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FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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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 0-14294
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Greater Community Bancorp
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(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-2545165
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
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(Address of principal executive offices)
(973) 942-1111
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(Registrant's telephone number)
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 and 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: Common stock $0.50 par value -
7,033,762 shares at July 31, 2002.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet at
June 30, 2002 (unaudited) and December 31, 2001............... 3
Consolidated Statements of Income (unaudited)
Three and Six months ended
June 30, 2002 and 2001 ........................................4
Consolidated Statements of Changes in Shareholders'
Equity (unaudited)
Six Months ended June 30, 2002 and 2001........................5
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2002 and 2001........................6
Notes to Consolidated Financial Statements (unaudited)............7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................9
Item 3 - Quantitative and Qualitative Changes Regarding Market Risk ....16
PART II - OTHER INFORMATION
Items 1 through 6......................................................17
Signatures................................................................18
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
June 30, December 31,
2002 2001
ASSETS (Unaudited)
CASH AND DUE FROM BANKS-Non-interest-bearing $ 24,590 $ 23,297
FEDERAL FUNDS SOLD 41,900 23,700
Total cash and cash equivalents 66,490 46,997
DUE FROM BANKS - Interest-bearing 13,722 13,877
SECURITIES:
Available-for-sale, at fair value 173,088 150,212
Held-to-maturity, at amortized cost
(Fair values $3,299 and $1,657) 3,404 1,694
176,492 151,906
LOANS 426,160 412,791
Less - Allowance for loan losses (6,558) (6,320)
Unearned income (3,213) (2,221)
Net loans 416,389 404,250
PREMISES AND EQUIPMENT, net 7,317 6,905
ACCRUED INTEREST RECEIVABLE 3,374 3,214
BANK OWNED LIFE INSURANCE 12,146 11,837
GOODWILL 11,574 11,574
OTHER ASSETS 13,555 10,279
Total assets $721,059 $660,839
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest-bearing $142,846 $120,838
Interest-bearing 148,618 128,882
Savings 87,837 67,458
Time Deposits less than $100 115,235 132,599
Time Deposits $100 and over 33,561 34,846
Total deposits 528,097 484,623
FHLB ADVANCES 70,000 70,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 17,123 22,347
ACCRUED INTEREST PAYABLE 2,692 2,799
OTHER LIABILITIES 7,770 11,958
GUARANTEED PREFERRED BENEFICIAL INTEREST
IN THE COMPANY'S SUBORDINATED DEBT 46,000 23,000
Total Liabilities 671,682 614,727
SHAREHOLDERS' EQUITY
Common Stock, par value $0.50 per share:
20,000,000 shares authorized, 6,704,850
and 6,708,402 shares outstanding 3,517 3,354
Additional paid-in capital 43,175 38,040
(Accumulated deficit) retained earnings (256) 2,321
Accumulated other comprehensive income 2,941 2,397
Total shareholders' equity 49,377 46,112
Total liabilities and shareholders' equity $721,059 $660,839
(See notes to Condensed Consolidated Financial statements)
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
INTEREST INCOME
Loans, including fees $8,002 $8,026 $15,899 $15,927
Securities 2,123 2,091 4,088 4,320
Federal Funds sold and deposits with banks 257 708 514 1,379
Total interest income 10,382 10,825 20,501 21,626
INTEREST EXPENSE
Deposits 2,028 4,646 4,200 7,432
Short-term borrowings 1,065 1,143 2,175 2,286
Long-term borrowings 575 575 1,150 1,150
Total interest expense 3,668 5,364 7,525 10,868
NET INTEREST INCOME 6,714 5,461 12,976 10,758
PROVISION FOR LOAN LOSSES 217 211 438 415
Net interest income after
provision for loan losses 6,497 5,250 12,538 10,343
OTHER INCOME
Service charges on deposit accounts 577 618 1,201 1,151
Other commissions and fees 253 188 407 403
Gain on sale of securities 126 53 445 54
Trading revenues - - (9) -
Gain on sale of lease financing receivable 421 337 769 591
Bank-owned life insurance 152 148 309 319
All other income 217 245 588 454
1,746 1,589 3,710 2,972
OTHER EXPENSES
Salaries and employee benefits 2,784 2,371 5,450 4,754
Occupancy and equipment 797 757 1,586 1,560
Regulatory, professional and other fees 507 402 965 776
Computer services 105 116 197 198
Amortization of intangible assets - 195 - 389
Office expense 315 257 630 515
All other operating expenses 778 585 1,423 1,105
Total other expenses 5,286 4,683 10,251 9,297
Income before income taxes 2,957 2,156 5,997 4,018
PROVISION FOR INCOME TAXES 918 725 1,864 1,368
NET INCOME $2,039 $1,431 $4,133 $2,650
