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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, 1999
|_| 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
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(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
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(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 System
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.50 per share
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(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. [ ]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market price
shall be computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of filing.
$36,203,846 as of February 15, 2000. For purposes of this calculation,
directors, executive officers and beneficial owners of more than 5% of the
registrant's outstanding voting stock are affiliates.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, was as follows: 6,023,894
as of February 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2000 Annual Meeting of Stockholders to be held on April 18, 2000 is incorporated
by reference into Part III, Items 9 through 12, inclusive.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
Index to Form 10-K for December 31, 1999
PART I PAGE NO.
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Item 1. Business..............................................................1
Item 2. Properties............................................................8
Item 3. Legal Proceedings.....................................................9
Item 4. Submission of Matters to a Vote of Security Holders...................9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...............................................................9
Item 6. Selected Financial Data..............................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................11
Item 7a. Quantitative and Qualitative Market Risk.............................25
Item 8. Financial Statements.................................................26
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................52
PART III
Item 10. Directors and Executive Officers of the Registrant...................52
Item 11. Executive Compensation...............................................52
Item 12. Security Ownership of Certain Beneficial Owners and Management.......52
Item 13. Certain Relationships and Related Transactions.......................53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......53
SIGNATURES....................................................................55
PART I
Item 1 - BUSINESS
THE HOLDING COMPANY
Greater Community Bancorp (the "Company") is a New Jersey business
corporation. 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"). The
Company was incorporated in 1984.
The Company's only substantive business activity is the ownership and
operation of Great Falls Bank ("GFB"), Bergen Commercial Bank ("BCB") and Rock
Community Bank ("RCB") (the "Bank Subsidiaries"), which the Company acquired in
1985, 1995 and 1999, respectively (see "BANK SUBSIDIARIES" below) and its
nonbank subsidiaries (see "NONBANK SUBSIDIARIES" below).
During 1999, the Company demonstrated continued growth. As of December 31,
1999, the Company's consolidated assets were $567.4 million, as compared with
consolidated assets of $372.4 million at December 31, 1998. Net income for the
year ended December 31, 1999 was $4.2 million ($0.71 per share-basic and $0.69
per share-diluted), up from $3.5 million ($0.64 per share-basic and $0.61 per
share-diluted) in 1998. The Company declared total cash dividends of $0.27 per
share and $0.23 per share during 1999 and 1998, respectively.
NONBANK SUBSIDIARIES
The Company owns five nonbank subsidiaries. (i) In March 1998, the Company
continued its expansion efforts by forming another nonbank subsidiary, Highland
Capital Corp. ("HCC"). HCC is a New Jersey corporation located in Paramus, New
Jersey. The purpose of HCC is to engage in the business of leasing commercial
office equipment to small and mid-size businesses in Bergen and surrounding
counties.
(ii) GCB Realty, L.L.C. ("Realty") was formed in July 1997 as a New Jersey
limited liability company located in Totowa, New Jersey. The purposes of Realty
are to acquire and manage real estate properties. Realty owns two properties
purchased for a total of $2.2 million in Bergen County, New Jersey. BCB, HCC and
two other tenants lease space in one of the buildings. BCB also leases its
Lyndhurst location from Realty. Annual rentals from both properties are
estimated at $348,000.
(iii) GCB Capital Trust (the "Trust") was formed in April 1997 under the
Business Trust Act of Delaware. The sole purposes of the Trust were issuing and
selling Preferred Securities and Common Securities and using the sales proceeds
to acquire Junior Subordinated Debentures (the "Debentures") issued by the
Company. The Junior Subordinated Debentures are the sole assets of the Trust and
the payments under the Junior Subordinated Debentures are its sole revenues. The
Company owns all of the Trust's Common Securities.
In May 1997, the Company through the Trust sold 920,000 Preferred
Securities with a liquidation preference of $25 per share for an aggregate
amount of $23.0 million. It has a distribution rate of 10% per annum payable at
the end of each calendar quarter. Although the Debentures are treated as debt of
the Company, they currently qualify for Tier I capital treatment. The Preferred
Securities have no maturity date and are callable by the Company on or about
June 1, 2002, or earlier in the event the deduction of related interest for
federal income tax is prohibited, treatment as Tier I capital is no longer
permitted or certain other contingencies arise. The Debentures mature in 2027,
at which time the Preferred Securities must be redeemed.
(iv) Greater Community Services, Inc., activated in March 1997, provides
accounting/bookkeeping, data processing and management information systems, loan
operations and various other banking-related services at cost to the Bank
Subsidiaries.
(v) In October 1996, a nonbank subsidiary opened for business under the
name of Greater Community Financial, L.L.C. ("GCF"), a New Jersey limited
liability company located in Clifton, New Jersey. This Company engages in the
business of securities broker and dealer. Effective November 30, 1999, the
Company acquired the minority interest of this subsidiary, resulting in a 100%
ownership as of this date.
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BANK SUBSIDIARIES
GFB 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. GFB has five additional branches, all of which are located in Passaic
County, New Jersey. Two branches are located in Little Falls, one of which was
acquired by merger in April 1999 and the other has operated since March 1988.
Three branches are located in Clifton, two of which were acquired by merger in
April 1995 and the other was a de novo branch established in 1997. A sixth
branch, located at 100 Furler Street, Totowa, has been in operation since 1996.
The seventh branch was acquired by merger in April 1999, located at 123
Newark-Pompton Turnpike in Singac.
GFB conducts a general commercial and retail banking business encompassing
a wide range of traditional deposits and lending functions. GFB 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, GFB offers a
broad variety of deposit accounts, including consumer and commercial checking
accounts and NOW accounts. GFB also offers other customary banking services.
BCB was incorporated in New Jersey in 1987 and commenced its 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. In addition to its main office at Two Sears Drive in
Paramus, New Jersey, BCB has six additional branch offices, located in Hasbrouck
Heights, Wood-Ridge, Wallington, Hackensack, and Lyndhurst. The sixth branch,
acquired by merger in April 1999, is located at 100 Washington Avenue in Little
Ferry.
GFB and BCB each have a wholly-owned investment company subsidiary formed
to manage their respective investment portfolios to increase net yields.
RCB is located in Glen Rock, Bergen County, New Jersey. RCB commenced its
banking operations in 2nd quarter 1999. RCB's main office is located at 175 Glen
Rock Road in Glen Rock, New Jersey, primarily servicing Bergen County. RCB
offers a variety of banking services, including commercial and real estate
lending, revolving credit arrangements and consumer loans. It also offers the
traditional deposit services and other customary banking services.
ACQUISITION
On April 1, 1999, the Company consummated its previously announced
acquisition of First Savings Bancorp of Little Falls, Inc. ("First Savings"),
parent of First Savings Bank of Little Falls located in Little Falls, New
Jersey. Each share of common stock of First Savings was exchanged for $52.26 in
cash for a total of $23.0 million. The merger was accounted for using the
purchase method of accounting.
As of the date of acquisition First Savings had total assets of $193.0
million, total loans of $109.2 million and total deposits of $172.3 million,
with 3 banking offices. The purchase price exceeded the fair market value of net
assets acquired by approximately $13.2 million, which is reflected as goodwill,
included in the accompanying consolidated balance sheet.
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 toward 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 which 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
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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 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
The Company is registered as a bank 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 regulation 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, 1999, the Company
had approximately $6.9 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 which 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 Reinstatement Act ("CRA")
ratings are generally prerequisites to obtaining regulatory approval to make
acquisitions. The Financial Modernization Act of 1999, discussed below (see
"Recent Legislation"), allows the Company to expand into insurance, securities,
merchant banking and other activities that are financial in nature.
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
3
Jersey if the foreign bank already has branches in New Jersey; however, that
legislation did not authorize de novo branching into New Jersey.
Recent Legislation
During November, 1999, the President signed the Gramm-Leach-Bliley
Financial Modernization Act of 1999 into law. Under the new Act, effective March
13, 2000:
- Bank holding companies meeting standards as to management, capital
and Community Reinvestment Act compliance will be permitted to
engage in a substantially broader range of nonbanking activities
than has previously been permissible, including insurance
underwriting and making merchant banking investments in commercial
and financial companies. If a bank holding company elects to become
a financial holding company, it files a certification, effective in
30 days, and thereafter may engage in certain financial activities
without further approvals.
- Insurers and other financial services companies are allowed to
acquire banks.
- Various restrictions currently applicable to bank holding company
ownership of securities firms and mutual fund advisory companies are
removed.
- A new overall regulatory structure is established for bank holding
companies also engaged in insurance and securities operations.
On January 19, 2000, the Federal Reserve adopted an interim rule allowing
bank holding companies to submit certifications by February 15 to become
financial holding companies on March 13, 2000. The Federal Reserve also
established procedures which would be used against financial holding companies
which have depository institutions which have fallen out of compliance with the
management or capital criteria. Only financial holding companies can own
insurance companies and engage in merchant banking.
The Modernization Act also modifies other current financial laws,
including laws related to financial privacy and community reinvestment.
Notwithstanding the Federal Reserve's prior approval of specific
nonbanking activities, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity, or to terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that the continuation of such activity or such ownership or control constitutes
a serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company. Bank holding companies and their
subsidiaries are also prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
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.
Bank Regulation
As state-chartered banks which 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
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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," below.
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. GFB 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, 1999, 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 bank
holding companies of banks which 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," above.
Restrictions Upon 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 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,
5
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 determined by the FDIC to be 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 which became permanent in 1994, 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. Specifically, the assessment rate for an
insured depository institution depends upon the risk classification assigned to
the institution by the FDIC based upon the institution's capital level and
supervisory evaluations. Institutions are assigned to one of three capital
groups--well-capitalized, adequately capitalized or undercapitalized.
Well-capitalized institutions are institutions satisfying the following capital
ratio standards: (i) total risk-based capital ratios of 10.0% or greater, (ii)
Tier I risk-based capital ratios of 6.0% or greater, and (iii) Tier I leverage
ratios of 5.0% or greater. Adequately capitalized institutions are institutions
that do not meet the standards for well-capitalized institutions but that
satisfy the following capital ratio standards: (i) total risk-based capital
ratios of 8.0% or greater; (ii) Tier I risk-based capital ratios of 4.0% or
greater, and (iii) Tier I leverage ratios of 4.0% or greater. Undercapitalized
institutions consist of institutions that do not qualify as either
"well-capitalized" or "adequately capitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis of supervisory
evaluations by the institution's primary supervisory authority and such other
information as the FDIC determines to be relevant. 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 1998 and 1999.
In addition, 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 GFB and BCB for 1997 through 2000 are 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, including the Federal Reserve and the FDIC, have
adopted interagency guidelines which cover 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 which 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 that 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. The FDIC as a
conservator or receiver of a depository institution also has express authority
to repudiate most contracts with such institution which it determines to be
burdensome or if such repudiation will promote the orderly administration of the
institution's affairs. The FDIC is also given authority to enforce contracts
made by a depository institution
6
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
which would adversely affect their safety and soundness.
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 losses which may be included as capital to 1.25% of total risk-weighted
assets.
At December 31, 1999, the Company's total risk-based capital and leverage
capital ratios were 13.73% and 7.18%, respectively. The minimum levels
established by the regulators for these measures are 8% and 4%, respectively.
FDICIA also required the 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
7
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 that falls
within any of the three "undercapitalized" categories established by the prompt
corrective action regulation will be: (i) subject to increased monitoring by the
appropriate federal banking regulator; (ii) required to submit an acceptable
capital restoration plan within 45 days; (iii) subject to asset growth limits;
and (iv) required to obtain prior regulatory approval for acquisitions,
branching and new lines of businesses. The capital restoration plan must include
a guarantee by the institution's holding company that the institution will
comply with the plan until it has been adequately capitalized on average for
four consecutive quarters, under which the holding company would be liable up to
the lesser of 5% of the institution's total assets or the amount necessary to
bring the institution into capital compliance as of the date it failed to comply
with its capital restoration plan. A significantly undercapitalized institution,
as well as any undercapitalized institution that did not submit an acceptable
capital restoration plan, will be subject to regulatory demands for
recapitalization, broader application of restrictions on transactions with
affiliates, limitations on interest rates paid on deposits, asset growth and
other activities, possible replacement of directors and officers, and
restrictions on capital distributions by any bank holding company controlling
the institution. Any company controlling the institution may be required to
divest its interest in the institution. If an institution's ratio of tangible
capital to total assets falls below a "critical capital level" established by
the appropriate federal banking regulator, the institution will be subject to
conservatorship or receivership unless periodic determinations are made that
forbearance from such action would better protect the deposit insurance fund.
