SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 0-25106
Lakeview Financial Corp.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3334052
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1117 Main Street Paterson, New Jersey 07503
--------------------------------------------------
(Address of principal executive offices, zip code)
(201) 742-3060
--------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: April 30, 1996
Class Outstanding
- ---------------------------- ----------------
$2.00 par value common stock 2,265,704 shares
<PAGE>
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1: Financial Statements
Unaudited Consolidated Statements of Financial Condition
as of April 30, 1996 and July 31, 1995 3
Unaudited Consolidated Statements of Income for the Three
Months Ended April 30, 1996 and 1995 4
Unaudited Consolidated Statements of Income for the Nine
Months Ended April 30, 1996 and 1995 5
Unaudited Consolidated Statements of Shareholders' Equity for the
Nine Months Ended April 30, 1996 and 1995 6
Unaudited Consolidated Statements of Cash Flows for the Nine
Months Ended April 30, 1996 and 1995 7
Notes to Unaudited Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 20
Signatures 21
2
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
AS OF APRIL 30, 1996 AND JULY 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
April 1996 July 1995
------------ ------------
Assets
<S> <C> <C>
Cash on hand and in banks $ 3,383,283 $ 8,021,666
Federal funds sold, net 0 0
------------ ------------
Total cash and cash equivalents 3,383,283 8,021,666
Investment securities held to maturity, net 24,741,693 55,737,605
Investment securities available for sale, net 103,400,690 8,567,375
Mortgage-backed securities held to maturity, net 127,733,649 175,375,296
Loans receivable, net 165,742,953 142,122,945
Real estate owned, net 2,235,775 3,608,392
Federal Home Loan Bank of New York stock, at cost 2,587,400 2,587,400
Accrued interest receivable, net 3,816,947 2,718,349
Office properties and equipment, net 4,208,263 4,299,594
Excess of cost over fair value of assets acquired 10,506,496 11,496,712
Other assets 6,798,054 4,676,663
------------ ------------
Total assets $455,155,203 $419,211,997
============ ============
Liabilities and Shareholders' Equity
Deposits $353,892,850 $343,489,328
Borrowings 52,950,000 19,000,000
Borrowings - (ESOP) obligation 755,804 858,929
Advance payments by borrowers for taxes and
insurance 1,469,647 1,501,453
Other liabilities 799,477 4,922,053
------------ ------------
Total liabilities 409,867,778 369,771,763
Shareholders' Equity
Common stock: $2.00 par value; authorized 10,000,000
shares, issued 2,928,076 shares and outstanding
2,265,704 shares at April 30, 1996 5,856,152 5,323,920
Additional paid-in capital 26,279,851 21,733,849
Retained income substantially restricted 27,879,473 28,982,735
Unrealized gain (loss) in securities
available for sale, net of taxes (1,852,773) (55,054)
Treasury stock at cost (10,655,120) (3,970,106)
Common stock acquired by ESOP (726,910) (834,910)
Common stock acquired by MSBP (1,493,248) (1,740,200)
------------ ------------
Total shareholders' equity 45,287,425 49,440,234
------------ ------------
Total liabilities and shareholders' equity $455,155,203 $419,211,997
============ ============
Stated book value per share $19.99 $18.71
Tangible book value per share $15.35 $14.35
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
April 1996 April 1995
--------- ---------
Interest income:
<S> <C> <C>
Loans receivable $3,523,076 $2,988,437
Mortgage-backed securities held to maturity 2,092,479 2,925,978
Investment securities held to maturity 308,059 1,105,677
Investment securities available for sale 1,772,832 40,411
--------- ---------
Total interest income 7,696,446 7,060,503
Interest expense:
Interest on deposits 3,484,840 2,960,059
Interest on borrowings 665,484 434,013
--------- ---------
Total interest expense 4,150,324 3,394,072
Net interest income before provision for loan losses 3,546,122 3,666,431
Provision for loan losses 184,043 1,076,262
--------- ---------
Net interest income after provision for loan losses 3,362,079 2,590,169
Other Income:
Loan fees and service charges 276,014 310,317
Gains on sale of investments 738,400 1,173,722
Other operating income 682,635 2,074,129
--------- ---------
Total other income 1,697,049 3,558,168
Other expense:
Employee compensation 1,283,770 1,075,763
Office occupancy 235,301 207,522
Loss from REO operations 40,306 88,608
Other operating expense 726,170 747,928
Amortization of goodwill 330,072 330,072
--------- ---------
Total other expense 2,615,619 2,449,893