WEIGHTED AVERAGE SHARES OUTSTANDING - Basic 7,039 6,962 7,038 6,965
WEIGHTED AVERAGE SHARES OUTSTANDING - Diluted 7,477 7,215 7,440 7,219
NET INCOME PER SHARE - Basic $ 0.29 $ 0.21 $ 0.59 $ 0.38
NET INCOME PER SHARE - Diluted $ 0.27 $ 0.20 $ 0.56 $ 0.37
(See notes to Condensed Consolidated Financial Statements)
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, Unaudited)
Six Months ended June 30, 2002
(Accumulated) Accumulated
Additional Deficit) Other Total
Common Paid in Retained Comprehensive Shareholders, Comprehensive
Stock Capital Earnings Income Equity Income
Balance January 1, 2002 $3,354 $38,040 $2,321 2,397 $46,112 -
Net Income 4,133 4,133 $ 4,133
5% stock dividend 168 5,266 (5,434) -
Exercise of stock options 16 311 327
Issuance of common
stock for dividend
reinvestment plan - - -
Cash dividends (1,276) (1,276)
Other comprehensive income, net
of reclassification, taxes and
adjustments 544 544 544
Total comprehensive income $4,677
Retirement of treasury stock
(21) (442) _______ ________ (463)
Balance, June 30, 2002 $3,517 $43,175 $ (256) $ 2,941 $49,377
Six Months ended June 30, 2001
Accumulated
Additional Other Total
Common Paid in Retained Comprehensive Shareholders' Comprehensive
Stock Capital Earnings Loss Equity Income
Balance January 1, 2001 $3,159 $34,178 $2,069 $825 $40,231 -
Net Income 2,650 2,650 $ 2,650
5% stock dividend 157 3,495 (3,652) -
Exercise of stock options 1 2 3
Issuance of common
stock for dividend
reinvestment plan 13 246 259
Cash dividends (1,037) (1,037)
Other comprehensive income, net
of reclassification, taxes and
adjustments 986 986 986
Total comprehensive income $3,636
Retirement of treasury stock
(16) (304) (320)
________ ___________ ______ ______ ________
Balance, June 30, 2001 $3,314 $37,617 $ 30 $1,811 $42,772
(See notes to Consolidated Financial Statements)
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,133 $ 2,650
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 625 1,058
Accretion of discount on securities, net 426 (107)
Gain on sale of securities, net (445) (54)
Trading assets 9 -
Gain on sale of assets (124) -
Provision for loan losses 438 415
(Increase) decrease in accrued interest receivable (160) 770
(Increase) decrease in other assets (3,856) 815
Increase in accrued interest payable
and other liabilities (4,295) 2,301
________ ________
Net cash (used in) provided by operating activities (2,979) 7,848
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities -
Purchases (76,152) (59,058)
Sales 14,742 7,916
Maturities and principal paydowns 39,011 44,114
Held-to-maturity securities -
Purchases (2,099) -
Maturities 390 1,152
Net decrease (increase) in interest-bearing deposits
with banks 155 (9,816)
Net increase in loans (12,376) (21,083)
Capital expenditure (1,037) (672)
________ ________
Net cash used in investing activities (37,366) (37,447)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 43,474 21,441
(Decrease) increase in repurchase agreements (5,224) 1,799
Net increase in FHLB advances - 20,000
Proceeds from issuance of subordinated debt 23,000 -
Dividends paid (1,276) (1,037)
Proceeds from exercise of stock options 327 3
Proceeds from issuance of common stock - 259
Purchase of treasury stock (463) (320)
Other, net - (30)
________ ________
Net cash provided by financing activities 59,838 42,115
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,493 12,516
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,997 56,292
CASH AND CASH EQUIVALENTS, END OF PERIOD $66,490 $68,808
(See notes to Consolidated Financial Statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, these unaudited condensed financial
statements contain all disclosures which are necessary to present fairly the
Company's consolidated financial position at June 30, 2002, the consolidated
results of operations for three months and six months ended June 30, 2002 and
2001 and cash flows for six months ended June 30, 2002 and 2001. The financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) which in the opinion of management are necessary in order to
present fairly the financial position and results of operations for the interim
periods. Certain information and footnote disclosure normally included in
financial statements under generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. These financial statements should be read in conjunction with
the annual financial statements and notes thereto included in Form 10-K for the
fiscal year ended December 31, 2001.
Dividend
During June 2002, the Company's Board of Directors declared a cash dividend
of 10.0 cents ($.10) per share, payable on July 31, 2002 to shareholders of
record on July 12, 2002.
On April 16, 2002, the Companyss Board of Directors declared a 5% stock
dividend on the Company's common stock. The record date of the dividend was July
12, 2002 and the issue date was July 31, 2002. The financial information in this
Form 10-Q has retroactively been restated to reflect the 5% stock dividend.