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 upon 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 which 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, 1999, the Company employed a total of approximately 188
employees, including 152 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 wholly-owned nonbank subsidiary, Realty, owns
two properties in Bergen County, New Jersey.
GFB leases its main office banking facility and certain other office space
at 55 Union Boulevard, Totowa, New Jersey. Such main office leased space is
owned by a general partnership of which the Company's chairman and vice chairman
are both partners. GFB also leases space for its five other branches in Totowa,
Little Falls and Clifton, New Jersey.
8
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
and the Lyndhurst, New Jersey branch from Realty. BCB also leases space for
three other branches in Hackensack, Wallington and Wood-Ridge, New Jersey. BCB
owns the space for its branch located in Hasbrouck Heights, New Jersey.
RCB leases its main office space at 175 Glen Rock Road, Glen Rock, New
Jersey. The leased space is owned by Sinabaldo Leone, Jr., a director of RCB.
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, 1999, contained in Item 7 -"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,
financial position or results of operations.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,077 holders of
record on December 31, 1999, and is traded on the NASDAQ National Market System
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
cash dividends have been adjusted to take into account the effect of the 5%
stock dividend paid in 1999 and 2 for 1 stock split in 1998.
Market Quotations
----------------- Cash
Dividends
High Low Declared
---- --- --------
Year Ended December 31, 1998
First Quarter $10.75 $ 9.06 $ .048
Second Quarter 12.19 10.63 .057
Third Quarter 12.25 9.75 .057
Fourth Quarter 11.75 8.25 .058
Year Ended December 31, 1999
First Quarter $11.19 $ 9.29 $ .06
Second Quarter 10.36 9.17 .07
Third Quarter 11.42 9.50 .07
Fourth Quarter 10.96 9.25 .07
The Company's ability to pay dividends on its Common Stock in the future
is subject to numerous regulatory restrictions which are potentially applicable.
(See above, Item 1 "--DESCRIPTION OF BUSINESS--SUPERVISION AND REGULATION--Bank
Holding Company Regulation--Holding Company Dividends and Stock Repurchases";
and "--Bank
9
Regulation--Bank Dividends"). However, management does not expect any of such
restrictions to become applicable so long as the Company and the Bank
Subsidiaries continue to operate profitably.
Item 6 - SELECTED FINANCIAL DATA
The selected consolidated financial highlights of Greater Community
Bancorp (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,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Summary of Operations:
Total interest income............................ $34,564 $24,866 $20,548 $18,693 $17,433
Total interest expense........................... 17,140 12,009 8,948 7,154 6,550
Net interest income.............................. 17,424 12,857 11,600 11,539 10,883
Provision for possible loan losses............... 885 520 485 440 414
Net interest income after provision for
possible loan losses......................... 16,539 12,337 11,115 11,099 10,469
Other income..................................... 7,270 4,656 2,755 1,929 2,177
Other expenses................................... 17,288 11,450 9,775 9,379 9,400
Income before income taxes....................... 6,521 5,543 4,095 3,649 3,246
Provision for income taxes....................... 2,349 2,000 1,495 1,312 1,174
Net Income....................................... $4,172 $3,543 $2,600 $2,337 $2,072
Per Common Share Data:
Earnings Per Share - Basic....................... $0.71 $0.64 $0.57 $0.54 $0.50
Earnings Per Share - Diluted..................... $0.69 $0.61 $0.54 $0.51 $0.48
Cash dividends per common share.................. $0.27 $0.22 $0.17 $0.12 $0.09
Stock splits and dividends per common share...... 5% 2 for 1 10% 10% 10%
Book value per common share...................... $5.86 $5.77 $5.26 $4.82 $4.51
Selected Operating Ratios:
Return on average assets......................... 0.81% 1.00% 0.92% 0.93% 0.93%
Return on average equity......................... 11.98% 11.88% 10.82% 11.69% 11.99%
Interest rate spread............................. 3.02% 2.65% 3.20% 4.01% 4.24%
Net interest margin.............................. 3.78% 3.87% 4.40% 4.95% 5.24%
Financial Condition Data:
Total Assets..................................... $567,453 $372,400 $321,985 $256,506 $253,045
Cash and cash equivalents........................ 19,200 23,640 22,845 18,294 29,046
Investment securities............................ 151,191 111,601 126,776 89,679 83,986
Total Loans, net................................. 340,563 201,765 158,125 134,587 129,107
Allowance for possible loan losses............... 4,953 3,525 2,731 2,540 2,332
Total Deposits................................... 460,634 293,395 257,555 223,242 222,766
Other borrowings................................. 64,403 40,103 30,141 9,147 7,732
Shareholders' equity............................. 35,402 32,309 29,261 21,061 19,595
Capital Ratios:
Equity to assets................................. 6.23% 8.68% 9.09% 8.21% 7.74%
Total risk-based capital ratio................... 13.73% 21.58% 26.19% 17.29% 16.77%
Tier I risk-based capital ratio.................. 9.59% 15.32% 17.94% 12.86% 7.27%
Leverage ratio................................... 7.18% 11.21% 12.71% 8.01% 8.28%
All per share data has been adjusted to reflect stock dividends and stock
split.
10
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 fully appreciate
this analysis, 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," "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 for updating any such forward-looking statement at any time.
RECENT DEVELOPMENTS
On April 1, 1999, the Company acquired First Savings, a $193.0 million
thrift institution, for $23.0 million in cash and the assumption of liabilities.
The Company divided the business of First Savings between GFB and BCB. GFB
acquired two former branches of First Savings in Little Falls, adjacent to
Totowa, New Jersey, where GFB has its headquarters. BCB acquired a former branch
of First Savings in Little Ferry, in Bergen County, New Jersey, BCB's primary
market area.
During the second quarter of 1999 the Company also capitalized RCB, a new
wholly-owned subsidiary bank located in Glen Rock, New Jersey, with $5.0
million. Approximately $4.1 million of the Company's capital contribution to RCB
was raised by a private placement of the Company's common stock. RCB commenced
business as a de novo bank in April 1999.
During the second half of 1999 the Company continued its banking
operations, including efforts to assimilate the business of First Savings. The
Company also continued to devote attention to the establishment of RCB's new
business operations.
Results of Operations: Fiscal Years Ended December 31, 1999, 1998 and 1997
The results of operations for the year ended December 31, 1999 were
significantly affected by the purchase of First Savings on April 1, 1999.
The Company earned $4.2 million or $0.69 per diluted share, a 20% increase
over $3.5 million or $0.61 per diluted share earned during 1998. Excluding gains
on the sale of investment securities and non-recurring expenses of $1.4 million
related to the purchase of First Savings incurred in the second quarter of 1999,
net income for the year ended December 31, 1999 was approximately $3.4 million
compared to $2.5 million in 1998. The Company earned $2.6 million or $0.54 per
diluted share in 1997, which included $216,000 in gains on sale of investment
securities.
Cash earnings (earnings before amortization of intangible assets) per
diluted share were $0.79, $0.63 and $0.56 for the years ending December 31,
1999, 1998 and 1997, respectively.
The increase in net income for the year ended December 31, 1999 primarily
reflects higher net interest income and higher gain on the sale of investment
securities and other income, partially offset by higher salaries and employee
benefits, all other
11
expenses (including amortization of intangible assets and other charges related
to the acquisition of First Savings), and higher provisions for possible loan
losses and income taxes. Net operating losses from RCB for 1999 (its first nine
months of operations) were $283,000.
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 expense on related items, and the Company's average yield for the years
ended December 31, 1999, 1998 and 1997. The yields are not shown on a fully
taxable basis.
12
Average Balance Sheet, Interest Income and Expense, and Average Interest Rates
For the Years ended
----------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
--------------------------------------- ---------------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
------- ----------- ---------- ------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities.......................... $137,983 $ 8,094 5.87% $126,719 $ 7,348 5.80%
Due from banks - interest-bearing.............. 13,121 762 5.82% 9,917 578 5.83%
Federal funds sold............................. 11,900 612 5.14% 11,524 605 5.25%
Loans(1)....................................... 298,278 25,096 8.41% 183,676 16,335 8.89%
-------- ------- -------- -------
Total earning assets....................... 461,282 34,564 7.49% 331,836 24,866 7.49%
Less: Allowance for possible loan losses....... (4,409) -- (3,078) --
Unearned income-- loans.................... (1,264) -- (630) --
All other assets............................... 57,175 -- 26,753 --
-------- ------- -------- -------
Total assets............................... $512,784 $34,564 $354,881 $24,866
======== ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits........ $123,776 $ 2,725 (2)20% $ 83,645 $ 1,766 (2)11%
Time deposits................................ 207,460 10,651 5.13% 127,477 7,253 5.69%
Federal funds and short-term borrowings(2)... 28,938 1,464 5.06% 13,521 633 4.68%
Trust preferred securities................... 23,000 2,300 10.00% 23,669 2,357 9.96%
-------- ------- -------- -------
Total interest-bearing liabilities. 383,174 17,140 4.47% 248,312 12,009 4.84%
Non interest-bearing deposits.................. 88,003 -- 71,010 --
Other liabilities.............................. 6,777 -- 5,748 --
Shareholders' equity........................... 34,830 -- 29,811 --
-------- ------- -------- -------
Total liabilities and
shareholders' equity................... $512,784 $17,140 $354,881 $12,009
======== ======= ======== =======
NET INTEREST INCOME .......................... $17,424 $12,857
======= =======
NET INTEREST MARGIN............................ 3.78% 3.87%
===== ====
For the Years ended
----------------------------------------
December 31, 1997
----------------------------------------
Average Interest Average
Balance Earned/Paid Yield/Rate
------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $102,021 $ 6,241 6.12%
Due from banks - interest-bearing................ 5,052 267 5.29%
Federal funds sold............................... 7,676 415 5.41%
Loans(1)......................................... 149,024 13,625 9.14%
-------- -------
Total earning assets......................... 263,773 20,548 7.79%
Less: Allowance for possible loan losses......... (2,644) --
Unearned income-- loans...................... (341) --
All other assets................................. 22,229 --
-------- -------
Total assets................................. $283,017 $20,548
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $76,466 $ 1,689 2.21%
Time deposits.................................. 92,435 5,128 5.55%
Federal funds and short-term borrowings(2)..... 7,507 366 4.88%
Trust preferred securities..................... 18,721 1,765 9.43%
-------- -------
Total interest-bearing liabilities... 195,129 8,948 4.59%
Non interest-bearing deposits.................... 60,481 --
Other liabilities................................ 3,382 --
Shareholders' equity............................. 24,025 --
-------- -------
Total liabilities and
shareholders' equity..................... $283,017 $ 8,948
======== =======
NET INTEREST INCOME ............................ $11,600
=======
NET INTEREST MARGIN.............................. 4.40%
=====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
13
Net Interest 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. Net interest income is the largest source of the
Company's operating income. In 1999, net interest income increased by $4.6
million or 36% compared to 1998. Interest and fee income on loans during 1999
increased by $8.8 million or 54% over the comparable period in 1998 as a result
of an increase of 62% in average total loans. The average yield on loans
decreased to 8.41% in 1999 compared to 8.89% in 1998 as a result of repricing of
loans at prevailing rates. Loans represent 65% and 55% of average earning assets
in 1999 and 1998, respectively. Income earned on investment securities during
1999 increased by $746,000, or 10% compared to the same period in 1998. The
increase was primarily due to a 9% increase in average investments for the year
ended December 31, 1999 over 1998. The average yield on securities was 5.87% for
the year ended December 31, 1999, compared to 5.80% for the same period in the
prior year. Investments represent 30% and 38% at 1999 and 1998, respectively, of
average earning assets. Interest income on federal funds sold and deposits with
banks during 1999 increased by $191,000, or 16% compared to 1998 as a result of
a $3.6 million, or 17%, increase in average federal funds sold and deposits with
banks. Federal funds sold and deposits with banks represent 5% and 7% of average
earning assets at 1999 and 1998, respectively.
In 1998, net interest income increased by $4.3 million or 21% compared to
1997. Interest and fee income on loans during 1999 increased by $2.7 million or
20% over the comparable period in 1997 as a result of an increase of 23% in
average total loans. The average yield on loans decreased to 8.89% in 1998 from
9.14% in 1997 as a result of repricing of loans at the prevailing rates. Income
earned on investment securities during 1998 increased by $1.1 million, or 18%
compared to 1997. The increase was primarily due to a 24% increase in average
investments for the year ended December 31, 1998 over 1997. The average yield on
securities was 5.80% for the year ended December 31, 1998 compared to 6.12% for
the prior year; the decline was due to general market conditions. Interest
income on federal funds sold and deposits with banks during 1998 increased by
$501,000 or 73% compared to the same period in the prior year as a result of a
$8.7 million, or 68%, increase in average federal funds sold and deposits with
banks due to the purchase of $13.1 million of interest-bearing deposits.