Net income before taxes 2,443,509 3,698,444
Federal and state income taxes 936,000 627,331
--------- ---------
Net Income $1,507,509 $3,071,113
========== ==========
Net income per share $0.67 $1.24
Weighted average numbers of shares 2,255,285 2,482,072
</TABLE>
4
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
--------- ---------
Interest income:
<S> <C> <C>
Loans receivable $10,293,064 $ 9,184,916
Mortgage-backed securities held to maturity 7,546,557 8,414,684
Investment securities held to maturity 2,266,075 3,358,101
Investment securities available for sale 2,606,725 165,004
--------- ---------
Total interest income 22,712,421 21,122,705
Interest expense:
Interest on deposits 10,557,853 8,522,551
Interest on borrowings 1,695,107 1,202,640
--------- ---------
Total interest expense 12,252,960 9,725,191
Net interest income before provision for loan losses 10,459,461 11,397,514
Provision for loan losses 543,328 1,640,458
--------- ---------
Net interest income after provision for loan losses 9,916,133 9,757,056
Other Income:
Loan fees and service charges 837,172 950,937
Gain on sale of investments 2,622,561 1,719,756
Other operating income 912,743 2,323,689
--------- ---------
Total other income 4,372,476 4,994,382
Other expense:
Employee compensation 3,590,158 3,244,207
Office occupancy 649,228 610,996
Loss from REO operation 487,736 449,940
Other operating expense 2,225,274 2,322,005
Amortization of goodwill 990,216 990,216
--------- ---------
Total other expense 7,942,612 7,617,364
Net income before taxes 6,345,997 7,134,074
Federal and state income taxes 2,317,998 1,795,574
--------- ---------
Net Income $ 4,027,999 $ 5,338,500
========== ==========
Net income per share $1.70 $2.15
Weighted average numbers of shares 2,375,454 2,482,072
</TABLE>
5
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Gain/(loss)
Additional Unallocated Unallocated Securities Total
Common Paid-in Retained Treasury Shares Shares Available Shareholders'
Stock Capital Income Stock of ESOP of MSBP For Sale Equity
---------- ----------- ----------- ----------- ---------- ----------- ------------ -------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 31, 1994 $4,840,000 $18,574,374 $26,630,488 $0 ($1,016,000) ($2,046,000) $ 0 $46,982,862
Net income - - 5,338,500 - - - - 5,338,500
Change in
unrealized gains/
(loss) on securities
available for sale,
net of tax - - - - - - (567,673) (567,673)
Amortization of
ESOP shares - 86,296 - - 145,090 - - 231,386
Amortization of
MSBP shares - 138,172 - - - 233,200 - 371,372
Stock dividend
distribution 483,920 2,843,030 (3,326,950) - - - - 0
Cash dividend
distribution - - (468,121) - - - - (468,121)
Purchase of
treasury stock - - - (2,848,192) - - - (2,848,192)
---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance at
April 30, 1995 $5,323,920 $21,641,872 $28,173,917 ($2,848,192) ($870,910) ($1,812,800) ($ 567,673) $49,040,134
========== =========== =========== =========== ========= =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain/(loss)
Additional Unallocated Unallocated Securities Total
Common Paid-in Retained Treasury Shares Shares Available Shareholders'
Stock Capital Income Stock of ESOP of MSBP For Sale Equity
---------- ----------- ----------- ----------- ---------- ----------- ------------ -------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 31, 1995 $5,323,920 $21,733,849 $28,982,735 ($3,970,106) ($834,910) ($1,740,200) ($55,054) $49,440,234
Net income - - 4,027,999 - - - - 4,027,999
Change in unrealized
gains / (loss) on
securities
available for sale,
net for tax - - - - - - (1,797,719) (1,797,719)
Amortization of
ESOP shares - 269,624 - - 108,000 - - 377,624
Amortization of
MSBP shares - 118,315 - - 246,952 - 365,267
Stock dividend
distribution 532,232 4,158,063 (4,690,295) - - - - 0
Cash dividend
distribution - - (440,966) - - - - (440,966)
Purchase of
treasury stock - - - (6,685,014) - - - (6,685,014)
---------- ----------- ----------- ------------ ---------- ----------- ------------ -----------
Balance at
April 30, 1996 $5,856,152 $26,279,851 $27,879,473 ($10,655,120) ($726,910) ($1,493,248) ($1,852,773) $45,287,425
========== =========== =========== ============ ========= =========== =========== ===========
</TABLE>
6
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
----------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net Income $ 4,027,999 $5,338,500
Adjustment to reconcile net income to net cash provided
by operating activities :
Amortization of excess of cost over fair value of
assets acquired 990,216 990,216
Amortization of discounts and premiums, net (300,039) (185,411)
Provision for losses on loans 487,316 1,640,458