EARNINGS PER SHARE COMPUTATION
The Company's reported diluted earnings per share of $0.56 and $0.37 for
the six-month periods and $0.27 and $0.20 for the three-month periods ended June
30, 2002 and 2001, respectively, both take into consideration the dilutive
effects of the Company's outstanding common stock equivalents, namely stock
options.
TRADING ASSETS
During the first quarter 2002, the Company opened a trading account for
selected investment securities. These debt or equity securities are held for
resale and classified as trading account securities and reported at fair value.
Realized and unrealized gain or losses are recorded in other income as trading
revenue. As of June 30, 2002, the Company did not have any securities designated
as trading.
NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible Assets. These statements
have resulted in significant modifications relative to the Company's accounting
for goodwill and other intangible assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 must be accounted for under
the purchase method of accounting. SFAS No. 141 was effective upon issuance.
SFAS No. 142 modifies the accounting for all purchased goodwill and intangible
assets. SFAS No. 142 includes requirements to test goodwill and indefinite lived
intangible assets for impairment rather than amortize them. SFAS No. 142 is
effective for fiscal years beginning after December 31, 2001.
The Company adopted SFAS No. 142 on January 2, 2002 and has stopped
amortizing goodwill, thereby eliminating annual amortization expense of
approximately $778,000.
The Company completed the first step of the goodwill transitional
impairment test as of January 1, 2002. Management did not identify any
impairment on its outstanding goodwill.
The following table presents a reconciliation of net income and
earnings-per-share amounts, as reported in the financial statements, to those
amounts adjusted for goodwill and intangible asset amortization determined in
accordance with the provisions of SFAS 142.
For the three months For the six months
(in thousands except for earnings per share amounts) Ended June 30, Ended June 30,
2002 2001 2002 2001
Reported net income $ 2,039 $ 1,431 $ 4,133 $ 2,650
Addback: goodwill amortization - 195 - 389
Adjusted net income $ 2,039 $ 1,626 $ 4,133 $ 3,039
Basic earnings per share
Reported basic earnings per share $0.29 $0.21 $0.59 $0.38
Goodwill amortization - 0.02 - 0.06
Adjusted basic earnings per share $0.29 $0.23 $0.59 $0.44
Diluted earnings per share
Reported diluted earnings per share $0.27 $0.20 $0.56 $0.37
Goodwill amortization - 0.02 - 0.05
Adjusted diluted earnings per share $0.27 $0.22 $0.56 $0.42
ISSUANCE & REDEMPTION OF TRUST PREFERRED SECURITIES
On June 28, 2002, the Company issued through its subsidiary GCB Capital
Trust II, 2,300,000 Trust Preferred Securities, $10 face value for a total
proceeds of $23 million. Subsequently, on July 9, 2002, the underwriters
exercised the option to purchase an additional 100,000 securities to cover the
over-allotment at the face value of $10 for total proceeds of $1.0 million. The
securities have an annual distribution rate of 8.45% payable at the end of each
calendar quarter. The securities mature on June 30, 2032 but are callable at the
option of the Company on or after June 30, 2007.
On July 8, 2002, the Company used the net proceeds form the above
transaction to call the 920,000 securities of 10% Trust Preferred Securities,
$25 face value, issued by the Company in May, 1997. In accordance with GAAP,
upon redemption of the 10% Trust Preferred Securities, the Company wrote-off the
associated unamortized issuance cost of $674,000 after tax, through a charge to
its statement of operations. The said charge to the statement of operations will
be reflected in the calculation of earnings for the third quarter of 2002, the
period in which the redemption occurred. The Company expects the refinancing of
the $23 million, 10% Trust Preferred Securities will reduce the annual pre-tax
interest expense by approximately $350,000.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's consolidated
financial condition as of June 30, 2002 and the results of operations for the
three- and six-month periods ended June 30, 2002 and 2001 should be read in
conjunction with the consolidated financial statements, including notes thereto,
included in the Company's latest annual report on Form 10-K for the fiscal year
ended December 31, 2001, and the other information therein. The consolidated
balance sheet as of June 30, 2002 and the statements of operations and cash
flows for the six months ended June 30, 2002 and 2001 are unaudited but include,
in the opinion of the management, all adjustments considered necessary for a
fair presentation of such data. As used herein, the term "Company" refers to
Greater Community Bancorp and subsidiaries, the term "Subsidiary Banks" refers
to Greater Community Bank (GCB), Bergen Commercial Bank (BCB) and Rock Community
Bank (RCB), and the term "Trust" refers to GCB Capital Trust and GCB Capital
Trust II. Unless otherwise indicated, data is presented for the Company and its
Subsidiaries in the aggregate. Unless otherwise indicated, all dollar figures in
the tables below, except for per share data, are set forth in thousands.
