UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to______________
Commission file number 0-14294
Greater Community Bancorp
(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 942-1111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NASDAQ National Market
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.50 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.
YES |X| NO |_|
The aggregate market value of the voting common stock held by
non-affiliates of the registrant at February 28, 2003 was approximately
$93,779,577. This calculation does not reflect a determination that persons are
affiliates for any other purpose.
The number of shares outstanding of the registrant's common stock as of
February 28, 2003 was 7,042,504.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2003 Annual Meeting of Stockholders to be held on April 15, 2003 is incorporated
by reference into Part III, Items 10 through 13, inclusive.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
Index to Form 10-K for December 31, 2002
PART I PAGE NO.
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 7
Item 3. Legal Proceedings................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders............... 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 8
Item 6. Selected Financial Data........................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 9
Item 7a. Quantitative and Qualitative Disclosures about Market Risk........ 24
Item 8. Financial Statements.............................................. 25
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 49
PART III
Item 10. Directors and Executive Officers of the Registrant................ 49
Item 11. Executive Compensation............................................ 49
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 49
Item 13. Certain Relationships and Related Transactions.................... 49
Item 14 Controls and Procedures........................................... 49
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 50
SIGNATURES................................................................. 51
CERTIFICATION.............................................................. 52
EXHIBIT INDEX.............................................................. E-1
PART I
Item 1 BUSINESS
THE HOLDING COMPANY
Greater Community Bancorp (the "Company") is a business corporation
incorporated in New Jersey in 1984. It is registered as a bank holding company
with the Board of Governors of the Federal Reserve System ("Federal Reserve")
under the Federal Bank Holding Company Act of 1956, as amended ("Holding Company
Act"). In December, 2001 the Company filed a declaration with the Federal
Reserve to be designated as a "financial holding company" pursuant to the
Gramm-Leach-Bliley Act of 1999 (the "1999 Act"). The 1999 Act permits a bank
holding company to qualify as a financial holding company and expand into a wide
variety of services that are financial in nature, provided that its subsidiary
depository institutions are well-managed, well-capitalized and have received a
"satisfactory" rating on their last Community Reinvestment Act examination. The
Federal Reserve accepted the Company's declaration shortly after it was filed.
(See "SUPERVISION AND REGULATION -- Financial Holding Company Regulation"
below.)
The Company's primary business activity is the ownership and operation of
its three New Jersey commercial bank subsidiaries, Greater Community Bank
("GCBank"), Bergen Commercial Bank ("BCB") and Rock Community Bank ("RCB") (the
"Bank Subsidiaries"), and its nonbank subsidiaries.
During 2002, the Company continued to grow in both assets and earnings in
an increasingly competitive and volatile environment. As of December 31, 2002,
the Company's consolidated assets were $719.9 million, as compared with
consolidated assets of $660.8 million at December 31, 2001. Earnings for the
full year 2002 were $7.5 million or $1.01 per diluted share ($1.07 per basic
share), up from $6.1 million or $0.83 per diluted share ($0.87 per basic share)
in 2001. The Company declared total cash dividends of $0.38 per share and $0.31
per share during 2002 and 2001, respectively.
BANK SUBSIDIARIES
GCBank received its charter from the New Jersey Department of Banking &
Insurance (the "Department") in 1985 and commenced operations as a commercial
bank in 1986. Its main office is located at 55 Union Boulevard, Totowa, New
Jersey. During 2001, GCBank had six additional branches, all of which are
located in Passaic County, New Jersey. Three branches are located in Little
Falls, two in Clifton, and a sixth at 100 Furler Street, Totowa. Effective
February 2002, a seventh branch was established in Lincoln Park, Morris County,
New Jersey. GCBank conducts a general commercial and retail banking business
encompassing a wide range of traditional deposits and lending functions. It
offers a broad variety of lending services, including commercial and residential
real estate loans, short and medium term loans, revolving credit arrangements,
lines of credit and consumer installment loans. In the depository area, GCBank
offers a broad variety of deposit accounts, including consumer and commercial
checking accounts and NOW accounts. It also offers other customary banking
services.
BCB was incorporated in New Jersey in 1987 and commenced banking
operations in 1988. BCB concentrates its operations in commercial lending and
loan origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. BCB also offers other
customary banking services. BCB's main office is located at Two Sears Drive in
Paramus, New Jersey. BCB has five additional branch offices in Bergen County,
located in Hasbrouck Heights, Wood-Ridge, Wallington, Hackensack and Little
Ferry.
GCBank and BCB each has a wholly-owned investment company subsidiary, a
New Jersey corporation, formed to manage their respective investment portfolios.
Each of the investment companies in turn has a wholly-owned Delaware subsidiary
that holds and manages its investment securities.
RCB commenced its banking operations in 1999. Its sole office is located
at 175 Rock Road in Glen Rock, New Jersey. It primarily services Bergen County.
RCB offers a variety of banking services, including commercial and real estate
lending, revolving credit arrangements and consumer loans. It also offers
traditional deposit services and other customary banking services.
NONBANK SUBSIDIARIES
The Company owns four nonbank subsidiaries. GCB Realty, L.L.C. ("Realty")
is a New Jersey limited liability company located in Totowa, New Jersey. Its
purposes are to acquire and manage real estate properties. Realty owns a
property in Bergen County, New Jersey. BCB and five other tenants lease space in
the building.
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Highland Capital Corp. ("HCC"), a wholly-owned nonbank subsidiary of
GCBank engages in commercial equipment leasing focusing on small ticket and
lower or middle market leases for resale to third parties.
GCB Capital Trust II (the "2002 Trust") was formed in 2002 under the
Business Trust Act of Delaware. The 2002 Trust's sole purposes were to issue and
sell Trust Preferred Securities ("Preferred Securities") and Common Securities
and use the sales proceeds to acquire Junior Subordinated Debentures (the
"Debentures") issued by the Company. The Company owns all of the 2002 Trust's
Common Securities. The Debentures are the 2002 Trust's sole assets and the
Company's interest payments on the Debentures are the 2002 Trust's sole revenue.
On June 28, 2002 the Company issued, through the 2002 Trust, 2,300,000 Preferred
Securities, $10 face value per security, for total proceeds of $23 million. On
July 9, 2002 the underwriters exercised their overallotment option to buy an
additional 100,000 Preferred Securities at the face value of $10 for total
proceeds of $1.0 million. The Preferred Securities have an annual distribution
rate of 8.45% payable quarterly. The Preferred Securities mature on June 30,
2032 but are callable at the Company's option on or after June 30, 2007. On July
8, 2002, the Company used the net proceeds from the above transaction to call
the 920,000 securities of 10% Trust Preferred Securities, $25 face value ("10%
Preferreds"), issued by the Company in 1997. Upon redemption of the 10%
Preferreds, the Company wrote-off the associated unamortized issuance cost of
$674,000 after taxes $348,000, through a charge to its statement of income. Such
charge was reflected in the calculation of earnings for the third quarter of
2002. The refinancing of the $23 million in 10% Preferreds will reduce annual
pre-tax interest expense by approximately $350,000.
Greater Community Services, Inc. provides accounting/bookkeeping, data
processing and management information systems, loan operations and various other
banking-related services at cost to the Bank Subsidiaries.
Greater Community Financial, LLC ("GCF") is a New Jersey limited liability
company located in Clifton, New Jersey. GCF engages in the business of
securities broker and dealer. The Board of Directors of the Company has decided
to change the method of delivery of brokerage services to Greater Community
Financials customers. Management is actively pursuing a relationship with a
third party provider to function as the registered broker/dealer for GCF's
operations. At this time, details have not been finalized nor has the third
party provider been identified.
RECENT LEGISLATION
Federal legislation enacted in mid-2002 is now having, and will in the
future have, a great impact on the corporate governance and financial statement
preparation and reporting obligations of publicly held business entities such as
the Company. Known as the Sarbanes-Oxley Act of 2002, this legislation contains
far-reaching requirements relating to, among other things: certifications by an
issuer's principal officers relating to the accuracy of financial disclosures
and disclosure controls and procedures; the independence of auditors; the
composition, specific duties and independence of audit committees of boards of
directors; the manner in which audit committees obtain and process financial and
related information; acceleration, over a period of years, of the time within
which issuers must file annual and quarterly reports; an increase in the events
required to be reported currently; and a dramatic acceleration of the time
within which an issuer's "insiders" must report changes in beneficial ownership
of the issuer's securities. The Company expects that compliance with this
legislation will be time-consuming and expensive.
COMPETITION
The Company, through the Bank Subsidiaries, competes with other New Jersey
commercial banks, savings banks, savings and loan associations, finance
companies, insurance companies and credit unions. A substantial number of
offices of competing financial institutions are located within the Bank
Subsidiaries' respective market areas. The past trend towards consolidation of
the banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Bank Subsidiaries to
compete with larger national and regional banking institutions. Several of the
Bank Subsidiaries' competitors are affiliated with major banking and financial
institutions that are substantially larger and have far greater financial
resources than the Bank Subsidiaries.
Competitive factors between financial institutions can be classified into
two categories: competitive rates and competitive service. Rate competition is
intense especially in the area of time deposits. The Bank Subsidiaries compete
with larger institutions with respect to the interest rates they offer. From a
service standpoint, the Bank Subsidiaries' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Bank Subsidiaries. Such competitors also perform certain functions for their
customers, such as trust and international services, which the Bank Subsidiaries
have chosen not to provide.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory
controls increase a bank holding company's cost of doing business, limit its
management's options to deploy assets and maximize income and may significantly
limit the activities of institutions which do not meet regulatory capital or
other requirements. Areas subject to regulation and supervision by the bank
regulatory agencies include, among others: minimum capital levels; dividends;
affiliate transactions; expansion of locations; acquisitions and mergers;
reserves against deposits; deposit insurance premiums; credit underwriting
standards; management and
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internal controls; investments; and general safety and soundness of banks and
bank holding companies. Supervision, regulation and examination of the Company
and the Bank Subsidiaries by the bank regulatory agencies are intended primarily
for the protection of depositors, the communities served by the institutions or
other governmental interests, rather than for holders of stock of the Company
The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank Subsidiaries. A number of other
statutes and regulations and governmental policies have an impact on their
operations. The Company is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
control or new federal or state legislation may have in the future. The
following summary does not purport to be complete and is qualified in its
entirety by reference to such statutes and regulations.
Bank Holding Company Regulation
During 2002 the Company continued to be registered as a bank holding
company also classified as a financial holding company under the Holding Company
Act. As such, it is subject to regular examination, supervision and regulation
by the Federal Reserve. The Company is required to file reports with the Federal
Reserve and to furnish such additional information as the Federal Reserve may
require pursuant to the Holding Company Act. The Company also is subject to
regulations by the Department.
A policy of the Federal Reserve requires the Company to act as a source of
financial and managerial strength to the Bank Subsidiaries and to commit
resources to support them. In addition, any loans by the Company to the Bank
Subsidiaries would be subordinate in right of payment to deposits and certain
other indebtedness of the Bank Subsidiaries. At December 31, 2002 the Company
had approximately $13.4 million in financial resources in addition to its
investment in the Bank Subsidiaries and nonbank subsidiaries. The Federal
Reserve has adopted guidelines regarding the capital adequacy of bank holding
companies that require them to maintain specified minimum ratios of capital to
total assets and capital to risk-weighted assets.
Holding Company Activities
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
nonbank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The Company's activities are subject to these legal and regulatory limitations
under the Holding Company Act and related Federal Reserve regulations.
Satisfactory capital ratios and Community Reinvestment Act ("CRA") ratings are
generally prerequisites to obtaining regulatory approval to make acquisitions.
The Federal Interstate Banking and Branching Act of 1994 permits a bank
holding company to acquire banks in states other than its home state, regardless
of applicable state law. The 1994 law also permits banks to create interstate
branches, either by merging across state lines or by creating new branches,
subject to a state's ability to opt out of these enabling provisions. As have
most states, New Jersey has enacted legislation to authorize interstate banking
either by merger or by branching into New Jersey if the foreign bank already has
branches in New Jersey; however, that legislation did not authorize de novo
branching into New Jersey.
Holding Company Dividends and Stock Repurchases
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. It is the Federal Reserve's view that
a bank holding company should pay cash dividends only to the extent that its net
income for the past year is sufficient to cover both the cash dividends and a
rate of earnings retention that is consistent with its capital needs, asset
quality and overall financial condition.
As a bank holding company, the Company is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive or any condition imposed by or
written agreement with the Federal Reserve.
Financial Holding Company Regulation
The Gramm-Leach-Bliley Act of 1999 ("1999 Act") removed long-standing
legal barriers separating banks and securities firms, and facilitates
affiliations of securities firms, insurance companies and banks. As a "financial
holding company" effective in January, 2002, the Company may engage in any
activity that the Federal Reserve determines to be financial in nature or
incidental to such
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financial activity, or is complementary to a financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions or
the financial system generally. The 1999 Act provides that the following
activities shall be considered to be financial in nature: (a) lending,
exchanging, transferring, investing for others or safeguarding money or
securities; (b) insuring, guaranteeing or indemnifying against loss, harm,
damage, illness, disability or death, or providing and issuing annuities, and
acting as principal, agent or broker for purposes of the foregoing, in any
State; (c) providing financial, investment or economic advisory services,
including advising an investment company; (d) issuing or selling instruments
representing interests in pools of assets permissible for a bank to hold
directly; (e) underwriting, dealing in or making a market in securities; (f)
engaging in any activity that the Federal Reserve has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto; (g) engaging in the United States in any activity that a bank
holding company may engage in outside of the United States that the Federal
Reserve has determined to be usual in connection with the transaction of banking
or other financial operations abroad; (h) engaging through non-bank subsidiaries
in various underwriting or merchant or investment banking activities; and (i)
acquiring investment assets through insurance company affiliates in the ordinary
course of an insurance company business.
Bank Regulation
As state-chartered banks that are not members of the Federal Reserve
System, the Bank Subsidiaries are subject to the primary federal supervision of
the FDIC under the Federal Deposit Insurance Act (the "FDIA"). Prior approval of
the FDIC is required for the Bank Subsidiaries to establish or relocate a branch
office or to engage in any merger, consolidation or significant purchase or sale
of assets. The Bank Subsidiaries are also subject to regulation and supervision
by the Department. In addition, they are subject to numerous federal and state
laws and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the
respective Bank Subsidiaries and their condition, including capital adequacy,
reserves, loans, investments and management practices. These examinations are
for the protection of the Bank Subsidiaries' depositors and the Bank Insurance
Fund ("BIF") and not the Company. The Bank Subsidiaries are also required to
furnish quarterly and annual reports to the FDIC. The FDIC's enforcement
authority includes the power to remove officers and directors and the authority
to issue orders to prevent a bank from engaging in unsafe or unsound practices
or violating laws or regulations governing its business.
The FDIC has adopted regulations regarding the capital adequacy of banks
subject to its primary supervision. Such regulations require those banks to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See "Regulatory Capital Requirements".
Statewide branching is permitted in New Jersey. Branch approvals are
subject to statutory standards relating to safety and soundness, competition,
public convenience and CRA performance.
Community Reinvestment Act
Under the CRA, the Subsidiary Banks have a continuing and affirmative
obligation, consistent with their safe and sound operation, to help meet the
credit needs of their entire communities, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. GCBank and BCB
received "satisfactory" CRA ratings in their most recent examinations.
Bank Dividends
New Jersey law permits the Bank Subsidiaries to declare dividends only if,
after payment of the dividends, their capital would be unimpaired and their
remaining surplus would equal at least 50% of their capital. Under the FDIA, the
Bank Subsidiaries are prohibited from declaring or paying dividends or making
any other capital distribution if, after that distribution, they would fail to
meet their regulatory capital requirements. At December 31, 2002, the Bank
Subsidiaries met their regulatory capital requirements. The FDIC also has
authority to prohibit the payment of dividends by a bank when it determines such
payment to be an unsafe and unsound banking practice. The FDIC may prohibit
parent companies of banks that are deemed to be "significantly undercapitalized"
under the FDIA or which fail to properly submit and implement capital
restoration plans required by the FDIA from paying dividends or making other
capital distributions without the FDIC's permission. See "Holding Company
Dividends and Stock Repurchases".
Restrictions On Intercompany Transactions
The Bank Subsidiaries are subject to restrictions imposed by federal law
on extensions of credit to, and certain other transactions with, the Company and
other affiliates. Such restrictions prevent the Company and its affiliates from
borrowing from the Bank Subsidiaries unless the loans are secured by specified
collateral, and require such transactions to have terms comparable to terms of
arms-length transactions with third persons. Such transactions by each of the
Bank Subsidiaries are generally limited in amount as to
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the Company and as to any other affiliate to 10% of the Subsidiary Bank's
capital and surplus. As to the Company and all other affiliates, such
transactions are limited to an aggregate of 20% of the Subsidiary Bank's capital
and surplus. These regulations and restrictions may limit the Company's ability
to obtain funds from the Bank Subsidiaries for its cash needs, including funds
for acquisitions and for payment of dividends, interest and operating expenses.
Real Estate Lending Guidelines
Under FDIC regulations, state banks must adopt and maintain written
policies establishing appropriate limits and standards for real estate lending
activities. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits that
are clear and measurable), loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by federal bank regulators.
Deposit Insurance
Since the Bank Subsidiaries are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC. The Bank Subsidiaries are also required to
pay deposit insurance premiums to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") included provisions to reform the federal deposit insurance system,
including the implementation of risk-based deposit insurance premiums. FDICIA
permits the FDIC to make special assessments on insured depository institutions
in amounts the FDIC determines necessary to give it adequate assessment income
to repay amounts borrowed from the U.S. Treasury and other sources or for any
other purpose the FDIC deems necessary. Under a risk-based insurance premium
system, banks are assessed insurance premiums according to how much risk they
are deemed to present to the BIF. Banks with higher levels of capital and
involving a low degree of supervisory concern are assessed lower premiums than
banks with lower levels of capital and/or involving a higher degree of
supervisory concern. Effective January 1, 1997 the assessment rates ranged from
0.00% to 0.27% of deposits. The Bank Subsidiaries' deposit assessment rates were
0.00% in 2001 and 2002.