Provision for losses on real estate owned 222,447 271,279
Gain on sale of loans (9,598) (2,863)
Gain on sale of real estate owned, net (18,972) (141,138)
Net realized gains on sale of investments
available for sale (2,556,769) (1,719,756)
Increase in accrued interest receivable (1,098,598) (407,609)
Decrease in deferred loan fees (51,923) (113,531)
Increase in other assets (2,121,391) (2,000,451)
Decrease in other liabilities (3,112,236) (126,060)
Depreciation of office properties and equipment, net 219,178 189,819
----------- ---------
Net cash (used in) provided by operating activities: (3,322,370) 3,733,453
Cash flows from investing activities:
Loan origination net of principal payments (24,210,648) (6,753,004)
Purchase of loans 0 (136,946)
Increase in Federal Home Loan Bank stock 0 (731,100)
Purchase of investment securities available for sale (34,879,462) (5,435,800)
Proceeds from sale of investment securities
available for sale 41,345,411 13,599,629
Proceeds from maturity of investment securities
available for sale 10,250,000 0
Principal payments on investment securities
available for sale 804,449 0
Purchase of investment securities (90,953,530) (4,057,500)
Proceeds from maturity of investment securities 41,096,117 975,000
Purchase of mortgage-backed securities (2,773,214) (8,947,871)
Principal payments on mortgage-backed securities 18,903,934 12,688,163
Proceeds from sale of real estate owned 1,393,274 1,762,957
Increase in office properties and equipment (127,847) (315,714)
----------- ---------
Net cash (used in) provided by investing activities (39,151,516) 2,647,814
</TABLE>
7
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
---------- ----------
Cash flows from financing activities:
<S> <C> <C>
Increase (decrease) in deposits, net 10,403,523 (6,686,757)
Increase in borrowings, net 33,846,875 7,371,875
Decrease in advance payments by
borrowers for taxes, net (31,806) (1,213,461)
Purchase of treasury stock (6,685,014) (2,848,192)
Amortization of ESOP shares 377,624 231,386
Amortization of MSBP shares 365,267 371,372
Dividend paid (440,966) (468,121)
---------- ----------
Net cash provided by (used in) financing activities 37,835,503 (3,241,898)
---------- ----------
Net change in cash and cash equivalents (4,638,383) 3,139,370
Cash and cash equivalents at beginning of period 8,021,666 2,488,630
---------- ---------
Cash and cash equivalents at end of period $ 3,383,283 $5,628,000
========== ==========
Cash paid during period for:
Interest $10,557,853 $9,366,145
Income Taxes $1,842,277 $2,040,000
Supplemental disclosures of non-cash investing activities:
Transfer of loans receivable to real estate owned $224,132 $2,046,558
Transfer of securities to securities available
for sale $112,605,004 $0
</TABLE>
8
<PAGE>
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Lakeview
Financial Corp. (the "Company") have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial information and in
conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition, results
of operations and changes in cash flows have been made at and for the three and
nine months ended April 30, 1996. The results of operations for the three months
and nine months ended April 30, 1996, are not necessarily indicative of results
that may be expected for the entire fiscal year ending July 31, 1996, or for any
other period.
(2) Conversion from Mutual to Stock Form of Ownership
On December 22, 1993, the Company's wholly-owned subsidiary, Lakeview Savings
Bank (the "Savings Bank"), completed its conversion from a state chartered
mutual savings bank to a state chartered stock savings bank (the "Conversion").
The Savings Bank issued 2,420,000 shares at $10 per share, in the Conversion,
for a total of $24,200,000. The net proceeds from the Conversion, after
reflecting offering expenses of $880,626, were $23,319,374. The proceeds were
added to the Savings Bank's general funds to be used for general corporate
purposes.
As part of the Conversion, the Savings Bank's Employee Stock Ownership Plan
("ESOP") purchased 110,000 shares of the Savings Bank's common stock at $10 per
share, or $1,100,000, which was funded by a loan from an unaffiliated lender.
The Savings Bank intends to make discretionary cash contributions to the ESOP
sufficient to service the amount borrowed. Additionally, the Savings Bank's
Management Stock Bonus Plan ("MSBP") purchased 220,000 shares at $10 per share
totaling $2,200,000. The funds used to acquire the MSBP shares were contributed
by the Savings Bank. The Savings Bank has allocated 66% of the shares to
directors, officers and other key employees of the Savings Bank.