PURPOSE OF DISCUSSION AND ANALYSIS
The purpose of this analysis is to provide you with information relevant to
understanding and assessing the Company's financial condition and results of
operations for the three months and six months ended June 30, 2002. In order to
appreciate this analysis more fully you are encouraged to review the
consolidated financial statements and statistical data presented in this report
and in the MD&A section of the Company's Form 10-K for the year ended December
31, 2001.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q, both in this MD&A section and elsewhere, includes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are not historical facts. They
include expressions about management's confidence and strategies and its
expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by an asterisk (*) or such forward-looking terminology as "expect",
"look", "believe", "anticipate", "may", "will" or similar statements or
variations of such terms. Such forward-looking statements involve certain risks
and uncertainties. These include, but are not limited to, the ability of the
Company's Subsidiary Banks to generate deposits and loans and attract qualified
employees, the direction of interest rates, continued levels of loan quality and
origination volume, continued relationships with major customers including
sources for loans, as well as the effects of economic conditions, legal and
regulatory barriers and structure, and competition. Actual results may differ
materially from such forward-looking statements. The Company assumes no
obligation for updating any such forward-looking statement at any time.
Business Overview
The Company is registered with the Federal Reserve Board as a financial
holding company. Its primary business is banking, which it conducts in northern
New Jersey through its three wholly-owned New Jersey Subsidiary Banks.
The Company is a diversified financial services company operating retail
banking, securities brokerage, and equipment leasing businesses that provide
products and services in the Company's primary geographic markets in northern
counties of New Jersey and expanding. Through Highland Capital Corp., one of the
Company's wholly-owned nonbank subsidiaries, the Company is also engaged in the
business of leasing equipment to small and mid-size businesses in New Jersey and
contiguous states. Another wholly-owned nonbank subsidiary, Greater Community
Financial, L.L.C., engages in the business of securities broker-dealer.
Financial services providers as of late are challenged by intense
competition, changing customer demands, increased pricing pressures and the
ongoing impact of deregulation. This is more so for traditional loan and deposit
services due to continuous competitive pressures as both banks and non-banks
compete for customers with a broad array of banking, investments and capital
market products.
The Company has made an effort to meet these challenges by providing highly
focused personalized customer service, which provides a basis for differential
in today's environment where banks and other financial service providers target
the same customer. To leverage new technology, the Company responded with the
formation of e-commerce services through the World Wide Web. As a result, an
Internet banking product was introduced for retail customers. The Company
launched a cash management product through its internet banking for its
commercial customers as well.
The Company's expansion effort of its branch network into Morris County,
New Jersey was well-received and encourages our further expansion into that
county. The Company's funding strategy, based on remixing of deposits toward
lower cost core deposits, has been equally successful.
EARNINGS SUMMARY
Net income for the first six months of 2002 was $4.1 million or $0.56 per
diluted share, a 56.0% increase over $2.7 million or $0.37 per diluted share
earned in the first six months of 2001.
Net Income for the second quarter of 2002 was $2.0 million or $0.27 per
diluted share, a 42.5% increase over $1.4 million or $0.20 per diluted share
earned in the second quarter of 2001.
The increase in net income for the six- and three-month periods ending June
30, 2002, was in large part due to decreasing yields on paying liabilities.
The annualized returns on average equity (ROE) and average assets (ROA) for
the first six months of 2002 were 17.4% and 1.23%, respectively, compared with
14.8% and 0.97% for the same period in prior year excluding the amortization of
goodwill. For the second quarter of 2002, the ROE and ROA were 16.8% and 1.20%,
respectively, compared with 15.5% and 1.03% for the prior year second quarter.
Net Interest Income
Six-Month Comparison: Net interest income is the largest source of the
Company's operating income. Net interest income (before income tax effect) for
the six months ended June 30, 2002 increased by $2.2 million (20.6%) to $13.0
million from $10.8 million for the six months ended June 30, 2001. In spite of
the increase in average earning assets, total interest income decreased 5.2% to
$20.5 million, while total interest expense decreased 30.8% to $7.5 million.
Interest income on loans decreased moderately while the interest income on
investment securities and federal funds sold and deposits with other banks
decreased by $232,000 and $865,000, respectively, due to declining yields.
Three Month Comparison: Net interest income for the three months ended June
30, 2002 increased by $1.2 million (22.9%) to $6.7 million compared to the three
months ended June 30, 2001. Although total interest income for the period
decreased by $443,000 to $10.4 million, it was more than offset by a decrease of
$1.7 million (31.6%) in interest paid on paying liabilities. Interest income on
loans decreased moderately while the interest income on federal funds sold and
deposits with other banks decreased by $451,000 due to a combination of
decreases in quarterly average balance and yield. Interest income on investment
securities increased moderately.