The Deposit Insurance Act of 1996 authorized the Financing Corporation
("FICO") to levy assessments on BIF assessable deposits and stipulated that the
rate must equal one-fifth the FICO assessment rate that is applied to deposits
assessable by the Savings Association Insurance Fund ("SAIF"). The rates
established for GCBank and BCB for 1998 through 2002 were 0.065% and 0.013%,
respectively.
Standards for Safety and Soundness
Under FDICIA, each federal banking agency is required to prescribe
noncapital safety and soundness standards for institutions under its authority.
The federal banking agencies have adopted interagency guidelines covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees, benefits, and standards for asset quality and earnings
sufficiency. An institution that fails to meet any of these standards may be
required to develop a plan acceptable to the agency, specifying the steps that
the institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. The Company
believes the Bank Subsidiaries meet all adopted standards.
Enforcement Powers
The bank regulatory agencies have broad discretion to issue cease and
desist orders if they determine that the Company or its Bank Subsidiaries are
engaging in "unsafe or unsound banking practices". In addition, the federal bank
regulatory authorities may impose substantial civil money penalties for
violations of certain federal banking statutes and regulations, violation of a
fiduciary duty, or violation of a final or temporary cease and desist orders,
among other things. Financial institutions and a broad range of persons
associated with them are subject to the imposition of fines, penalties, and
other enforcement actions based upon the conduct of their relationships with the
institutions.
The FDIC may be appointed as a conservator or receiver for a depository
institution based upon a number of events and circumstances. In such a capacity
the FDIC also has express authority to repudiate most contracts with such
institution that it determines to be burdensome or to promote the orderly
administration of the institution's affairs. The FDIC also has authority to
enforce contracts made by a depository institution notwithstanding any
contractual provision providing for termination, default, acceleration, or
exercise of rights upon, or solely by reason of, insolvency or the appointment
of a conservator or receiver. Insured depository institutions also are
prohibited from entering into contracts for goods, products or services that
would adversely affect their safety and soundness.
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Regulatory Capital Requirements
The Federal Reserve and the FDIC have established guidelines with respect
to the maintenance of appropriate levels of capital by bank holding companies
and state-chartered banks that are not members of the Federal Reserve System
("state nonmember banks"). The regulations impose two sets of capital adequacy
requirements: minimum leverage rules, which require maintenance of a specified
minimum ratio of capital to total assets, and risk-based capital rules, which
require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.
These regulations require bank holding companies and state nonmember banks
to maintain a minimum leverage ratio of "Tier I capital" to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of 1 under the rating system used by the federal bank regulators, would
be permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding company experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve has indicated that whenever appropriate, and in particular when
a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier I
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules require bank holding companies and state
nonmember banks to maintain minimum regulatory capital levels based upon a
weighting of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a Tier I or core capital
requirement and a Tier II or supplementary capital requirement. Tier I capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less most intangible assets, primarily goodwill. Tier II capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier I and
long-term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; and subordinated debt and intermediate-term preferred
stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan and lease losses which may be included as capital to 1.25% of total
risk-weighted assets.
At December 31, 2002, the Company's total risk-based capital and leverage
capital ratios were 13.77% and 7.38%, respectively. The minimum level
established by the regulators for these measures are 8% and 4%, respectively.
FDICIA requires federal banking regulators to classify insured depository
institutions by capital levels and to take various prompt corrective actions to
resolve the problems of any institution that fails to satisfy the capital
standards. Under FDICIA and its "prompt corrective action" regulations, all
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements.
Under the FDIC's prompt corrective action regulation, a "well-capitalized"
bank is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier I risk-based capital ratio of 6%
and a leverage ratio of 5%. An "adequately-capitalized" bank is one that does
not qualify as "well-capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital ratio of 8%, a Tier I risk-based
capital ratio of 4% and a leverage ratio of either 4% or 3% if the bank has the
highest composite examination rating. A bank not meeting these criteria will be
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which the bank's capital levels are
below these standards. A bank falling within any of the three "undercapitalized"
categories will be subject to increased monitoring by the appropriate federal
banking regulator and other restrictions.
6
EFFECT OF GOVERNMENT MONETARY POLICIES; POSSIBLE FURTHER LEGISLATION
The Company's earnings are and will be affected by domestic and
international economic conditions and the monetary and fiscal policies of the
United States and foreign governments and their agencies.
The Federal Reserve's monetary policies have had, and will probably
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The Federal Reserve has a
major effect on the levels of bank loans, investments and deposits through its
open market operations in United States Government securities and through its
regulation of, among other things, the discount rate on borrowings of banks and
the imposition of nonearning reserve requirements against member bank deposits.
It is not possible to predict the nature and impact of future changes in
monetary and fiscal policies.
From time to time, proposals are made in the United States Congress, the
New Jersey Legislature and various bank regulatory authorities that would alter
the powers of, and place restrictions on, different types of banking
organizations. It is impossible to predict whether any of these proposals will
be adopted and any impact of such adoption on the business of the Company and/or
the Bank Subsidiaries.
The Bank Subsidiaries are also subject to various Federal and State laws
such as usury laws and consumer protection laws.
EMPLOYEES
As of December 31, 2002, the Company employed a total of approximately 212
employees, including 175 full-time employees. Management considers relations
with employees to be satisfactory.
Item 2 PROPERTIES
The Company does not directly own or lease any land, buildings or
equipment. However, the Company's nonbank subsidiary, Realty, owns a property in
Bergen County, New Jersey.
GCBank leases its main office banking facility and certain other office
space at 55 Union Boulevard, Totowa, New Jersey. Such space is owned by a
limited liability company of which the Company's chairman and chairman emeritus
are members. During 2002, GCBank also leased space for its other branches in
Totowa, Little Falls, Clifton and Lincoln Park.
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
from Realty. BCB also leases space for three other branches in Hackensack,
Wallington and Wood-Ridge, New Jersey. BCB owns the space for its branches
located in Hasbrouck Heights and Little Ferry, New Jersey.
RCB leases its main office space at 175 Rock Road, Glen Rock, New Jersey.
Sinabaldo Leone, Jr., a director of RCB, owns the leased space.
In the opinion of management, all such leased properties are adequately
insured and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease
obligations, see Note 14 of the Company's Notes to Consolidated Financial
Statements for the year ended December 31, 2002, contained in Item 8 -
"Financial Statements".
Item 3 LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
there is no proceeding threatened or pending against the Company, which, if
determined adversely, would have a material effect on the Company's business,
consolidated financial position or consolidated results of operations.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 2002 to a vote of
security holders through the solicitation of proxies or otherwise.
7
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,027 holders of
record on December 31, 2002, and is traded on the NASDAQ National Market under
the symbol GFLS.
The following table indicates the range of high and low market quotations
of the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
market quotations and cash dividends have been adjusted to take into account the
effect of the 5% stock dividends paid in 2002 and 2001.
Cash
Market Quotations Dividends
---------------------------- ------------
High Low Declared
-------- -------- ------------
Year Ended December 31, 2001
First Quarter $12.14 $ .21 $.068
Second Quarter 11.90 9.62 .081
Third Quarter 12.00 10.24 .081
Fourth Quarter 12.59 10.06 .081
Year Ended December 31, 2002
First Quarter $13.57 $10.95 $.081
Second Quarter 15.62 13.05 .100
Third Quarter 16.44 14.30 .100
Fourth Quarter 16.25 13.06 .100
The Company's ability to pay dividends on its Common Stock in the future
is subject to numerous regulatory restrictions that are potentially applicable.
However, management does not expect any such restrictions to apply so long as
the Company and the Bank Subsidiaries continue to operate profitably.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2002 with
respect to compensation plans under which equity securities of the registrant
are authorized for issuance.
Equity Compensation Plan Information
Plan Category Number of Weighted average Number of securities
securities to exercise price of remaining available for
be issued upon outstanding future issuance under
exercise of options, warrants equity compensation
outstanding and rights plans (excluding
Stock Option Plans options, securities reflected in
warrants and column (a))
rights
(a) (b) (c)
- ----------------------------------- -------------- --------------- --------------------------
Equity Compensation plans approved by the
security holder 436,475 $7.32 214,725
Equity compensation plans not approved by
security holders n a n a n a
------- ----- -------
Total 436,475 $7.32 214,725
8
Item 6 SELECTED FINANCIAL DATA
The selected consolidated financial highlights of the Company set forth
below should be read in conjunction with the more detailed information included
in the Consolidated Financial Statements, related Notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
appearing elsewhere herein.
As of the Years Ended December 31,
--------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(In Thousands, except per share data)
Summary of Operations:
Total interest income ....................... $ 41,033 $ 42,775 $ 41,458 $ 34,564 $ 24,866
Total interest expense ...................... 14,686 20,497 20,664 17,140 12,009
Net interest income ......................... 26,347 22,278 20,794 17,424 12,857
Provision for loan and lease losses ......... 996 885 1,048 885 520
Net interest income after provision for loan
and lease losses ........................ 25,351 21,393 19,746 16,539 12,337
Non interest income ......................... 7,191 6,515 6,167 7,270 4,656
Non interest expenses ....................... 21,676 18,664 18,290 17,288 11,450
Income before income taxes .................. 10,866 9,244 7,623 6,521 5,543
Provision for income taxes .................. 3,353 3,164 2,793 2,349 2,000
Net Income .................................. $ 7,513 $ 6,080 $ 4,830 $ 4,172 $ 3,543
Per Common Share Data: (1)
Earnings Per Share--Basic ................... $ 1.07 $ 0.87 $ 0.70 $ 0.61 $ 0.55
Earnings Per Share--Diluted ................. $ 1.01 $ 0.83 $ 0.68 $ 0.59 $ 0.53
Cash dividends per common share ............. $ 0.38 $ 0.31 $ 0.27 $ 0.23 $ 0.19
Stock splits and dividends per common share . 5% 5% 5% 5% 2 for 1
Book value per common share ................. $ 7.33 $ 6.55 $ 5.78 $ 5.07 $ 4.99
Selected Operating Ratios:
Return on average assets .................... 1.09% 0.95% 0.84% 0.81% 1.00%
Return on average equity .................... 15.29% 14.18% 13.43% 11.98% 11.88%
Interest rate spread ........................ 3.48% 2.93% 3.13% 3.02% 2.65%
Net interest margin ......................... 4.12% 3.79% 3.98% 3.78% 3.87%
Financial Condition Data:
Total Assets ................................ $719,867 $660,839 $607,305 $567,453 $372,400
Cash and cash equivalents ................... 37,133 46,997 56,292 19,200 23,640
Investment securities ....................... 192,195 151,906 138,153 151,191 111,601
Total Loans, net ............................ 436,044 404,250 366,139 340,563 201,765
Allowance for loan and lease losses ......... 7,298 6,320 5,657 4,953 3,525
Total Deposits .............................. 544,043 484,623 465,245 460,634 293,395
Other borrowings ............................ 115,728 115,347 90,020 64,403 40,103
Shareholders' equity ........................ $ 51,498 $ 46,112 $ 40,231 $ 35,402 $ 32,309
Capital Ratios:
Equity to assets ............................ 7.15% 6.98% 6.62% 6.23% 8.68%
Total risk-based capital ratio .............. 13.77% 13.89% 13.88% 13.73% 21.58%
Tier I risk-based capital ratio ............. 10.58% 10.70% 10.14% 9.59% 15.32%
Leverage ratio .............................. 7.38% 7.23% 7.10% 7.18% 11.21%
(1) All per share data has been adjusted to reflect stock dividends and stock
split.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing the Company's financial condition and
results of operations for each of the past three years and its financial
condition at the end of each of the past two years. In order to appreciate this
analysis fully, the reader is encouraged to review the consolidated financial
statements and statistical data presented in this document. Data is presented
for the Company and its subsidiaries in the aggregate unless otherwise
indicated.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K, both in this MD&A section and elsewhere (including
documents incorporated by reference herein), contains both historical
information and "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are not
historical facts and 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
"projected," "expect," "look,"
9
"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 Bank Subsidiaries 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 and legal and
regulatory barriers and structure. Actual results may differ materially from
such forward-looking statements. The Company assumes no obligation to update any
such forward-looking statement at any time.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
The accounting and reporting policies of the Company conform with
accounting principles generally accepted in the United States of America and
general practices within the financial services industry. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and the
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
The Company considers that the determination of the allowance for loan and
lease losses involves a higher degree of judgment and complexity than its other
significant accounting policies. The allowance for loan losses is calculated
with the objective of maintaining a reserve level believed by management to be
sufficient to absorb estimated credit losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the loan and lease
portfolios and other relevant factors. However, this evaluation is inherently
subjective as it requires material estimates, including, among others, expected
default probabilities, loss given default, expected commitment usage, the
amounts and timing of expected future cash flows on impaired loans, mortgages,
and general amounts for historical loss experience. The process also considers
economic conditions, uncertainties in estimating losses and inherent risks in
the loan portfolio. All of these factors may be susceptible to significant
change. To the extent actual outcomes differ from management estimates,
additional provisions for loan and lease losses may be required that would
adversely impact earnings in future periods.
The Company recognizes deferred tax assets and liabilities for the future
tax effects of temporary differences, net operating loss carryforwards and tax
credits. Deferred tax assets are subject to management's judgment based upon
available evidence that future realization is more likely than not. If
management determines that the Company may be unable to realize all or part of
net deferred tax assets in the future, a direct charge to income tax expense may
be required to reduce the recorded value of the net deferred tax asset to the
expected realizable amount.
The Company adopted SFAS No. 142, Goodwill and Intangible Assets, on
January 1, 2002. This SFAS 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. On
January 1, 2002, the Company stopped amortizing goodwill, which approximated
$800,000 annually. The Company did not identify any impairment of goodwill
during its transitional testing of its outstanding goodwill.
Results of Operations: Fiscal Years Ended December 31, 2002, 2001 and 2000
In 2002, the Company recorded earnings of $7.5 million or $1.01 per
diluted share an increase of 24% over 2001. During 2001, the Company earned $6.1
million or $0.83 per diluted share, a 26% increase over $4.8 million or $0.68
per diluted share earned during 2000.
Cash earnings (net income before amortization of intangible assets) per
diluted share were $1.01, $0.94 and $0.79 for the years ending December 31,
2002, 2001 and 2000.
The increase in net income for the year ended December 31, 2002 primarily
reflects higher net interest income, partially offset by higher salaries and
employee benefits, regulatory, professional and other fees, and a one-time
writeoff of unamortized financing costs from a 1997 trust preferred securities
issue that the Company redeemed during 2002.
Average Balances and Net Interest Income
Net interest income, the primary source of the Company's results of
operations, is the difference between interest, dividends and fees earned on
loans and other earning assets, and interest paid on interest-bearing
liabilities. Earning assets include loans to businesses and individuals,
investment securities, interest-bearing deposits with banks and federal funds
sold in the interbank market. Interest-bearing liabilities include primarily
interest-bearing demand, savings and time deposits. Net interest income is
determined by the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and the
relative amounts of earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flows
and general levels of nonperforming assets.
The following table sets forth the Company's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest income and expense on related items, and the Company's average yield
for the years ended December 31, 2002, 2001 and 2000. The yields are not shown
on a fully taxable basis.
10
Average Balance Sheet, Interest Income and Expense and Average Interest Rates
For the Years Ended
----------------------------------------------------------------------------------
December 31, 2002 December 31, 2001
---------------------------------------- ----------------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in Thousands)
ASSETS
Earning Assets: $176,455 $ 8,057 4.57% $145,477 $ 8,647 5.94%
Investment securities......................... 14,846 511 3.44% 14,237 587 4.12%
Due from banks - interest-bearing............. 25,864 425 1.64% 38,299 1,591 4.15%
Federal funds sold............................ 421,942 32,040 7.59% 390,354 31,950 8.18%
-------- ------- -------- -------
Loans(1)...................................... 639,107 41,033 6.42% 588,367 42,775 7.27%
Total earning assets..................... (6,651) -- (6,022) --
Less: Allowance for loan and lease losses..... (3,138) -- (2,287) --
Unearned income - loans.................. 61,968 -- 59,539 --
-------- ------- -------- -------
All other assets.............................. $691,286 $41,033 $639,597 $42,775
======== ======= ======== =======
Total assets.............................
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits....... $224,630 $3,139 1.40% $166,916 $3,515 2.11%
Time deposits............................... 154,577 4,859 3.14% 192,952 10,114 5.24%
Federal funds and short-term borrowings(2).. 95,603 4,520 4.73% 89,514 4,568 5.10%
Trust preferred securities.................. 24,112 2,168 8.99% 23,000 2,300 10.00%
-------- ------- - -------- -------
Total interest-bearing liabilities....... 498,922 14,686 2.94% 472,382 20,497 4.34%
Non interest-bearing deposits................. 135,840 -- 113,203 --
Other liabilities............................. 7,385 -- 11,127 --
Shareholders' equity.......................... 49,139 -- 42,885 --
-------- ------- -------- -------
Total liabilities and
Shareholders' equity.................. $691,286 $14,686 $639,597 $20,497
======== ======= ======== -------
NET INTEREST INCOME ......................... $26,347 $22,278
======= =======
NET INTEREST MARGIN........................... 4.12% 3.79%
==== =====
For the Years Ended
------------------------------------------
December 31, 2000
-------------- ------------ ------------
Average Interest Average
Balance Earned/Paid Yield/Rate
-------------- ------------ ------------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities......................... $144,980 $ 9,369 6.46%
Due from banks - interest-bearing............. 8,543 549 6.43%
Federal funds sold............................ 9,789 538 5.50%
Loans(1)...................................... 358,636 31,002 8.64%
-------- -------
Total earning assets..................... 521,948 41,458 7.94%
Less: Allowance for loan and lease losses..... (5,387) --
Unearned income - loans.................. (1,661) --
All other assets.............................. 60,114 --
-------- -------
Total assets............................. $578,336 $41,458
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits....... $135,953 $ 3,187 2.34%
Time deposits............................... 223,834 12,512 5.59%
Federal funds and short-term borrowings(2).. 46,748 2,665 5.70%
Trust preferred securities.................. 23,000 2,300 10.00%
Total interest-bearing liabilities....... -------- -------
429,535 20,664 4.81%
Non interest-bearing deposits................. 103,209 --
Other liabilities............................. 9,622 --
Shareholders' equity.......................... 35,970 --
-------- -------
Total liabilities and
Shareholders' equity.................. $578,336 $20,664
======== -------
NET INTEREST INCOME ......................... $20,794
=======
NET INTEREST MARGIN........................... 3.98%
====
(1) Average balance includes nonperforming loans and leases.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase
11
Net Interest Income
Net interest income is the largest source of the Company's operating
income. Changes in net interest income and margin result from the interaction
between the volume and composition of earning assets, related yields and
associated funding costs. In 2002, net interest income was greatly impacted by
several rate changes that occurred in 2001 and 2002. Total interest income
remained almost unchanged from 2001 despite an increase in average earning
assets, whereas total interest expense declined dramatically with the repricing
of paying liabilities in a lower rate environment.
