-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWKcchoG4CJC+5Dxf1ZqIhcsAEWBdMPSn2zmUi1GipDdE+bUD4KJgWhfvK+BjJAW MM1foeFl2NPy0/7qcZXLGg== 0000702700-97-000011.txt : 19971105 0000702700-97-000011.hdr.sgml : 19971105 ACCESSION NUMBER: 0000702700-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971104 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SARATOGA BANCORP CENTRAL INDEX KEY: 0000702700 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942817587 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-77519-LA FILM NUMBER: 97707734 BUSINESS ADDRESS: STREET 1: 12000 SARATOGA SUNNYVALE RD CITY: SARATOGA STATE: CA ZIP: 95070 BUSINESS PHONE: 4089731111 10-Q 1 10-Q FOR PERIOD ENDED 09/30/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1997 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 2-77519-LA SARATOGA BANCORP (Exact name of registrant as specified in its charter) California 94-2817587 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 Saratoga-Sunnyvale Road Saratoga, California 95070 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (408) 973-1111 NONE (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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS SHARES OUTSTANDING AT OCTOBER 29, 1996 Common Stock 1,063,302 The Index to Exhibits appears on Page 19 Page 1 of 20 pages 2 PART I - FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS September 30, December 31, 1997 1996* (Unaudited) ASSETS Cash and due from banks $ 4,428,000 $ 4,543,000 Federal funds sold 10,700,000 18,300,000 Total cash and equivalents 15,128,000 22,843,000 Interest-bearing deposits in other banks 1,489,000 - Securities available for sale 15,132,000 17,949,000 Securities held to maturity 35,088,000 24,111,000 Loans, net 55,115,000 52,033,000 Other real estate owned - 1,252,000 Premises and equipment 2,025,000 2,135,000 Other assets 1,575,000 1,461,000 TOTAL ASSETS $125,552,000 $121,784,000 ============ ============ LIABILITIES Deposits: Non-interest bearing $ 20,756,000 $ 22,823,000 Interest bearing 67,318,000 66,621,000 Total deposits 88,074,000 89,444,000 Federal funds purchased - 1,500,000 Other borrowings 23,039,000 18,201,000 Accrued expenses and other liabilities 1,495,000 687,000 TOTAL LIABILITIES 112,608,000 109,832,000 SHAREHOLDERS' EQUITY Common stock, no par value; Authorized: 20,000,000 shares; Issued and outstanding: 1,063,302 and 1,036,392 shares 4,531,000 4,461,000 Retained earnings 8,576,000 7,717,000 Net unrealized loss on securities available for sale (163,000) (226,000) TOTAL SHAREHOLDERS' EQUITY 12,944,000 11,952,000 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $125,552,000 $121,784,000 ============ ============
*Derived from the December 31, 1996 audited balance sheet included in the Company's 1996 Annual Report on Form 10-K. See notes to consolidated condensed financial statements. 3 SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED INCOME STATEMENTS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 INTEREST INCOME: Loans $1,388,000 $1,179,000 $4,022,000 $3,151,000 Investment securities 872,000 655,000 2,317,000 1,982,000 Federal funds sold 167,000 232,000 498,000 518,000 Total interest income 2,427,000 2,066,000 6,837,000 5,651,000 INTEREST EXPENSE: Deposits 748,000 714,000 2,176,000 1,982,000 Other 356,000 218,000 994,000 603,000 Total interest expense 1,104,000 932,000 3,170,000 2,585,000 NET INTEREST INCOME BEFORE CREDIT FOR CREDIT LOSSES 1,323,000 1,134,000 3,667,000 3,066,000 Credit for credit losses - - - (50,000) Net interest income after credit for credit losses 1,323,000 1,134,000 3,667,000 3,116,000 Other income 175,000 88,000 408,000 239,000 Other expenses 745,000 735,000 2,349,000 2,184,000 INCOME BEFORE INCOME TAXES 753,000 487,000 1,726,000 1,171,000 Provision for income taxes 286,000 185,000 656,000 445,000 NET INCOME $467,000 $302,000 $1,070,000 $726,000 ========== ========== ========== ========== NET INCOME PER COMMON AND EQUIVALENT SHARE $0.39 $0.26 $0.91 $0.63 ========== ========== ========== ==========
See notes to consolidated condensed financial statements. 4