(3) Net Income per Share
Net income per share was computed by dividing net income by the weighted average
number of total common stock shares outstanding during the three and nine month
periods ended April 30, 1996 and 1995. The weighted average number of shares
includes an
9
<PAGE>
adjustment for the 10% stock dividend during the quarters ended January 31, 1995
and 1996. The weighted average number of shares outstanding include 81,965
shares and 45,144 shares committed to be released for the Savings Bank's MSBP
and ESOP, respectively.
(4) Non Performing Loans and the Allowance for Loan Losses
Non performing loans at April 30, 1996, and July 31, 1995, are as follows:
April 30, 1996 July 31,1995
-------------- ------------
Loans delinquent 90 days or more $6,371,613. $4,222,259.
As a percentage of total loans 3.8% 3.0%
An analysis of the allowance for loan losses for the nine month periods ended
April 30, 1996 and 1995 is as follows:
For the nine For the nine
months ended months ended
April 30, 1996 April 30, 1995
-------------- --------------
Balance at beginning of period $2,534,836. $1,713,590.
Provision charged to operations 543,328. 1,640,458.
Charge-offs, net 121,239. 755,218.
----------- -----------
Balance at end of period $2,956,925. $2,598,830.
=========== ===========
(5) Accounting for Employee Stock Ownership Plans
The Savings Bank accounts for its ESOP and MSBP in accordance with Statement of
Position No. 93-6, "Employees' Accounting for Employee Stock Ownership Plans:
(SOP 93-6). SOP 93-6 requires the Savings Bank to record compensation expense
equal to the fair value of shares when shares are committed to be released. The
difference between the fair value of the shares committed to be released and the
cost of those shares is charged or credited to additional paid-in capital.
(6) Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS 114), was issued by the Financial Accounting
Standards Board (FASB) in May 1993. SFAS 114 generally would require all
creditors to account for impaired loans, except those loans that are accounted
for at fair value or at the lower of cost or fair value, at the present value,
of the expected future cash flows discounted at the loan's effective interest
rate or at the loans collateral value. SFAS 114 also provides that
10
<PAGE>
in-substance foreclosed loans should not be included in real estate owned for
financial reporting purposes, but rather should be included in the loan
portfolio. SFAS 114 is effective for fiscal years beginning after December 15,
1994. In October 1994, the FASB amended certain provisions of SFAS 114 by the
issuance of SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." SFAS No. 118, amends SFAS 114 by eliminating
certain provisions describing how a creditor should report income on an impaired
loan and increasing disclosure requirements as to information on recorded
investments in certain impaired loans and how a creditor recognizes related
interest income. The effective date of SFAS 118 is the same as for SFAS 114, and
will be adopted prospectively. The bank adopted the Statement on August 1, 1995.
Such adoption did not have a material impact on the financial position or
results of operations.
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS 122), was issued by the Financial Accounting Standards
Board (FASB) in May 1995. SFAS 122 amends certain provisions of SFAS 65 to
eliminate the accounting distinction between rights to service mortgage loans
for others that are acquired through loan origination activities and those
acquired through purchase transactions. SFAS 122 generally would require a
mortgage banking enterprise that purchases or originates loans to allocate the
cost of acquiring those loans to the mortgage servicing rights and the loans
based on their relative fair values if it is practical to estimate those fair
values. Any costs allocated to mortgage servicing rights should be recognized as
separate assets and amortized in proportion to and over the period of estimated
net servicing income and should be evaluated for impairment based on their fair
value. Management has not determined what impact, if any, the adoption of SFAS
122 will have on the Bank's consolidated financial statements. SFAS 122 is
effective for fiscal years beginning after December 15, 1995.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company was organized on August 25, 1994, at the direction of the Board of
Directors of the Savings Bank for the purpose of becoming a unitary savings and
loan holding company to own all of the outstanding shares of stock of the
Savings Bank. On the effective date of the reorganization, the Company exchanged
one share of its stock for each share of Savings Bank stock.
The Company is subject to regulation and examination by the Office of Thrift
Supervision pursuant to the Home Owners' Loan Act. Such regulation and
examination is intended for the protection of the depositors of the Company's
subsidiary, the Savings Bank. The Savings Bank is regulated by the New Jersey
Department of Banking and the Federal Deposit Insurance Corporation ("FDIC").