Net interest income was $26.3 million in 2002, a $4.1 million or 18%
increase compared to 2001. Interest and fee income on loans during 2002
increased moderately over 2001 in spite of an 8% increase in average total
loans. The average yield on loans decreased to 7.59% in 2002 compared to 8.18%
in 2001 as a result of repricing of loans at prevailing rates. Loans represented
66% of average earning assets for both 2002 and 2001. Income earned on
investment securities during 2002 decreased by $590,000, or 7% compared to 2001.
Though the average investment securities increased by 21% in 2002 over 2001,
income from securities decreased, largely due to declining yields during 2002
over 2001. The average yield on securities was 4.57% for 2002 compared to 5.94%
for 2001. Investments represented 28% of average earning assets in 2002 and
2001. Interest income on federal funds sold and deposits with banks during 2002
decreased by $1.2 million or 57% compared to 2001 as a result of a $11.8
million, or 23%, decrease in average federal funds sold and deposits with banks.
Also, in 2002, the average yield on federal funds sold declined to 1.64% from
4.15% in 2001. Federal funds sold and deposits with banks represent 6% and 9% of
average earning assets at December 31, 2002 and 2001, respectively.
In 2001, net interest income was $22.3 million, a $1.5 million or 7%
increase compared to 2000. Interest and fee income on loans during 2001
increased by $1.0 million or 3% over 2000 as a result of an increase of 9% in
average total loans. The average yield on loans decreased to 8.18% in 2001
compared to 8.64% in 2000 as a result of repricing of loans at prevailing rates
and a general decline in overall interest rates during the year. Loans represent
66% and 68% of average earning assets in 2001 and 2000, respectively. Income
earned on investment securities during 2001 decreased by $722,000, or 8%
compared to 2000. Since the average investment securities were almost unchanged
from 2001, the decrease was largely due to declining interest rates during 2001
over 2000. The average yield on securities was 5.94% for the year ended December
31, 2001, compared to 6.46% for the prior year. Investments represent 25% and
28% at 2001 and 2000, respectively, of average earning assets. Interest income
on federal funds sold and deposits with banks during 2001 increased by $1.1
million or 196% compared to 2000 as a result of a $34.2 million, or 187%,
increase in average federal funds sold and deposits with banks. Federal funds
sold and deposits with banks represent 9% and 4% of average earning assets at
December 31, 2001 and 2000, respectively.
Interest expense for 2002 decreased by $5.8 million or 28% from 2001.
Interest expense on deposits decreased by $5.6 million primarily due to
declining interest rates during 2002 and 2001, while interest expense on
short-term borrowings decreased by $48,000. Interest expense on long-term
borrowings decreased by $132,000 due to the refinancing of the trust preferred
securities during the second half of 2002. For the year 2002 the average
interest rate paid decreased by 140 basis points compared to 2001.
Interest expense for the year ended December 31, 2001, decreased by
$167,000 or 1% from the level of interest expense for 2000. Interest expense on
deposits decreased by $2.1 million primarily due to declining interest rates
during 2001, while interest expense on short-term borrowings increased by $1.9
million as a direct result of increase in federal home loan bank advances. For
the year 2001, average interest rate paid decreased by 47 basis points compared
to 2000.
Average interest-bearing deposits comprised 76% in both 2002 and 2001, and
84% in 2000, of the Company's total funding sources, with the balance comprised
of short- and long-term funding.
The Company's net interest margin, which measures net interest income as a
percentage of average earning assets, was 4.12%, 3.79% and 3.98% for the years
ended December 31, 2002, 2001 and 2000, respectively.
Rate/Volume Analysis
The following table sets forth the changes in interest income and expenses
as they relate to changes in volume and rate for the years ended December 31,
2002 and 2001 compared to the prior years. Because of numerous simultaneous
balance and rate changes during the periods indicated, it is difficult to
allocate the changes precisely between balances and rates. For purposes of this
table, changes that are not due solely to changes in balances or rates are
allocated between such categories based on the average percentage changes in
average balances and average rates.
12
Full Year 2002 Full Year 2001
Compared to Full Year 2001 Compared to Full Year 2000
Increase(Decrease) Increase(Decrease)
---------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- -------- --------
(In Thousands)
Interest Earned On:
Loans ................................ $ 2,398 $ (2,308) $ 90 $ 2,580 $ (1,632) $ 948
Investment securities ................ 1,414 (2,004) (590) 26 (748) (722)
Other earning assets ................. (182) (1,060) (1,242) 1,420 (329) 1,091
-------- -------- -------- -------- -------- --------
Total earning assets .............. $ 3,630 $ (5,372) $ (1,742) $ 4,026 $ (2,709) $ 1,317
======== ======== ======== ======== ======== ========
Interest Paid On:
Savings and interest-bearing deposits $ 807 $ (1,182) $ (375) $ 650 $ (322) $ 328
Time deposits ........................ (1,206) (4,050) (5,256) (1,623) (775) (2,398)
Borrowings (1) ....................... 402 (582) (180) 2,612 (709) 1,903
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 3 $ (5,814) $ (5,811) $ 1,639 $ (1,806) $ (167)
======== ======== ======== ======== ======== ========
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase and trust preferred securities.
Provision for Loan and Lease Losses
The Company recorded a provision for loan and lease losses of $996,000 in
2002 compared with $885,000 in 2001 and $1.0 million in 2000. Management of each
Bank Subsidiary regularly performs an analysis to identify the inherent risk of
loss in its loan portfolio. This analysis includes evaluation of concentrations
of credit, past loss experience, current economic conditions, amount and
composition of the loan portfolio (including loans being specifically monitored
by management), estimated fair value of underlying collateral, loan commitments
outstanding, delinquencies and other factors.
The Bank Subsidiaries will continue to monitor their allowances for loan
and leases losses and make future adjustments to the allowances through the
provision for possible loan losses as economic conditions dictate. Although the
Bank Subsidiaries maintain their loan loss allowances at levels they consider
adequate to provide for the inherent risk of loss in their loan portfolios,
there can be no assurance that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required in future
periods.In addition, the Bank Subsidiaries' determinations as to the amount of
their allowances for possible loan losses are subject to review by the FDIC and
the Department, as part of their examination processes. Such reviews may result
in the establishment of an additional allowance based upon those regulators'
judgments after a review of the information available at the times of their
examinations.
Non-interest Income
Non-interest income was $7.2 million in 2002, representing 21% of total
income (net interest income plus non-interest income), compared with $6.5
million and 23%, respectively, in 2001. The increase of $676,000 or 10% over
2001 is primarily due to increases in gains on sales of investment securities
and all other income. Gains on sale of investment securities increased by
$558,000 and all other income increased by $179,000. Included in the increase of
all other income is $124,000 in gains on sale of assets as a result of the sale
of the MasterCard portfolio in early 2002. Other income for 2002 also included
$306,000 in rental income and $354,000 in automated teller machine service fees.
Total non-interest income was $6.5 million in 2001 and represented 23% of
total income (net interest income plus non-interest income) compared with $6.2
million and 23%, respectively, in 2000. The increase of $348,000 or 6% over 2000
is primarily due to increases in service charges on deposit accounts, gains on
sales of investment securities and leasing income offsetting decreases in other
commission and fees and gain on sale of assets. Service charges on deposit
accounts increased by $437,000, gains on sale of investment securities increased
by $526,000 and gain on sale of leases increased by $243,000 while other
commission and fees declined $416,000 and gain on sale of assets declined by
$517,000. The majority of such increases resulted from the overall growth of the
Company. Included in all other income for 2001 is $274,000 in rental income and
$288,000 in automated teller machine service fees.
Non-interest Expenses
Total non-interest expenses increased $3.0 million or 16% to $21.7 million
in 2002 compared with 2001.While management continues to emphasize expense
control, the year to year increase in expenses is attributable to the continued
growth of the Company, its investment in technology and the need to attract and
retain high-caliber employees. Of the total increase of $3.0 million, increases
in salaries and employee benefits accounted for $1.3 million, a write off of the
unamortized deferred financing cost from the issuance of trust preferred
securities in 1997 accounted for $1.0 million, increases in regulatory,
professional and other fees accounted for $652,000, increases in other operating
expenses accounted for $566,000, increases in occupancy and equipment
13
expense accounted for $139,000, and offset by a decrease in office expense of
$31,000 and in amortization of intangible assets of $777,000 as a result of the
adoption of a new accounting standards prohibiting the further amortization of
goodwill.
Total non-interest expenses in 2001 increased $374,000 or 2% to $18.7
million compared with 2000. The level of operating expenses during 2001 was
favorably impacted by management's commitment to control increases in
non-interest expenses. While management continued to emphasize expense control,
the year to year increase in expenses was attributable to the Company's
continued growth, its investment in technology and its need to attract and
retain high-caliber employees. Of the total increase, salaries and employee
benefits accounted for $509,000, other operating expenses accounted for $137,000
and office expenses accounted for $48,000, offset in part by decreases in
occupancy and equipment expense of $114,000 and regulatory and professional fees
of $215,000. The decrease in occupancy and equipment expense was attributable to
a decline in depreciation expense resulting from certain fully depreciated fixed
assets. The decrease in regulatory and professional fees resulted from a decline
in legal expenses.
Income Taxes
The Company recorded income tax provisions of $3.4 million, $3.2 million
and $2.8 million for the years ended December 31, 2002, 2001 and 2000,
respectively. The Company's effective rate was 31%, 34% and 37% for the years
ended December 31, 2002, 2001 and 2000, respectively. The net decreases in the
effective rate are due to tax planning strategies partially offset by
nondeductible amortization of goodwill prior to 2002.
Financial Condition
The Company's performance for 2002 was highlighted by loan growth,
particularly in the commercial mortgage portfolio. At December 31, 2002, the
Company's total assets were $719.9 million, an increase of $58.4 million or 8%
over December 31, 2001. Gross loans increased by $32.7 million reflecting
increased loan demand. Investment securities increased by $40.3 million, while
federal funds sold and interest bearing due from banks decreased by $6.0 million
and $4.4 million, respectively. The increase in loans and investments were
supported by increases in total deposits and FHLB advances.
A key element of the Company's consistent performance is its strong
capital base. The Company's risk-based capital ratios at December 31, 2002 were
10.58% and 13.77% for Tier 1 Capital and total risk-based capital, respectively,
substantially exceeding the minimum requirements under regulatory guidelines.
The Company's return on average equity in 2002 was 15.29% compared to 14.18% in
2001.
At December 31, 2001, the Company's total assets were $660.8 million, an
increase of $53.5 million or 9% over December 31, 2000. Gross loans increased by
$37.4 million reflecting increased loan demand. Investment securities and
interest-bearing due from banks increased by $13.8 million and $9.1 million,
respectively. These increases were related to increases in total deposits and
FHLB advances. Federal funds sold decreased by $12.1 million.
Investment Securities
At December 31, 2002, the investment securities portfolio amounted to
$192.2 million, an increase of $40.3 million or 27% over December 31, 2001. The
increase was primarily related to liquidity arising from deposit growth.
Investment securities at December 31, 2001 decreased by $13.8 million or 10%
over December 31, 2000. The decrease was primarily related to maturities and
principal paydowns and the subsequent use of proceeds to meet loan demand. The
following table presents the composition of the investment securities portfolio
along with the amortized cost and fair values of those components at December
31, 2002, 2001 and 2000.
14
December 31
--------------------------------------------------------------------------
2002 2001 2000
---------------------- ---------------------- ----------------------
(In Thousands)
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
Available-for-sale
U.S. Treasury and U.S. Government
agencies securities............ $ 22,823 $ 23,237 $ 21,288 $ 21,712 $ 65,768 $ 65,684
State and political subdivisions. 4,536 4,595 7,279 7,253 5,446 5,426
Other debt and equity securities. 25,860 29,413 23,796 26,679 16,802 18,306
Mortgage-backed securities ...... 128,057 129,630 93,860 94,568 45,188 45,176
--------- --------- --------- --------- --------- ---------
Total available-for-sale ... $ 181,276 $ 186,875 $ 146,223 $ 150,212 $ 133,204 $ 134,592
--------- --------- --------- --------- --------- ---------
Held-to-maturity
U.S. Treasury and U.S. Government
agencies securities............ $ 1,000 $ 1,003 $ 1,000 $ 950 $ 1,000 $ 791
State and political subdivisions. 4,120 4,120 185 186 870 870
Mortgage-backed securities ...... 200 204 509 521 1,691 1,695
--------- --------- --------- --------- --------- ---------
Total held-to-maturity ..... $ 5,320 $ 5,327 $ 1,694 $ 1,657 $ 3,561 $ 3,356
--------- --------- --------- --------- --------- ---------
Total investment securities. $ 186,596 $ 192,202 $ 147,917 $ 151,869 $ 136,765 $ 137,948
========= ========= ========= ========= ========= =========
During 2002, the Company realized net gains of $1.2 million from the sale
of $22.6 million in investment securities. In 2001, the Company realized net
gains of $633,000 from the sale of $17.6 million in investment securities.
Included in shareholders' equity at December 31, 2002 is accumulated other
comprehensive income in the amount of $3.4 million, an increase of $1.0 million
or 42% over the end of 2001. The Company has no investment securities held for
trading purposes at December 31, 2002.
The following table shows the average yields, amortized costs and fair
values of the Company's investment securities by maturity.
December 31, 2002
----------------------------------
Average Amortized Fair
Yield Cost Value
--------- --------- ---------
(Dollars in Thousands)
Available-for-sale
Due in one year or less .................. 3.83% $ 8,771 $ 8,815
Due after one year through 5 years ....... 3.91 12,798 13,176
Due after five years through 10 years .... 4.47 1,157 1,172
Due after ten years ...................... 3.94 4,633 4,669
Mortgage-backed securities ............... 4.73 128,057 129,630
Other debt and equity securities ......... n.a. 25,860 29,413
--------- ---------
Total available-for-sale .............. $ 181,276 $ 186,875
========= =========
Held-to-maturity
Due in one year or less .................. 1.83% $ 4,120 $ 4,120
Due after five years through 10 years .... 5.08 1,000 1,003
Mortgage-backed securities ............... 6.21 200 204
--------- ---------
Total held-to-maturity .............. $ 5,320 $ 5,327
--------- ---------
Total investment securities ......... $ 186,596 $ 192,202
========= =========
Loan Portfolio
Loan growth during 2002 occurred primarily in loans secured by
nonresidential properties and commercial loans. The growth reflected the
Company's aggressive business development programs and capitalizing upon new
opportunities. The gross loan portfolio at December 31, 2002 totaled $444.1
million, an increase of $32.7 million over the December 31, 2001 reported
amount. Average loan volume for 2002 increased $31.6 million, while the average
yield on loans decreased by 59 basis points from 2001 as a result of declining
interest rates.
Loans outstanding of $411.4 million at December 31, 2001 increased $37.4
million from year-end 2000 primarily due to increased loan demand in the
Company's primary market areas. The following table summarizes the components of
the gross loan portfolio at the dates indicated.
15
December 31,
-----------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one-to-four-family residential
properties.............................................. $142,677 $146,450 $145,310 $141,072 $57,586
Loans secured by multi-family residential properties.... 12,861 13,039 15,049 13,750 8,899
Loans secured by nonresidential properties.............. 203,501 181,959 149,304 140,200 100,687
Loans to individuals.................................... 8,843 8,491 10,639 9,405 10,609
Commercial loans........................................ 33,859 38,467 32,212 27,680 19,902
Construction loans...................................... 24,339 14,054 13,014 10,024 5,163
Lease financing receivables............................. 17,058 7,306 7,912 3,122 1,205
Other loans............................................. 957 1,643 532 1,782 2,069
-------- -------- -------- -------- --------
Total gross loans...................................... $444,095 $411,409 $373,972 $346,935 $206,120
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 2002.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 2002
--------------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
-------- -------- -------- --------
Loans with predetermined interest rates: (In Thousands)
Loans secured by nonresidential properties ........... $ 10,979 $ 22,767 $ 12,379 $ 46,125
Commercial loans ..................................... 3,481 12,649 169 16,299
Lease financing receivables .......................... 2,213 14,378 467 17,058
Real estate construction ............................. 2,955 805 -- 3,760
-------- -------- -------- --------
Total loans with predetermined interest rates ....... $ 19,628 $ 50,599 $ 13,015 $ 83,242
Loans with floating interest rates:
Loans secured by nonresidential properties ........... 8,842 10,316 138,218 157,376
Commercial loans ..................................... 11,278 4,266 2,016 17,560
Construction loans ................................... 10,623 9,588 368 20,579
-------- -------- -------- --------
Total loans with floating interest rates ............ 30,743 24,170 140,602 195,515
-------- -------- -------- --------
Total gross loans ..................... $ 50,371 $ 74,769 $153,617 $278,757
======== ======== ======== ========
At December 31, 2002 no loans were concentrated within a single industry
or group of related industries and the Company had no foreign loans.
Asset Quality
Various degrees of risk are associated with substantially all investing
activities. The senior lending officers of BCB, GCBank and RCB are charged with
monitoring asset quality, establishing credit policies and procedures and
seeking consistent application of these policies and procedures. Nonperforming
assets include past due, nonaccrual and renegotiated and other real estate
loans. Since lending is concentrated within the local market area, nonperforming
loans and leases were also made primarily to customers operating in that area.
The degree of risk inherent in all lending activities is influenced heavily by
general economic conditions in the immediate market area. Among the factors that
tend to affect portfolio risks are changes in local or regional real estate
values, income levels and energy prices. These factors, coupled with
unemployment levels and tax rates, as well as governmental actions and weakened
market conditions that reduce credit demand among qualified borrowers, are also
important determinants of the risk inherent in lending.