Interest expense for the year ended December 31, 1999, increased by $5.1
million or 43% from the level of interest expense for 1998. $4.4 million of the
total increase was related to the increase in interest expense on deposits,
$831,000 was related to the increase in interest expense on short-term
borrowings, coupled with a decline of $57,000 related to interest expense on
long-term borrowings, coupled with a 37 basis point decrease in the average rate
paid. The increase in total interest expense was related to the increase in
average interest-bearing liabilities of $134.9 million or 54%.
Interest expense for the year ended December 31, 1998, increased by $3.1
million or 34% from the level of interest expense for 1997. $2.2 million of the
total increase in interest expense was related to the increase in interest
expense on deposits, $592,000 was related to the increase in interest expense on
long-term borrowings, and the remaining $267,000 was related to the increase in
interest expense on short-term borrowings. The increase in total interest
expense was related to the increase in average interest-bearing liabilities of
$53.0 million or 27% primarily due to a $23.0 million increase in the 10% Trust
Preferred Securities in May 1997, offset to some extent by the decrease in 8.5%
Subordinated Debentures effective November 1, 1997.
Average interest-bearing deposits comprised 86%, 85% and 87% of Company
total funding sources in 1999, 1998 and 1997, respectively, 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 3.78%, 3.87% and 4.40% for the years
ended December 31, 1999, 1998 and 1997, 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,
1999 and 1998 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 which 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.
14
Full Year 1999 Full Year 1998
Compared to Full Year 1998 Compared to Full Year 1997
Increase(Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
Interest Earned On:
Loans $ 9,636 $ (875) $ 8,761 $ 3,078 $ (368) $ 2,710
Investment securities 663 83 746 1,435 (328) 1,107
Other earning assets 205 (14) 191 486 15 501
------- ------- ------- ------- ------- -------
Total earning assets $10,504 $ (806) $ 9,698 $ 4,999 $ (681) $ 4,318
======= ======= ======= ======= ======= =======
Interest Paid On:
Savings and interest-bearing deposits $ 883 $ 76 $ 959 $ 152 $ (75) $ 77
Time deposits 4,090 (692) 3,398 1,995 130 2,125
Borrowings (1) 1,069 (295) 774 880 (21) 859
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 6,042 $ (911) $ 5,131 $ 3,027 $ 34 $ 3,061
======= ======= ======= ======= ======= =======
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase, and trust preferred securities.
Provision for Possible Loan Losses
The Company recorded a provision for possible loan losses of $885,000 in
1999 compared with $520,000 in 1998 and $485,000 on 1997. 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 allowance for
possible loan losses and make future adjustments to the allowance through the
provision for possible loan losses as economic conditions dictate. Although the
Bank Subsidiaries maintain their allowances for possible loan losses at levels
that they consider to be 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 possible 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
process, which may result in the establishment of an additional allowance based
upon the judgment of the FDIC or the Department, after a review of the
information available at the time of their examination.
Other Income
Total non-interest income continues to represent a considerable source of
income for the Company. In 1999 such non- interest income totaled $7.3 million,
an increase of $2.6 million or 56% over 1998. Non-interest income for 1999
included $2.2 million in realized gains on sale of investment securities
available-for-sale, an increase of $1.1 million over 1998. All other income
includes $567,000 from fees and sales of lease financing, $480,000 from
bank-owned life insurance and $207,000 from rental income. Service charges on
deposit accounts increased by $211,000 over 1998 and other commissions and fees
increased by $357,000. The majority of the increase in service charges on
deposit accounts is attributable to the increase in deposit- related services
during 1999. The increase in realized gain on sale of investment securities
available-for-sale resulted from sale of $16.4 million of securities.
Total non-interest income for the year ended December 31, 1998 was $4.7
million, an increase of $1.9 million or 69% compared to 1997. The $1.9 million
net increase was the result of significant fluctuations within the major
components of other income. Of the net increase in 1998, service charges on
deposit accounts increased by $280,000, other commissions and fees increased by
$298,000, realized gain on sale of securities available-for-sale increased by
$867,000, and all other income increased $456,000 over 1997. The majority of the
increase in service charges on deposit accounts is attributable to the increase
in deposit-related services during 1998. The increase in realized gain on sale
of securities available-for-sale resulted from sale of $6.9 million of
available-for-sale securities during 1998.
15
Other Expenses
Total other expenses increased by $5.8 million for the year ended December
31, 1999 over 1998. Of the total increase, $2.9 million is attributable to
increases in salaries and employee benefits as a direct result of the
acquisition of First Savings coupled with severance and bonuses paid out to
certain key employees of First Savings. Occupancy and equipment expense, which
includes the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by
$540,000. Regulatory, professional and other fees increased by $899,000.
Computer services, office expenses and other operating expenses increased by
$194,000, $447,000 and $347,000, respectively. The majority of these increases
are attributable to the acquisition of First Savings and the balance is due to
the overall growth of the Company. Amortization of intangibles increased by
$500,000 over 1998. This increase reflect the amortization of goodwill resulting
from the acquisition of First Savings.
Total non-interest expenses increased by $1.7 million for the year ended
December 31, 1998 over 1997. The $1.7 million net increase was a result of
fluctuations within the components of other expenses. More specifically,
salaries and employee benefits increased by $962,000 or 20% as a result of an
increase in number of employees and general salary increases coupled with an
increase in employee benefits. Occupancy and equipment expense, which includes
the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by
$244,000 or 11% primarily due to the addition of office space and equipment.
Regulatory, professional and other fees, and office expenses in 1998 both
decreased from 1997 by $80,000 or 11% and $25,000 or 4%, respectively. Other
real estate operating expense increased by $101,000 or 168% due to an increase
in ORE properties owned. Computer services expenses increased by $26,000 or 16%.
All other operating expenses increased by $439,000 or 33%. The primary reason
for the increase in such expenses is the growth of the Bank Subsidiaries.
Income Taxes
The Company recorded income tax provisions of $2.3 million, $2.0 million
and $1.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increases in income tax provision are attributable to
increased earnings for each of the years over the prior year.
Financial Condition
At December 31, 1999, the Company's total assets were $567.4 million, an
increase of $195.1 million or 52% over the amount reported at December 31, 1998.
Gross loans increased by $140.8 million. The increase in loans was a direct
result of the acquisition of First Savings coupled with increased loan demand.
Investment securities increased by $39.6 million, while interest-bearing due
from banks and federal funds sold decreased by $4.9 million and $3.5 million.
These declines were related to the maturities of such assets and the proceeds
were subsequently used to meet the loan demand.
At December 31, 1998, the Company's total assets were $372.4 million, an
increase of $50.4 million or 16% over the amount reported at December 31, 1997.
Gross loans increased by $44.9 million while investment securities decreased by
$15.2 million. The increase in loans was a direct result of increased loan
demand while the decrease in investment securities was related to the maturities
which were used in purchasing interest-bearing due from banks. Interest-bearing
due from banks increased by $13.2 million. Cash and non interest-bearing due
from banks increased by $5.1 as a result of the overall growth of the Company.
Federal funds sold decreased by $4.3 million and the proceeds were used in
meeting loan demand.
Investment Securities
Investment securities at December 31, 1999 increased by $39.6 million or
35% over the amount reported at December 31, 1998. The increase was a result of
investment securities totaling $57.0 million acquired in the acquisition of
First Savings coupled with the maturity and sale of $63.2 million and purchases
of $47.9 million. Investment securities at December 31, 1998 decreased by $15.2
million or 12% over the amount reported at December 31, 1997. The decrease was a
result of investment securities either maturing or being sold. The proceeds were
partly used in funding the increase in interest-bearing due from banks. 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, 1999, 1998 and 1997.
16
December 31,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
(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 $ 63,851 $ 62,443 $ 16,370 $ 16,638 $ 33,590 $ 33,884
State and political subdivisions 7,957 7,790 934 934 558 558
Other debt and equity securities 13,790 14,347 18,159 21,564 13,410 16,244
Mortgage-backed securities 58,583 57,656 54,576 54,661 40,599 40,565
-------- -------- -------- -------- -------- --------
Total available-for-sale $144,181 $142,236 $ 90,039 $ 93,797 $ 88,157 $ 91,251
-------- -------- -------- -------- -------- --------
Held-to-maturity
U.S. Treasury and U.S.
Government agencies securities $ 4,500 $ 4,088 $ 5,899 $ 5,576 $ 14,822 $ 14,519
State and political subdivisions 872 871 898 902 1,390 1,391
Mortgage-backed securities 3,583 3,546 11,007 11,076 19,313 19,302
-------- -------- -------- -------- -------- --------
Total held-to-maturity $ 8,955 $ 8,505 $ 17,804 $ 17,554 $ 35,525 $ 35,212
-------- -------- -------- -------- -------- --------
Total investment securities . $153,136 $150,741 $107,843 $111,351 $123,682 $126,463
======== ======== ======== ======== ======== ========
During 1999, the Company realized net gains of $2.2 million through the
sale of $16.4 million of investment securities from its available-for-sale
portfolio. Included in shareholders' equity at December 31, 1999 is accumulated
other comprehensive loss in the amount of $1.1 million, a decrease of $3.4
million or 151% over the end of 1998. In 1998, the Company realized net gains of
$1.1 million through the sale of $6.9 million of investment securities from its
available-for-sale portfolio. Included in shareholders' equity at December 31,
1998 is accumulated other comprehensive income in the amount of $2.3 million, an
increase of $385,000 or 21% over the end of 1997. The Company has no investment
securities held for trading purposes.
Statement of Financial Accounting Standards ("SFAS") No. 133 allows a
reassessment of investment securities classified without calling into question
the intent of the Company to hold other investment securities to maturity in the
future. On October 1, 1998, the Company reclassified securities with a fair
market value of $5.5 million resulting in an increase of accumulated other
comprehensive income of $28,000.
The following table shows the average yields, amortized cost and fair
values of the Company's investment securities by maturity.
December 31, 1999
-------------------------------------
Average Amortized Fair
Yield Cost Value
----- ---- -----
(Dollars in Thousands)
Available-for-sale
Due in one year or less.................... 5.05% $ 9,852 $ 9,793
Due after one year through 5 years......... 6.30% 36,693 36,254
Due after five years through 10 years...... 5.81% 5,589 5,426
Due after ten years........................ 5.54% 19,674 18,760
Mortgage-backed securities................. 6.02% 58,583 57,656
Other debt and equity securities........... n/a 13,790 14,347
-------- --------
Total available-for-sale................ $144,181 $142,236
======== ========
Held-to-maturity
Due in one year or less.................... 4.44% $ 4,184 $ 4,172
Due after one year through 5 years......... 4.22% 188 187
Due after five years through 10 years...... 2.49% 1,000 600
Mortgage-backed securities................. 6.82% 3,583 3,546
-------- --------
Total held-to-maturity................... n/a $ 8,955 $ 8,505
======== ========
Total investment securities.............. $153,136 $150,741
======== ========
17
Loan Portfolio
The Company's gross loan portfolio at December 31, 1999 totaled $346.9
million, an increase of $140.8 million or 68% compared to the amount reported at
December 31, 1998. Of the total increase in 1999, $109.0 million were acquired
through the acquisition of First Savings and the balance was due to internal
growth. At December 31, 1998, the gross loan portfolio totaled $206.1 million,
an increase of $44.9 million or 28% compared to the amount reported at December
31, 1997. This increase was primarily due to increased loan demand. The
Company's gross loan portfolio increased $23.8 million to $161.2 million at
December 31, 1997 compared to the amount reported at December 31, 1996. The
following table summarizes the components of the gross loan portfolio at the
dates indicated.
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one- to - four-family residential
properties ........................................... $154,822 $ 66,485 $ 45,700 $ 43,100 $ 43,328
Loans secured by nonresidential properties.............. 140,200 100,687 81,064 58,106 51,133
Loans to individuals.................................... 9,405 10,609 10,549 9,997 8,661
Loans to depository institutions........................ - - - - 4,600
Commercial loans........................................ 30,702 21,107 16,847 14,106 14,823
Construction loans...................................... 10,024 5,163 5,784 5,534 4,292
Other loans............................................. 1,782 2,069 1,305 6,567 4,905
-------- -------- -------- -------- --------
Total gross loans.................................. $346,935 $206,120 $161,249 $137,410 $131,742
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 1999.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 1999
-----------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
-------- -------- -------- --------
(In Thousands)
Loans with predetermined interest rates:
Loans secured by nonresidential properties ........ $ 5,121 $ 40,229 $ 10,372 $ 55,722
Commercial loans .................................. 1,606 9,855 1,212 12,673
Construction loans ................................ 620 391 223 1,234
-------- -------- -------- --------
Total loans with predetermined interest rates $ 7,347 $ 50,475 $ 11,807 $ 69,629
Loans with floating interest rates:
Loans secured by nonresidential properties ........ 8,335 13,403 61,740 84,478
Commercial loans .................................. 13,478 2,335 2,216 18,029
Construction loans ................................ 5,508 3,593 689 8,790
-------- -------- -------- --------
Total loans with floating interest rates ..... $ 27,321 $ 19,331 $ 64,645 $111,297
-------- -------- -------- --------
Total gross loans ........................ $ 34,668 $ 69,806 $ 76,452 $180,926
======== ======== ======== ========
At the date indicated in the foregoing loan table, 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 lending function, however, carries the greatest risk of loss.