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1997 1996 OPERATIONS: Net income $ 1,070,000 $ 726,000 Adjustments to reconcile net income to net cash provided by operating activities: Credit for credit losses - (50,000) Depreciation and amortization 134,000 125,000 Other, net 648,000 (283,000) Net cash provided by operating activities 1,852,000 518,000 INVESTING ACTIVITIES: Proceeds from sale of securities available for sale 18,084,000 2,496,000 Proceeds from maturities of securities available for sale 1,434,000 6,558,000 Proceeds from maturities of securities held to maturity 7,072,000 3,411,000 Purchase of securities available for sale (16,814,000) (9,913,000) Purchase of securities held to maturity (17,886,000) (4,136,000) Net increase in loans (3,082,000) (7,228,000) Purchases of premises and equipment (24,000) (433,000) Sale of premises and equipment - 133,000 Proceeds from sale of OREO 1,311,000 652,000 Purchase of interest bearing deposits (1,489,000) - Net cash used in investing activities (11,394,000) (8,460,000) FINANCING ACTIVITIES: Net (decrease)increase in deposits (1,370,000) 8,286,000 Exercise of stock options 70,000 - Payment of dividends (211,000) (181,000) Increase in other borrowings 4,838,000 1,975,000 Decrease in federal funds purchased (1,500,000) (1,500,000) Net cash provided by financing activities 1,827,000 8,580,000 NET (DECREASE)INCREASE IN CASH AND EQUIVALENTS (7,715,000) 638,000 Cash and equivalents, beginning of period 22,843,000 22,939,000 Cash and equivalents, end of period $15,128,000 $23,577,000 =========== ===========
See notes to consolidated condensed financial statements. 5 SARATOGA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996 1. The unaudited consolidated condensed financial statements reflect all adjustments (which include only normal recurring adjustments) which are, in the opinion of management, necessary to fairly state the results for the periods presented. The results for the periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. Per share amounts are calculated using the weighted average shares outstanding plus the dilutive effect of shares issuable under stock options. The number of shares used to compute income per share was 1,189,657 shares and 1,177,275 shares for the three- and nine-month periods ended September 30, 1997 (1,158,932 shares and 1,157,060 shares for the comparable three- and nine- month periods in 1996). In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards SFAS No. 128, "Earnings per Share". The Company is required to adpot SFAS 128 in the fourth quarter of 1997 and will restate at that time earnings per share (EPS) data for prior periods to conform with SFAS 128. Earlier application is not permitted. SFAS 128 replaces current EPS reporting requirements and requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. If SFAS 128 had been in effect during the current and prior year periods, basic EPS would have been $0.44 and $1.02 for the three and nine month periods ended September 30, 1997, respectively ($0.29 and $0.70 for the comparable prior year periods). Diluted EPS under SFAS 128 would not have been significantly different than EPS currently reported for the periods. 3. For the nine months ended September 30, 1997 and 1996, cash paid for taxes was $317,000 and $636,000, respectively. For the nine months ended September 30, 1997 and 1996, cash paid for interest was $3,108,000 and $3,112,000, respectively. 4. In June 1997, the Financial Accounting Standards Board adopted SFAS No. 130 "Reporting Comprehensive Income", which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and SFAS No. 131 "Disclosures about Segmentsof an Enterprise and Related Information", which establishes annual 6 and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Company's concolidated financial position, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 7 SARATOGA BANCORP AND SUBSIDIARY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, matters described in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Changes to such risks and uncertainties, which could impact future financial performance, include, among others, (1) Competitive pressures in the banking industry; (2) changes in interest rate environment; (3) General economic conditions, either nationally or regionally; (4) changes in the regulatory environment; (5) changes in business conditions and inflation; and (6) changes in securities markets. Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Company and the Bank. SUMMARY OF FINANCIAL RESULTS At September 30, 1997, total assets were $125,552,000, a 3.1% increase from $121,784,000 at December 31, 1996. Net loans increased $3,082,000 (5.9%) from $52,033,000 at December 31, 1996 to $55,115,000 at September 30, 1997. The increase was primarily in the longer term real estate loan portfolio. Total deposits decreased $1,370,000 (1.5%) from $89,444,000 at December 31, 1996 to $88,074,000 at September 30, 1997. Net income for the third quarter of 1997 was $467,000 or $.39 per share compared to $302,000 ($.26 per share) for the comparable period in 1996. Net income for the first nine months of 1997 was $1,070,000 or $.91 per share compared to $726,000 or $.63 per share for the comparable period in 1996. The increase in income resulted primarily from an increase in the volume of earning assets, offset in part by a decrease in the yield on earning assets and an increase in interest expense due to the increased volume of interest-bearing liabilities. 8 RESULTS OF OPERATIONS THIRD QUARTER OF 1997 AND 1996 An analysis of the results of operations of the Company for the third quarter of 1997 compared to the third quarter of 1996 is presented below: Net interest income Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Three months ended September 30, 1997 1996 Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) (In thousands, except percentages) Assets: Earning assets: Loans (2) $54,842 $1,388 10.1% $43,291 $1,179 10.9% Investment securities 52,877 872 6.6% 39,535 655 6.6% Federal funds sold 11,980 167 5.6% 17,636 232 5.3% Total interest earning assets 119,699 2,427 8.1% 100,462 2,066 8.2% Cash and due from banks 4,764 4,088 Other assets (3) 2,795 3,798 $127,258 $108,348 ======= ======= Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $34,777 297 3.4% $34,212 281 3.3% Time deposits 34,128 451 5.3% 29,920 433 5.8% Other borrowings 23,075 356 6.2% 14,024 218 6.2% Total interest- bearing liabilities 91,980 1,104 4.8% 78,156 932 4.8% Demand deposits 21,131 18,042 Other liabilities 1,272 896 Total liabilities 114,383 97,094 Shareholders' equity 12,875 11,254 $127,258 $108,348 ======= ======= Net interest income and margin $1,323 4.4% $1,134 4.5% ====== ======
(1) Annualized. (2) Loan interest income includes loan fee income of $85,000 and $122,000 for the quarters ended September 30, 1997 and 1996, respectively. (3) Includes the average allowance for credit losses of $601,000 and $716,000 and deferred loan fees of $360,000 and $344,000 for the quarters ended September 30, 1997 and 1996, respectively. 9 PROVISION FOR CREDIT LOSSES The Bank maintains an allowance for possible credit losses which is based, in part, on the Bank's historical loss experience, the impact of forecasted economic conditions within the Bank's market area, and, as applicable, the State of California, the value of the underlying collateral, loan performance and inherent risks in the loan portfolio. The allowance is reduced by charge-offs and increased by provisions for credit losses charged to operating expense and recoveries of previously charged-off loans. During the third quarter of 1997 and 1996 the Bank did not record a provision for credit losses. There were $92,000 in loans charged-off and $10,000 in recoveries in the third quarter of 1997. There were no loans charged-off and $9,000 in recoveries in the third quarter of 1996. At September 30, 1997, the allowance for credit losses was $543,000 or 1.0% of total loans, compared to $628,000 or 1.2% at December 31, 1996. Nonaccrual loans totalled $365,000 at September 30, 1997 (none at December 31, 1996). At September 30, 1997 and December 31, 1996, there were no loans past due 90 days or more as to principal or interest and still accruing interest. At September 30, 1996 there were no loans which were troubled debt restructurings as defined in Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." At September 30, 1997, there were two potential problem loans having a combined principal balance of $331,000 ($1,140,000 at December 31, 1996). Potential problem loans are loans which are generally current as to principal and interest but have been identified by the Company as potential problem loans due either to a decrease in the underlying value of the property securing the credit or some other deterioration in the creditworthiness of the borrower. All of the two loans identified as potential problem loans are secured by real estate and personal property. At September 30, 1997, there were no loan concentrations other than Real Estate loans which represents approximately 60% of the portfolio. At September 30, 1997, there was no Other Real Estate Owned ("OREO")($1,252,000 at December 31, 1996).