Past Due, Nonaccruing and Renegotiated Loans. It is the Company's policy
to review monthly all loans that are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are either doubtful of collection or are involved in a protracted
collection process. The current year's uncollected interest is reversed on such
nonaccrual loans.
Management has noted that the asset quality has recently shown some
deterioration in loans and lease financing receivables portfolios. However, the
Company maintains more than adequate reserves and believes additional reserves
are not required. It will continue to monitor both portfolios closely.
Management has also restructured the terms of certain loans to accommodate
changes in the financial condition of borrowers. A typical concession would be a
reduction in the currently payable interest rate to one that is lower than the
current market rate for new debt with similar risks; interest foregone would be
deferred until maturity.
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated:
16
December 31,
------ ------ ------ ------ ------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans and leases ....................... $2,767 $1,373 $1,281 $1,678 $1,657
Renegotiated loans ................................. 295 545 845 606 416
------ ------ ------ ------ ------
Total nonperforming loans and leases ........... 3,062 1,918 2,126 2,284 2,073
Loans past due 90 days and accruing ................ 587 34 54 248 461
Other real estate .................................. -- 175 -- 467 495
------ ------ ------ ------ ------
Total nonperforming assets ..................... $3,649 $2,127 $2,180 $2,999 $3,029
====== ====== ====== ====== ======
Nonperforming loans and leases to total gross loans. .69% .47% .57% .66% 1.01%
Nonperforming assets to total gross loans and other
real estate owned ............................... .82% .52% .58% .86% 1.47%
Nonperforming assets to total assets ............... .51% .32% .36% .53% .81%
Allowance for loan and lease losses to nonperforming
loans ........................................... 238.34% 329.51% 266.09% 216.86% 170.04%
Nonperforming loans and leases increased by $1.1 million at December 31,
2002 compared to December 31, 2001. Of the total increase, $937,000 is
attributable to the reclassification of certain lease financing receivables from
current to nonaccruing status. Nonperforming loans and leases decreased by
$208,000 at December 31, 2001 compared to December 31, 2000. The decrease is
primarily due to the reclassification of certain loans from nonaccruing to
current loans coupled with current to renegotiated status. If the nonaccruing
loans in 2002, 2001 and 2000 had continued to pay interest, interest income
during those years would have increased by $135,000, $45,000 and $67,000,
respectively.
Potential Problem Loans. As part of the loan review process, management
routinely identifies performing loans when there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and allocates
specific reserves against them. At December 31, 2002, 2001 and 2000, such loans
totaled $4.9 million, $5.1 million and $7.2 million with allowances of $1.5
million, $833,000 and $855,000, respectively, specifically allocated to them.
Foreign Loans. The Company has no foreign loans or any other foreign
exposure.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses increased by $978,000 to $7.3
million at December 31, 2002 compared to the end of the prior year. At December
31, 2001 the allowance for loan and lease losses was $6.3 million compared to
$5.7 million at December 31, 2000, an increase of $600,000. The allowance for
loan and lease losses is increased periodically through charges to earnings in
the form of a provision for loan and lease losses. Loans that are deemed
uncollectible are charged against the allowance and any recoveries of such loans
are credited to it. Management believes that although chargeoffs may occur in
the future, adequate reserves have been provided.
The Company maintains an allowance for loan and lease losses at an amount
considered adequate by management to provide for potential credit losses based
upon periodic evaluation of the risk characteristics of the loan portfolio.
Management reviews the adequacy of the allowance on a monthly basis. In doing
so, it takes into consideration factors such as actual versus estimated losses,
regional and national economic conditions, portfolio concentration and the
impact of government regulations. The Company makes specific allocations to
impaired loans and for doubtful or watchlist loans, an allocated reserve based
on historical trends and an unallocated portion. The Company consistently
applies the following comprehensive methodology.
The first category of reserves consists of specific allocation of the
allowance for doubtful or watchlist loans. This allocation is established for
specific commercial and industrial loans, real estate development loans, and
construction loans, which have been identified by bank management as being
high-risk loan assets. These loans are assigned a doubtful risk-rating grade
based solely on nonperformance according to their payment terms and there is
reason to believe that repayment of the loan principal in whole or part is
unlikely. The specific allocation of the allowance is the total amount of
potential unconfirmed losses for these individual doubtful or watchlist loans.
To assist in determining the fair value of loan collateral, the Company often
utilizes independent third party qualified appraisal firms which in turn employ
their own criteria and assumptions that may include occupancy rates, rental
rates, and property expenses, among others.
The second category of reserves consists of the allocated portion of the
allowance. This is determined by taking the loan portfolios outstanding and
creating individual loan pools for commercial loans, real estate loans and
construction loans and various types of loans to individuals that have similar
characteristics and applying historical loss experience for each pool. This
estimate represents the potential unconfirmed losses within each pool of the
portfolio. The historical estimation for each loan pool is then adjusted to
account for current conditions, current loan portfolio performance, loan policy
or management changes or any other factor which may cause future losses to
deviate from historical levels.
17
Finally, the Company also maintains an unallocated allowance that is used
to cover any factors or condition that may cause a potential loan loss but are
not specifically identifiable. Management considers an unallocated portion of
the allowance as necessary irrespective of how detailed an analysis of potential
loan losses is performed because these estimates by definition lack precision.
Management must make estimates using assumptions and information, which is often
subjective and changing rapidly. Management believes the allowance for loan and
lease losses and nonperforming loans and leases was at an acceptable level at
December 31, 2002.
The following table represents transactions affecting the allowance for
loan and lease losses for the periods indicated.
Years ended December31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(Dollars in Thousands)
Balance at beginning of year .......................... $ 6,320 $ 5,657 $ 4,953 $ 3,525 $ 2,731
Charge-offs:
Commercial ......................................... (160) (224) (108) (102) (5)
Lease financing receivables ........................ (52) (39) -- -- --
Real estate - mortgages ............................ (47) (7) (198) -- (31)
Installment loans to individuals ................... (3) (8) (49) (45) (34)
Credit cards and related plans ..................... (36) (42) (60) (59) (53)
-------- -------- -------- -------- --------
(298) (320) (448) (206) (123)
-------- -------- -------- -------- --------
Recoveries:
Commercial ......................................... 66 73 18 59 376
Lease Financing Receivables ........................ 7 -- -- -- --
Real estate - mortgages ............................ 165 3 69 50 11
Installment loans to individuals ................... 26 12 7 4 5
Credit cards and related plans ..................... 16 10 10 12 5
-------- -------- -------- -------- --------
280 98 104 125 397
-------- -------- -------- -------- --------
Net recoveries (charge-offs) .......................... (18) (222) (345) (81) 274
Provision for loan losses ............................. 996 885 1,048 885 520
Adjustment(1) ......................................... -- -- -- 624 --
-------- -------- -------- -------- --------
Balance at end of year ................................ $ 7,298 $ 6,320 $ 5,657 $ 4,953 $ 3,525
======== ======== ======== ======== ========
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period ..... (0.00%) (0.07%) (0.10%) (0.03%) 0.15%
(1) Allowance for loan and lease losses acquired from First Savings Bank of
Little Falls in 1999.
18
Allocation of the Allowance for Loan and Lease Losses
The following table sets forth the allocation of the allowance for loan
and lease losses by loan category amounts, the percent of loans in each category
to total loans in the allowance, and the percent of loans in each category to
total loans, at each of the dates indicated.
At December 31,
----------------------------------------------------------------------------------------
2002 2001 2000
-------------------------- -------------------------- ------------------------------
% of % of % of
Loans Loans Loans
to to to
% of Total % of Total % of Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ------ ------ --------- ------ ------ --------- ------
(Dollars in Thousands)
Balance at end of
Period allocable to:
Commercial and non-
residential properties ..... $3,576 49% 54% $3,388 53% 54% $1,745 31% 48%
Leased financing receivable ... 1,416 4 4 132 2 2 87 2 2
Construction .................. 278 4 5 164 3 3 107 2 3
Loans secured by 1-4 families . 1,521 21 35 1,918 30 39 1,999 35 44
Loans to individuals .......... 47 1 2 292 5 2 343 6 3
Unallocated reserves .......... 460 21 -- 426 7 -- 1,376 24 --
------ --------- ------ ------ --------- ------ ------ ------ ------
Total allowance for loan and
lease losses ............... $7,298 100% 100% $6,320 100% 100% $5,657 100% 100%
====== ========= ====== ====== ========= ====== ====== ====== ======
At December 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
% of % of
Loans Loans
to to
% of Total % of Total
Amount Allowance Loans Amount Allowance Loans
--------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
Balance at end of
Period allocable to:
Commercial and non-
residential properties .... $ 1,558 32% 48% $ 1,467 43% 59%
Leased financing receivable .. 56 1 1 -- -- --
Construction ................. 115 2 3 49 1 2
Loans secured by 1-4 families 2,183 44 45 919 26 34
Loans to individuals ......... 264 5 3 369 10 5
Unallocated reserves ......... 777 16 -- 721 20 --
--------- --------- --------- --------- --------- ---------
Total allowance for loan and
lease losses .............. $ 4,953 100% 100% $ 3,525 100% 100%
========= ========= ========= ========= ========= =========
19
Deposits
A certain portion of the Company's liquidity is funded through its deposit
sources. At December 31, 2002 total deposits were $544.1 million, an increase of
$59.4 million or 12% over 2001. Of the total increase, increases in demand
deposits, interest bearing and savings deposits accounted for $17.9 million,
$21.7 million and $28.6 million, respectively, while time deposits less than
$100,000 and time deposits greater than $100,000 decreased by $7.1 million and
$1.6 million, respectively. The majority of such increases were a result of
aggressive marketing efforts. The $9.7 million decrease in time deposits was a
result of maturity run off. Total deposit sources were $484.6 million at
December 31, 2001, an increase of $19.4 million compared with December 31, 2000.
Non interest-bearing, interest-bearing demand deposits and savings deposits
increased by $12.0 million, $30.8 million and $13.2 million, respectively, while
time deposits decreased by $36.7 million. The decrease in time deposits during
2001 resulted from maturity run off.
The following table summarizes the average yield/rate of the components of
average deposit liabilities for the years indicated.
Years ended December 31,
-------------------------------------------------------------------------------
Average Average Average
2002 Yield/Rate 2001 Yield/Rate 2000 Yield/Rate
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
Non interest-bearing.......... $135,840 -0- $113,203 -0- $103,209 -0-
Savings and interest-bearing.. 224,630 1.40% 166,916 2.11% 135,953 2.34%
Time.......................... 154,577 3.14 192,952 5.24 223,834 5.59
-------- ---- -------- ---- -------- ----
$515,047 1.55% $473,071 2.88% $462,996 3.39%
======== ==== ======== ==== ======== ====
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December
31, 2002
--------------
(In Thousands)
Three months or less................................. $ 17,435
Over three months through six months................. 5,531
Over six months through twelve months................ 10,298
Over twelve months................................... 3,927
--------
$ 37,191
--------
Federal Home Loan Bank Advances
At December 31, 2002 Federal Home Loan Bank ("FHLB") advances totaled
$80.0 million, an increase of $10.0 million compared with December 31, 2001. The
Company considers FHLB advances as an added source of funding and accordingly
executed transactions during 2002 to meet its funding needs. The FHLB advances
have varying terms and interest rates.
Short-Term Borrowings
As of December 31, 2002, securities sold under agreements to repurchase
were $11.7 million. Short-term borrowings include various other borrowings,
which generally have maturities of less than one year. The details of these
categories for the last three years are presented below (in thousands):
Years ended December 31,
----------------------------------
2002 2001 2000
-------- -------- --------
Securities sold under repurchase agreements and federal funds purchased
Balance at year-end ............................................... $ 11,728 $ 22,347 $ 17,020
Average during the year ........................................... 15,276 17,326 15,201
Maximum month-end balance ......................................... 26,545 64,010 40,420
Weighted average rate during the year ............................. 1.42% 3.32% 5.64%
Rate at December 31 ............................................... 1.01% 1.67% 5.52%
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
On June 28, 2002 GCB Capital Trust II (the "2002 Trust") was formed for
the purpose of issuing Trust Preferred Securities. Through the 2002 Trust, the
Company issued 2,300,000 Trust Preferred Securities, $10 face value for a total
proceeds of $23.0 million. On July 9, 2002 the underwriters exercised their
overallotment option to purchase an additional 100,000 securities at the face
value of
20
$10 for total proceeds of $1.0 million. The securities have an annual
distribution rate of 8.45% payable quarterly. The securities mature on June 30,
2032 but are callable at the Company's option on or after June 30, 2007. During
July 2002 the Company used the net proceeds of $23.0 million from the above
transaction to redeem the 920,000 shares of 10% Trust Preferred Securities, $25
face value, issued by the Company in 1997. The remaining $1.0 million was used
for general corporate purposes.
Interest Rate Sensitivity
Banks are concerned with the extent to which they are able to match
maturities of interest-earning assets and interest-bearing liabilities. Such
matching is facilitated by examining the extent to which assets and liabilities
are interest rate sensitive and by monitoring the institution's interest rate
sensitivity gap. An asset or liability is considered to be interest rate
sensitive if it will mature or reprice within a specific time period. The
interest rate sensitivity gap is defined as the excess of interest-earning
assets maturing or repricing within a specific time period over interest-bearing
liabilities maturing or repricing within that time period. The Bank Subsidiaries
monitor their gaps on a monthly basis, primarily their six-month and one-year
maturities, and work to maintain their gaps within a range of 10% to (25)%.
The Company had a positive one-year gap position with respect to its
exposure to interest rate risk at December 31, 2002. The Asset/Liability
Management Committees of the Bank Subsidiaries' respective Boards of Directors
meet quarterly to discuss their interest rate risks. The Company uses simulation
models to measure the impact of potential changes in interest rates on the net
interest income, balance sheet mix and spread relationship between market rates
and bank products. As described below, sudden changes in interest rates should
not have a material impact to the Bank Subsidiaries' results of operations.
Should the Bank Subsidiaries experience a positive or negative mismatch in
excess of the approved range, they have a number of remedial options. They have
the ability to reposition their investment portfolios to include securities with
more advantageous repricing and/or maturity characteristics. They can attract
variable or fixed-rate loan products as appropriate. They can also price deposit
products to attract deposits with maturity characteristics that can lower their
exposures to interest rate risk.
The following table summarizes, as of December 31, 2002, the repricing of
earning assets and interest-bearing liabilities in accordance with their
contractual terms in given time periods.
Due within Four to One to Two to
Three Twelve Two Five Over Five
Months Months Years Years Years Total Fair Value
---------- -------- -------- -------- --------- -------- ----------
(Dollars in Thousands)
Rate-sensitive assets:
Investment securities and interest
deposits
From banks..........................$ $ 34,122 $ 56,462 $ 40,457 $ 30,070 $ 40,523 $201,634 $201,581
Rate 3.49% 3.88% 4.38% 4.40% 4.33% 4.08%
Federal funds sold ................$ 17,700 -- -- -- -- 17,700 17,700
Rate 1.19% -- -- -- -- 1.19%
Total loans net of unearned income..$ 94,647 49,773 61,150 164,276 73,496 443,342 450,097
5.99% 7.20% 7.57% 7.62% 7.27% 7.16%
Rate -------- -------- -------- -------- -------- --------
Total rate-sensitive assets........ $146,469 $106,235 $101,607 $194,346 $114,019 $662,676 $669,438
Rate-sensitive liabilities ======== ======== ======== ======== ======== ========
Interest-bearing demand deposits....$ $ 67,439 $ 2,272 $ 19,683 $ 45,213 $ 15,993 $150,600 $150,600
Rate 1.00% 1.78% 0.92% 0.64% 0.67% 0.86%
Savings deposits....................$ 29,935 217 13,778 32,941 19,163 96,034 96,034
Rate 1.45% 1.29% 1.33% 0.56% 1.29% 1.10%
Time deposits.......................$ 46,140 84,867 13,103 14,617 3 158,730 159,764
Rate 2.29% 2.59% 3.51% 3.92% 5.30% 2.70%
Total borrowings (1)................$ 6,431 32 15,046 5,158 89,061 115,728 131,928
Rate 1.56% 6.70% 4.35% 4.93% 6.11% 5.57%
-------- -------- -------- -------- -------- --------
Total rate sensitive liabilities... $149,945 $ 87,388 $ 61,610 $ 97,929 $124,220 $521,092 $538,326
======== ======== ======== ======== ======== ========
Interest rate sensitivity gap........ (3,476) 18,847 39,997 96,417 (10,201)
Interest rate sensitivity gap as a
percentage
Total rate sensitive assets........ (0.52%) 2.84% 6.04% 14.55% (1.54%)
Cumulative interest rate sensitivity
gap.................................. (3,476) 15,371 55,368 151,785 141,584
======== ======== ======== ======== ========
Cumulative interest rate sensitivity
gap as a
Percentage of total rate sensitive
assets............................. (0.52%) 2.22% 8.36% 22.90% 21.37%
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase and trust preferred securities
Liquidity
The Company actively manages its liquidity under the direction of the
Asset/Liability Management Committees of the Bank Subsidiaries. During the last
two years the Company has been highly liquid and its liquid funds have been more
than sufficient to meet future loan demand or the possible outflow of deposits
in addition to being able to adapt to changing interest rate conditions.
21
Management expects this high liquidity trend to continue until overall economic
conditions improve and loan demand rises.
Sources of liquidity at December 31, 2002 totaled $238.8 million or 33% of
total assets, consisting of investment securities of $192.2 million and $46.6
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity at December 31, 2001 totaled $212.8 million or 32%
of total assets, consisting of investment securities of $151.9 million and $60.9
million in cash and cash equivalents and interest-bearing due from banks.
The following table sets forth the Company's contractual obligations and
other commitments requiring potential cash outflows as of December 31, 2002:
Less than One to Two Three to After Five
One year years Five years Years Total
---------- ---------- ---------- ---------- --------
Remaining contractual maturities on time deposits... $131,007 $13,103 $14,617 $ 3 $158,730
Total Borrowings.................................... 6,463 5,045 10,219 94,000 115,728
Minimum annual rental payments...................... 652 611 1,396 1,307 3,966
Loan commitments.................................... 93,009 -- 21,061 -- 114,070
Standby letters of credit........................... 2,374 -- -- -- 2,374
-------- ------- ------- ------- --------
Total............................................... $233,505 $18,760 $47,293 $95,310 $394,868
======== ======= ======= ======= ========
The Company currently does not have any unconsolidated subsidiaries or
special purpose entities. The Company has no capital leases.