The Company's net interest margin increased by 61 basis points to 4.24%,
compared with 3.63% in the same period of the prior year. This was a result of
lower cost of funds and an asset-liability maturities mix that was positioned to
benefit from regulatory easing of interest rates in 2001.
Other Income
Non-interest income continues to represent a considerable source of income
for the Company. Excluding the gain on sale of securities, total non-interest
income increased by $347,000 to $3.3 million for the six months ended June 30,
2002, compared to the same period in 2001. The increase for the second quarter
of 2002 (also excluding the gain on sale of investment securities) was $84,000
to $1.6 million, compared to the second quarter of 2001. The increases are
primarily attributable to increases in leasing income and all other income.
Other Expenses
Total other expenses increased by $954,000 (10.3%) to $10.3 million, for
the six months ended June 30, 2002 compared to the same period in 2001. Total
other expenses increased by $603,000 (12.9%) to $5.3 million for the three
months ended June 30, 2002 compared to the same period in 2001.
The largest component of other expenses, salaries and employee benefits,
increased by $413,000 (17.4%) to $2.8 million, and by $696,000 (14.6%) to $5.5
million, for the three months and six months ended June 30, 2002, respectively,
over the comparable 2001 periods. These increases represent general salary
increases and increases in health benefits costs.
The second largest component of other expenses, occupancy and equipment
expense, increased by $40,000 (5.3%) and $26,000 (1.7%) for the three months and
six months ended June 30, 2002, respectively, over the comparable 2001 periods.
The majority of such increases are related to an increase in rental expense
resulting from the addition of a bank branch in 2002.
As a result of the application of SFAS No. 142, amortization of intangible
assets decreased 100% by $195,000 and $389,000 during the three- and six-month
periods ending June 30, 2002 compared to the prior year.
All other operating expenses for the second quarter of 2002 increased by
$193,000 compared to the second quarter of 2001. All other operating expenses
for the six months ended June 30, 2002 were $318,000 higher than for the first
six months of 2001. The increases in all other operating expenses are in part
due to the growth of the Company.
Provision for Loan Losses
The provision for loan losses increased moderately for both the three and
six months ended June 30, 2002, relative to the same periods of 2001. The
increases are primarily due to the increase in average loan portfolio.
Provision for Income Taxes
The provision for income taxes for the three and six months ended June 30,
2002 was $918,000 and $1.9 million, a 31% effective tax rate, compared to
$725,000 and $1.4 million, a 34% effective tax rate, for the same periods in
2001.
The decrease in the effective tax rate for the three- and six- month
periods is attributable to the tax advantageous bank-owned life insurance income
and the elimination of non-deductible goodwill amortization.
FINANCIAL CONDITION
ASSETS
Between December 31, 2001 and June 30, 2002 total assets increased by $60.2
million to $721.1 million. Although the majority of the increase is attributable
to the growth of the Company, particularly in loans, cash and cash equivalents,
and investment securities, $23.0 million of the increase is attributable to the
receipt late in June, 2002 of the proceeds from issuance of 8.45% trust
preferred securities prior to the redemption in early July, 2002 of $23.0
million of 10.0% trust preferred securities issued in 1997.
Loans -- Asset Quality and Allowance for Possible Loan Losses
Gross loans increased from December 31, 2001 to June 30, 2002 by $13.4
million to $426.2 million. Such increase resulted primarily from internal
growth.
The following table reflects the composition of the gross loan portfolio as
of June 30, 2002 and December 31, 2001.
June 30, 2002 December 31,
2001
Loans secured by Residential Properties
One-to-four family $147,988 $ 146,450
Multifamily 12,663 13,039
Loans secured by nonresidential properties 192,758 181,959
Loans to individuals 6,296 8,491
Commercial loans 35,572 38,467
Construction loans 15,572 14,054
Lease financing receivable 14,415 8,688
Other loans 896 1,643
_________ ________
Total gross loans $426,160 $412,791
_________ ________
Nonperforming Assets
Nonperforming assets include nonaccrual loans and other real estate owned
(OREO). At June 30, 2002, total nonperforming assets totaled $1.7 million (0.41%
of total gross loans), decreased from $2.1 million (0.52% of total gross loans)
at December 31, 2001. Nonaccrual loans at June 30, 2002 were $760,000 or 0.18%
of total loans, as compared to $1.4 million or 0.33% of total loans at December
31, 2001. The decrease in nonaccrual loans is a result of loans being classified
to current status. Loans past due 90 days or more and still accruing at June 30,
2002 increased to $291,000 compared to $34,000 at December 31, 2001, primarily
as a result of reclassification.