The senior lending officers of BCB, GFB and RCB are charged with monitoring
asset quality, establishing credit policies and procedures and seeking
consistent application of these 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 were also made
primarily to customers operating in the 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 which tend to affect portfolio risks
are changes in local or regional real estate values, income levels and energy
prices. These factors,
18
coupled with unemployment levels and tax rates, as well as governmental actions
and weakened market conditions which reduce the demand for credit 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 which 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 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
which 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.
December 31,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans ......................................... $1,678 $1,657 $1,741 $1,033 $1,422
Renegotiated loans ........................................ 606 416 521 726 517
------ ------ ------ ------ ------
Total nonperforming loans .............................. 2,284 2,073 2,262 1,759 1,939
Loans past due 90 days and accruing ....................... 248 461 135 876 1,125
Other real estate ......................................... 467 495 373 1,834 2,070
------ ------ ------ ------ ------
Total nonperforming assets ............................. $2,999 $3,029 $2,770 $4,469 $5,134
====== ====== ====== ====== ======
Nonperforming loans to total gross loans .................. .66% 1.01% 1.40% 1.28% 1.47%
Nonperforming assets to total gross loans and other
real estate owned ..................................... .86% 1.47% 1.71% 3.21% 3.84%
Nonperforming assets to total assets ...................... .53% .81% .86% 1.74% 2.03%
Allowance for possible loan losses to nonperforming loans . 216.86% 170.04% 120.73% 144.40% 120.27%
Nonperforming loans increased by $211,000 at December 31, 1999 compared to
December 31, 1998. The increase is primarily due to the reclassification of
certain loans from current loans to either nonaccruing or renegotiated status.
Nonperforming loans decreased by $189,000 at December 31, 1998 compared to
December 31, 1997. The decrease is primarily due to the reclassification of
certain loans from nonaccruing or renegotiated status to current loans. If the
nonaccruing loans in 1999, 1998 and 1997 had continued to pay interest, interest
income during the same years would have increased by $60,000, $138,000 and
$291,000, respectively.
Potential Problem Loans. As part of the loan review process, management
routinely identifies performing loans where 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, 1999 and 1998, such loans
totaled $8.3 million and $5.3 million with an allowance of $1.0 million and
$664,000, respectively, specifically allocated to them.
Foreign Loans. The Company has no foreign loans or any other foreign
exposure.
Allowance for Possible Loan Losses
At December 31, 1999, the allowance for possible loan losses was $4.9
million as compared to $3.5 million at December 31, 1998, an increase of $1.4
million of which $624,000 arose from the acquisition of First Savings. The
allowance for possible loan losses is increased periodically through charges to
earnings in the form of a provision for possible loan losses. Loans that are
deemed uncollectible are charged against the allowance and any recoveries of
such loans are credited to it. It is management's belief that, although
charge-offs may occur in the future, there are adequate reserves allotted. The
level of the allowance is based on the ongoing evaluation by management of the
respective Bank Subsidiaries of potential losses in the loan portfolio. Such
evaluation includes consideration of the current financial status and credit
standing of borrowers, prior loss experiences, results of periodic regulatory
examinations, comments and recommendations of the Company's independent
19
accountants, and management's judgment as to prevailing and anticipated real
estate values and other economic conditions in the Bank Subsidiaries' market
areas. Since future events that may affect these financial conditions are
unpredictable, there is uncertainty as to the final outcome of the Bank
Subsidiaries' loans and nonperforming assets.
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
Years ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Dollars in Thousands)
Balance at beginning of year ........................... $ 3,525 $ 2,731 $ 2,540 $ 2,332 $ 1,824
Charge-offs:
Commercial ........................................... (102) (5) (356) (21) (589)
Real estate - mortgages .............................. -- (31) -- (281) (364)
Installment loans to individuals ..................... (45) (34) (9) (63) (82)
Credit cards and related plans ....................... (59) (53) (42) -- --
------- ------- ------- ------- -------
(206) (123) (407) (365) (1,035)
------- ------- ------- ------- -------
Recoveries:
Commercial ........................................... 59 376 104 124 87
Real estate - mortgages .............................. 50 11 7 9 --
Installment loans to individuals ..................... 4 5 1 9 3
Credit cards and related plans ....................... 12 5 1 -- --
------- ------- ------- ------- -------
125 397 113 142 90
------- ------- ------- ------- -------
Net recoveries (charge-offs) ........................... (81) 273 (294) (223) (945)
Provision for possible loan losses ..................... 885 520 485 440 414
Adjustment (1) ......................................... 624 -- -- (9) 1,039
------- ------- ------- ------- -------
Balance at end of year ................................. $ 4,953 $ 3,525 $ 2,731 $ 2,540 $ 2,332
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period ....... (.03%) .15% (.20%) (.16%) (.79%)
(1) Allowances for possible loan losses acquired from First Savings in
1999 and Family First in 1995
20
Allocation of the Allowance for Possible Loan Losses
The following table sets forth the allocation of the allowance for loan
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,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
% 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 . $1,558 32% 49% $1,467 43% 59% $1,077 39% 60%
Construction 115 2 3 49 1 2 47 2 4
Loans secured by 1-4 families 2,183 44 45 919 26 34 898 33 29
Loans to individuals 264 5 3 369 10 5 280 10 7
Unallocated reserves 833 17 -- 721 20 -- 429 16 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses $4,953 100% 100% $3,525 100% 100% $2,731 100% 100%
====== ====== ====== ====== ====== ====== ====== ====== ======
At December 31,
-----------------------------------------------------
1996 1995
------------------------ -------------------------
% 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 . $ 859 34% 53% $1,256 54% 53%
Construction -- -- 4 -- -- 3
Loans secured by 1-4 families 670 26 31 662 28 33
Loans to individuals 206 8 12 296 13 11
Unallocated reserves 805 32 -- 118 5 --
------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses $2,540 100% 100% $2,332 100% 100%
====== ====== ====== ====== ====== ======
21
Other Real Estate
As of December 31, 1999, other real estate totaled $467,000, a decrease of
$28,000 or 6% compared to December 31, 1998. The net decrease was primarily due
to sale of foreclosed properties. The $467,000 includes collateral acquired
through foreclosure of loans, stated at the lower of the loan value or fair
market value less estimated cost to sell. Management is actively seeking
repayment through sale of the underlying collateral.
Deposits
As of December 31, 1999, total deposits were $460.6 million, an increase
of $167.2 million or 57% over total deposits at December 31, 1998. This net
increase results from acquiring $172.3 million in deposits through the
acquisition of First Savings offset in part by a decrease of $5.1 million
primarily due to maturity runoff. Average deposits for 1999 were $419.3 million,
or 49% higher than for 1998. As of December 31, 1998, total deposits were $293.4
million, an increase of $35.8 million or 14% over total deposits at December 31,
1997. Average deposits for 1998 were $52.8 million higher than average deposits
for 1997. 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
1999 Yield/Rate 1998 Yield/Rate 1997 Yield/Rate
---- ---------- ---- ---------- ---- ----------
(Dollars in Thousands)
Non interest-bearing ........................... $ 88,003 -- $ 71,010 -- $ 60,481 --
Savings and interest-bearing ................... 123,776 2.20% 83,645 2.11% 76,466 2.21%
Time ........................................... 207,460 5.13 127,477 5.69 92,435 5.55
-------- -------- -------- -------- -------- --------
$419,239 3.19% $282,132 3.20% $229,382 2.97%
======== ======== ======== ======== ======== ========
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December
31, 1999
---------
(In Thousands)
Three months or less............................................. $16,770
Over three months through six months............................ 6,876
Over six months through twelve months............................ 11.156
Over twelve months............................................... 2,350
-------
$37,152
=======
Short-Term Borrowings
As of December 31, 1999, federal funds purchased and securities sold under
agreements to repurchase were $16.4 million. Short-term borrowings include
various other borrowings which generally have maturities of less than one year.
The details of these categories are presented below (in thousands):
Years ended December 31,
-----------------------------
1999 1998 1997
-------- -------- -------
Securities sold under repurchase agreements and
federal funds purchased
Balance at year-end.............................. $16,403 $ 7,103 $6,338
Average during the year.......................... 13,316 10,164 7,507
Maximum month-end balance........................ 20,466 12,843 8,670
Weighted average rate during the year............ 4.90% 4.49% 4.88%
Rate at December 31.............................. 6.34% 5.82% 5.00%
22
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
On May 21, 1997, the Company, through the Trust, sold 920,000 Trust
Preferred Securities at a price of $25 per share, for a total of $23.0 million.
The Preferred Securities have an annual dividend rate of 10% payable quarterly.
The Trust Preferred Securities which are treated as Junior Subordinated
Debentures on the Company's books, currently qualify for Tier I capital
treatment. The Trust Preferred Securities do not have a maturity date and are
callable by the Company on or about June 1, 2002, or earlier if certain
contingencies arise. The Debentures mature in the year 2027, at which time the
Trust Preferred Securities must be redeemed.
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 such assets and
liabilities are interest rate-sensitive and by monitoring an 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 negative one-year gap position with respect to its
exposure to interest rate risk at December 31, 1999. 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 the 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.
23
The following table summarizes, as of December 31, 1999, 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 Over
Three Twelve Two Five Five Fair
Months Months Years Years Years Total Value
----------- ------- ------ ------ --------- --------- ---------
(Dollars in Thousands)
Rate-sensitive assets:
Investment securities.................$ $ 32,089 $ 30,908 $ 24,308 $ 38,395 $ 25,491 $151,191 $150,741
Rate 6.23% 5.78% 6.10% 6.20% 6.30% 6.11%
Federal funds sold and deposits
from banks..........................$ 3,697 8,079 1,249 -- -- 13,025 13,025
Rate 5.90% 6.08% 5.99% -- -- 5.99%
Total loans net of unearned income.....$ 69,289 33,861 42,212 112,276 87,878 345,516 341,114
Rate 8.65% 8.34% 7.81% 8.12% 7.23% 7.96%
-------- -------- -------- -------- -------- -------- --------
Total rate-sensitive assets........ $105,075 $ 72,848 $ 67,769 $150,671 $113,369 $509,732 $504,880
======== ======== ======== ======== ======== ======== ========
Rate-sensitive liabilities:
Interest-bearing demand deposits.......$ $ 22,239 $ 6,414 $ 13,694 $ 20,852 $ 7,157 $ 70,356 $70,356
Rate 1.81% 1.81% 1.81% 1.81% 1.81% 1.81%
Savings deposits.......................$ 18,029 216 9,162 21,195 12,033 60,635 60,635
Rate 2.64% 2.64% 2.64% 2.64% 2.64% 2.64%
Time deposits..........................$ 47,996 156,161 25,081 6,435 2 235,675 236,205
Rate 4.54% 5.20% 5.13% 5.25% 4.80% 5.16%
Total borrowings (1)...................$ 13,957 -- 5,000 17,712 25,755 62,424 64,632
Rate 5.01% -- 5.01% 5.01% 7.51% 6.03%
-------- -------- -------- -------- -------- -------- --------
Total rate-sensitive liabilities... $102,221 $162,791 $ 52,937 $ 66,194 $ 44,947 $429,090 $431,828
======== ======== ======== ======== ======== ======== ========
Interest rate-sensitivity gap........... 2,854 (89,943) 14,832 84,477 68,422 80,642
Interest rate-sensitivity gap as a
percentage of total rate-sensitive
assets................................. 0.56% (17.65%) 2.91% 16.57% 13.42%
Cumulative interest rate-sensitivity
gap.................................... 2,854 (87,089) (72,257) 12,220 80,642
======== ======== ======== ======== ========
Cumulative interest rate-sensitivity
gap as a percentage of total
rate-sensitive assets................. 0.56% (17.09%) (14.18%) 2.40% 15.82%
(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 are 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. Management
expects this high liquidity trend to continue until overall economic conditions
improve and loan demand rises.