Capital Resources
The Company's primary regulator, the Federal Reserve Board (Federal
Reserve), which regulates bank holding companies, has issued guidelines
classifying and defining bank holding company capital into the following
components: (1) Tier I capital, which includes tangible shareholders' equity for
common stock and certain qualifying perpetual preferred stock, and (2) Tier II
capital, which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock that does not qualify as
Tier II capital. The risk-based capital guidelines require financial
institutions to maintain specific defined credit risk factors (risk-adjusted
assets). As of December 31, 2002 the minimum Tier I and combined Tier I and Tier
II capital ratios required by the Federal Reserve for capital adequacy purposes
were 4% and 8%, respectively.
In addition to the risk-based capital guidelines discussed above, the
Federal Reserve requires that a bank holding company which meets that
regulator's highest performance and operating standards maintain a minimum
leverage ratio (Tier I capital as a percentage of tangible assets) of 3%. Those
bank holding companies anticipating significant growth are expected to maintain
a leverage ratio above the minimum ratio. The Federal Reserve evaluates minimum
leverage ratios for each entity through the ongoing regulatory examination
process. The Bank Subsidiaries' primary regulator, the FDIC, has also issued
regulations establishing similar risk-based and leverage capital ratios that
apply separately to each bank.
The following table presents the risk based and leverage capital ratios
for the Company and each Bank Subsidiary as of December 31, 2002 and 2001.
22
To Be Well-Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------------- ------------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- ---------- ------- --------- --------
(Dollars in Thousands)
As of December 31, 2002
Total capital (to risk-weighted
assets)
Greater Community Bancorp...... $68,402 13.77% $39,734 8.00% N/A N/A
Greater Community Bank......... 33,139 10.78 24,592 8.00 $30,741 10.00%
Bergen Commercial Bank ........ 15,280 10.11 12,090 8.00 15,113 10.00
Rock Community Bank............ 5,354 19.46 2,201 8.00 2,751 10.00
Tier 1 capital (to risk-weighted
assets)
Greater Community Bancorp...... 52,543 10.58 19,867 4.00 N/A N/A
Greater Community Bank......... 29,285 9.53 12,296 4.00 18,444 6.00
Bergen Commercial Bank......... 13,388 8.86 6,045 4.00 9,068 6.00
Rock Community Bank............ 5,010 18.21 1,100 4.00 1,651 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp...... 52,543 7.38 28,488 4.00 N/A N/A
Greater Community Bank......... 29,285 6.50 18,012 4.00 22,515 5.00
Bergen Commercial Bank......... 13,388 6.39 8,387 4.00 10,484 5.00
Rock Community Bank............ 5,010 13.11 1,528 4.00 1,910 5.00
As of December 31, 2001
Total capital (to risk-weighted
assets)
Greater Community Bancorp...... $60,607 13.89% $34,915 8.00% N/A N/A
Greater Community Bank......... 31,165 11.52 21,646 8.00 $27,057 10.00%
Bergen Commercial Bank ........ 13,433 10.20 10,533 8.00 13,166 10.00
Rock Community Bank............ 5,047 15.57 2,593 8.00 3,241 10.00
Tier 1 capital (to risk-weighted
assets)
Greater Community Bancorp...... 46,713 10.70 17,457 4.00 N/A N/A
Greater Community Bank......... 27,773 10.26 10,823 4.00 16,234 6.00
Bergen Commercial Bank......... 11,786 8.95 5,266 4.00 7,899 6.00
Rock Community Bank............ 4,783 22.66 844 4.00 1,267 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp...... 46,713 7.23 25,861 4.00 N/A N/A
Greater Community Bank......... 27,773 6.66 16,681 4.00 20,852 5.00
Bergen Commercial Bank......... 11,786 6.41 7,354 4.00 9,193 5.00
Rock Community Bank............ 4,783 15.57 1,229 4.00 1,536 5.00
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 147,
Acquisitions of Certain Financial Institutions: An amendment of FASB Statements
No. 72 and 144 and FASB Interpretation No. 9, which removes acquisitions of
financial institutions from the scope of SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions. The provisions of the SFAS No.
147 related to unidentifiable intangible assets and the acquisition of a
less-than-whole financial institution are effective for acquisitions for which
the date of acquisition is on or after October 1, 2002. The adoption of SFAS No.
147 did not have a material impact on the Company's financial position or
results of operations.
SFAS No. 148, Accounting for Stock Based Compensation Transition and
Disclosure, amends the disclosure and certain transition provisions of SFAS No.
123, Accounting for Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Currently, the Company does record
compensation expense in its results for operations for stock options granted, as
permitted by APB No. 25 Accounting for Stock Issued to Employees. For entities
that use the intrinsic value method under APB No. 25, to account for employee
stock compensation for any period presented, their accounting policies note
should include certain disclosures. The expanded annual disclosure requirements
and the transition provisions are effective for fiscal years ending after
December 15, 2002, which are included in the Company's consolidated financial
statements for the year ended December 31, 2002. The new interim period
disclosures are required in financial statements for interim periods beginning
after December 15, 2002.
Impact of Inflation and Changing Prices
The Company's consolidated financial statements and notes thereto
presented elsewhere in this Report have been prepared in accordance with
accounting principles generally accepted in the United States (US GAAP). US GAAP
requires the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike
23
most industrial companies, nearly all of the Company's assets and liabilities
are monetary in nature. As a result, interest rates have a greater impact on the
Company'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 prices of goods and services.
Item 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
24
Item 8 FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
December 31,
-----------------------
2002 2001
--------- ---------
ASSETS
CASH AND DUE FROM BANKS - Non interest-bearing ..................................... $ 19,433 $ 23,297
FEDERAL FUNDS SOLD ................................................................. 17,700 23,700
--------- ---------
Total cash and cash equivalents ........................................... 37,133 46,997
DUE FROM BANKS - Interest-bearing .................................................. 9,439 13,877
INVESTMENT SECURITIES - Available-for-sale ......................................... 186,875 150,212
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$5,327 and $1,657 at December 31, 2002 and 2001, respectively) ................. 5,320 1,694
--------- ---------
192,195 151,906
LOANS .............................................................................. 444,095 411,409
Allowance for loan and lease losses ............................................... (7,298) (6,320)
Unearned income ................................................................... (753) (839)
--------- ---------
Net loans ................................................................. 436,044 404,250
PREMISES AND EQUIPMENT, net ........................................................ 7,850 6,905
ACCRUED INTEREST RECEIVABLE ........................................................ 3,131 3,214
BANK OWNED LIFE INSURANCE .......................................................... 12,448 11,837
GOODWILL ........................................................................... 11,574 11,574
OTHER ASSETS ....................................................................... 10,053 10,279
--------- ---------
TOTAL ASSETS ....................................................................... $ 719,867 $ 660,839
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing .............................................................. $ 138,679 $ 120,838
Interest-bearing .................................................................. 150,600 128,882
Savings ........................................................................... 96,034 67,458
Time Deposits less than $100 ...................................................... 121,539 132,599
Time Deposits $100 and over ....................................................... 37,191 34,846
--------- ---------
Total deposits ............................................................ 544,043 484,623
FHLB ADVANCES ...................................................................... 80,000 70,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ..................................... 11,728 22,347
ACCRUED INTEREST PAYABLE ........................................................... 1,877 2,799
OTHER LIABILITIES .................................................................. 6,721 11,958
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT .............................................................. 24,000 23,000
--------- ---------
Total liabilities ......................................................... 668,369 614,727
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, par value $0.50 per share: 20,000,000 shares authorized, 7,021,102
and 6,708,402 shares outstanding at December 31, 2002 and 2001, respectively .... 3,511 3,354
Additional paid-in capital ........................................................ 42,856 38,040
Retained earnings ................................................................. 1,721 2,321
Accumulated other comprehensive income ............................................ 3,410 2,397
--------- ---------
Total shareholders' equity ..................................................... 51,498 46,112
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................... $ 719,867 $ 660,839
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
For the Years Ended
December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
INTEREST INCOME:
Loans, including fees ......................................... $ 32,040 $ 31,950 $ 31,002
Investment securities ......................................... 8,057 8,647 9,369
Federal funds sold and deposits with banks .................... 936 2,178 1,087
-------- -------- --------
Total interest income .................................. 41,033 42,775 41,458
INTEREST EXPENSE:
Deposits ...................................................... 7,998 13,629 15,699
Short-term borrowings ......................................... 4,520 4,568 2,665
Long-term borrowings .......................................... 2,168 2,300 2,300
-------- -------- --------
Total interest expense ................................. 14,686 20,497 20,664
-------- -------- --------
NET INTEREST INCOME ............................................. 26,347 22,278 20,794
PROVISION FOR LOAN AND LEASE LOSSES ............................. 996 885 1,048
-------- -------- --------
Net interest income after provision for loan and lease losses 25,351 21,393 19,746
NON-INTEREST INCOME:
Service charges on deposit accounts ........................... 2,440 2,460 2,023
Other commission and fees ..................................... 707 716 1,132
Gain on sale of investment securities ......................... 1,191 633 107
Gain on sale of assets ........................................ -- -- 517
Gain made on sale of leases ................................... 1,152 1,180 937
Bank owned life insurance ..................................... 611 615 532
All other income .............................................. 1,090 911 919
-------- -------- --------
Total non-interest income .............................. 7,191 6,515 6,167
-------- -------- --------
NON-INTEREST EXPENSES:
Salaries and employee benefits ................................ 10,942 9,649 9,140
Occupancy and equipment ....................................... 3,195 3,056 3,170
Regulatory, professional and other fees ....................... 1,996 1,344 1,559
Amortization of intangibles ................................... -- 777 777
Computer services ............................................. 424 386 377
Office expenses ............................................... 1,132 1,053 1,005
Write off of deferred securities issuance costs ............... 1,022 -- --
Other operating expenses ...................................... 2,965 2,399 2,262
-------- -------- --------
Total non-interest expenses ............................ 21,676 18,664 18,290
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES ........................ 10,866 9,244 7,623
PROVISION FOR INCOME TAXES ...................................... 3,353 3,164 2,793
-------- -------- --------
NET INCOME ...................................................... $ 7,513 $ 6,080 $ 4,830
======== ======== ========
Net income per share - basic .................................... $ 1.07 $ 0.87 $ 0.70
======== ======== ========
Net income per share - diluted .................................. $ 1.01 $ 0.83 $ 0.68
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
Accumulated
Common Stock Additional Other
------------------------- Paid-in Retained Comprehensive
Shares Par Value Capital Earnings Income (loss)
--------- ------------ ------------ ------------ -------------
BALANCE, January 1, 2000 ............... 6,032 $ 3,016 $ 31,891 $ 1,636 $ (1,141)
======== ============ ============ ============ ============
Net income - 2000 ..................... -- -- -- 4,830 --
5% stock dividend ..................... 300 151 2,402 (2,553) --
Issuance of common stock - dividend
Reinvestment plan .................... 60 29 460 -- --
Exercise of stock options ............. 22 10 167 -- --
Cash dividends ........................ -- -- -- (1,844)
Other comprehensive income, net of .... -- -- --
Reclassification adjustments and taxes -- -- -- -- 1,966
Total comprehensive income ............ -- --
Purchase of treasury stock ............ -- -- -- -- --
Retirement of treasury stock ........... (96) (47) (742) -- --
-------- ------------ ------------ ------------ ------------
BALANCE, December 31, 2000 ............. 6,318 $ 3,159 $ 34,178 $ 2,069 $ 825
======== ============ ============ ============ ============
Net income - 2001 ..................... -- -- -- 6,080 --
5% stock dividend ..................... 314 157 3,495 (3,652) --
Issuance of common stock - dividend
Reinvestment plan .................... 40 20 390 -- --
Exercise of stock options ............. 84 42 461 -- --
Cash dividends ........................ -- -- -- (2,176)
Other comprehensive income, net of
Reclassification adjustments and taxes -- -- -- -- 1,572
Total comprehensive income ............ --
Purchase of treasury stock ............ -- -- -- -- --
Retirement of treasury stock .......... (48) (24) (484) -- --
-------- ------------ ------------ ------------ ------------
BALANCE, December 31, 2001 ............. 6,708 $ 3,354 $ 38,040 $ 2,321 $ 2,397
======== ============ ============ ============ ============
Net income - 2002 ..................... -- -- -- 7,513 --
5% stock dividend ..................... 335 168 5,266 (5,434) --
Exercise of stock options ............. 68 34 683 -- --
Cash dividends ........................ -- -- -- (2,679) --
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- -- 1,013
Total comprehensive income ............ --
Purchase of treasury stock ............ -- -- -- -- --
Retirement of treasury stock .......... (90) (45) (1,133) -- --
-------- ------------ ------------ ------------ ------------
BALANCE, December 31, 2002 ............. 7,021 $ 3,511 $ 42,856 $ 1,721 $ 3,410
======== ============ ============ ============ ============
Total
Treasury Comprehensive Shareholders'
Stock Income Equity
------------- ------------- -------------
BALANCE, January 1, 2000 ............... $ -- $ 35,402
============= =============
Net income - 2000 ..................... -- $ 4,830 4,830
5% stock dividend ..................... -- --
Issuance of common stock - dividend
Reinvestment plan .................... -- 489
Exercise of stock options ............. -- 177
Cash dividends ........................ -- (1,844)
Other comprehensive income, net of
Reclassification adjustments and taxes -- 1,966 1,966
Total comprehensive income ............ $ 6,766
=============
Purchase of treasury stock ............ (789) (789)
Retirement of treasury stock ........... 789 --
------------- -------------
BALANCE, December 31, 2000 ............. $ -- $ 40,231
============= =============
Net income - 2001 ..................... -- $ 6,080 6,080
5% stock dividend ..................... -- --
Issuance of common stock - dividend
Reinvestment plan .................... -- 410
Exercise of stock options ............. -- 503
Cash dividends ........................ -- (2,176)
Other comprehensive income, net of
Reclassification adjustments and taxes -- 1,572 1,572
-------------
Total comprehensive income ............ $ 7,652
=============
Purchase of treasury stock ............ (508) (508)
Retirement of treasury stock .......... 508 --
------------- -------------
BALANCE, December 31, 2001 ............. $ -- $ 46,112
============= =============
Net income - 2002 ..................... -- $ 7,513 7,513
5% stock dividend ..................... -- --
Exercise of stock options ............. -- 717
Cash dividends ........................ -- (2,679)
Other comprehensive income, net of
reclassification adjustments and taxes -- 1,013 1,013
-------------
Total comprehensive income ............ $ 8,526
=============
Purchase of treasury stock ............ (1,178) (1,178)
Retirement of treasury stock .......... 1,178 --
------------- -------------
BALANCE, December 31, 2002 ............. $ -- $ 51,498
============= =============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Years Ended
December 31,
------------------------------------
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 7,513 $ 6,080 $ 4,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................. 1,248 2,094 2,278
Amortization of premium (accretion of discount) on securities, net ............. 1,472 194 (72)
Gain on sale of assets ......................................................... (124) -- (517)
Gain on sale of securities, net ................................................ (1,191) (633) (107)
Loss on sale of securities, trading account .................................... 9 -- --
Provision for loan and lease losses ............................................ 996 885 1,048
Deferred income tax benefit .................................................... (655) (580) (491)
Decrease (increase) in accrued interest receivable ............................. (83) 1,253 (642)
Decrease (increase) in Bank owned life insurance and other assets .............. 268 (2,808) 3,361
(Decrease) increase in accrued interest and other liabilities .................. (6,159) 2,948 4,799
--------- --------- ---------
Net cash provided by operating activities ........................................ 3,294 9,433 14,487
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale investment securities -
Purchases ...................................................................... (161,124) (127,143) (19,180)
Sales .......................................................................... 22,646 17,655 1,371
Maturities ..................................................................... 101,815 93,868 27,417
Held-to-maturity investment securities -
Purchases ...................................................................... (4,120) -- --
Maturities ..................................................................... 494 1,867 5,394
Net decrease (increase) in interest-bearing deposits with banks ................. 4,438 (9,086) 5,884
Net increase in loans ........................................................... (31,775) (38,112) (25,576)
Capital expenditures ............................................................ (2,193) (1,556) (835)
--------- --------- ---------
Net cash used in investing activities ..................................... (69,819) (62,507) (5,525)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts ................................................ 59,420 19,378 4,611
(Decrease) increase in securities sold under agreement to repurchase ............ (10,619) 5,327 617
Proceeds from long-term FHLB advances ........................................... 10,000 20,000 25,000
Proceeds from issuance of subordinated debt ..................................... 24,000 -- --
Repayment of subordinated debt .................................................. (23,000) -- --
Dividends paid .................................................................. (2,679) (2,176) (1,844)
Proceeds from exercise of stock options ......................................... 717 503 177
Proceeds from the issuance of common stock, net of costs ........................ -- 410 489
Purchases of treasury stock ..................................................... (1,178) (508) (789)
Other, net ...................................................................... -- -- (131)
--------- --------- ---------
Net cash provided by financing activities .................................. 56,661 42,934 28,130
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ....................... (9,864) (10,140) 37,092
CASH AND CASH EQUIVALENTS, beginning of year ..................................... 46,997 56,292 19,200
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ........................................... $ 37,133 $ 46,997 $ 56,292
========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Greater Community Bancorp ("the Company"), through its subsidiary banks
Greater Community Bank ("GCBank"), Bergen Commercial Bank ("BCB") and Rock
Community Bank ("RCB") (collectively the "Bank Subsidiaries"), offers a broad
range of lending, depository and related financial services to individual
consumers, businesses and governmental units primarily through fifteen full
service offices located in Bergen, Passaic and Morris Counties, New Jersey.
Highland Capital Corp. ("HCC"), a wholly-owned nonbank subsidiary of
GCBank, engages in commercial equipment leasing focusing on small ticket and
lower or middle market leases for resale to third parties. Greater Community
Financial, LLC ("GCF"), a wholly-owned New Jersey limited liability company
located in Clifton, New Jersey, is a registered broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Security Dealers.