Nonperforming loans and other real estate owned are summarized below: September 30, 1997 December 31, 1996 Nonperforming loans: Past due 90 days or more $ - $ - Nonaccrual 365,000 - Total - - Other real estate owned - 1,252,000 Total nonperforming loans and other real estate owned $ 365,000 $1,252,000 ========== ==========
10 Management is of the opinion that the allowance for credit losses is maintained at an adequate level for known and currently anticipated future risks inherent in the loan portfolio. However, the Bank's loan portfolio, which includes approximately $34,000,000 in real estate loans representing approximately 60% of the portfolio, could be adversely affected if California economic conditions and the real estate market in the Bank's market area were to weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and OREO and the level of the allowance for loan losses which could adversely affect the Company's and the Bank's future growth and profitability. NONINTEREST INCOME Other income consists of service charges on deposit accounts, income from assets acquired for lease and fees for other miscellaneous services. Total other income increased from $88,000 in the third quarter of 1996 to $176,000 in the third quarter of 1997. This increase is primarily attributable to a gain on sale of securities of $68,000 realized in the third quarter of 1997 and an increase of $22,000 in service charges assessed on deposit accounts. NONINTEREST EXPENSES Other expenses increased from $735,000 in the third quarter of 1996 to $745,000 in the third quarter of 1997. This increase is primarily attributable to an increase in legal expense and advertising expense. As a percentage of average earning assets, other expenses for the third quarter, on an annualized basis, decreased from 2.9% in 1996 to 2.5% in 1997. 11 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 An analysis of the results of operations of the Company for the nine month period ended September 30, 1997 compared to the comparable period in 1996 is as follows: NET INTEREST INCOME Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Nine months ended September 30, 1997 1996 Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) (In thousands, except percentages) Assets: Earning assets: Loans (2) $53,677 $4,022 10.0% $39,495 $3,151 10.6 Investment securities 49,660 2,317 6.2% 40,751 1,982 6.5% Federal funds sold 12,344 498 5.4% 13,239 518 5.2% Total interest earning assets 115,681 6,837 7.9% 93,485 5,651 8.1% Cash and due from banks 4,637 4,094 Other assets (3) 3,600 4,007 $123,918 $101,586 ======= ======= Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $ 36,287 923 3.4% $30,756 748 3.2% Time deposits 31,617 1,253 5.3% 28,505 1,234 5.8% Other borrowings 21,340 994 6.2% 12,557 603 6.4% Total interest- bearing liabilities 89,244 3,170 4.7% 71,818 2,585 4.8% Demand deposits 21,283 17,678 Other liabilities 1,022 852 Total liabilities 111,549 90,348 Shareholders' equity 12,369 11,238 $123,918 $101,586 ======== ======= Net interest income and margin $3,667 4.2% $3,066 4.4% ====== ======
(1) Annualized. (2) Loan interest income included loan fee income of $252,000 and $268,000 for the nine months ended September 30, 1997 and 1996, respectively. (3) Includes the average allowance for loan losses of $616,000 and $730,000, and deferred loan fees of $337,000 and $309,000 for the nine months ended September 30, 1997 and 1996, respectively. 12 PROVISION FOR CREDIT LOSSES During the first nine months of 1997, the Bank did not record a provision for credit losses. During the first nine months of 1996, the Bank reversed $50,000 from the allowance for credit losses. There were $120,000 in loans charged off and $28,000 in recoveries for the nine months ending September 30, 1997, compared to $38,000 charged off and $45,000 in recoveries for the first nine months of 1996. NONINTEREST INCOME Other income consists of service charges on deposit accounts, income on assets acquired for lease and fees for other miscellaneous services. Total other income increased from $239,000 in the first nine months of 1996 to $408,000 in the first nine months of 1997. The increase is primarily attributable to a gain on sale of securities of $69,000, a gain on sale of loans of $12,000 and an increase in service charges assessed on deposit accounts of $70,000. NONINTEREST EXPENSES Other expenses increased from $2,184,000 in the first nine months of 1996 to $2,349,000 in the first nine months of 1997. The increase is primarily attributable to an increase in advertising and marketing expense, legal expense and a loss on sale of securities of $35,000. As a percentage of average earning assets, other expenses, on an annualized basis, decreased from 3.1% in 1996 to 2.7% in 1997. 