Sources of liquidity at December 31, 1999 totaled $181.1 million or 32% of
total assets, consisting of investment securities of $151.2 million and $29.9
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity sources at December 31, 1998, were $150.8 million or
40% of total assets, consisting of investment securities in the amount of $111.6
million and cash and cash equivalents and interest-bearing due from banks in the
amount of $39.2 million.
Capital Resources
The Company's primary regulator, the 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, 1999, the minimum Tier I
and the combined Tier I and Tier II capital ratios required by the Federal
Reserve Board 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
24
maintain a leverage ratio above the minimum ratio. Minimum leverage ratios for
each entity will be evaluated through the ongoing regulatory examination
process. Regulations have also been issued by the Bank Subsidiaries' primary
regulator, the FDIC, establishing similar risk-based and leverage capital ratios
which apply to each bank as a separate entity.
The following table presents the risk-based and leverage capital ratios
for the Company, GFB, BCB, and RCB respectively, as of December 31, 1999 and
1998.
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, 1999
Total capital (to risk-weighted assets)
Greater Community Bancorp....... $50,811 13.73% $29,615 8.00% $ -- --
Great Falls Bank................ 27,659 11.53 19,184 8.00 23,980 10.00%
Bergen Commercial Bank ......... 9,609 10.02 7,673 8.00 9,592 10.00
Rock Community Bank............. 4,720 67.03 563 8.00 704 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 35,497 9.59 14,808 4.00 -- --
Great Falls Bank................ 24,652 10.28 9,592 4.00 14,388 6.00
Bergen Commercial Bank.......... 8,591 8.96 3,837 4.00 5,755 6.00
Rock Community Bank............. 4,643 65.93 282 4.00 423 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp....... 35,497 7.18 19,788 4.00 -- --
Great Falls Bank................ 24,652 6.55 15,066 4.00 18,832 5.00
Bergen Commercial Bank.......... 8,591 5.83 5,891 4.00 7,364 5.00
Rock Community Bank............. 4,643 26.90 690 4.00 863 5.00
As of December 31, 1998
Total capital (to risk-weighted assets)
Greater Community Bancorp....... 55,953 21.58 20,746 8.00 -- --
Great Falls Bank................ 16,863 11.11 12,145 8.00 15,181 10.00
Bergen Commercial Bank.......... 8,961 11.74 6,106 8.00 7,633 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 39,726 15.32 10,373 4.00 -- --
Great Falls Bank................ 14,956 10.45 6,072 4.00 9,108 6.00
Bergen Commercial Bank.......... 8,100 10.61 3,053 4.00 4,579 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp....... 39,726 11.21 14,015 4.00 -- --
Great Falls Bank................ 14,956 6.48 9,011 4.00 11,265 5.00
Bergen Commercial Bank.......... 8,100 6.96 4,655 4.00 5,818 5.00
Impact of Inflation and Changing Prices
The Company's consolidated financial statements and notes thereto
presented elsewhere herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the 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 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 MARKET RISK
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
25
Item 8 - FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
December 31,
--------------------------
1999 1998
--------- ---------
ASSETS
CASH AND DUE FROM BANKS - Non interest-bearing ................................................... $ 16,850 $ 17,790
FEDERAL FUNDS SOLD ............................................................................... 2,350 5,850
--------- ---------
Total cash and cash equivalents ......................................................... 19,200 23,640
DUE FROM BANKS - Interest-bearing ................................................................ 10,675 15,544
INVESTMENT SECURITIES - Available-for-sale ....................................................... 142,236 93,797
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$8,505 and $17,554 at December 31, 1999 and 1998, respectively) .............................. 8,955 17,804
--------- ---------
151,191 111,601
LOANS ............................................................................................ 346,935 206,120
Allowance for possible loan losses ............................................................. (4,953) (3,525)
Unearned income ................................................................................ (1,419) (830)
--------- ---------
Net loans ............................................................................... 340,563 201,765
PREMISES AND EQUIPMENT, net ...................................................................... 7,840 5,251
ACCRUED INTEREST RECEIVABLE ...................................................................... 3,825 2,293
BANK OWNED LIFE INSURANCE ........................................................................ 10,690 6,540
GOODWILL ......................................................................................... 13,128 350
OTHER ASSETS ..................................................................................... 10,341 5,461
--------- ---------
TOTAL ASSETS ..................................................................................... $ 567,453 $ 372,400
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing .......................................................................... $ 93,968 $ 76,346
Interest-bearing .............................................................................. 70,356 64,987
Savings ....................................................................................... 60,635 32,883
Time Deposits less than $100 .................................................................. 198,523 88,083
Time Deposits $100 and over ................................................................... 37,152 31,096
--------- ---------
Total deposits .......................................................................... 460,634 293,395
FHLB ADVANCES .................................................................................... 25,000 10,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ................................................... 16,403 7,103
ACCRUED INTEREST PAYABLE ......................................................................... 3,022 2,589
OTHER LIABILITIES ................................................................................ 3,992 4,004
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT ............................................................................ 23,000 23,000
--------- ---------
Total liabilities ....................................................................... 532,051 340,091
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, par value $0.50 per share: 20,000,000 shares authorized, 6,031,994 and
5,329,566 shares outstanding at December 31, 1999 and 1998, respectively .................. 3,016 2,665
Additional paid-in capital ..................................................................... 31,891 25,460
Retained earnings .............................................................................. 1,636 1,932
Accumulated other comprehensive income (loss) .................................................. (1,141) 2,252
--------- ---------
Total shareholders' equity .............................................................. 35,402 32,309
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................................... $ 567,453 $ 372,400
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
26
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
For the Years Ended
December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
INTEREST INCOME:
Loans, including fees ............................................. $25,096 $16,335 $13,625
Investment securities ............................................. 8,094 7,348 6,241
Federal funds sold and deposits with banks ........................ 1,374 1,183 682
------- ------- -------
Total interest income ........................................ 34,564 24,866 20,548
INTEREST EXPENSE:
Deposits .......................................................... 13,376 9,019 6,817
Short-term borrowings ............................................. 1,464 633 366
Long-term borrowings .............................................. 2,300 2,357 1,765
------- ------- -------
Total interest expense ....................................... 17,140 12,009 8,948
------- ------- -------
NET INTEREST INCOME ................................................... 17,424 12,857 11,600
PROVISION FOR POSSIBLE LOAN LOSSES .................................... 885 520 485
------- ------- -------
Net interest income after provision for possible loan losses ...... 16,539 12,337 11,115
OTHER INCOME:
Service charges on deposit accounts ............................... 1,972 1,761 1,481
Other commission and fees ......................................... 1,282 925 627
Gain on sale of investment securities ............................. 2,211 1,083 216
All other income .................................................. 1,805 887 431
------- ------- -------
Total other income ........................................... 7,270 4,656 2,755
OTHER EXPENSES:
Salaries and employee benefits ................................... 8,574 5,703 4,741
Occupancy and equipment .......................................... 2,923 2,383 2,139
Regulatory, professional and other fees .......................... 1,553 654 734
Amortization of intangibles ...................................... 608 108 108
Computer services ................................................ 387 193 167
Office expenses .................................................. 992 545 570
Other real estate operating expenses ............................. 201 161 60
Other operating expenses ......................................... 2,050 1,703 1,256
------- ------- -------
Total other expenses ......................................... 17,288 11,450 9,775
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES .............................. 6,521 5,543 4,095
PROVISION FOR INCOME TAXES ............................................ 2,349 2,000 1,495
------- ------- -------
NET INCOME ............................................................ $ 4,172 $ 3,543 $ 2,600
======= ======= =======
Net income per share - basic .......................................... $ 0.71 $ 0.64 $ 0.57
======= ======= =======
Net income per share - diluted ........................................ $ 0.69 $ 0.61 $ 0.54
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
27
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
Retained Accumulated
Common Stock Additiona Earnings Other
Paid-in (Accumulated Comprehensive Treasury Comprehensive
Shares Par Value Capital Deficit) Income (loss Stock Income
------ --------- ------- -------- ------------ ----- ------
BALANCE, January 1, 1997 ................... 1,892 $ 1,892 $ 17,841 $ 1,209 $ 307 $ (188)
Net income - 1997 ........................ -- -- -- 2,600 -- --
10% stock dividend ....................... 189 189 3,211 (3,400) -- $ 2,600 $ 2,600
Exercise of stock options ................ 50 50 400 -- -- --
Exercise of equity contracts ............. 560 560 4,433 -- -- --
Cash dividends ........................... -- -- -- (800) -- --
Other comprehensive income, net of
reclassification adjustments and taxes . -- -- -- -- 1,560 -- 1,560
--------
Total comprehensive income $ 4,160
========
Purchase of treasury stock ............... -- -- -- -- -- (156)
Retirement of treasury stock ............. (44) (44) (747) -- -- 344
------- -------- -------- -------- -------- --------
BALANCE, December 31, 1997 ................. 2,647 $ 2,647 $ 25,138 $ (391) $ 1,867 $ --
======= ======== ======== ======== ======== ========
Net income - 1998 ........................ -- -- -- 3,543 -- -- $ 3,543
2 for 1 stock split ...................... 2,647 -- -- -- -- --
Exercise of stock options ................ 48 24 438 -- -- --
Cash dividends ........................... -- -- -- (1,220) -- --
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- -- 385 -- 385
--------
Total comprehensive income $ 3,928
Purchase of treasury stock ............... -- -- -- -- -- (122) ========
Retirement of treasury stock ............. (12) (6) (116) -- -- 122
------- -------- -------- -------- -------- --------
BALANCE, December 31, 1998 ................. 5,330 $ 2,665 $ 25,460 $ 1,932 $ 2,252 $ --
======= ======== ======== ======== ======== ========
Net income - 1999 ....................... -- -- -- 4,172 -- -- $ 4,172
5% stock dividend ........................ 286 143 2,744 (2,887) -- --
Issuance of common stock-private placement 391 196 3,555 -- -- --
Issuance of common stock - dividend ...... 250 250
reinvestment plan ..................... 29 14 232 -- -- --
Exercise of stock options ................ 36 18 299 -- -- --
Cash dividends ........................... -- -- -- (1,581) -- (1,581)
Other comprehensive loss, net of
reclassification adjustments and taxes -- -- -- -- (3,393) -- (3,393)
--------
Total comprehensive income $ 779
========
Purchase of treasury stock ............... -- -- -- -- -- (419)
Retirement of treasury stock ............. (40) (20) (399) -- -- 419
------- -------- -------- -------- -------- --------
BALANCE, December 31, 1999 ................. 6,032 $ 3,016 $ 31,891 $ 1,636 $ (1,141) $ --
======= ======== ======== ======== ======== ========
Total
Shareholders'
Equity
--------
BALANCE, January 1, 1997 ................... $ 21,061
Net income - 1997 ........................ 2,600
10% stock dividend ....................... --
Exercise of stock options ................ 450
Exercise of equity contracts ............. 4,993
Cash dividends ........................... (800)
Other comprehensive income, net of
reclassification adjustments and taxes . 1,560
Total comprehensive income
Purchase of treasury stock ............... (156)
Retirement of treasury stock ............. (447)
--------
BALANCE, December 31, 1997 ................. $ 29,261
========
Net income - 1998 ........................ 3,543
2 for 1 stock split ...................... --
Exercise of stock options ................ 462
Cash dividends ........................... (1,220)
Other comprehensive income, net of
reclassification adjustments and taxes 385
Total comprehensive income
Purchase of treasury stock ............... (122)
Retirement of treasury stock ............. --
--------
BALANCE, December 31, 1998 ................. $ 32,309
========
Net income - 1999 ....................... 4,172
5% stock dividend ........................ --
Issuance of common stock-private placement 3,751
Issuance of common stock - dividend ...... 250
reinvestment plan .....................