The Bank Subsidiaries compete with other banking and financial
institutions in their primary market communities, including financial
institutions with resources substantially greater than their own. Commercial
banks, savings banks, savings and loan associations, credit unions, and money
market funds actively compete for deposits and loans. Such institutions, as well
as consumer finance and insurance companies may be considered competitors with
respect to one or more services they render.
The Company, Bank Subsidiaries and GCF are subject to regulation and
periodic examination by certain state and federal agencies. As a consequence of
the extensive regulation of commercial banking and related financial activities,
their respective businesses are particularly susceptible to being affected by
state and federal legislation and regulations.
BASIS OF FINANCIAL PRESENTATION
The accounting and reporting policies of the Company and its subsidiaries
conform with accounting principles generally accepted in the United States of
America (US GAAP) and predominant practices within the banking industry. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries GCBank, BCB, RCB, GCB Realty, LLC, GCF, Greater
Community Services, Inc., GCBank's wholly-owned subsidiaries, Great Falls
Investment Company and HCC, and BCB's wholly-owned subsidiaries, BCB Investment
Company. Each of the investment companies, in turn, has a wholly-owned Delaware
subsidiary that holds and manages its investment securities. All significant
intercompany accounts and transactions have been eliminated.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These estimates and assumptions also affect reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The principal estimate that is particularly susceptible to significant
change in the near term relates to the allowance for loan and lease losses and
intangible assets. The evaluation of the adequacy of the allowance for loan and
lease losses includes an analysis of the individual loans and overall risk
characteristics and size of the different loan portfolios, and takes into
consideration current economic and market conditions, the capability of specific
borrowers to pay specific loan obligations, and current loan collateral values.
However, actual losses on specific loans, which also are encompassed in the
analysis, may vary from estimated losses.
Substantially all outstanding goodwill resulted from the acquisition of
First Savings Bancorp of Little Falls, Inc. ("First Savings"), a Passaic County
institution which had developed a compelling, if not predominant, market
position of being the small business bank in Passaic County. As a result of
First Savings' market penetration, the Company had formulated its own strategy
to create such a "market role". Accordingly, implicit in the Company's purchase
of the First Savings franchise was the acquisition of that role. However, if
such benefits, including new business, are not derived or the Company changes
its business plan, estimated amortization may increase and/or a charge for
impairment may be recognized.
Statement on Financial Accounting Standards (SFAS) No. 131 establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in subsequent
interim financial reports issued to stockholders. It also establishes standards
for
29
related disclosure about products and services, geographic area, and major
customers. The statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
The Company applies the aggregation criteria set forth under SFAS No. 131
for its Bank subsidiaries operating segments to create one reportable segment,
"Community Banking". All of the Company's activities are interrelated, and each
activity is dependent and assessed based on how each of the Company's activities
supports the other activities. For example, a bank's commercial lending is
dependent upon its ability to fund itself with retail deposits and other
borrowings and to manage interest rate and credit risk. This situation is also
similar for consumer and residential mortgage lending. Accordingly, all
significant operating decisions are based upon analysis of the Company as one
operating segment or unit.
INVESTMENT SECURITIES
The Company accounts for its investment securities in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Investment securities that the Company has the ability and intent to hold to
maturity are classified as held-to-maturity and are stated at cost, adjusted for
premium amortization and discount accretion. Securities which are held for
indefinite periods of time which management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, increased capital requirements or other
similar factors, are classified as available-for-sale and are carried at fair
market value. Net unrealized gains and losses for such securities, net of income
tax effect, are charged/credited directly to shareholders' equity. The Company
did not engage in securities trading before 2002. Securities transactions are
accounted for on a trade date basis. Gains or losses on disposition of
investment securities are based on the net proceeds and the adjusted carrying
amount of the securities sold using the specific identification method.
During the first quarter of 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 December 31, 2002 the Company did not have any investment
securities designated as trading.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity," established accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 was amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." The Company's adoption of SFAS No. 133, as amended, did not
have a material impact on its financial condition or results of operations.
LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans that management has the intent or the ability to hold for the
foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal net of unearned discount, unearned loan fees, and an allowance
for loan and lease losses. The allowance for loan and lease losses is
established through a provision for loan and lease losses charged to expense.
Loans are charged against the allowance for loan and lease losses when
management believes that the collectibility of principal is unlikely. The
allowance for loan and lease losses is maintained at a level that management
considers adequate to provide for loan and lease losses inherent in the loan
portfolio at the reporting date. The level of the allowance is based on
management's evaluation of losses in the loan portfolio after consideration of
prevailing and anticipated economic conditions, including estimates and
appraisals, among other items, known or anticipated at each reporting date. On a
periodic basis during the year management makes credit reviews of the loan
portfolio designed to identify potential charges to the allowance.
Interest income on loans is credited to operations based upon the
principal amount outstanding. The net amounts of loan origination fees, direct
loan origination costs and loan commitment fees are deferred and recognized over
the lives of the related loans as adjustments of yield. When management believes
there is sufficient doubt as to the ultimate collectibility of interest on any
loan, the accrual of applicable interest is discontinued. A loan is generally
classified as nonaccrual when principal and interest have consistently been in
default for a period of 90 days or more or because of a deterioration in the
financial condition of the borrower, and payment in full of principal or
interest is not expected. Loans past due 90 days or more and still accruing
interest are loans that are generally well-secured and expected to be restored
to a current status in the near future.
The Company follows SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". This standard requires that
certain impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rates, except that as a
practical expedient, a creditor may measure impairment based on a loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Regardless of the measurement method, a creditor must
measure impairment based
30
on the fair value of the collateral when the creditor determines that
foreclosure is probable. The Company had previously measured the allowance for
credit losses using methods similar to those prescribed in this standard.
The Company accounts for its transfers and servicing assets in accordance
with SFAS No. 140, "Accounting for Transfers of Servicing of Financial Assets
and Extinguishments of Liabilities", which SFAS No. 140 revised the accounting
for the securitization of other transfers of financial assets and collateral.
This standard also requires certain disclosures, but carries over most of the
provisions of SFAS No. 125.SFAS No. 140 was effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001.
During 2001 the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and
Documentation Issues. This SAB provides guidance on the development,
documentation, and application of a systematic methodology for determining the
allowance for loans and leases in accordance with US GAAP. The adoption of SAB
No. 102 did not have a material impact on the Company's consolidated financial
position or results of operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the term of the lease or estimated useful life, whichever is
shorter.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived assets to be
held and used or to be disposed of by sale. SFAS No. 144 changes the
requirements relating to reporting the effects of a disposal or discontinuation
of a segment of a business. The adoption of this statement did not have a
significant impact on the Company's consolidated financial condition or results
of operations.
BANK OWNED LIFE INSURANCE
The Company invests in bank-owned life insurance (BOLI). BOLI involves the
Company's purchase of insurance on the lives of a chosen group of employees. The
Company is the owner and beneficiary of the policies.
GOODWILL
Goodwill represents the excess of the cost over the fair value of net
assets of acquired businesses. Substantially all outstanding goodwill resulted
from the acquisition of First Savings in 1999 and, through 2001, was being
amortized over 20 years on a straight-line basis. Goodwill at December 31, 2002
and 2001 was approximately $11,574,000. The amortization expense charged to
income was $777,000 for the years ended December 31, 2001and 2000. Amortization
expense was not charged to income for 2002 as a result of the adoption of SFAS
No. 142.
On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets. This SFAS 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. The
Company did not identify any impairment of goodwill during its transitional
impairment testing and has not recorded any transitional goodwill impairment
loss as a result of the adoption of SFAS. No. 142.
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 SFAS No. 142.
For the years ended December 31,
--------------------------------
2002 2001 2000
------ ------ ------
(In Thousands except for
earnings per share amounts)
Reported net income.................................... $7,513 $6,080 $4,830
Add back goodwill amortization......................... -- 777 777
------ ------ ------
Adjusted net income.................................... $7,513 $6,857 $5,607
====== ====== =====
Basic earnings per share
Reported basic earnings per share...................... $1.07 $ 0.87 $0.70
Goodwill amortization.................................. -- 0.11 0.11
------ ------ -----
Adjusted basic earnings per share...................... $1.07 $ 0.98 $0.81
====== ====== =====
Diluted earnings per share
Reported basic earnings per share...................... $ 1.01 $ 0.83 $0.68
Goodwill amortization................................. -- 0.11 0.11
------ ------ -----
Adjusted basic earnings per share...................... $ 1.01 $ 0.94 $0.79
====== ====== =====
31
DEFERRED FINANCING COSTS
Deferred financing costs related to the issuance of subordinated debt are
being amortized over the life of the instruments and are included in other
assets. The unamortized balances at December 31, 2002 and 2001 were
approximately $1,072,000 and $1,043,000, respectively. In 2002, the Company
wrote off deferred financing costs of $1,022,000 related to the issuance of the
1997 Trust Preferred Securities.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates that will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The principal types of accounts resulting
in differences between assets and liabilities for financial statement and tax
return purposes are the allowance for loan and lease losses, interest income on
nonaccrual loans, depreciation and amortization, difference between book and tax
bases of assets acquired and acquired net operating loss carryforwards. The
Company and its subsidiaries file a consolidated federal income tax return.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents are defined as the sum of cash on hand, non
interest-bearing amounts due from banks and federal funds sold. Generally,
federal funds are sold for a one-day period. Cash paid for income taxes was $4.3
million,$3.2 million and $2.5 million for the years ended December 31, 2002,
2001 and 2000, respectively. Cash paid for interest was $15.6 million, $21.7
million and $16.1 million for the years ended December 31, 2002, 2001 and 2000,
respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 2002, 2001 and 2000 were approximately
$311,000, $297,000 and $235,000, respectively.
STOCK BASED COMPENSATION
The Company follows the disclosure provisions for its stock options under
SFAS No. 123, "Accounting for Stock-Based Compensation". This standard contains
a fair value-based method for valuing stock-based compensation that entities may
use, and measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, the standard permits entities to
continue accounting for employee stock options and similar equity instruments
under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees". Entities that continue to account for stock options using
APB Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
At December 31, 2002, the Company has four stock-based employee and
director compensation plans, which are more fully described in Note 11. The
Company accounts for these plans under the recognition and measurement
principles of APB No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Stock-based employee and director compensation costs
are not reflected in net income, as all options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, to stock-based employee and director compensation.
Year ended December 31,
----------------------------------------
2002 2001 2000
------- ------ ------
(In Thousands, except per share amounts)
Net income......................................... As reported $7,513 $6,080 $4,830
Less: stock-based compensation costs determined
Under fair value-based method for all awards...... (243) (240) (227)
------ ------ ------
Pro forma $7,270 $5,840 $4,603
====== ====== ======
Earnings per share of common stock - basic......... As reported $1.07 $0.87 $0.70
Pro forma $1.04 $0.84 $0.60
Earnings per share of common stock-diluted......... As reported $1.01 $0.83 $0.68
Pro forma $0.98 $0.80 $0.65
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in 2002, 2001 and 2000,
respectively: dividend yields of 2.5%, 2.6% and 3.0%; expected volatility of
34%, 38% and 38%; risk-free interest rates of 5.82%, 5.46% and 5.63%; and
expected lives of five and ten years.
32
NET INCOME PER SHARE
Basic earnings per-share exclude dilution and is computed by dividing
income available to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if stock options or other contracts to issue
common stock were exercised and converted into common stock. All weighted
average actual shares and per share information in the financial statements has
been adjusted retroactively for the effect of stock split and stock dividends.
COMPREHENSIVE INCOME
The Company follows the disclosure provisions of SFAS No. 130, "Reporting
Comprehensive Income." This SFAS establishes a standard for reporting
comprehensive income, which includes net income as well as certain other items
that result in a change to shareholders' equity during the period.
The income tax effects allocated to comprehensive income are as follows:
December 31, 2002 December 31, 2001 December 31, 2000
------------------------------ ------------------------------ -------------------------------
Before Tax Net Before Tax Net Before Tax Net
Tax (Expense) Of Tax Tax (Expense) of Tax Tax (Expense) of Tax
Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
--------- -------- -------- --------- --------- -------- --------- --------- --------
Unrealized gains on investment
securities:
Unrealized holding gains
arising during period.......... $2,792 $(1,064) $1,728 $3,234 $(1,282) $1,952 $3,440 $(1,410) $2,030
Less reclassification adjustment
For gains realized in net
income...................... 1,191 (476) 715 633 (253) 380 107 (43) 64
------ ----- ------ ------ ------- ------ ------ ------- ------
Other comprehensive income, net.. $1,601 $(588) $1,013 $2,601 $(1,029) $1,572 $3,333 $(1,367) $1,966
====== ===== ====== ====== ======= ====== ====== ======= ======
RECLASSIFICATIONS
Certain reclassifications have been made in the 2001 and 2000 financial
statements to conform to the classifications used in 2002.
33
NOTE 2 - INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and fair value of the
Company's investment securities available-for-sale and held-to-maturity are as
follows:
December 31,
-------------------------------------------------------------------------------------------
2002 2001
-------------------------------------------- ---------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
Available-for-sale (In Thousands)
U.S. Treasury and U.S. Government
agencies securities ........... $ 22,823 $ 426 $ (12) $ 23,237 $ 21,288 $ 436 $ (12) $ 21,712
State and political
Subdivisions .................. 4,536 59 -- 4,595 7,279 -- (26) 7,253
Other debt and equity
Securities .................... 25,860 4,157 (604) 29,413 23,796 3,657 (774) 26,679
Mortgage-backed securities:
FHLMC ..................... 63,250 797 (73) 63,974 50,052 447 (87) 50,412
FNMA ...................... 43,444 584 (10) 44,018 23,842 245 (62) 24,025
Other ..................... 21,363 280 (5) 21,638 19,966 188 (23) 20,131
--------- --------- --------- --------- --------- --------- --------- ---------
128,057 1,661 (88) 129,630 93,860 880 (172) 94,568
--------- --------- --------- --------- --------- --------- --------- ---------
Total Available-for-sale ......... $ 181,276 $ 6,303 $ (704) $ 186,875 $ 146,223 $ 4,973 $ (984) $ 150,212
========= ========= ========= ========= ========= ========= ========= =========
Held-to-maturity
U.S. Treasury and U.S. Government
agencies securities ........... $ 1,000 $ 3 $ -- $ 1,003 $ 1,000 $ -- $ (50) $ 950
State and political
Subdivisions .................. 4,120 -- -- 4,120 185 1 -- 186
Mortgage-backed securities:
FHLMC ..................... 200 4 -- 204 502 12 -- 514
FNMA ...................... -- -- -- -- 7 -- -- 7
--------- --------- --------- --------- --------- --------- --------- ---------
200 4 -- 204 509 12 -- 521
--------- --------- --------- --------- --------- --------- --------- ---------
Total Held-to-maturity ........... $ 5,320 $ 7 $ -- $ 5,327 $ 1,694 $ 13 $ (50) $ 1,657
========= ========= ========= ========= ========= ========= ========= =========
34
The amortized cost and fair value of securities at December 31, 2002 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because issuers and borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
--------- ---------
(In Thousands)
Available-for-sale
Due in one year or less ............................. $ 8,771 $ 8,815
Due after one year through five years ............... 12,798 13,176
Due after five years through ten years .............. 1,157 1,172
Due after ten years ................................. 4,633 4,669
Mortgage-backed securities .......................... 128,057 129,630
Other debt and equity securities .................... 25,860 29,413
--------- ---------
$ 181,286 $ 186,875
========= =========
Held-to-maturity
Due in one year or less ............................. $ 4,120 $ 4,120
Due after five years through ten years .............. 1,000 1,000
Mortgage-backed securities .......................... 200 204
--------- ---------
$ 5,320 $ 5,324
--------- ---------
$ 186,596 $ 192,202
========= =========
Proceeds from sales of available-for-sale securities for the years ended
December 31, 2002, 2001 and 2000 were $22.6 million, $17.7 million and $1.4
million, respectively. Gross gains of $1.2 million, $633,000 and $107,000 were
realized on these sales for the years ended December 31, 2002, 2001 and 2000,
respectively. Gross losses were not significant for such years.
Securities with a carrying value of$79.0 million and $73.7 million at
December 31, 2002 and 2001, respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes required by law.
NOTE 3 - LOANS
Major classifications of loans are as follows:
December 31,
----------------------
2002 2001
--------- ---------
(In Thousands)
Loans secured by one- to four-family residential properties . $ 142,677 $ 146,450
Loans secured multi-family residential properties ........... 12,861 13,039
Loans secured by nonresidential properties .................. 203,501 181,959
Loans to individuals ........................................ 8,843 8,491
Commercial loans ............................................ 33,859 38,467
Construction loans .......................................... 24,339 14,054
Lease financing receivables ................................. 17,058 7,306
Other loans ................................................. 957 1,643
--------- ---------
$ 444,095 $ 411,409
========= =========
The following table presents information related to loans which are on a
nonaccrual basis, loans which have been renegotiated to provide a reduction or
deferral of interest or principal for reasons related to the debtor's financial
difficulties and loans contractually past due ninety days or more as to interest
or principal payments.
December 31,
----------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
Nonaccrual loans and leases ............................................. $ 2,767 $ 1,373 $ 1,281
Renegotiated loans ...................................................... 295 545 845
-------- -------- --------
Total nonperforming loans and leases .................................... $ 3,062 $ 1,918 $ 2,126
======== ======== ========
Loans past due 90 days and accruing ..................................... $ 587 $ 34 $ 54
======== ======== ========
Gross interest income which would have been recorded under original terms $ 135 $ 45 $ 67
======== ======== ========
The balance of impaired loans was $2.5 million, $1.4 million and $1.1
million at December 31, 2002, 2001 and 2000, respectively. The Bank Subsidiaries
have identified a loan as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the loan
agreements. The allowance for loan and lease losses associated with impaired
loans was $1.1 million,$549,000 and $196,000 at December 31, 2002, 2001 and
2000, respectively. The average recorded investment in impaired loans was $1.7
million, $1.3 million and $1.4 million at December 31, 2002, 2001 and 2002,
respectively. The income recognized on impaired loans for 2002, 2001 and 2000
was $105,000, $45,000 and $67,000, respectively. The Bank
35
Subsidiaries' policy for interest income recognition on impaired loans is to
recognize income on restructured loans under the accrual method. The Bank
Subsidiaries recognize income on nonaccrual loans under the cash method when the
loans are current and the collateral on the loans is sufficient to cover the
outstanding obligation. If both of these factors do not exist, the Bank
Subsidiaries do not recognize income.
