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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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14294
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Greater Community Bancorp
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(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
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(State or other jurisdiction of (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
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Nasdaq National Market
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.
$43,936,907 AS OF FEBRUARY 22, 2001. 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:
6,329,172 AS OF FEBRUARY 22, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2001 Annual Meeting of Stockholders to be held on April 17, 2001 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, 2000
PART I PAGE NO.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
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................................... 10
Item 7a. Quantitative and Qualitative Market Risk.................... 24
Item 8. Financial Statements........................................ 25
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 50
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 51
SIGNATURES................................................................ 53
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 2000, the Company demonstrated continued sustainable growth both in
assets and earnings in an increasingly competitive and volatile environment. As
of December 31, 2000, the Company's consolidated assets were $607.3 million, as
compared with consolidated assets of $567.5 million at December 31, 1999.
Earnings for the full year 2000 were $4.8 million or $0.75 per diluted share
($0.76 per basic share), up from $4.2 million or $0.65 per diluted share ($0.68
per basic share) in 1999. Cash earnings per diluted share, which excludes
goodwill amortization, were $0.87 for 2000, a 16% increase compared to 1999. The
Company declared total cash dividends of $0.30 per share and $0.26 per share
during 2000 and 1999, 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 a property in
Bergen County, New Jersey. BCB and three other tenants lease space in the
building.
(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.
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.
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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 six additional branches, all of which are located in Passaic
County, New Jersey. Three branches are located in Little Falls, two of which
were acquired by merger in April 1999 and the other has operated since March
1988. Two branches are located in Clifton, one 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.
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 four additional branch offices, located in
Hasbrouck Heights, Wood-Ridge, Wallington, and Hackensack. A fifth branch in
Little Ferry was acquired by merger in April 1999.
GFB and BCB each has a wholly-owned investment company subsidiary, a New
Jersey corporation, formed to manage their respective investment portfolios.
Each of the investment companies in turn has a wholly-owned Delaware subsidiary
established in June 2000 whose purpose is to hold and manage securities
investments.
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.
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 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
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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, 2000, the Company
had approximately $8.2 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 Reinvestment Act ("CRA") ratings
are generally prerequisites to obtaining regulatory approval to make
acquisitions. The Financial Modernization Act of 1999, 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 Jersey if the foreign bank already has
branches in New Jersey; however, that legislation did not authorize de novo
branching into New Jersey.
HOLDING COMPANY DIVIDENDS AND STOCK REPURCHASES
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. It is the Federal Reserve's view that
a bank holding company should pay cash dividends only to the extent that its net
income for the past year is sufficient to cover both the cash dividends and a
rate of earnings retention that is consistent with its capital needs, asset
quality and overall financial condition.
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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 is required for the Bank Subsidiaries to establish or relocate a branch
office or to engage in any merger, consolidation or significant purchase or sale
of assets. The Bank Subsidiaries are also subject to regulation and supervision
by the Department. In addition, they are subject to numerous federal and state
laws and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the
respective Bank Subsidiaries and their condition, including capital adequacy,
reserves, loans, investments and management practices. These examinations are
for the protection of the Bank Subsidiaries' depositors and the Bank Insurance
Fund ("BIF") and not the Company. The Bank Subsidiaries are also required to
furnish quarterly and annual reports to the FDIC. The FDIC's enforcement
authority includes the power to remove officers and directors and the authority
to issue orders to prevent a bank from engaging in unsafe or unsound practices
or violating laws or regulations governing its business.
The FDIC has adopted regulations regarding the capital adequacy of banks
subject to its primary supervision. Such regulations require those banks to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See "Regulatory Capital Requirements".
Statewide branching is permitted in New Jersey. Branch approvals are subject
to statutory standards relating to safety and soundness, competition, public
convenience and CRA performance.
COMMUNITY REINVESTMENT ACT
Under the CRA, the Subsidiary Banks have a continuing and affirmative
obligation, consistent with their safe and sound operation, to help meet the
credit needs of their entire communities, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. 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, 2000, 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".
4
RESTRICTIONS ON INTERCOMPANY TRANSACTIONS
The Bank Subsidiaries are subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Company and
other affiliates. Such restrictions prevent the Company and its affiliates from
borrowing from the Bank Subsidiaries unless the loans are secured by specified
collateral, and require such transactions to have terms comparable to terms of
arms-length transactions with third persons. Such transactions by each of the
Bank Subsidiaries are generally limited in amount as to the Company and as to
any other affiliate to 10% of the Subsidiary Bank's capital and surplus. As to
the Company and all other affiliates, such transactions are limited to an
aggregate of 20% of the Subsidiary Bank's capital and surplus. These regulations
and restrictions may limit the Company's ability to obtain funds from the Bank
Subsidiaries for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses.
REAL ESTATE LENDING GUIDELINES
Under FDIC regulations, state banks must adopt and maintain written policies
establishing appropriate limits and standards for real estate lending
activities. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits that
are clear and measurable), loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by federal bank regulators.
DEPOSIT INSURANCE
Since the Bank Subsidiaries are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC. The Bank Subsidiaries are also required to
pay deposit insurance premiums to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums. FDICIA permits the
FDIC to make special assessments on insured depository institutions in amounts
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 1999 and 2000.