Exercise of stock options ................ 313
Cash dividends ........................... (1,581)
Other comprehensive loss, net of
reclassification adjustments and taxes (3,393)
Total comprehensive income
Purchase of treasury stock ............... (419)
Retirement of treasury stock ............. --
--------
BALANCE, December 31, 1999 ................. $ 35,402
========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
28
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Years Ended
December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................ $ 4,172 $ 3,543 $ 2,600
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization .......................................................... 2,001 1,201 1,056
Accretion of discount on securities, net ............................................... 85 125 (127)
Accretion of discount on debentures .................................................... -- -- 11
Realization of discount on securities sold ............................................. -- -- (88)
Gain on sale of securities, net ........................................................ (2,211) (1,083) (216)
Gain on sale of other real estate owned ................................................ (93) -- --
Provision for possible loan losses ..................................................... 885 520 485
Deferred income tax benefit ............................................................ (457) (310) (233)
Decrease (increase) in accrued interest receivable ..................................... (207) 83 (243)
Increase in Bank owned life insurance and other assets ................................. (7,258) (7,895) (1,394)
Increase in accrued interest and other liabilities ..................................... 1,014 1,565 1,972
-------- -------- --------
Net cash (used in) provided by operating activities .......................... (2,069) (2,251) 3,823
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale investment securities -
Purchases ............................................................................ (47,256) (56,752) (62,411)
Sales ................................................................................ 16,409 6,928 10,986
Maturities ........................................................................... 37,235 48,568 14,339
Held-to-maturity investment securities -
Purchases ............................................................................ (684) (21,224) (9,177)
Maturities ........................................................................... 9,533 38,945 11,079
Net decrease (increase) in interest-bearing deposits with banks ......................... 4,869 (13,182) 2,119
Net increase in loans ................................................................... (30,323) (43,640) (23,728)
Capital expenditures .................................................................... (1,326) (1,281) (3,184)
(Increase) decrease in other real estate ................................................ 2,021 (122) 1,549
Cash paid in purchase transaction, First Savings ........................................ (23,000) -- --
Cash of equity acquired, First Savings .................................................. 11,239 -- --
-------- -------- --------
Net cash used in investing activities ........................................ (21,283) (41,760) (58,428)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposit accounts ............................................. (5,099) 35,840 34,313
Increase in securities sold under agreement to repurchase ............................... 6,854 765 2,179
Proceeds from long term FHLB advances ................................................... 15,000 10,000 --
Proceeds from issuance of subordinated debt ............................................. -- -- 23,000
Repayments of exercise of equity contracts ............................................. -- -- 165
Repayments of redeemable subordinated debentures ........................................ -- (803) --
Dividends paid .......................................................................... (1,581) (1,220) (800)
Proceeds from exercise of stock options ................................................. 250 235 450
Proceeds from the issuance of common stock, net of costs ................................ 4,064 -- --
Purchases of treasury stock ............................................................. (419) (122) (156)
Other, net .............................................................................. (157) 111 5
-------- -------- --------
Net cash provided by financing activities .................................... 18,912 44,806 59,156
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......................... (4,440) 795 4,551
CASH AND CASH EQUIVALENTS, beginning of period ............................................. 23,640 22,845 18,294
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ................................................... $ 19,200 $ 23,640 $ 22,845
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
29
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,
Great Falls Bank ("GFB"), 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, business and
governmental units primarily through twelve full service offices located in
Bergen and Passaic counties, New Jersey. Great Falls Investment Company, Inc. is
a wholly-owned subsidiary of GFB, and BCB Investment Company, Inc. is a
wholly-owned subsidiary of BCB. The primary business of these subsidiaries is to
own and manage the investment portfolios of their respective parent banks.
Highland Capital Corp. ("HCC"), a wholly-owned nonbank subsidiary, engages
in commercial equipment leasing focusing on small ticket and lower or middle
market leases for resale to third parties. Two warehouse lines funded by GFB and
BCB provide funding of leases.
GCB Realty, L.L.C. ("Realty"), a New Jersey limited liability company
located in Totowa, New Jersey, was formed in 1997. The purposes of Realty are to
engage in acquiring and managing real estate properties. In July 1997, Realty
consummated the purchase of a property for $1.8 million in Bergen County, New
Jersey. BCB and HCC are two of the tenants. Four tenants lease space in the
building. In July 1998, Realty consummated the purchase of an office building in
Lyndhurst, New Jersey for $400,000 which is currently being leased to BCB for
one of its banking offices.
Greater Community Financial, L.L.C. ("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 for types of loans. Such
institutions, as well as consumer finance and insurance companies, may be
considered competitors with respect to one or more of the services they render.
The Company, Bank Subsidiaries and GCF are subject to regulations of
certain state and federal agencies and, accordingly, they are periodically
examined by those regulatory authorities. As a consequence of the extensive
regulation of commercial banking 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 generally accepted accounting principles and predominant practices
within the banking industry. 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 possible loan losses and
intangible assets. The evaluation of the adequacy of the allowance for possible
loan 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.
30
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 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.
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about the
Company's operating segments. Under current conditions, the company is reporting
one segment.
FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." SFAS No.107 requires
all entities to disclose the estimated fair value of their assets and
liabilities considered to be financial instruments. Financial instruments
requiring disclosure consist primarily of investment securities, loans, deposits
and borrowings.
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 which 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
does not engage in securities trading. 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.
On October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
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. Additionally, SFAS No. 133 allows a one-time reclassification of
securities without calling into question the intent of the company to hold other
securities to maturity.
SFAS No. 133 allowed a reclassification of investment securities without
calling into question the intent of the company to hold other investment
securities to maturity in the future. On October 1, 1998, the Company
reclassified securities with a fair market value of $5.5 million resulting in an
increase of accumulated other comprehensive income of $28,000.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN 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 possible loan losses. The allowance for possible loan losses is established
through a provision for possible loan losses charged to expense. Loans are
charged against the allowance for possible loan losses when management believes
that the collectibility of the principal is unlikely. The allowance for possible
loan losses is maintained at a level considered by management to be adequate to
provide for potential loan losses inherent in the loan portfolio at the
reporting date. The level of the allowance is based on management's evaluation
of potential 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. Credit reviews of the loan
portfolio, designed to identify potential charges to the allowance, are made on
a periodic basis during the year by management.
31
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 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. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," as amended by SFAS No. 127, which provides
accounting guidance on transfers of financial assets, servicing of financial
assets and extinguishments of liabilities.
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.
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 is being amortized over 20
years on a straight line basis. Goodwill at December 31, 1999 and 1998, was
approximately $13,128,000 and $350,000, respectively. The amortization charged
to income was $608,000 for the year ended December 31, 1999 and $108,000 for the
years ended December 31, 1998 and 1997.
DEFERRED FINANCING COSTS
Deferred financing costs related to the issuance of the subordinated debt
are being amortized over the life of the instruments and are included in other
assets. The unamortized balance at December 31, 1999 and 1998 was $1,125,000 and
$1,155,000, respectively.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under
the liability 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 which 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 possible losses on loans, other real
estate, interest income on nonaccrual loans, depreciation and amortization,
difference between book and tax basis of assets acquired and acquired net
operating loss carryforwards. The Company and its subsidiaries file a
consolidated Federal income tax return.
32
STATEMENTS OF CASH FLOWS
Cash and cash equivalents are defined as 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 $2.5
million, $1.9 million and $1.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. Cash paid for interest was $16.7 million, $11.5
million and $8.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 1999, 1998 and 1997 were approximately
$265,000, $209,000 and $201,000, respectively.
STOCK OPTIONS
The Company accounts for its stock options under SFAS No. 123, "Accounting
for Stock-Based Compensation." The 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. The Company's stock option plans are accounted
for under APB Opinion No. 25.
NET INCOME PER SHARE
The Company follows the provisions of SFAS No. 128, "Earnings per Share,"
which eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per share. Basic
earnings per share excludes 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 securities or other contracts to issue
common stock were exercised and converted into common stock. All weighted
average actual shares or per share information in the financial statements has
been adjusted retroactively for the effect of stock split and stock dividends.
START-UP COST
Statement of Position ("SOP") 98-5, "Reporting on Costs of Start-up
Activities," was adopted in 1998. SOP 98-5 requires that costs of start-up
activities, as defined, including organization costs, be expensed as incurred.
During 1998, the Company expensed $119,000 of costs that would have been
previously categorized as start-up costs. The Company did not have any prior
start-up cost capitalized.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This standard establishes new standards for reporting
comprehensive income which includes net income as well as certain other items
which result in a change to equity during the period.
33
The income tax effects allocated to comprehensive income (loss) are as follows:
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ---------------------------- ---------------------------
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 (losses) on
investment securities:
Unrealized holding gains
(losses) arising during
period.................... $(3,492) $1,426 $(2,066) $1,747 $(712) $1,035 $2,809 $(1,119) $1,690
Less reclassification
adjustment for gains
(losses) realized in net
income....................... 2,211 (884) 1,327 1,083 (433) 650 216 (86) 130
------- ------ ------- ------- ----- ------- ------ ------- ------
Other comprehensive (loss)
income, net.................... $(5,703) $2,310 $(3,393) $ 644 $(279) $ 385 $2,593 $(1,033) $1,560
======= ====== ======= ======= ===== ======= ====== ======= ======
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the classifications used in 1999.
NOTE 2 ACQUISITION
On April 1, 1999, the Company, GFB and BCB completed the merger with First
Savings and its subsidiary bank. Under the terms of the merger, each share of
First Savings common stock was purchased for $52.26. This transaction was
accounted for under the purchase method of accounting. A total of $23.0 million
was paid of which $13.2 million was recorded as goodwill and is being amortized
over a 20 year period.
The unaudited proforma results of operations presented below reflect the
Company's operations as though the acquisition of First Savings had taken place
at the beginning of the periods presented. The proforma results are not
necessarily indicative of what the actual results of operations would have been
had the acquisition occurred at the beginning of the periods presented, or what
the results of operations will be in the future.
(In Thousands)
For the years ended
December 31,
1999 1998
------- -------
Interest Income ................................ $37,542 $37,251
Interest Expense ............................... 19,369 21,160
Net Interest Income ............................ 18,173 16,091
Net Income ..................................... 3,937 2,951
Net Income per share - Basic ................... 0.67 0.55
Net Income per share - Diluted ................. 0.65 0.53
34
NOTE 3 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,
------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------ ---------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---------- ---------- -------- ---------- ------- ------- ----- -------
(In Thousands)
Available-for-sale
U.S. Treasury and U.S.
Government agencies securities $ 63,851 $ 104 $(1,512) $ 62,443 $16,370 $ 268 $ -- $16,638
State and political
subdivisions.................. 7,957 -- (167) 7,790 934 -- -- 934
Other debt and equity
securities.................... 13,790 2,158 (1,601) 14,347 18,159 3,815 (410) 21,564
Mortgage-backed securities:
FHLMC .................... 25,441 -- (496) 24,945 36,083 109 (47) 36,145
FNMA...................... 22,648 12 (366) 22,294 18,493 81 (58) 18,516
Other..................... 10,494 3 (80) 10,417 -- -- -- --
---------- ---------- -------- ---------- ------- ------- ----- -------
58,583 15 (942) 57,656 54,576 190 (105) 54,661
---------- ---------- -------- ---------- ------- ------- ----- -------
$144,181 $2,277 $(4,222) $142,236 $90,039 $4,273 $(515) $93,797
========== ========== ======== ========== ======= ======= ===== =======
Held-to-maturity
U.S. Treasury and U.S.
Government agencies securities $ 4,500 $ -- $ (412) $ 4,088 $ 5,899 $ 2 $(325) $ 5,576
State and political
subdivisions.................. 872 -- (1) 871 898 4 -- 902
Mortgage-backed securities:
FHLMC .................... 2,505 -- (25) 2,480 7,793 82 (16) 7,859
FNMA...................... 1,078 -- (12) 1,066 3,214 10 (7) 3,217
---------- ---------- -------- ---------- ------- ------- ----- -------
3,583 -- (37) 3,546 11,007 92 (23) 11,076
---------- ---------- -------- ---------- ------- ------- ----- -------
$ 8,955 $ -- $ (450) $ 8,505 $17,804 $ 98 $(348) $17,554
========== ========== ======== ========== ======= ======= ===== =======
35
The amortized cost and fair value of securities at December 31, 1999, 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.
December 31, 1999
Amortized Fair
Cost Value
-------- --------
(In Thousands)
Available-for-sale
Due in one year or less ...................... $ 9,852 $ 9,793
Due after one year through five years ........ 36,693 36,254
Due after five years through ten years ....... 5,589 5,426
Due after ten years .......................... 19,674 18,760
Mortgage-backed securities ................... 58,583 57,656
Other debt and equity securities ............. 13,790 14,347
-------- --------
$144,181 $142,236
Held-to-maturity
Due in one year or less ...................... 4,184 4,172
Due after one year through five years ........ 188 187
Due after five years through ten years ....... 1,000 600
Mortgage-backed securities ................... 3,583 3,546
-------- --------
$ 8,955 $ 8,505
======== ========
Proceeds from sales of available-for-sale securities for the years ended
December 31, 1999, 1998 and 1997 were $16.4 million, $6.9 million and $11.0
million, respectively. Gross gains of $2.2 million, $1.1 million and $216,000
were realized on these sales for the years ended December 31, 1999, 1998 and
1997, respectively. Gross losses were not significant for the years ended
December 31, 1999, 1998 and 1997.