The Bank Subsidiaries extended credit to various directors, executive
officers and their associates. These extensions are made in the ordinary course
of business and on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
others. At December 31, 2002, loans outstanding to these related parties
amounted to $15.8 million. During 2002 there were new loans to related parties
of $4.3 million and repayments of $4.4 million. All such loans were current as
to principal and interest payments at December 31, 2002.
NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
An analysis of the allowance for loan and lease losses is as follows:
Years ended December 31,
----------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
Balance at beginning of year ............................................ $ 6,320 $ 5,657 $ 4,953
Provision charged to operations ......................................... 996 885 1,048
Charge-offs ............................................................. (298) (320) (448)
Recoveries .............................................................. 280 98 104
-------- -------- --------
Balance at end of year .................................................. $ 7,298 $ 6,320 $ 5,657
======== ======== ========
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
Estimated -----------------------
Useful Lives 2002 2001
---------------- -------- --------
(In Thousands)
Land........................................... Indefinite $ 1,531 $ 1,531
Buildings and improvements..................... 5 to 20 years 4,994 4,244
Furniture, fixtures and equipment.............. 3 to 10 years 6,177 5,037
Leasehold improvements......................... 3 to 40 years 2,442 2,145
-------- --------
Less accumulated depreciation and amortization. 15,144 12,957
(7,294) (6,052)
-------- --------
$ 7,850 $ 6,905
======== ========
Depreciation and amortization expense was $1.2 million, $1.3 million and
$1.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.
NOTE 6 - DEPOSITS
At December 31, 2002, the schedule of maturities of certificates of
deposit is as follows (in thousands):
2003 .......................................... $131,007
2004 .......................................... 13,103
2005........................................... 12,998
2006........................................... 976
2007........................................... 646
--------
$158,730
========
36
NOTE 7 - DEBT
Short-Term Borrowings
Federal funds purchased and securities sold under agreements to repurchase
generally mature within 30 days from the date of the transaction. Short-term
borrowings consist of various other borrowings, which generally have maturities
of less than one year. The details of these categories are presented below:
Years ended December 31,
------------------------------
2002 2001 2000
-------- ------- -------
(In Thousands)
Securities sold under repurchase agreements and federal funds purchased
Balance at year-end................................................... $ 11,728 $22,347 $17,020
Average during the year............................................... 15,276 17,326 15,201
Maximum month-end balance............................................. 26,545 64,010 40,420
Weighted average rate during the year................................. 1.42% 3.32% 5.64%
Rate at December 31................................................... 1.01% 1.67% 5.52%
Federal Home Loan Bank Advances
The Company has a line of credit for $29.0 million with the Federal Home
Loan Bank ("FHLB") which is collateralized by FHLB stock. Borrowings under this
arrangement have an interest rate that fluctuates based on market conditions and
customer demand. As of December 31, 2002 and 2001 there were no outstanding
balances.
At December 31, 2002 the Company had $80.0 million of advances from the
FHLB. These advances are collateralized by certain first mortgage loans. The
weighted average interest rate during 2002 was 5.17%. The FHLB advances mature
as follows:
2003 .......................................... $ --
2004 .......................................... --
2005........................................... 5,000
2006........................................... --
2007........................................... 5,000
Thereafter..................................... 70,000
-------
$80,000
=======
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
In 1997 the Company issued $23.0 million of 10.00% junior subordinated
debentures (the "1997 Debentures") to a Delaware business trust (the "1997
Trust") in which the Company owned all of the common equity. The 1997 Trust
issued $23.0 million of Preferred Securities to investors, secured by the 1997
Debentures and the Company's guarantee. On July 8, 2002, the Company used the
net proceeds from its sale of the 2002 Debentures to redeem the 1997 Debentures.
On June 28, 2002, the Company issued $24.0 million of 8.45% junior
subordinated debentures (the "2002 Debentures") due June 30, 2032 to GCB Capital
Trust II (the "2002 Trust"), also a Delaware business trust whose equity
securities are wholly-owned by the Company. The 2002 Debentures are the 2002
Trust's sole asset. The 2002 Trust issued 2,400,000 shares of trust preferred
securities, $10 face value, for total proceeds of $24 million. The Company's
obligations under the 2002 Debentures and related documents, taken together,
constitute a full, irrevocable and unconditional guarantee on a subordinated
basis by the Company of the 2002 Trust's obligations under the preferred
securities. The preferred securities are redeemable by the Company on or after
June 30, 2007, or earlier if the deduction of related interest for federal
income taxes is prohibited, treatment as Tier I capital is no longer permitted,
or certain other contingencies arise. The preferred securities must be redeemed
upon maturity of the 2002 Debentures in 2032. The ability of the Company's Bank
Subsidiaries to pay dividends or extend credit to the Company is subject to
legal and regulatory limitations.
37
NOTE 8 - INCOME TAXES
The provision for income taxes was as follows:
Years Ended December 31,
----------------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
Federal
Current ................................................................ $ 3,847 $ 3,484 $ 2,768
Deferred ............................................................... (498) (440) (372)
State
Current ................................................................ 161 260 516
Deferred ............................................................... (157) (140) (119)
-------- -------- --------
$ 3,353 $ 3,164 $ 2,793
======== ======== ========
The reconciliation of the provision for income taxes computed at the
statutory federal rate was as follows:
Years Ended December 31,
----------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
Tax at statutory federal rate ........................................... $ 3,694 $ 3,143 $ 2,591
Increase (reduction) in tax resulting from:
Tax-exempt income ..................................................... (96) (86) (116)
Amortization of intangible assets ..................................... -- 36 37
State income tax, net of federal benefit .............................. 18 104 278
Other ................................................................. (263) (33) 3
-------- -------- --------
Provision for income taxes ........................................ $ 3,353 $ 3,164 $ 2,793
======== ======== ========
The net deferred tax asset consists of the following:
December 31,
-------------------
2002 2001
------- -------
(In Thousands)
Allowance for loan and lease losses and other real estate ............ $ 3,085 $ 2,573
Interest income on nonaccrual loans .................................. 223 296
Depreciation and amortization ........................................ 848 773
Acquired net operating loss carryforward ............................. 30 70
Difference between book and tax basis of assets acquired ............. 290 290
Unrealized holding (gains) on investment securities available-for-sale (2,180) (1,592)
Other ................................................................ 196 15
------- -------
Total net deferred tax asset (included in other assets) ........... $ 2,492 $ 2,425
======= =======
At December 31, 2002 the Company had a net operating loss carryforward for
federal income tax purposes of approximately $978,000. This net operating loss
carryforward originated from previous acquisitions. Subject to certain yearly
limitations, the Company can utilize the preacquisition net operating loss
carryforward to offset future consolidated taxable income. The net operating
loss carryforwards, if unused, would expire in the years 2008 to 2010.
NOTE 9 - SHAREHOLDERS' EQUITY
On July 31, 2002, the Company paid a 5% stock dividend on its common stock
to shareholders of records on July 12, 2002. On July 31, 2001, the Company paid
a 5% stock dividend on its common stock to shareholders of record on July 13,
2001. On July 31, 2000, the Company paid a 5% stock dividend on its common stock
to shareholders of record on July 14, 2000.
38
NOTE 10 - EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS
No. 128, "Earnings Per Share," is as follows:
For Year Ended December 31, 2002
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- -------------- ---------------
(In Thousands, except for per share data)
Basic EPS
Net income available to common stockholders................. $7,513 7,030 $1.07
Effect of Dilutive Securities
Options..................................................... -- 442 (0.06)
------ ----- -----
Diluted EPS
Net income available to common stockholders plus assumed
conversions................................................. $7,513 7,472 $1.01
====== ===== =====
For the Year Ended December 31, 2001
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- -------------- ---------------
Basic EPS
Net income available to common stockholders................. $6,080 6,978 $0.87
Effect of Dilutive Securities
Options..................................................... -- 308 (0.04)
------ ----- -----
Diluted EPS
Net income available to common stockholders plus assumed
conversions................................................. $6,080 7,286 $0.83
====== ===== =====
For the Year Ended December 31, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- -------------- ---------------
Basic EPS
Net income available to common stockholders................. $4,830 6,971 $0.70
Effect of Dilutive Securities
Options..................................................... -- 153 (0.02)
------ ----- -----
Diluted EPS
Net income available to common stockholders plus assumed
conversions................................................. $4,830 7,124 $0.68
====== ===== =====
Options to purchase 192,594 shares of common stock from $8.30 - $9.49 per share
were outstanding during 2000. They were not included in the computation of
diluted EPS because the option exercise price was greater than the average
market price of the common stock.
NOTE 11 - STOCK BASED COMPENSATION
In April 2001, the Company adopted two new stock option plans. The 2001
Employee Stock Option Plan (the "2001 Employee Plan") provides for the granting
of incentive stock options, nonqualified stock options and stock appreciation
rights to employees of the Company and its subsidiaries. A total of 330,750
shares are authorized to be granted under the 2001 Employee Plan. Options to
acquire 116,025 shares were granted and outstanding under this Plan at December
31, 2002.
The 2001 Stock Option Plan for Nonemployee Directors (the "2001 Directors
Plan) provides for the granting of nonqualified stock options to nonemployee
directors of the Bank Subsidiaries. A total of 61,740 shares are authorized to
be granted under the 2001 Directors Plan. Options to acquire 58,212 shares were
granted and outstanding at December 31, 2002.
The 1996 Employee Stock Option Plan (the "1996 Employee Plan") provides
for the granting of incentive stock options, nonqualified stock options and
stock appreciation rights to employees of the Company and its subsidiaries. A
total of 560,291 shares were authorized to be granted under the 1996 Employee
Plan. During 2000, options to acquire 78,146 shares were granted under this
Plan. At December 31, 2002 and 2001, options to purchase a total of 396,179 and
460,149 shares, respectively, were outstanding under this Plan. As a result of
the approval of the 2001 Employee Plan, no further options will be granted under
the 1996 Employee Plan.
39
The 1996 Stock Option Plan for Nonemployee Directors (the "1996 Directors
Plan") provides for the granting of nonqualified stock options to nonemployee
directors of the Bank Subsidiaries. A total of 279,445 shares were authorized to
be granted under the 1996 Directors Plan. During 1996, options to acquire
266,139 shares were granted under this Plan. At December 31, 2002 and 2001,
options to purchase 354,438 and 256,902 shares were outstanding under this Plan.
A summary of the status of the Company's stock option plans as of December
31, 2002, 2001 and 2000 and the changes during the years ending on those dates
is represented below.
2002 2001 2000
-------------------------- -------------------------- -------------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
Of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------ ------------ ------------ -----------
Outstanding, beginning of year..... 836,028 $6.91 823,143 $6.76 788,677 $6.40
Granted............................ 61,425 12.95 116,865 9.75 82,053 7.47
Exercised.......................... (57,057) 7.78 (88,830) 10.08 (27,477) 7.76
Terminated......................... (15,543) 8.40 (15,150) 5.48 (15,110) 8.70
------------ ------------ ------------
Outstanding, end of year........... 824,853 $7.28 835,028 $6.91 823,143 $7.76
============ ============ ============
Options exercisable at year-end.... 436,475 324,000 253,406
============ ============ ============
Weighted average fair value of
Options granted during the year... $7.32 $5.80 $4.69
============ ============ ===========
The following table summarizes information about options outstanding at
December 31, 2002.
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price
--------------- ----------- ---------------- -------------- -------------- ---------------
$5.74 - $8.53 675,353 $4.79 $6.53 409,427 $6.33
149,500 8.77 10.64 27,048 9.02
----------- -----------
824,853 436,475
=========== ===========
NOTE 12 - BENEFIT PLANS
EMPLOYEE 401(k) PLAN
The Company has a 401(k) savings plan covering substantially all
employees. Under the plan, the Company matches 50% of employee contributions for
all participants with less than five years employment, not to exceed 2% of their
salary, and 75% of employee contributions for all participants with five or more
years of employment, not to exceed 3% of their salary. The Company contributed
approximately $645,000, $529,000 and $476,000 for 2002, 2001 and 2000,
respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
The Company adopted two Supplemental Executive Retirement Plans ("SERPs")
effective January 1999. The SERPs are designed to provide key executives a
benefit equal to the difference between (i) 70% of their respective highest
average three consecutive years of annual salary at retirement and (ii) the
benefits in fact provided from the respective subsidiary bank's funding of
tax-qualified retirement plans (such as the 401(k) Plan). Under the SERPs, the
amount of aggregate annual benefits to which the key executives would be
entitled upon retirement at age 65 has been actuarially determined to be
approximately $211,000. The benefits will be paid over 15 years. The Company
intends to fund its obligations under the SERPs with the proceeds of insurance
policies it purchased on the lives of these key executives.
DIRECTORS' RETIREMENT PLAN
During 1999, the Company established a noncontributory nonqualified
retirement plan for nonemployee directors of the Company and its subsidiaries
("Directors' Retirement Plan"). The Directors' Retirement Plan is designed to
provide a benefit to those nonemployee directors who, at retirement age, will
have a minimum of 15 years of service on the Board of which at least 5 years
occur after establishment of that Plan. Each participant's Retirement Benefit is
75% of his projected annual board fees earned in the year prior to his normal
retirement date. The annual payouts under this plan are based upon the
individual director's retirement ages and range from approximately $5,000 to
$68,000.
40
DEFERRED COMPENSATION PLAN
Effective January 1999 the Company established a deferred compensation
plan for certain directors of the Company ("Deferred Compensation Plan"). A
participating director may defer payment of a specified amount up to 100% of
monthly board fees. Amounts deferred earn interest at the rate of 10% per annum.
At retirement, the benefit under the Deferred Compensation Plan is payable in
the form of a monthly annuity for 10 years.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company and its subsidiaries lease banking facilities and other office
space under operating leases that expire at various dates through 2012 and that
contain certain renewal options. Rent expenses charged to operations
approximated $766,000, $836,000 and $832,000 for the years ended December 31,
2002, 2001 and 2000, respectively. Included in these amounts are $255,000 in
2002, $241,000 in 2001 and $226,000 in 2000, paid to a limited liability company
of which the Company's chairman and chairman emeritus are members.
As of December 31, 2002, future approximate minimum annual rental payments
under these leases are as follows (in thousands):
2003 .......................................... $652
2004 .......................................... 611
2005........................................... 499
2006........................................... 446
2007........................................... 451
Thereafter .................................... 1,307
------
Total......................................... $3,966
======
LITIGATION
The Company and its subsidiaries may, in the ordinary course of business,
become a party to litigation involving collection matters, contract claims and
other legal proceedings relating to the conduct of their business. In
management's judgment, the consolidated financial position of the Company will
not be affected materially by the final outcome of any present legal proceedings
or other contingent liabilities and commitments.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Bank Subsidiaries are parties to financial instruments with
off-balance sheet risk in the normal course of business to meet the fanancing
needs of their customers and to reduce their own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend credit
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable. Those instruments involve, to
varying degrees, elements of credit and interest rate risks in excess of the
amount recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank
Subsidiaries have in particular classes of financial instruments.
The Bank Subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual or
notional amount of those instruments. The Bank Subsidiaries use the same credit
policies in making commitments and conditional obligations as they do for
on-balance sheet instruments.
Unless noted otherwise, the Bank Subsidiaries do not require collateral or
other security to support financial instruments with credit risk. The
approximate contract amounts are as follows:
December 31,
-------------------
2002 2001
-------- -------
Financial instruments whose contract amounts represent credit risk (In Thousands)
Commitments to extend credit............................................. $114,070 $81,653
Standby letters of credit and financial guarantees written............... 2,374 2,753
41
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank Subsidiaries evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank Subsidiaries upon extension of credit,
is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Bank
Subsidiaries to guarantee a customer's performance to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Bank Subsidiaries hold residential or commercial real estate, accounts
receivable, inventory and equipment as collateral supporting those commitments
for which collateral is deemed necessary. The extent of collateral held for
those commitments at December 31, 2002 varies up to 100%.
The Bank Subsidiaries grant various commercial and consumer loans,
primarily within the State of New Jersey. Although the Bank Subsidiaries have
diversified loan portfolios, a substantial portion of their borrowers' ability
to honor their loan payment obligations in a timely fashion is dependent on the
success of the real estate industry. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Commercial and
standby letters of credit were granted primarily to commercial borrowers.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an
entity's assets and liabilities considered to be financial instruments. For the
Company, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in SFAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is the Company's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sales activities.
Therefore, the Company had to use significant estimations and present value
calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between the Company and other
institutions due to the wide range of permitted assumptions and methodologies in
the absence of active markets. This lack of uniformity gives rise to a high
degree of subjectivity in estimating financial instrument fair values.
The Company has determined estimated fair values using the best available
data and an estimation methodology suitable for each category of financial
instruments. The estimation methodologies used, the estimated fair values, and
recorded book balances at December 31, 2002 and 2001 are outlined below.
For cash and due from banks, the recorded book values of$37.1 million and
$47.0 million at December 31, 2002 and 2001, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values
of$9.4 million and $13.9 million at December 31, 2002 and 2001, respectively,
approximate fair values. The estimated fair values of investment securities are
based on quoted market prices, if available. Estimated fair values are based on
quoted market prices of comparable instruments if quoted market prices are not
available.
The net loan portfolio at December 31, 2002 and 2001 has been valued using
a present value discounted cash flow where market prices were not available. The
discount rate used in these calculations is the estimated current market rate
adjusted for credit risk. The carrying value of accrued interest approximates
fair value.
The following table describes the carrying amounts and estimated fair
values of investment securities and loans at December 31, 2002 and 2001.
2002 2001
------------------------ ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ---------- ---------- ----------
(In Thousands)
Investment securities available-for-sale.... $186,875 $186,875 $150,212 $150,212
Investment securities held-to-maturity...... 5,320 5,327 1,694 1,657
Loans, net.................................. 436,044 450,097 404,250 407,445
42
The estimated fair values of demand deposits (i.e., interest-bearing (NOW)
and non interest-bearing demand accounts, savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts of
variable rate accounts and certificates of deposit approximate their fair values
at the reporting date. The carrying amount of accrued interest payable
approximates its fair value.