The Company is headquartered in Paterson, New Jersey. Its primary business is
currently the operation of its three subsidiaries, the Savings Bank, Lakeview
Mortgage Depot, Inc. and Branchview, Inc. The Company may originate or purchase
other subsidiaries and perform other activities in the future.
Comparison of Operating Results For The Three Months Ended April 30, 1996 and
1995
Net Income: Net income decreased $1.6 million, or 50.9%, to $1.5 million, for
the three month period ended April 30, 1996, from $3.1 million, for the same
period last year. The decrease in net income is the result of lower net interest
income, other income and higher other expenses, offset by a decrease in
provision for loan losses.
Interest Income: Total interest income increased $636 thousand to $7.7 million
for the quarter ended April 30, 1996, compared to $7.1 million for the quarter
ended April 30, 1995. The increase was due to growth in interest earning assets
and an increase in the average yield on interest earning assets from 7.37% to
7.38%. The average balance in interest earning assets for the three months
increased $34.2 million, or 8.9% to $417.2 million from $383.0 million for the
three months ended April 30, 1995.
Interest Expense: Total interest expense increased $756 thousand to $4.2 million
for the quarter ended April 30, 1996, compared to $3.4 million for the quarter
ended April 30, 1995. The increase was due to growth in interest bearing
liabilities and an increase in the cost from 3.72% to 4.18%. Total average
balance in interest bearing liabilities for the quarter increased $32.2 million,
or 8.8% to $397.2 million, from $365.0 million for the quarter ended April 30,
1995.
12
<PAGE>
Net Interest Income: Net interest income before provision for loan losses
decreased $120 thousand or 3.3%, to $3.5 million for the three months ended
April 30, 1996, from $3.6 million for the three months ended April 30, 1995.
Provision For Loan Losses: For the comparison period, the provision for loan
losses decreased $892,000, or 82.9%, to $184,000 compared to $1,076,000 for the
same period ended April 30, 1995. Management of the Savings Bank regularly
accesses the credit risk of the loan portfolio based on information available at
such times, including trends in the local real estate market and levels of the
Savings Bank's non-performing loans and assets. Additional provision for loan
losses may be required as a result of this assessment.
Other Income: Other income decreased $1,861,000 during the comparison period to
$1,697,000, or 52.3%, from $3,558,000, mainly attributed to a one-time gain of
$2,000,000, net of taxes, on the sale of Residential Money Center, Inc. ("RMC"),
by Branchview Inc. during the three months ended April 30, 1995, offsetting by
an increase in other income from subsidiaries of $527,000 to $565,000, for the
three months ended April 30, 1996, from $38,000 for the three months ended April
30, 1995. During the quarter ended April 30, 1996, the Savings Bank realized
gains on the sale of the common stock of the Student Loan Mortgage Association
("SLMA") of $233,000 and $505,000 on the sale of other equity securities. The
gains on the sale of securities for the quarter ended April 30, 1996, are not
necessarily indicative of gains that may be expected for the entire fiscal year
ending July 31, 1996.
Other Expense: For the comparison period, other expense increased $166,000, or
6.8%, to $2,616,000 for the three months ended April 30, 1996, from $2,450,000
for the three months ended April 30, 1995. Compensation increased $208,000, or
19.3% to $1,284,000 for the quarter ended April 30, 1996, from $1,076,000 for
the three months ended April 30, 1995, mainly attributed to increased operations
of the Company's subsidiary, Lakeview Mortgage Depot, Inc. Offsetting these
increases was a decrease in the net loss on real estate owned operations of
$48,000 for the comparison period. Management will continue to liquidate real
estate owned whenever possible.
Federal and State Income Taxes: Income taxes totaled $936,000 for the quarter
ended April 30, 1996, a increase of $309,000, or 49.2%, over the $627,000, for
the three months ended April 30, 1995.
Comparison of Operating Results For The Nine Months Ended April 30, 1996 and
1995
Net Income: Net income decreased $1,311,000 from $5.3 million for the nine
months ended April 30, 1995 to $4.0 million for the same period this year. The
decrease is the result of lower net interest income, other income and increase
in other expenses, offset by decreases in provision for loan losses.
13
<PAGE>
Interest Income: Total interest income increased $1.6 million or 7.5% to $22.7
million for the nine months ended April 30, 1996, from $21.1 million for the
nine months ended April 30, 1995. The increase was due to the growth in interest
earning assets and an increase in the average yield on interest earning assets
from 7.32% to 7.44%. Total average balance in interest earning assets for the
nine months ended April 30, 1996 increased $22 million or 5.7% to $406.9 million
from $384.9 million for the nine months ended April 30, 1995.
