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
------------------------------------------
18. 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 levied amounted 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 was tax deductible. The Savings Bank took a charge of $845,000 as a
result of the special assessment. This legislation eliminates the substantial
disparity between the amount that BIF and SAIF members had been paying for
deposit insurance premiums.
Currently, 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 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.
On August 21, 1996, legislation was enacted to allow for the recapture of
post-1987 tax bad debt reserves ("excess 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. The Savings Bank has excess reserves of approximately $3,000
remaining at December 31, 1997 which will be recaptured ratably during the next
four years.
27.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. 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,
----------------------------
Assets 1997 1996
- ------ ---------- ----------
Cash and cash equivalents $ 17,882 $ 17,397
Investment in subsidiary 9,867,301 9,372,123
Organization costs 15,509 22,949
---------- ----------
Total assets $9,900,692 $9,412,469
========== ==========
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
- -----------
Dividends payable $ - $ 42,500
Due to subsidiary 36,233 37,721
---------- -----------
Total liabilities 36,233 80,221
---------- -----------
Stockholders' equity
- --------------------
Preferred stock - -
Common stock 440,100 440,100
Paid-in-capital in excess of par value 3,670,377 3,670,377
Retained earnings - substantially restricted 5,753,982 5,221,771
--------- ---------
Total stockholders' equity 9,864,459 9,332,248
--------- ---------
Total liabilities and stockholders' equity $9,900,692 $9,412,469
========== ==========
28.
---
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
19. PARENT CORPORATION FINANCIAL INFORMATION (Cont'd)
- ----------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Dividends from subsidiary $440,100 $ 220,050 $ 20,050
Interest income 486 474 460
-------- --------- --------
Total income 440,586 220,524 220,510
Expenses 7,845 7,440 505
-------- --------- --------
432,741 21,084 220,005
Equity in undistributed earnings (loss) of subsidiaries 359,479 (333,155) 142,881
-------- --------- --------
Income (loss) before income taxes 792,220 (120,071) 362,886
Income tax (benefit) 1,892 - -
-------- --------- --------
Net income (loss) $794,112 $(120,071) $362,886
======== ========= ========
</TABLE>
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 794,112 $(120,071) $ 362,886
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Equity in undistributed
(earnings) loss of subsidiary (359,479) 333,155 (142,881)
Amortization of organization costs 7,440 7,440 -
(Decrease) increase in due to subsidiary (1,488) - 506
--------- --------- ---------
Net cash provided by operating activities 440,585 220,524 220,511
--------- --------- ---------
Cash flows from financing activities:
cash dividends paid (440,100) (220,050) (220,050)
--------- --------- ---------
Net cash (used in) financing activities (440,100) (220,050) (220,050)
--------- --------- ---------
Net increase in cash and cash equivalents 485 474 461
Cash and cash equivalents - beginning 17,397 16,923 16,462
--------- --------- ---------
Cash and cash equivalents - ending $ 17,882 $ 17,397 $ 16,923
========= ========= =========
</TABLE>
29.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -----------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total interest income $2,980,860 $3,159,415 $3,270,835 $3,296,306
Total interest expense 1,957,284 2,007,387 2,062,360 2,076,991
---------- ---------- ---------- ----------
Net interest income 1,023,576 1,152,028 1,208,475 1,219,315
Provision for loan losses 25,000 25,000 25,000 26,174
Total non-interest income 31,527 51,805 40,860 42,684
Total non-interest expenses 794,560 853,479 849,627 940,945
Income taxes 86,814 114,563 134,178 100,818
---------- ---------- ---------- ----------
Net income $ 148,729 $ 210,791 $ 240,530 $ 194,062
========== ========== ========== ==========
Basic and diluted net
income per common share $ 0.34 $ 0.48 $ 0.55 $ 0.43
========== ========== ========== ==========
</TABLE>
<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:
Basic $ 1.22 $ 0.96 $ (4.34) $ (0.74)
Diluted 0.37 0.32 (0.89) (0.07)
========== ========== ========== ==========
</TABLE>
30.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. 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 and interest receivable
-------------------------------------------------
The carrying amounts for cash and cash equivalents and interest
receivable approximate fair value as a result of their short-term
nature.
Securities
----------
The fair value for securities, both available for sale and held to
maturity, 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.
Borrowed money
--------------
The fair value of borrowed money is estimated by discounting future
cash flows, using the current rates available for borrowings 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 counterparties. For fixed-rate loan
commitments, fair value also considers the difference between the
current levels of interest rates and the committed rates.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. 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 and interest receivable
-------------------------------------------------
The carrying amounts for cash and cash equivalents and interest receivable
approximate fair value as a result of their short-term nature.
Securities
----------
The fair values for securities, both available for sale and held to
maturity, 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.
Borrowed money
--------------
The fair value of borrowed money is estimated by discounting future cash
flows, using the current rates available for borrowings 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
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between the current levels of interest rates and the
committed rates.
31.
<PAGE>
FIRST SAVINGS BANCORP OF LITTLE FALLS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
21. 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,
-------------------------------------------------------
1997 1996
------------------------ -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial assets
- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,683 $ 3,683 $ 10,673 $ 10,673
Securities available for sale 31,226 31,226 37,507 37,507
Investment securities held to maturity 19,644 19,647 2,000 2,000
Mortgage-backed securities held to maturity 10,415 10,438 12,805 12,813
Loans receivable 105,467 108,497 94,733 94,552
Accrued interest receivable 1,380 1,380 1,111 1,111
Financial liabilities
- ---------------------
Deposits 166,759 167,415 156,596 157,818
Borrowed money 551 557 - -
Commitments
- -----------
To originate and fund loans 3,798 3,798 3,835 3,835
</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.
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.
32.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
ANNUAL REPORT ON FORM 10KSB40 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,142
<INT-BEARING-DEPOSITS> 1,541
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,226
<INVESTMENTS-CARRYING> 30,058
<INVESTMENTS-MARKET> 30,085
<LOANS> 105,467
<ALLOWANCE> 596
<TOTAL-ASSETS> 178,144
<DEPOSITS> 166,759
<SHORT-TERM> 551
<LIABILITIES-OTHER> 970
<LONG-TERM> 0
0
0
<COMMON> 440
<OTHER-SE> 3,670
<TOTAL-LIABILITIES-AND-EQUITY> 178,144
<INTEREST-LOAN> 8,639
<INTEREST-INVEST> 3,665
<INTEREST-OTHER> 404
<INTEREST-TOTAL> 12,707
<INTEREST-DEPOSIT> 4,603
<INTEREST-EXPENSE> 20
<INTEREST-INCOME-NET> 4,603
<LOAN-LOSSES> 101
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 3,439
<INCOME-PRETAX> 1,230
<INCOME-PRE-EXTRAORDINARY> 1,230
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> 2.72
<LOANS-NON> 2,601
<LOANS-PAST> 0
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<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 524
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<RECOVERIES> 9
<ALLOWANCE-CLOSE> 596
<ALLOWANCE-DOMESTIC> 596
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 596
</TABLE>