Other real estate owned was $161,000 at June 30, 2002, a decrease of
$14,000 from OREO at December 31, 2001.
The following table sets forth the composition of the Company's
non-performing assets and related asset quality ratios as of the dates
indicated. All of such assets were domestic assets since the Company had no
foreign loans.
June 30, December 31,
2002 2001
Nonaccruing loans $ 760 $1,373
Renegotiated loans 522 545
_______ _______
Total nonperforming loans 1,282 1,918
Loans past due 90 days and accruing 291 34
Other real estate 161 175
Total nonperforming assets $1,734 $2,127
Asset Quality Ratios
Nonperforming loans to total gross loans 0.30% 0.46%
Nonperforming assets to total gross loans 0.41% 0.52%
Nonperforming assets to total assets 0.24% 0.32%
Allowance for loan losses to
nonperforming loans 511.54% 329.51%
During the six months ended June 30, 2002, gross interest income of $20,000
would have been recorded on loans accounted for on a nonaccrual basis if the
loans had been current throughout the period.
Impaired Loans - In accordance with SFAS No. 114, the Company utilizes the
following information when measuring its allowance for loan losses. A loan is
considered impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of nonaccruing loans where situations
exist which have reduced the probability of collection in accordance with
contractual terms.
As of June 30, 2002 the Company's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
June 30, December 31,
2002 2001
Impaired loans -
Recorded investment $ 514 $ 1,164
Valuation allowance $ 302 $ 485
This valuation allowance is included in the allowance for loan losses on
the Company's consolidated balance sheet.
The average recorded investment in impaired loans for the six-month period
ended June 30, 2002 was $734,000 compared to $1.3 million at December 31, 2001.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful in
which event payments received are recorded as reductions of principal. The
Company recognized interest income on impaired loans of $80,000 for the
six-month period ended June 30, 2002.
Analysis of the Allowance for Loan Losses
Between December 31, 2001 and June 30, 2002, the allowance for loan losses
increased by $238,000 (3.8%) to $6.6 million, which constituted 1.54% and 1.53%
of gross loans on June 30, 2002 and December 31, 2001, respectively. The
provision for loan losses added $438,000 for the six-month period, while the net
chargeoffs were $201,000. Management believes the allowance for loan losses at
June 30, 2002 of $6.6 million or 378.20% of nonperforming assets, is adequate.
The following table represents transactions affecting the allowance for
loan losses during the six-month periods ended June 30, 2002 and 2001.
2002 2001
------ -------
Balance at beginning of period, January 1, $6,320 $5,657
Charge-offs:
Commercial, financial and agricultural 159 72
Lease financing receivables 11 0
Real estate--mortgage 47 0
Installment loans to individuals 0 7
Credit cards and related plans 28 21
------ -------
245 100
Recoveries:
Commercial, financial and agricultural 34 7
Lease financing receivables 0 0
Real estate--mortgage 0 3
Installment loans to individuals 7 5
Credit cards and related plans 3 5
------ ------
44 20
Net charge-offs 201 80
Provision charged to operations
during the six-month period 438 415
Balance at end of period, June 30, $6,557 $5,992
Ratio of net charge-offs during
the three-month period to average loans
outstanding during the period .05% .02%
Investment Securities
Securities increased by a net amount of $24.6 million from December 31,
2001 to June 30, 2002. The increase resulted from $78.3 million of purchases of
additional securities offset by $53.7 million in maturities and sales during the
first six months. Of the total increase, securities available for sale increased
by $22.9 million and securities held to maturity increased by $1.7 million.
Cash
Cash and cash equivalents increased by $19.5 million (41.5%) to $66.5
million between December 31, 2001 and June 30, 2002. Almost all of such increase
is attributable to federal funds sold, primarily due to the proceeds from the
sale of Trust Preferred Securities.
LIABILITIES
Between December 31, 2001 and June 30, 2002, total liabilities increased by
$57.0 million to $671.7 million. The increase is primarily attributable to a
$43.5 million increase in total deposits coupled with a $23.0 million increase
in guaranteed preferred beneficial interest in the company's subordinated debt,
only partially offset by a small decrease in other liabilities.
Deposits
Total deposits increased by $43.5 million to $528.1 million. Such increase
is primarily attributable to new deposit products marketed during the year by
the Subsidiary Banks and the addition of a new branch office early in the year.
Of the total increase, non-interest-bearing, interest-bearing deposits and
savings deposits increased by $22.0 million, $19.7 million and $20.4 million,
respectively. The aforementioned increases in various components of deposits
were partially offset by a decrease of $18.6 million in time deposits.