Securities with a carrying value of $52.9 million and $27.1 million at
December 31, 1999 and 1998, respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes required by law.
NOTE 4 LOANS
Major classifications of loans are as follows:
December 31,
-------------------
1999 1998
-------- --------
(In Thousands)
Loans secured by one- to four-family residential properties .............. $154,822 $ 66,485
Loans secured by nonresidential properties ............................... 140,200 100,687
Loans to individuals ..................................................... 9,405 10,609
Commercial loans ......................................................... 30,702 21,107
Construction loans ....................................................... 10,024 5,163
Other loans .............................................................. 1,782 2,069
-------- --------
$346,935 $206,120
======== ========
36
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,
1999 1998
------ ------
(In Thousands)
Nonaccrual loans ........................................................ $1,678 $1,657
Renegotiated loans ...................................................... 606 416
------ ------
Total nonperforming loans ............................................. $2,284 $2,073
====== ======
Loans past due 90 days and accruing ..................................... $ 248 $ 461
====== ======
Gross interest income which would have been recorded under original terms $ 60 $ 138
====== ======
The balance of impaired loans was $1.2 million, $907,000 and $1.3 million
at December 31, 1999, 1998 and 1997, 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 possible loan loss associated with impaired loans was
$186,000, $138,000 and $156,000 at December 31, 1999, 1998 and 1997,
respectively. The average recorded investment in impaired loans was $1.1
million, $419,000 and $1.0 million at December 31, 1999, 1998 and 1997,
respectively. The income recognized on impaired loans for the years ended
December 31, 1999, 1998 and 1997, was $60,000, $44,000 and $19,000,
respectively. The Bank 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 basis when both the loans are current and the collateral on the loans is
sufficient to cover the outstanding obligation. If these factors do not exist,
the Bank Subsidiaries will 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, 1999, loans outstanding to these related parties
amounted to $13.1 million. During the year ended December 31, 1999, there were
new loans to related parties of $6.7 million and repayments of $1.3 million. All
such loans are current as to principal and interest payments at December 31,
1999.
NOTE 5 ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
Years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Balance at beginning of year ......... $ 3,525 $ 2,731 $ 2,540
Provision charged to operations ...... 885 520 485
Charge-offs .......................... (206) (123) (407)
Recoveries ........................... 125 397 113
Acquisition of First Savings ......... 624 -- --
------- ------- -------
Balance at end of year ............... $ 4,953 $ 3,525 $ 2,731
======= ======= =======
37
NOTE 6 PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
Estimated --------------------
Useful Lives 1999 1998
------------- ----- ----
(In Thousands)
Land.............................................. indefinite $ 1,357 $ 809
Buildings and improvements........................ 5 to 20 years 4,097 2,323
Furniture, fixtures and equipment................. 3 to 10 years 6,084 4,617
Leasehold improvements............................ 3 to 40 years 2,500 2,307
-------- -------
14,038 10,056
Less accumulated depreciation and amortization.... (6,198) (4,805)
-------- -------
$ 7,840 $ 5,251
======== =======
NOTE 7 DEPOSITS
At December 31, 1999, the schedule of maturities of Certificates of
Deposit is as follows (in thousands):
2000............................................ $197,573
2001............................................ 31,039
2002 ........................................... 3,680
2003 ........................................... 2,450
2004............................................ 933
--------
$235,675
========
NOTE 8 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,
-----------------------------
(In Thousands)
1999 1998 1997
------- ------- -------
Securities sold under repurchase agreements and
federal funds purchased
Balance at year-end ....................... $16,403 $ 7,103 $ 6,338
Average during the year ................... 13,316 10,190 7,507
Maximum month-end balance ................. 20,466 12,843 8,670
Weighted average rate during the year ..... 4.90% 4.49% 4.88%
Rate at December 31 ....................... 6.34% 5.82% 5.00%
HCC maintains a revolving line of credit of $500,000 earning interest at
the bank's prime rate plus 50 basis points through April 30, 2000. The amount
outstanding at December 31, 1999 was $451,000 and is included in other
liabilities.
38
Federal Home Loan Bank Advances
The Company has a line of credit for $15.9 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, 1999 and 1998 there were no outstanding
balances.
At December 31, 1999, the Company had $25.5 million of advances from the
FHLB. These advances are collateralized by certain first mortgage loans. The
weighted average interest rate was 5.97%. At December 31, 1999, $5.5 million
will mature in 2008 and $20.0 million will mature in 2009.
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
The Company issued $23.0 million of 10.00% of junior subordinated
debentures to a Delaware Business Trust (the "Trust"), in which the Company owns
all of the common equity. The Trust issued $23.0 million of Preferred Securities
to investors, secured by the junior subordinated debentures and the guarantee of
the Company. The junior subordinated debentures mature in the year 2027.
Although the junior subordinated debentures are treated as debt of the Company,
they currently qualify as Tier I capital investments, subject to the 25%
limitation under risk-based capital guidelines of the Federal Reserve. The
portion of the Trust Preferred Securities that exceeds this limitation qualifies
as Tier II capital of the Company.
Subordinated Debentures and Cancellable Mandatory Stock Purchase Contracts
The Company issued $5.0 million of 8.5% Redeemable Subordinated Debentures
("Debentures") due November 1, 1998, interest payable quarterly. In addition to
the Debentures, the Company issued Cancellable Mandatory Stock Purchase
Contracts ("Equity Contracts") requiring the purchase of $5.0 million in common
stock at a price of $4.23 per share no later than November 1, 1997, and
permitting the purchase of common stock in that amount prior to that date. The
purchase price under the Equity Contracts could be paid by the surrender of the
Debentures with a principal amount equal to the amount of the common stock to be
purchased. During November 1997, all of the outstanding stock purchase contracts
which had not previously been exercised were mandatorily exercised at the
adjusted price of $4.23 per share. The Company issued 1,178,808 shares (adjusted
for subsequent stock dividends and splits) of common stock in connection with
these November exercises.
NOTE 9 INCOME TAXES
The provision for income taxes was as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
Federal
Current ............................... $2,381 $1,953 $1,512
Deferred .............................. (346) (223) (198)
State
Current ................................ 425 346 216
Deferred ............................... (111) (76) (35)
------ ------ ------
$2,349 $2,000 $1,495
====== ====== ======
39
The reconciliation of the tax computed at the statutory federal rate was
as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
Tax at statutory rate .................... $2,221 $1,884 $1,392
Increase (reduction) in tax resulting from:
Tax-exempt income ...................... (95) (197) (46)
Amortization of intangible assets ...... 37 37 36
State income tax, net of federal benefit 235 181 142
Other .................................. (49) 95 (29)
------ ------ ------
Provision for income taxes ........ $2,349 $2,000 $1,495
====== ====== ======
The net deferred tax asset consists of the following:
December 31,
------------------
1999 1998
------- -------
(In Thousands)
Allowance for possible losses on loans and other real estate ................ $ 1,814 $ 938
Interest income on nonaccrual loans ......................................... 341 310
Depreciation and amortization ............................................... 493 339
Acquired net operating loss carryforward .................................... 151 191
Difference between book and tax basis of assets acquired .................... 333 355
Unrealized holding losses (gains) on investment securities available-for-sale 804 (1,506)
Other ....................................................................... (186) (139)
------- -------
Total net deferred tax asset (included in other assets) ............... $ 3,750 $ 488
======= =======
As a result of the acquisition of First Savings, the Company acquired a
net deferred tax asset of $405,000, which includes unrealized holding gains of
$90,000, during 1999.
At December 31, 1999, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $450,000. 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 10 SHAREHOLDERS' EQUITY
On September 30, 1999, the Company paid a 5% stock dividend on its common
stock to shareholders of record on September 15, 1999.
During 1999, the Company, through a private placement of common stock
raised $3.8 million, net of offering costs. The private placement resulted in
the issuance of 391,000 shares of the Company's stock at $9.58 per share. The
proceeds were used to fund the initial capital of RCB, which opened business on
April 27, 1999.
During 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized common shares from 10,000,000 shares with a
par value of $1.00 to 20,000,000 shares with a par value of $0.50. In
conjunction with this amendment, the Company declared a 2 for 1 stock split
where one common share of $1.00 par value stock was exchanged for two common
shares of $0.50 par value stock.
On July 31, 1997, the Company paid a 10% stock dividend on its common
stock to shareholders of record on July 15, 1997.
40
NOTE 11 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, 1999
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
(In Thousands, except for per share data)
Basic EPS
Net income available to common stockholders ................ $ 4,172 5,885 $ 0.71
Effect of Dilutive Securities
Options .................................................... -- 175 (0.02)
------------ ------------ ------------
Diluted EPS
Net income available to common stockholders
plus assumed conversions ................................ $ 4,172 6,060 $ 0.69
============ ============ ============
Options to purchase 25,750 shares of common stock from $10.56 to $11.19 per
share were outstanding during 1999. 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.
For Year Ended December 31, 1998
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS
Net income available to common stockholders ................ $ 3,543 5,562 $ 0.64
Effect of Dilutive Securities
Options .................................................... -- 220 (0.03)
------------ ------------ ------------
Diluted EPS
Net income available to common stockholders
plus assumed conversions ................................ $ 3,543 5,782 $ 0.61
============ ============ ============
Options to purchase 96,548 shares of common stock at $9.88 per share were
outstanding during 1998. 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.
For Year Ended December 31, 1997
------------------------------------------
Basic EPS
Net Income available to common stockholders ................ $ 2,600 4,563 $ 0.57
Effect of Dilutive Securities
Options .................................................... -- 164 (0.02)
Equity Contracts ........................................... 208 485 (0.01)
------------ ------------ ------------
Diluted EPS
Net Income available to common stockholders
plus assumed conversions ............................... $ 2,808 5,212 $ 0.54
============ ============ ============
Options to purchase 9,450 shares of common stock at $9.23 per share were
outstanding during 1997. 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 12 STOCK OPTIONS
The Company adopted a nonstatutory stock option plan in 1988 (the "1988
Plan") allowing for the granting to employees of options to acquire up to a
maximum of 233,738 shares of the Company's common stock. Effective with the
approval of the 1996 Employee Plan, no further shares will be granted under the
1988 Plan. At December 31, 1999 and 1998, options to purchase 26,942 and 55,936
shares were outstanding.
41
The Company adopted two additional stock option plans in 1996. 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 508,200
shares is authorized to be granted under the 1996 Employee Plan. During 1999 and
1998, options to acquire 78,750 and 96,548 shares were granted under this plan.
At December 31, 1999 and 1998, options to purchase a total of 414,712 and
348,517 shares were outstanding under the 1996 Employee Plan.
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 241,395 shares is authorized to
be granted under the 1996 Directors Plan. During 1996, options to acquire
241,395 shares were granted under this plan. At December 31, 1999 and 1998,
options to purchase a total of 235,319 and 236,842 shares were outstanding under
the 1996 Directors Plan.
Had compensation cost for the above stock option plans been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS No. 123, the Company's net income, basic and diluted net income
per share would have been reduced to the pro forma amounts indicated below.
1999 1998 1997
---- ---- ----
(In Thousands, except per share data)
Net income................................... As reported $4,172 $3,543 $2,600
Pro forma $3,999 $3,412 $2,511
Net income per share - basic................. As reported $0.71 $0.64 $0.57
Pro forma $0.68 $0.61 $0.55
Net income per share - diluted............... As reported $0.69 $0.61 $0.54
Pro forma $0.66 $0.59 $0.52
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants before 1995.
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 1999, 1998 and 1997,
respectively: dividend yields of 3.3%, 2.1% and 2.2%; expected volatility of
35%, 22% and 27%; risk-free interest rates of 5.74%, 4.58% and 6.43%; and
expected lives of five and ten years.
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997 and the changes during the years ending on those dates
is represented below.
1999 1998 1997
--------------------- ----------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding, beginning of year........ 641,295 $6.95 602,223 $6.30 698,116 $5.93
Granted............................... 78,750 9.88 96,548 9.89 19,845 8.25
Exercised............................. (36,515) 4.82 (50,750) 4.64 (106,107) 4.30
Terminated............................ (6,557) 7.48 (6,726) 7.41 (9,636) 6.71
------- ----- ------- ----- ------- -----
Outstanding, end of year.............. 676,973 $7.41 641,295 $6.95 602,228 $6.30
------- ----- ------- ----- ------- -----
Options exercisable at year-end....... 120,782 67,340 37,880
======= ======= =======
Weighted average fair value of
options granted during the year.... $2.96 $2.28 $3.60
===== ===== =====
42
The following table summarizes information about nonqualified options
outstanding at December 31, 1999.