13 LIQUIDITY AND CAPITAL RESOURCES The Bank manages its liquidity to provide adequate funds at an acceptable cost to support borrowing requirements and deposit flows of its customers. At September 30, 1997 liquid assets as a percentage of deposits were 34% (46% at December 31, 1996). In addition to cash and due from banks, liquid assets include short- term time deposits with other banks, Federal funds sold and investment securities available for sale. The Bank has $11.0 million in Federal funds lines of credit available with correspondent banks to meet liquidity needs. Management regularly reviews general economic and financial conditions, both external and internal, and determines whether the positions taken with respect to liquidity and interest rate sensitivity continue to be appropriate. The Bank also utilizes a monthly "Gap" report which identifies rate sensitivity over the short- and long-term. The following table sets forth the distribution of repricing opportunities, based on contractual terms, of the Company's earning assets and interest-bearing liabilities at September 30, 1996, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative interest rate sensitivity gap ratio. Based on the contractual terms of its assets and liabilities, the Bank is currently liability sensitive in terms of its short-term exposure to interest rates. In other words, the Bank's liabilities reprice faster than its assets in the short-term. 14
DISTRIBUTION OF REPRICING OPPORTUNITIES At September 30, 1997 (Dollars in thousands) After Three After Six After One Within Months But Months But Year But After Three Within Six Within One Within Five Months Months Year Five Years Years Total Federal funds sold $10,700 $ - $ - $ - $ - $10,700 Interest bearing deposits in other banks - - - 1,489 - 1,489 Municipal securities - - 862 2,218 1,908 4,988 U.S. Treasury and agency securities 3,067 1,997 1,728 12,821 21,244 40,857 FRB stock - - - - 4,375 4,375 Loans 31,623 2,181 1,163 8,427 12,639 56,033 Total earning assets $45,390 $ 4,178 $ 3,753 $24,955 $40,166 $118,442 Interest bearing demand deposits $32,358 $ - $ - $ - $ - $ 32,358 Savings accounts 7,688 - - - - 7,688 Time certif- icates of deposit of $100,000 or more 5,585 1,968 2,739 2,669 - 12,961 Other time deposits 5,136 1,909 5,318 2,233 - 14,596 Other borrowings - - 5,000 6,301 11,738 23,039 Total interest- bearing liabilities $50,767 $3,877 $13,057 $11,203 $11,738 $90,642 Interest rate sensitivity gap $(5,377) $ 301 $(9,304) $13,752 $28,428 $27,800 ======= ======= ======= ======= ======= ======= Cumulative interest rate sensitivity gap $(5,377) $(5,076) $(14,380) $ (628) $27,800 ======= ======= ======== ======= ======= Interest rate sensitivity gap ratio 0.89% 1.08% 0.29% 2.23% N/A Cumulative interest rate sensitivity gap ratio 0.89% 0.91% 0.79% 0.99% 1.31%
15 The Company and the Bank are subject to capital adequacy guidelines issued by the Board of Governors of the Federal Reserve System (the "BGFRS") and the Office of the Comptroller of the Currency ("OCC"). The Company and the Bank are required to maintain total capital equal to at least 8% of assets and commitments to extend credit, weighted by risk, of which at least 4% must consist primarily of common equity including retained earnings (Tier 1 capital) and the remainder may consist of subordinated debt, cumulative preferred stock or a limited amount of loan loss reserves. Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk-weighted categories requiring less capital allocation than the 8% total ratio. For example, cash and government securities are assigned to a 0% risk-weighted category, most home mortgage loans are assigned to a 50% risk-weighted category requiring a 4% capital allocation and commercial loans are assigned to a 100% risk-weighted category requiring an 8% capital allocation. As of September 30, 1997, the Company's total risk- based capital ratio was approximately 19.2% (approximately 18.4% for the Bank) compared to approximately 18.0% (approximately 17.1% for the Bank) at December 31, 1996. The BGFRS adopted a 3% minimum leverage ratio for banking organizations as a supplement to the risk-weighted capital guidelines. The minimum leverage ratio is intended to limit the ability of banking organizations to leverage their equity capital base by increasing assets and liabilities without increasing capital proportionately. The 3% minimum leverage ratio constitutes a minimum ratio for well-run banking organizations. Organizations experiencing or anticipating significant growth or failing to meet certain BGFRS standards will be required to maintain a minimum leverage ratio ranging from 100 to 200 basis points in excess of the 3% ratio. The following table reflects the Company's leverage, Tier 1 and total risk-based capital ratios for the quarter ended September 30, 1997 and the year ended December 31, 1996. September 30, 1997 December 31, 1996 Leverage ratio 10.5% 10.5% Tier 1 capital ratio 18.5% 17.1% Total risk-based capital ratio 19.2% 18.0% On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA, among other matters, substantially revised banking regulations and established a framework for determination of capital adequacy of financial institutions. Under the FDICIA, financial institutions are placed into one of five capital adequacy catagories as follows: (1) "Well capitalized" - consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or 16 greater and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized" - consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk- based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized" - consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - consisting of institutions with a total risk- based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%. Financial institutions classified as undercapitalized or below are subject to various limitations including, among other matters, certain supervisory actions by bank regulatory authorities and restrictions related to (i) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of dividends or other capital distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires bank regulatory authorities to initiate corrective action regarding financial institutions which fail to meet minimum capital requirements. Such action may result in orders to, among other matters, augment capital and reduce total assets. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or implementation of a capitalization plan. OTHER MATTERS From time to time, the Company's Board of Directors reviews and consults with advisors, including investment banking and legal advisors, regarding banking industry trends and developments, as well as internal and external opportunities to maximize shareholder value. Such reviews and consultations include evaluating and comparing internal results of operations projections and external opportunities for mergers, acquisitions, reorganizations, or other transactions with third parties which may be in the interests of the Company's shareholders. The Company's Board of Directors considers such periodic review and consultation to be important as part of their analysis of the Company's value and prospects in the changing banking environment and in view of the current consolidation activity within the banking industry. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable 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 Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) (3) Exhibits (27.1) Financial Data Schedule (b) Reports on Form 8-K On October 10, 1997, Registrant filed a Current Report on Form 8-K, dated September 29, 1997 reporting under Item 5 (Other Events) a ten cent ($0.10) cash dividend on outstanding shares of common stock of Saratoga Bancorp, to be payable on November 14, 1997 to shareholders of record at the close of business on October 31, 1997. 18 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. SARATOGA BANCORP Date: November 3, 1997 ------------------------- Mary Page Rourke, Treasurer (Principal Financial and Accounting Officer) 19 INDEX TO EXHIBITS Sequentially Numbered Number Exhibits Page 27.1 Financial Data Schedule 20 EX-27 2
9 9-MOS DEC-31-1997 SEP-30-1997 4428 1489 10700 0 15132 35439 35088 55115 543 125552 88074 5000 1495 18039 0 0 4531 8413 125552 4022 2317 498 6837 2176 3170 3667 0 34 2349 1726 1070 0 0 1070 .91 .91 8.1 365 0 0 331 628 115 30 543 366 0 177
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