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
On June 28, 2002, GCB Capital Trust II (the Trust II) was formed for the
purpose of issuing Trust Preferred Securities. Accordingly, the company through
the Trust II issued 2,300,000 Trust Preferred Securities, $10 face value for a
total proceeds of $23.0 million. The securities have an annual distribution rate
of 8.45% payable at the end of each calendar quarter. The securities mature on
June 30, 2032 but are callable at the option of the Company on or after June 30,
2007. The Company used the net proceeds from the above transaction to call the
920,000 shares of 10% Trust Preferred Securities, $25 face value, issued by the
Company in May of 1997. The redemption of such securities occurred on July 8,
2002.
CAPITAL ADEQUACY, REGULATORY CAPITAL RATIOS AND DIVIDENDS
The Company is subject to regulation by the Board of Governors of the
Federal Reserve System (Federal Reserve Board). The Subsidiary Banks are subject
to regulation by both the Federal Deposit Insurance Corporation (FDIC) and the
New Jersey Department of Banking and Insurance (Department). Such regulators
have promulgated risk-based capital guidelines which require the Company and the
Subsidiary Banks to maintain certain minimum capital as a percentage of their
assets and certain off-balance sheet items adjusted for predefined credit risk
factors (risk-adjusted assets).
Total shareholders' equity of $49.4 million at June 30, 2002 was 6.9% of
total assets, an increase of $3.3 million compared with $46.1 million or 8.6% of
total assets at December 31, 2001. The Company and the Subsidiary Banks remain
well-capitalized for regulatory purposes and management believes present capital
is adequate to support contemplated future internal growth.
The following table sets forth selected regulatory capital ratios for the
Company and the Subsidiary Banks and the required minimum regulatory ratios at
June 30, 2002:
To Be Well
Capitalized under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provision
------------------ --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ --------- ------- --------- -------
Total capital (to risk weighted assets)
Greater Community Bancorp $ 65,353 13.98% $ 37,396 8.00% N/A N/A
Greater Community Bank 33,189 11.65% 22,783 8.00% 28,479 10.00%
Bergen Commercial Bank 14,204 10.03% 11,326 8.00% 14,158 10.00%
Rock Community Bank 5,185 22.02% 1,884 8.00% 2,354 10.00%
Tier 1 Capital (to risk weighted assets)
Greater Community Bancorp 50,341 10.77% 16,698 4.00% N/A N/A
Greater Community Bank 29,620 10.40% 11,392 4.00% 17,087 6.00%
Bergen Commercial Bank 12,432 8.78% 5,663 4.00% 8,495 6.00%
Rock Community Bank 4,890 20.77% 942 4.00% 1,413 6.00%
Tier 1 Capital (to average assets)
Greater Community Bancorp 50,341 7.52% 26,774 4.00% N/A N/A
Greater Community Bank 29,620 6.90% 17,170 4.00% 21,462 5.00%
Bergen Commercial Bank 12,432 6.58% 7,557 4.00% 9,446 5.00%
Rock Community Bank 4,890 14.20% 1,378 4.00% 1,722 5.00%
During the last three quarters of 2001 and the first quarter of 2002 the
Company declared cash dividends at the rate of $0.085 per share, or an annual
rate of $0.34 per share. During the second quarter of 2002 the Company increased
the declared quarterly dividend by 17.6% to $0.10 per share, or an annual
dividend rate of $0.40 per share. The Company's payment of a 5% stock dividend
during the second quarter of 2002 had the effect of further increasing the
annual dividend rate by 5%. The Company's Board of Directors continues to
believe that cash dividends are an important component of shareholder value and
that at its current level of performance and capital, the Company expects to
continue its current dividend policy of quarterly cash dividends to its
shareholders.
Some Specific Factors Affecting Future Results of Operations
Future movement of interest rates cannot be predicted with certainty.
However, in all of year 2001 the Company, along with other financial
institutions, felt the effect of weakening economy coupled with several
reductions in short-term interest rates. The lowering of interest rates in 2001
has fully taken effect on repricing of Company's paying liabilities thereby
resulting in an improved net interest margin and results of operations. Interest
rate sensitivities of the Company's assets and liabilities are such that further
increase or decrease in interest rates over the next 12 months would not have a
major impact on net interest margin or on future results of operations. However,
because overall future performance is dependent on many other factors, past
performance is not necessarily an indication of future results and there can be
no guarantee regarding future overall results of operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's assessment of its
sensitivity to market risk since its presentation in its 2001 Form 10-K filed
with Securities and Exchange Commission.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company and its subsidiaries are parties in the ordinary course of
business to litigation involving collection matters, contract claims and other
miscellaneous causes of action arising from their business. Management does not
consider that any such proceedings depart from usual routine litigation, and in
its judgement neither the Company's consolidated financial position nor its
results of operations will be affected materially by any present proceedings.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
See Item 4, Part II, of Form 10-Q for quarter ended March 31, 2002, with
respect to the Annual Meeting of Stockholders held on April 16, 2002.