Interest Expense: Total interest expense increased $2.5 million or 26.0% to
$12.3 million for the nine months ended April 30, 1996 from $9.7 million for the
nine months ended April 30, 1995. The increase was due to the growth in interest
bearing liabilities and an increase in the cost of deposits from 3.54% to 4.23%.
Total average balance in interest bearing liabilities for the nine months ended
April 30, 1996 increased $19.8 million or 5.4% to $386.3 million from $366.5
million for the nine months ended April 30, 1995.
Net Interest Income: Net interest income before provision for loan losses
decreased $938 thousand or 8.2% from $11.4 million for the nine months ended
April 30, 1995, to $10.5 million for the same period this year.
Provision for Loan Losses: The provision for loan losses decreased $1,097,000 to
$543,000 for the nine months ended April 30, 1996, from $1,640,000 for the nine
months ended April 30, 1995. Additional provisions for loan losses may be
required if the general economic conditions and real estate values decline.
Other Income: Other income decreased $622,000 or 12.5% from $4,994,000 for the
nine months ended April 30, 1995, to $4,372,000 for the same period this year.
The decrease in other operating income is mainly due to a net of tax gain of
$2,000,000, on the sale of the Savings Bank's interest in RMC in the previous
period, offsetting these decreases was the gain on sale of investments which
increased $903 thousand to $2.6 million for the nine months ended April 30,
1996, from $1,720,000 for the nine months ended April 30, 1995.
Other Expense: Other expense increased $325,000 from $7.6 million for the nine
months ended April 30, 1995 to $7.9 million for the same period ended April 30,
1996. Employee compensation and loss from REO operations increased $345,000 and
$38,000 respectively. Offsetting the increase other operating expenses decreased
$97,000 from $2.3 million for the nine months ended April 30, 1995 to $2.2
million for the nine months ended April 30, 1996.
Comparison of Financial Condition at April 30, 1996 and July 31, 1995
Total assets increased $36.0 million, or 8.6%, to $455.2 million at April 30,
1996, from $419.2 million at July 31, 1995. The increase was primarily due to
increases in loans
14
<PAGE>
receivable, net, of $23.6 million, $1.1 million in accrued interest receivable,
$94.8 million in investment securities available for sale, offsetting declines
in cash and cash equivalents of $4.6 million, $47.6 million in mortgage-backed
securities held to maturity, $31.0 million in investment securities held to
maturity.
Investment securities available for sale increased $94.8 million to $103.4
million at April 30, 1996 from $8.6 million at July 31, 1995. The increase was
mainly attributable to the reclassification at December 31, 1995 of $81.3
million of investment securities held to maturity and $31.5 million of mortgage
backed securities held to maturity to investments securities available for sale.
This is done pursuant to the guidelines of the FASB Special Report for SFAS No.
115, "A Guide To Implementation Of Statement 115 On Accounting For Certain
Investments In Debt And Equity Securities," The special report provided that
concurrent with the initial adoption on these implementation guidelines, but no
later than December 31, 1995, an enterprise could reaccess the classification of
all securities held at that time and account for any resulting reclassification
at fair value. Reclassification from the held to maturity category that resulted
from this one time reassessment would not call into question the intent of the
enterprise to hold debt securities to maturity in the future.
Mortgage backed securities held to maturity decreased $47.6 million, or 27.2%,
to $127.7 million at April 30, 1996, from $175.4 million at July 31, 1995.
Purchases of $2.8 million of mortgage-backed securities were more than offset by
principal repayments of $18.9 million from the existing portfolio and the
transfer of $31.7 million of mortgage backed securities held to maturity at
December 31, 1995 to investments available for sale.
Loans receivable increased $23.6 million, or 16.6%, to $165.7 million at April
30, 1996, from $142.1 million at July 31, 1995. The increase is the result of
the expansion of the Savings Bank's operations and the resultant higher volume
of loan originations.
Investment securities held to maturity, net, decreased $31.0 million, or 55.6%
to $24.7 million at April 30, 1996, from $55.7 million at July 31, 1995. This is
mainly attributable to the reclassification of investment securities held to
maturity to investments available for sale discussed previously.
Deposits, after interest credited, increased $10.4 million, or 3.0%, to $353.9
million at April 30, 1996, from $343.5 million at July 31, 1995.