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------------
Number Weighted- Number
Outstanding at Average Weighted- Outstanding at Weighted-
Range of December 31, Remaining Average December 31, Average
Exercise Prices 1999 Contractual Life Exercise Price 1999 Exercise Price
--------------- -------------- ---------------- -------------- -------------- --------------
$2.95 - $ 4.42 13,509 2.36 years $ 3.21 6,888 $3.10
4.43 - 6.65 452,032 5.35 years 6.57 108,354 6.60
6.66 - 9.99 185,182 8.70 years 9.31 5,540 7.41
9.99 - 10.65 26,250 9.05 years 10.65 -- --
-------- -------
676,973 120,782
======== =======
NOTE 13 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. Contributions made by the
Company were approximately $405,000, $325,000 and $183,000 for the years ended
December 31, 1999, 1998 and 1997, 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 401K Plan). Under the SERPs, the
aggregate amount of benefits to which the key executives would be entitled 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 life insurance policies that it purchased on 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 the Directors' Retirement 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 payout under the plans are based
upon the individual directors retirement ages and range from approximately
$12,000 to $68,000.
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 14 COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company and its subsidiaries lease banking facilities and other office
space under operating leases which expire at various dates through 2007,
containing certain renewal options. Rent expenses charged to operations
approximated $820,000,
43
$630,000 and $681,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Included in these amounts is $226,000, $215,000 and $146,000, in
1999, 1998 and 1997, respectively, paid to a general partnership that includes
two directors of the Company.
As of December 31, 1999, future approximate minimum annual rental payments
under these leases are as follows (in thousands):
2000.................................................. $496
2001.................................................. 265
2002.................................................. 118
2003 ................................................. 43
2004 ................................................. 6
----
Total............................................ $928
====
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 15 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 financing
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,
---------------
1999 1998
---- ----
(In Thousands)
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit.......................................... $63,103 $37,453
Standby letters of credit and financial guarantees written........... 3,590 1,108
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 the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The
44
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, 1999 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 the ability of their
borrowers 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 16 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 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.
Estimated fair values have been determined by the Company 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, 1999 and 1998 are outlined
below.
For cash and due from banks, the recorded book values of $19.2 million and
$23.6 million at December 31, 1999 and 1998, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values of
$10.7 million and $15.5 million at December 31, 1999 and 1998, 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, 1999 and 1998 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, 1999 and 1998.
1999 1998
----------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------- ----------- -------- -----------
(In Thousands)
Investment securities available-for-sale..... $142,236 $142,236 $93,797 $93,797
Investment securities held-to-maturity 8,955 8,505 17,804 17,554
Loans, net of unearned income................ 345,516 341,114 205,290 207,045
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.
45
The following table describes the carrying amounts and estimated fair
values of time deposits, securities sold under agreements to repurchase and FHLB
advances at December 31, 1999 and 1998.
1999 1998
----------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------- ----------- -------- -----------
(In Thousands)
Time deposits.................................. $235,675 $236,205 $119,179 $119,792
Securities sold under agreements to repurchase. 16,403 16,403 7,103 7,103
FHLB Advances ................................. 25,000 25,229 10,000 10,155
The fair value of the guaranteed preferred beneficial interest in the
Company's subordinated debt totaling $23.0 million at December 31, 1999 and 1998
approximates fair value.
There was no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which totaled approximately
$66.7 million and $38.6 million at December 31, 1999 and 1998, respectively, and
primarily comprise unfunded loan commitments which are generally priced at
market at the time of funding.
NOTE 17 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. GFB had $15.5 million and $7.7 million
as of December 31, 1999 and 1998, respectively and BCB had $4.1 million as of
December 31, 1999 and 1998 and RCB had $1.2 million as of December 31, 1999 of
funds available for the payment of dividends to the Company, respectively.
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. As of
December 31, 1999, management believes that the Company and the Bank
Subsidiaries meet all capital adequacy requirements to which they are subject.
46
As of December 31, 1999, 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.
There are no conditions or events which have occurred that management believes
have changed the category of the Company or any of the Bank Subsidiaries.
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, 1999
Total capital (to risk-weighted assets)
Greater Community Bancorp....... $50,811 13.73% $29,615 8.00% $ -- --
Great Falls Bank................ 27,659 11.53 19,184 8.00 23,980 10.00%
Bergen Commercial Bank ......... 9,609 10.02 7,673 8.00 9,592 10.00
Rock Community Bank............. 4,720 67.03 563 8.00 704 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 35,497 9.59 14,808 4.00 -- --
Great Falls Bank................ 24,652 10.28 9,592 4.00 14,388 6.00
Bergen Commercial Bank.......... 8,591 8.96 3,837 4.00 5,755 6.00
Rock Community Bank............. 4,643 65.93 282 4.00 423 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp....... 35,497 7.18 19,788 4.00 -- --
Great Falls Bank................ 24,652 6.55 15,066 4.00 18,832 5.00
Bergen Commercial Bank.......... 8,591 5.83 5,891 4.00 7,364 5.00
Rock Community Bank............. 4,643 26.90 690 4.00 863 5.00
As of December 31, 1998
Total capital (to risk-weighted assets)
Greater Community Bancorp....... 55,953 21.58 20,746 8.00 -- --
Great Falls Bank................ 16,863 11.11 12,145 8.00 15,181 10.00
Bergen Commercial Bank.......... 8,961 11.74 6,106 8.00 7,633 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 39,726 15.32 10,373 4.00 -- --
Great Falls Bank................ 14,956 10.45 6,072 4.00 9,108 6.00
Bergen Commercial Bank.......... 8,100 10.61 3,053 4.00 4,579 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp....... 39,726 11.21 14,015 4.00 -- --
Great Falls Bank................ 14,956 6.48 9,011 4.00 11,265 5.00
Bergen Commercial Bank.......... 8,100 6.96 4,655 4.00 5,818 5.00
47
NOTE 18 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,
-----------------
1999 1998
------- -------
(In Thousands)
ASSETS:
Cash and Federal Funds sold ............................................... $ 141 $ 5,217
Investment securities available-for-sale .................................. 6,732 23,172
Accrued interest receivable ............................................... 48 78
Investment in subsidiaries ................................................ 52,454 27,209
Other assets .............................................................. 2,989 1,914
------- -------
Total assets ......................................................... $62,364 $57,590
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Guaranteed preferred beneficial interest in the Company's subordinated debt $23,711 $23,711
Other liabilities ......................................................... 3,351 1,570
Shareholders' equity ...................................................... 35,402 32,309
------- -------
Total liabilities and shareholders' equity ........................... $62,364 $57,590
======= =======
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
INCOME:
Equity in undistributed income of Bank Subsidiaries $3,067 $1,450 $2,093
Dividends from Bank Subsidiaries ................... 1,172 2,167 958
Interest income .................................... 601 1,457 1,008
Gain on sale of investment securities .............. 2,209 1,026 154
------ ------ ------
7,049 6,100 4,213
------ ------ ------
EXPENSES:
Interest on subordinated debt ...................... 2,384 2,357 1,765
Other expenses ..................................... 516 327 253
------ ------ ------
2,900 2,684 2,018
------ ------ ------
Income before income tax benefit .............. 4,149 3,416 2,195
Income tax benefit ................................. 23 127 405
------ ------ ------
Net income .................................... $4,172 $3,543 $2,600
====== ====== ======
48
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................................. $ 4,172 $ 3,543 $ 2,600
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Gain on sale of investment securities available-for-sale ............................ (2,209) (1,026) (154)
(Increase) decrease in other assets ................................................ 751 (253) (1,740)
Increase (decrease) in other liabilities ............................................ (313) 605 1,149
Equity in undistributed income of subsidiaries ...................................... (3,067) (1,450) (2,093)
-------- -------- --------
Net cash provided by (used in) operating activities ......................... (666) 1,419 (238)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ............................... -- (8,597) (23,951)
Proceeds from sales of investment securities, available-for-sale .................... 16,079 11,547 4,891
Cash paid in purchase transaction, First Savings .................................... (23,000) -- --
Payments for investments in and advances to subsidiaries ............................ (1,798) (500) (775)
-------- -------- --------
Net cash provided by (used in) investing activities .......................... (8,719) 2,450 (19,835)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt ....................................................... 1,995 -- --
Proceeds from sale of subordinated debt ............................................. -- -- 23,000
Proceeds from issuance of common stock, net ......................................... 4,064 -- --
Proceeds from exercise of stock options ............................................. 250 235 450
Proceeds from exercise of equity contracts .......................................... -- -- 165
Repayment of redeemable subordinated debentures ..................................... -- (803) --
Dividends paid ...................................................................... (1,581) (1,220) (800)
Purchase of treasury stock .......................................................... (419) (122) (156)
Other, net .......................................................................... -- -- 45
-------- --------
Net cash provided by (used in) financing activities .......................... 4,309 (1,910) 22,704
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ......................... (5,076) 1,959 2,631
CASH AND CASH EQUIVALENTS, beginning of year ............................................. 5,217 3.258 627
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year ................................................... $ 141 $ 5,217 $ 3,258
======== ======== ========
49
NOTE 19 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)
1999
Interest income ..................................... $ 9,785 $ 9,521 $ 9,187 $ 6,071
Interest expense .................................... 4,908 4,848 4,684 2,700
Net interest income ................................. 4,877 4,673 4,503 3,371
Provision for possible loan losses .................. 132 194 448 111
Other operating income .............................. 1,436 1,405 3,046 1,383
Other operating expenses ............................ 4,436 4,075 5,535 3,242
Income before income taxes .......................... 1,745 1,809 1,566 1,401
Net income .......................................... $ 1,217 $ 1,053 $ 1,016 $ 886
Per share data
Average common shares outstanding - basic ........... 6,026 6,326 5,876 5,607
Average common shares outstanding - diluted ......... 6,197 6,526 6,069 5,808
Net income per common share - basic ................. $ 0.20 $ 0.16 $ 0.18 $ 0.17
Net income per common share - diluted ............... 0.20 0.15 0.18 0.16
1998
Interest income ..................................... $ 6,411 $ 6,420 $ 6,144 $ 5,891
Interest expense .................................... 2,982 3,137 3,075 2,815
Net interest income ................................. 3,429 3,283 3,069 3,076
Provision for possible loan losses .................. 181 111 108 120
Other operating income .............................. 1,488 1,139 1,111 918
Other operating expenses ............................ 3,097 2,842 2,821 2,690
Income before income taxes .......................... 1,639 1,469 1,251 1,184
Net income .......................................... $ 1,040 $ 938 $ 794 $ 771
Per share data
Average common shares outstanding - basic ........... 5,562 5,567 5,556 5,550
Average common shares outstanding - diluted ......... 5,761 5,767 5,760 5,744
Net income per common share - basic ................. $ 0.19 $ 0.17 $ 0.14 $ 0.14
Net income per common share - diluted ............... 0.18 0.16 0.14 0.13
50
Report Of Independent Certified Public Accountants
To the Board of Directors
and Shareholders of
Greater Community Bancorp
We have audited the accompanying consolidated balance sheets of Greater
Community Bancorp and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash flows
each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
January 18, 2000
51
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 2000 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 of the Company and
Chairman of GFB, is the uncle of Anthony M. Bruno, Jr., Vice
Chairman of the Company and Chairman of 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 2000 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 2000 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 2000 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 which may, at a future date, result in a
change of control of the registrant.
52
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 2000 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
PART IV
Item 14 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: The Exhibits listed below are filed with this report.
[Note: Exhibits filed with Form 10-K have been omitted from the
Annual Report to Stockholders]
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 due May, 2007
(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).
53
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).
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).
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
27 Financial Data Schedule
B. Reports on Form 8-K: During the fourth quarter of 1999, the
registrant filed Form 8-K on November 12, 1999, reporting the third
quarter earnings.
54
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 17, 2000 BY: /s/George E. Irwin
-------------------
George E. Irwin
President and Chief Executive Officer
Date: March 17, 2000 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 17, 2000 BY: /s/George E. Irwin
------------------
George E. Irwin
President, Chief Executive Officer
and Director
Date: March 17, 2000 BY: /s/Anthony M. Bruno, Jr.
------------------------
Anthony M. Bruno, Jr.
Vice Chairman of the Board
Date: March 17, 2000 BY: /s/Charles J. Volpe
-------------------
Charles J. Volpe
Director
Date: March 17, 2000 BY: /s/C. Mark Campbell
-------------------
C. Mark Campbell
Executive Vice President and Director
Date: March 17, 2000 BY: /s/Joseph A. Lobosco
--------------------
Joseph A. Lobosco
Director
Date: March 17, 2000 BY: /s/John L. Soldoveri
--------------------
John L. Soldoveri
Chairman of the Board
55