Item 5 - Other information
Certification Under Sarbanes-Oxley Act
Our chief executive officer and chief financial officer have furnished to
the SEC the certification with respect to this Report that is
required by Section 906 of the Sarbanes-Oxley Act of 2002.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
An exhibit index has been filed as part of this report on page E-1 and is
incorporated by reference.
(b) Reports on Form 8-K.
On July 29, 2002, the Company filed a Form 8-K with the
Securities and Exchange Commission reporting the second quarter
2002 earnings.
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.
GREATER COMMUNITY BANCORP
(Registrant)
Date: August 14, 2002 By: /s/Naqi A. Naqvi
Naqi A. Naqvi, Treasurer & CFO
(Duly Authorized Officer and
Principal Financial Officer)
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-Q
For the quarter ended June 30, 2002
Commission File No. 0-14294
Greater Community Bancorp
- -------------------------------------------------------------------------------
E-1
Exhibit Index
Certain of the following exhibits, as indicated parenthetically, were
previously filed as exhibits to registration statements filed by Greater
Community Bancorp under the Securities Act of 1933, as amended, or to reports or
registration statements filed by Greater Community Bancorp under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), respectively, and are
hereby incorporated by reference to such statements or reports. Greater
Community Bancorp's Exchange Act filing number is 0-14294.
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.4 to Form
10-QSB for the quarter ended June 30, 1998, filed on August
14, 1998).
3.2 Bylaws of the Company as amended and restated effective
December 16, 1997 (incorporated by reference to Exhibit 3 to
Form 10-KSB for the year ended December 31, 1997, filed on
March 23, 1998).
4.1 Junior Subordinated Indenture between the Company and
Deutsche Bank Trust Company Americas as Trustee, dated June
28, 2002 (incorporated by reference to Exhibit 4.1 of
Exhibits to Form S-3 Registration Statement filed by GCB
Capital Trust II and Greater Community Bancorp under the
Securities Act of 1933, Registration Nos. 333-89050,
333-89050-01, filed May 24, 2002).
4.4 Amended and Restated Trust among Greater Community
Bancorp as Depositor, Deutsche Bank Trust Company Americas
as Property Trustee, and Deutsche Bank Trust Company
(Delaware) as Delaware Trustee, dated May
24, 2002 (incorporated by reference to Exhibit 4.4 of
Exhibits on Form S-3 Registration Statement filed
by GCB Capital Trust II and Greater Community Bancorp
under the Securities Act of 1933, Registration
Nos. 333-89050, 333-89050-01, filed May 24, 2002).
4.6 Guarantee Agreement between Greater Community Bancorp
(as Guarantor) and Deutsche Bank Trust Company
Americas (as Trustee) dated June 28, 2002 (incorporated
by reference to Exhibit 4.6 of Exhibits to Form
S-3 Registration Statement filed by GCB Capital Trust II
and Greater Community Bancorp under the
Securities Act of 1933, Registration Nos. 333-89050,
333-89050-01, filed May 24, 2002).
10.1 Employment Agreement of George E. Irwin dated July 31, 1998
(incorporated by reference to Exhibit 10.1
to Form 10-KSB for the year ended December 31, 1998, filed
on March 17, 1999).
10.2 Employment Agreement of C. Mark Campbell dated July 31,
1998 (incorporated by reference to Exhibit 10.2
to Form 10-KSB for the year ended December 31, 1998, filed
on March 17, 1999).
10.3 Employment Agreement of Erwin D. Knauer dated July 1, 1999
(incorporated by reference to Exhibit 10.3
to Form 10-Q for quarter ended September 30, 1999).
10.4 Executive Supplemental Retirement Income Agreement
for George E. Irwin dated as of January 1, 1999
among Great Falls Bank, George E. Irwin and Greater
Community Bancorp (as guarantor) (incorporated by
reference to Exhibit 10.4 to Form 10-K for the year ended
December 31, 1999).
10.5 Executive Supplemental Retirement Income Agreement for
C. Mark Campbell dated as of January 1, 1999
among Bergen Commercial Bank, C. Mark Campbell and
Greater Community Bancorp (as guarantor)
(incorporated by reference to Exhibit 10.5 to Form 10-K for
the year ended December 31, 1999)
10.6 Greater Community Bancorp 2001 Employee Stock Option Plan
Adopted February 20, 2001 (incorporated by
reference to Exhibit 10.6 to Form 10-K for the year ended
December 31, 2000).
10.7 Greater Community Bancorp 2001 Stock Option Plan for
Nonemployee Directors Adopted February 20, 2001
(incorporated by reference to Exhibit 10.7 to Form 10-K for
the year ended December 31, 2000).