Borrowings increased $34.0 million, or 178.7%, to $53.0 million at April 30,
1996, from $19.0 million at July 31, 1995. During the period ended April 30,
1996, the Savings Bank used borrowings to fund the growth in loans receivable.
Shareholders' equity decreased $4.2 million, or 8.4%, during the nine months
ended April 30, 1996, to $45.2 million. This was primarily due to the repurchase
by the Company of
15
<PAGE>
376,913 shares of its common stock classified as treasury stock at a cost of
$6.7 million, and payment of cash dividends of $441,000 during the nine month
period ended April 30, 1996. The decrease in shareholders' equity was partially
offset by net income for the nine months ended April 30, 1996, of $4.0 million,
amortization of ESOP and MSBP shares of $743 thousand, and an increase of $1.8
million of unrealized losses, net of taxes, on securities available for sale.
Non-Performing Assets
Loans delinquent 90 days or more increased $2.2 million, or 33.7%, from $4.2
million at July 31, 1995. Delinquent loans 90 days or more past due totaled 3.8%
of gross loans at April 30, 1996, compared to 3.0% of gross loans at July 31,
1995. This increase is mainly attributed to $224 thousand transferred to Real
Estate Owned offset by a $2.0 million increase in 90 day or more delinquent
loans. This increase in delinquent loans is the result of two loans to a
borrower who has filed bankruptcy. Both loans are first lien positions for which
the Savings Bank believes the loan loss reserves are adequate at this time. The
Savings Bank is currently negotiating with the debtor, and has also filed suit
against the personal guarantors related to the loans. The Savings Bank's
allowance for loan losses totaled $2,957,000 at April 30, 1996, as compared to
$2,535,000, at July 31, 1995.
Non-performing assets (loans 90 days or more delinquent, non-accrual loans, real
estate owned and other non-performing assets) totaled $8.7 million or 1.9% of
total assets at April 30, 1996, as compared to 1.9% of total assets at July 31,
1995.
Savings Association Insurance Fund ("SAIF") Insurance Premium
Deposits of the Savings Bank are currently insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC. As a member of the SAIF, the Savings Bank
pays an insurance premium to the FDIC equal to .23% of it total deposits. The
FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. Effective September 30, 1995,
the FDIC lowered the insurance premium for members of the BIF to a range of
between 0.04% and 0.31% of deposits, with the result that most commercial banks
would pay the lowest rate of 0.04%. However, effective January 1, 1996, the
annual insurance premium for most BIF members was lowered to $2,000. These
reductions in insurance premiums for BIF members has placed SAIF members at a
competitive disadvantage to BIF members and, for the reasons set forth below,
could have a material adverse effect on the results of operations and financial
condition of the Savings Bank in future periods.
The disparity in insurance premiums between those required for the Savings Bank
and BIF members could allow BIF members to attract and retain deposits at higher
interest rates and at a lower effective cost than the Savings Bank. This could
put competitive pressure
16
<PAGE>
on the Savings Bank to raise its interest rates paid on deposits, thus
increasing its cost of funds and possibly reducing net interest income. Although
the Savings Bank has other sources of funds, these other sources may have higher
costs than those of deposits.
Several alternatives to mitigate the effect of the BIF/SAIF insurance premium
disparity have been proposed by the U. S. Congress, federal regulators, industry
lobbyists and the executive branch of the government. One such proposal would
require all SAIF-member institutions, including the Savings Bank, to pay a
one-time fee of approximately 85 basis points on the amount of deposits held by
the member institution to recapitalize the SAIF. If this proposal is enacted
into law, the effect would be to immediately reduce the capital of the
SAIF-member institutions by the amount of the fee, and such amount would be
immediately charged to earnings, unless the institutions are permitted to
amortize the expense of the fee over a period of years. Based on $353.9 million
in deposits outstanding at the Savings Bank as of April 30, 1996, this fee would
be approximately $3.0 million, before tax benefit. Management of the Savings
Bank are unable to predict whether this proposal or any similar proposal will be
enacted or whether ongoing SAIF premiums will be reduced to a level equal to
that of BIF premiums.
Liquidity and Capital Resources
The Savings Bank's primary sources of funds includes savings deposits, loan
repayments and prepayments, cash flow from operations and borrowings from the
Federal Home Loan Bank of New York ("FHLB"). The Savings Bank uses its capital
resources principally to fund loan origination and purchases, repay maturing
borrowings, purchase of securities, and for short and long-term liquidity needs.
The Savings Bank expects to be able to fund or refinance, on a timely basis, its
commitments and long-term liabilities.