The following table describes the carrying amounts and estimated fair
values of time deposits, federal funds purchased and securities sold under
agreements to repurchase and FHLB advances at December 31, 2002 and 2001.
2002 2001
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ---------- ------------
(In Thousands)
Time deposits................................ $158,730 $159,764 $167,445 $168,718
Securities sold under agreements to repurchase 11,728 11,728 22,347 22,367
FHLB Advances ............................... 80,000 96,200 70,000 81,015
The fair value of the guaranteed preferred beneficial interest in the
Company's subordinated debt totaling $24.0 million and $23.0 million at December
31, 2002 and 2001, respectively, approximates fair value.
The fair value of commitments to extend credit is estimated based on the
amount of unamortized deferred loan commitment fees. The fair value of letters
of credit is based on the amount of unearned fees plus the estimated cost to
terminate the letters of credit. Fair values of unrecognized financial
instruments, including commitments to extend credit and the fair value of
letters of credit, are considered immaterial.
NOTE 16 - REGULATORY MATTERS AND CAPITAL REQUIREMENTS
New Jersey state law permits the payment of dividends from a bank
subsidiary to its parent company provided there is no impairment of the
subsidiary's capital accounts and provided the subsidiary bank maintains a
surplus of not less than 50% of its capital stock, or if payment of the dividend
will not reduce the subsidiary's surplus. GCBank had $12.9 million and $13.0
million as of December 31, 2002 and 2001; BCB had $4.2 million and $4.1 million
as of December 31, 2002 and 2001, and RCB had $1.0 million and $1.2 million as
of December 31, 2002 and 2001, respectively, of funds available for the payment
of dividends to the Company.
The Company and the Bank Subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies including the
Federal Reserve. Failure to meet minimum capital requirements can initiate
certain mandatory and possible additional discretionary actions by regulators
that, if undertaken, could have a material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank Subsidiaries must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance sheet items as calculated under regular
accounting practices. The capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Bank Subsidiaries and the Company to maintain minimum
amounts and ratios of total and Tier I capital to risk-weighted assets.
Management believes the Company and the Bank Subsidiaries met all capital
adequacy requirements to which they were subject as of December 31, 2002.
As of December 31, 2002, the most recent notification from the FDIC
categorized the Bank Subsidiaries as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Company and Bank Subsidiaries must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
Management believes no conditions or events have occurred since the most recent
FDIC notification that have changed the category of the Company or any of the
Bank Subsidiaries.
43
To Be Well-Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
As of December 31, 2002
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 68,402 13.77% $ 39,734 8.00% N/A N/A
Greater Community Bank .............. 33,139 10.78 24,592 8.00 $ 30,741 10.00%
Bergen Commercial Bank .............. 15,280 10.11 12,090 8.00 15,113 10.00
Rock Community Bank ................. 5,354 19.46 2,201 8.00 2,751 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 52,543 10.58 19,867 4.00 N/A N/A
Greater Community Bank .............. 29,285 9.53 12,296 4.00 18,444 6.00
Bergen Commercial Bank .............. 13,388 8.86 6,045 4.00 9,068 6.00
Rock Community Bank ................. 5,010 18.21 1,100 4.00 1,651 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp ........... 52,543 7.38 28,488 4.00 N/A N/A
Greater Community Bank .............. 29,285 6.50 18,012 4.00 22,515 5.00
Bergen Commercial Bank .............. 13,388 6.39 8,387 4.00 10,484 5.00
Rock Community Bank ................. 5,010 13.11 1,528 4.00 1,910 5.00
As of December 31, 2001
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 60,607 13.89% $ 34,915 8.00% N/A N/A
Greater Community Bank .............. 31,165 11.52 21,646 8.00 $ 27,057 10.00%
Bergen Commercial Bank .............. 13,433 10.20 10,533 8.00 13,166 10.00
Rock Community Bank ................. 5,047 15.57 2,593 8.00 3,241 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 46,713 10.70 17,457 4.00 N/A N/A
Greater Community Bank .............. 27,773 10.26 10,823 4.00 16,234 6.00
Bergen Commercial Bank .............. 11,786 8.95 5,266 4.00 7,899 6.00
Rock Community Bank ................. 4,783 22.66 844 4.00 1,267 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp ........... 46,713 7.23 25,861 4.00 N/A N/A
Greater Community Bank .............. 27,773 6.66 16,681 4.00 20,852 5.00
Bergen Commercial Bank .............. 11,786 6.41 7,354 4.00 9,193 5.00
Rock Community Bank ................. 4,783 15.57 1,229 4.00 1,536 5.00
44
NOTE 17 - CONDENSED FINANCIAL
INFORMATION - PARENT COMPANY ONLY
The condensed financial information of Greater Community Bancorp (parent
company only) is as follows:
CONDENSED BALANCE SHEET
December 31,
------------------
2002 2001
------- -------
ASSETS: (In Thousands)
Cash ...................................................................... $ 2,625 $ 2,076
Investment securities available-for-sale .................................. 10,775 9,058
Accrued interest receivable ............................................... 39 41
Investment in subsidiaries ................................................ 61,845 59,779
Other assets .............................................................. 1,338 1,048
------- -------
Total assets ......................................................... $76,622 $72,002
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Guaranteed preferred beneficial interest in the Company's subordinated debt $24,743 $23,711
Other liabilities ......................................................... 381 2,179
Shareholders' equity ...................................................... 51,498 46,112
------- -------
Total liabilities and shareholders' equity ........................... $76,622 $72,002
======= =======
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------
2002 2001 2000
-------- ------- -------
INCOME: (In Thousands)
Equity in undistributedincome of Bank Subsidiaries $ 823 $ 3,350 $ 948
Dividends from Bank Subsidiaries ................. 7,919 3,900 5,447
Interest income .................................. 350 319 283
Gain on sale of investment securities ............ 1,121 337 107
-------- ------- -------
10,213 7,906 6,785
-------- ------- -------
EXPENSES:
Interest on subordinated debt .................... 2,168 2,300 2,465
Write off of deferred issuance costs ............. 1,022 -- --
Other expenses ................................... 205 172 262
-------- ------- -------
3,395 2,472 2,727
-------- ------- -------
Income before income tax benefit ............ 6,818 5,434 4,058
Income tax benefit ............................... (695) (646) (772)
-------- ------- -------
Net income ....................................... $ 7,513 $ 6,080 $ 4,830
======== ======= =======
45
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
----------------------------------
2002 2001 2000
-------- -------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 7,513 $ 6,080 $ 4,830
Adjustments to reconcile net income to cash provided by operating
activities:
Gain on sale of investment securities available-for-sale .............. (1,121) (337) (107)
(Increase) decrease in other assets ................................... (35) 621 664
Increase (decrease) in other liabilities .............................. (392) 805 319
Equity in undistributed income of subsidiaries ........................ (823) (3,350) (948)
-------- -------- --------
Net cash provided by operating activities .......................... 5,142 3,819 4,754
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ................. (2,867) (697) (1,550)
Proceeds from the sale of investment securities, available-for-sale ... 2,150 -- --
Payments for investments in and advances to subsidiaries .............. (2,736) (100) (400)
Proceeds from advances to Subsidiaries ................................ 1,000 -- 1,796
-------- -------- --------
Net cash (used in) investing activities ........................... (2,453) (797) (154)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) from short-term debt ...................................... -- -- (1,990)
Proceeds from issuance of common stock, net ........................... -- 410 489
Proceeds from exercise of stock options ............................... 717 503 177
Proceeds from the issuance of subordinated debt ....................... 24,000 -- --
Repayment of subordinated debt ........................................ (23,000) -- --
Dividends paid ........................................................ (2,679) (2,176) (1,844)
Purchase of treasury stock ............................................ (1,178) (508) (789)
Other, net ............................................................ -- 38 3
-------- -------- --------
Net cash (used in) financing activities .......................... (2,140) (1,733) (3,954)
-------- -------- --------
Net increase in cash and cash equivalents ........................ 549 1,289 646
-------- -------- --------
CASH AND CASH EQUIVALENTS, beginning of year .............................. 2,076 787 141
CASH AND CASH EQUIVALENTS, end of year .................................... $ 2,625 $ 2,076 $ 787
======== ======== ========
46
NOTE 18 - QUARTERLY
FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the
Company which, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's results of operations.
Three months ended
---------------------------------------------------------
December 31 September 30 June 30 March 31
----------- ------------ ------------ ----------
(In Thousands, except for per share data)
2002
Interest income ........................... $10,089 $10,443 $10,382 $10,119
Interest expense .......................... 3,537 3,624 3,668 3,857
Net interest income ....................... 6,552 6,819 6,714 6,262
Provision for loan and lease losses ....... 335 223 217 221
Non-interest income ....................... 2,015 1,466 1,746 1,964
Non-interest expense ...................... 5,010 6,415 5,286 4,965
Income before income taxes ................ 3,222 1,647 2,957 3,040
Net income ................................ $ 2,203 $ 1,177 $ 2,039 $ 2,094
Average common shares outstanding - basic . 7,018 7,027 7,039 7,038
Average common shares outstanding - diluted 7,459 7,484 7,477 7,403
Per share data
Net income per common share - basic ...... $ 0.31 $ 0.17 $ 0.29 $ 0.30
Net income per common share - diluted .... 0.30 0.16 0.27 0.28
2001
Interest income ........................... $10,362 $10,787 $10,825 $10,801
Interest expense .......................... 4,430 5,199 5,364 5,504
Net interest income ....................... 5,932 5,588 5,461 5,297
Provision for loan and lease losses ....... 249 221 211 204
Non-interest income ....................... 2,099 1,444 1,589 1,383
Non-interest expense ...................... 4,649 4,718 4,683 4,614
Income before income taxes ................ 3,133 2,093 2,156 1,862
Net income ................................ $ 2,044 $ 1,386 $ 1,431 $ 1,219
Average common shares outstanding - basic . 7,026 6,958 6,962 6,969
Average common shares outstanding - diluted 7,324 7,281 7,216 7,195
Per share data
Net income per common share - basic ...... $ 0.29 $ 0.20 $ 0.21 $ 0.17
Net income per common share - diluted .... 0.27 0.19 0.20 0.17
47
Report Of Independent Certified Public Accountants
To the Board of Directors and Shareholders
Greater Community Bancorp
We have audited the accompanying consolidated balance sheets of Greater
Community Bancorp and subsidiaries as of December 31, 2002 and 2001 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Greater Community Bancorp and subsidiaries as of December 31, 2002 and 2001, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, on January 1, 2002.
/s/Grant Thornton LLP
Philadelphia, Pennsylvania
January 10, 2003
48
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors and Executive Officers: Information required by Items 401
and 405 of Reg. S-K is contained in the registrant's definitive
Proxy Statement for its 2003 Annual Meeting of Stockholders
furnished to the Commission pursuant to Regulation 14A.
B. Other Significant Employees: Not applicable.
C. Family Relationships: John L. Soldoveri, Chairman Emeritus of the
Company, is the father of Robert C. Soldoveri, a director of both
the Company and GCBank, and the uncle of Anthony M. Bruno, Jr.,
Chairman of the Company, GCBank and BCB. C. Mark Campbell, a
director and Executive Vice President of the Company and President
of BCB, is Mr. Bruno's brother-in-law.
D. Involvement in Certain Legal Proceedings: Not applicable.
Item 11 EXECUTIVE COMPENSATION
Information required by Item 402 of Reg. S-K is contained in the
registrant's definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Security Ownership of Certain Beneficial Owners: Information
required by Item 403(a) of Reg. S-K is contained in the registrant's
definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
B. Security Ownership of Management: Information required by Item
403(b) of Reg. S-K is contained in the registrant's definitive Proxy
Statement for its 2003 Annual Meeting of Stockholders to be
furnished to the Commission pursuant to Regulation 14A.
C. Changes in Control: Not applicable. The registrant knows of no
contractual arrangements that may, at a future date, result in a
change of control of the registrant.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Reg. S-K is contained in the
registrant's definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
Item 14 CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The management of the Company, including the Chief Executive Officer
and the Chief Financial Officer, have conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures pursuant
to Rule 13a-14 under the Securities Exchange Act of 1934 as of a date (the
"Evaluation Date") within 90 days prior to the filing date of this report.
Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective in ensuring that all
material information relating to the Company, including our
49
consolidated subsidiaries, required to be filed in this quarterly report
has been made known to them in a timely manner.
(b) Changes in internal controls.
There have been no significant changes made in the Company's
internal controls or in other factors that could significantly affect
internal controls subsequent to the Evaluation Date.
PART IV
Item 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. This report includes financial statements for the Company's fiscal
year ended December 31, 2002.
B. Reports on Form 8-K.
On October 23, 2002, the Company filed a Form 8-K reporting the
rejection by 1st Constitution Bancorp's directors of the Company's
offer to acquire 1st Constitution Bancorp.
On October 23, 2002, the Company filed a second Form 8-K reporting
its earnings for the first nine months and third quarter of 2002.
C. Exhibits. An Exhibit Index has been filed as part of this Report on
page E-1. Such Exhibit Index is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Greater Community Bancorp
Date: March 14, 2003 BY: /s/ George E. Irwin
---------------------------------------
George E. Irwin
President and Chief Executive Officer
Date: March 14, 2003 BY: /s/ Naqi A. Naqvi
---------------------------------------
Naqi A. Naqvi
Treasurer, Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 14, 2003 BY: /s/ George E. Irwin
---------------------------------------
George E. Irwin
President and Chief Executive Officer
Date: March 14, 2003 BY: /s/ Anthony M. Bruno, Jr.
---------------------------------------
Anthony M. Bruno, Jr.
Chairman of the Board
Date: March 14, 2003 BY: /s/ Charles J. Volpe
---------------------------------------
Charles J. Volpe
Director
Date: March 14, 2003 BY: /s/ C. Mark Campbell
---------------------------------------
C. Mark Campbell
Executive Vice President and Director
Date: March 14, 2003 BY: /s/ Joseph A. Lobosco
---------------------------------------
Joseph A. Lobosco
Director
Date: March 14, 2003 BY: /s/ Robert C. Soldoveri
---------------------------------------
Robert C. Soldoveri
Director
50
CERTIFICATION
I, George E. Irwin, certify that:
1. I have reviewed this annual report on Form 10-K of Greater Community
Bancorp (the "registrant").
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective action with
regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
BY: /s/ George E. Irwin
---------------------------------
George E. Irwin
President and Chief Executive Officer
51
CERTIFICATION
I, Naqi A. Naqvi, certify that:
1. I have reviewed this annual report on Form 10-K of Greater Community
Bancorp (the "registrant").
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective action with
regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
BY: /s/ Naqi A. Naqvi
---------------------------------
Naqi A. Naqvi
Treasurer and Chief Financial Officer
52
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the fiscal year ended December 31, 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 Bankers Trust
Company as Trustee, dated May 1997 (incorporated by reference to Exhibit
4.1 of Exhibits to Form S-2/A Registration Statement filed by GCB Capital
Trust and Greater Community Bancorp under the Securities Act of 1933,
Registration Nos. 333-26453-01, 333-26453, filed May 9, 1997).
4.2 Form of Junior Subordinated Debenture Certificates for junior subordinated
debentures (incorporated by reference to Exhibit 4.2 of Exhibits to Form
S-2/A Registration Statement filed by GCB Capital Trust and Greater
Community Bancorp under the Securities Act of 1933, Registration
Nos. 333-26453-01, 333-26453, filed May 9, 1997).
4.4 Amended and Restated Trust among Greater Community Bancorp as Depositor,
Bankers Trust Company as Property Trustee, and Bankers Trust (Delaware) as
Delaware Trustee, dated May 1997 (incorporated by reference to Exhibit 4.4
of Exhibits on Form S-2/A Registration Statement filed by GCB Capital
Trust and Greater Community Bancorp under the Securities Act of 1933,
Registration Nos. 333-26453-01, 333-26453, filed May 9, 1997).
4.6 Guarantee Agreement between Greater Community Bancorp (as Guarantor) and
Bankers Trust Company (as Trustee) dated May 1997 (incorporated by
reference to Exhibit 4.6 of Exhibits to Form S-2/A Registration Statement
filed by GCB Capital Trust and Greater Community Bancorp under the
Securities Act of 1933, Registration Nos. 333-26453-01, 333-26453, filed
May 9, 1997).
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).
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
E-1
MARKET AND DIVIDEND INFORMATION (unaudited)
The Company's common stock was held by approximately 1,027 holders of
record on December 31, 2002, and is traded on the NASDAQ National Market under
the symbol GFLS.
The following table indicates the range of high and low market quotations
of the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
market quotations and cash dividends have been adjusted to take into account the
effect of the 5% stock dividends paid in 2002 and 2001.
Cash
Market Quotations Dividends
--------------------------------- -----------
High Low Declared
------------- ------------- -----------
Year Ended December 31, 2001
First Quarter $12.14 $8.21 $.068
Second Quarter 11.90 9.62 .081
Third Quarter 12.00 10.24 .081
Fourth Quarter 12.59 10.06 .081
Year Ended December 31, 2002
First Quarter $13.57 $10.95 $.081
Second Quarter 15.62 13.05 .10
Third Quarter 16.44 14.30 .10
Fourth Quarter 16.25 13.06 .10
The Company's ability to pay dividends on its Common Stock in the future
is subject to numerous regulatory restrictions that are potentially applicable.
However, management does not expect any such restrictions to apply so long as
the Company and the Bank Subsidiaries continue to operate profitably.
SHAREHOLDER INFORMATION
Annual Meeting Stock Transfer Agent
The annual meeting of shareholders of Greater Community Registrar and Transfer Company
Bancorp will be held on April 15, 2003 at 4:00 p.m. at Attn: Investor Relations
the offices of Greater Community Bank at 55 Union 10 Commerce Drive
Boulevard, Totowa, NJ. Cranford, NJ07016-3572
Independent Accountant Counsel
Grant Thornton LLP Williams, Caliri, Miller, Otley & Stern, P.C.
Two Commerce Square 1428 Route 23 N
2001 Market Street PO Box 995
Philadelphia, PA 19103-7080 Wayne, NJ 07474-0995