The Savings Bank's liquid assets consist of cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Savings Bank's operating, financing and investment
activities during any given period. At April 30, 1996, cash and cash equivalents
totaled $3,383,000.
The Savings Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of April 30, 1996, the Savings Bank had
commitments to fund loans of $3,634,300.
The Savings Bank had leverage, Tier 1 and risk-based capital ratios of 7.5%,
15.7%, and 16.5% at April 30, 1996, which exceeded the FDIC's respective minimum
requirements of 4.00%, 4.00% and 8.00%. The Savings Bank was classified as a
"well capitalized" institution by the FDIC as of April 30, 1996.
17
<PAGE>
Impact of Inflation and Changing Prices
The financial statements of the Corporation and notes thereto, presented
elsewhere herein, 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 the Corporation's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Corporation are monetary. As a result, interest rates have a
greater impact on the Corporation's 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 price of goods and services.
18
<PAGE>
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor the Savings Bank was engaged in any legal
proceeding of a material nature at April 30, 1996. From time to time,
the Savings Bank is a party to legal proceedings in the ordinary
course of business wherein it enforces its security interest in loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Stock Repurchase Program
On March 21, 1996 and April 15, 1996, the Company reported that the
Corporation had completed the acquisition of 5% of its common stock
(respectively), through open market purchases. The repurchased shares
will be held as treasury stock and will be available for general
corporate purposes.
Industry Mortgage Company
The Bank's wholly-owned subsidiary, Branchview, Inc. ("Branchview"),
owns a limited partnership interest in IMC Mortgage Co., a Tampa,
Florida based consumer finance company ("IMC"). IMC has recently filed
a registration statement with the Securities and Exchange Commission
("SEC") relating to the sale in an underwritten initial public
offering of shares of its common stock (the "Offering"). The terms of
the Offering (number of shares to be issued and the price per share)
had not been disclosed as of the date of this Quarterly Report on Form
10-Q. IMC has indicated that it will use the proceeds of the Offering
to, among other things, repay the outstanding
19
<PAGE>
balance on a $7 million dollar line of credit to the Bank. Branchview
expects to receive shares of IMC common stock in connection with the
Offering in exchange for its limited partnership interest. If the
Offering is successful, the Company believes the exchange of shares in
the Offering for its limited partnership interest in IMC will increase
the value of its investment in IMC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lakeview Financial Corp.
Date: June _, 1996
/s/ Kevin J. Coogan
------------------------
Kevin J. Coogan
President and CEO
(Principal Executive Officer)
/s/ Anthony G. Gallo
------------------------
Anthony G. Gallo
Vice President and CFO
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-31-1995 JUL-31-1996
<PERIOD-END> JUL-31-1995 APR-30-1996
<CASH> 8,021,666 3,383,283
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 11,154,775 105,988,090
<INVESTMENTS-CARRYING> 231,112,901 152,475,342
<INVESTMENTS-MARKET> 228,957,708 150,219,007
<LOANS> 144,657,781 168,699,878
<ALLOWANCE> 2,534,836 2,956,925
<TOTAL-ASSETS> 419,211,997 455,155,203
<DEPOSITS> 343,489,328 353,892,850
<SHORT-TERM> 19,858,929 53,705,804
<LIABILITIES-OTHER> 6,423,506 2,269,124
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,323,920 5,856,152
<OTHER-SE> 44,116,314 39,431,273
<TOTAL-LIABILITIES-AND-EQUITY> 419,211,997 455,155,203
<INTEREST-LOAN> 12,509,446 3,523,076
<INTEREST-INVEST> 15,920,780 4,173,370
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 28,430,226 7,696,446
<INTEREST-DEPOSIT> 11,943,596 3,484,840
<INTEREST-EXPENSE> 13,538,580 4,150,324
<INTEREST-INCOME-NET> 14,891,646 3,546,122
<LOAN-LOSSES> 1,801,404 184,043
<SECURITIES-GAINS> 2,107,244 738,400
<EXPENSE-OTHER> 10,266,447 2,615,619
<INCOME-PRETAX> 10,030,140 2,443,509
<INCOME-PRE-EXTRAORDINARY> 6,294,627 1,507,509
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,294,627 1,507,509
<EPS-PRIMARY> 2.63 0.67
<EPS-DILUTED> 2.62 0.66
<YIELD-ACTUAL> 3.68 3.20
<LOANS-NON> 4,222,259 6,371,613
<LOANS-PAST> 4,222,259 6,371,613
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<ALLOWANCE-OPEN> 1,713,590 2,950,670
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