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.
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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 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.
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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, 2000, the Company's total risk-based capital and leverage
capital ratios were 13.88% and 7.10%, 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 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.
7
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, 2000, the Company employed a total of approximately 198
employees, including 163 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 a property
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.
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
from Realty. BCB also leases space for three other branches in Hackensack,
Wallington and Wood-Ridge, New Jersey. BCB owns the space for its 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, 2000, 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 2000 to a vote of
security holders, through the solicitation of proxies or otherwise.
8
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,046 holders of record
on December 31, 2000, and is traded on the Nasdaq National Market under the
symbol GFLS.
The following table indicates the range of high and low market quotations of
the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
market quotation and cash dividends have been adjusted to take into account the
effect of the 5% stock dividends paid in 2000 and 1999, respectively.
Cash
Market Quotations Dividends
--------------------
High Low Declared
-------- ----- ----------
Year Ended December 31, 1999
First Quarter $10.66 $ 8.85 $.06
Second Quarter 9.87 8.73 .06
Third Quarter 10.88 9.05 .07
Fourth Quarter 10.44 8.81 .07
Year Ended December 31, 2000
First Quarter $ 8.93 $ 6.19 $.07
Second Quarter 8.33 6.67 .07
Third Quarter 8.88 7.75 .08
Fourth Quarter 9.00 8.00 .08
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 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.
9
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,
----------------------------------------------------------------
(In thousands, except per share data) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS:
Total interest income............................ $ 41,458 $ 34,564 $ 24,866 $ 20,548 $ 18,693
Total interest expense........................... 20,664 17,140 12,009 8,948 7,154
Net interest income.............................. 20,794 17,424 12,857 11,600 11,539
Provision for possible loan losses............... 1,048 885 520 485 440
Net interest income after provision for
possible loan losses......................... 19,746 16,539 12,337 11,115 11,099
Other income..................................... 6,167 7,270 4,656 2,755 1,929
Other expenses................................... 18,290 17,288 11,450 9,775 9,379
Income before income taxes....................... 7,623 6,521 5,543 4,095 3,649
Provision for income taxes....................... 2,793 2,349 2,000 1,495 1,312
Net Income....................................... $ 4,830 $ 4,172 $ 3,543 $ 2,600 $ 2,337
PER COMMON SHARE DATA:
Earnings Per Share - Basic....................... $ 0.76 $ 0.68 $ 0.61 $ 0.54 $ 0.51
Earnings Per Share - Diluted..................... $ 0.75 $ 0.65 $ 0.58 $ 0.51 $ 0.49
Cash dividends per common share.................. $ 0.30 $ 0.26 $ 0.21 $ 0.16 $ 0.11
Stock splits and dividends per common share...... 5% 5% 2 for 1 10% 10%
Book value per common share...................... $ 6.37 $ 5.59 $ 5.50 $ 5.01 $ 4.59
SELECTED OPERATING RATIOS:
Return on average assets......................... 0.84% 0.81% 1.00% 0.92% 0.93%
Return on average equity......................... 13.43% 11.98% 11.88% 10.82% 11.69%
Interest rate spread............................. 3.13% 3.02% 2.65% 3.20% 4.01%
Net interest margin.............................. 3.98% 3.78% 3.87% 4.40% 4.95%
FINANCIAL CONDITION DATA:
Total Assets..................................... $607,305 $567,453 $372,400 $321,985 $256,506
Cash and cash equivalents........................ 56,292 19,200 23,640 22,845 18,294
Investment securities............................ 138,153 151,191 111,601 126,776 89,679
Total Loans, net................................. 366,139 340,563 201,765 158,125 134,587
Allowance for possible loan losses............... 5,657 4,953 3,525 2,731 2,540
Total Deposits................................... 465,245 460,634 293,395 257,555 223,242
Other borrowings................................. 90,020 64,403 40,103 30,141 9,147
Shareholders' equity............................. $ 40,231 $ 35,402 $ 32,309 $ 29,261 $ 21,061
CAPITAL RATIOS:
Equity to assets................................. 6.62% 6.23% 8.68% 9.09% 8.21%
Total risk-based capital ratio................... 13.88% 13.73% 21.58% 26.19% 17.29%
Tier I risk-based capital ratio.................. 10.14% 9.59% 15.32% 17.94% 12.86%
Leverage ratio................................... 7.10% 7.18% 11.21% 12.71% 8.01%
All per share data has been adjusted to reflect stock dividends and stocksplit.
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.
10
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.
RESULTS OF OPERATIONS: FISCAL YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
The Company earned $4.8 million or $0.75 per diluted share, a 16% increase
over $4.2 million or $0.65 per diluted share earned during 1999. 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 1999 was approximately $3.4 million compared to $2.5
million in 1998. The Company earned $3.5 million or $0.58 per diluted share in
1998, which included $1.1 million in gains on sale of investment securities.
Cash earnings (net income before amortization of intangible assets) per
diluted share were $0.87, $0.75 and $0.60 for the years ending December 31,
2000, 1999 and 1998, respectively.
The increase in net income for the year ended December 31, 2000 primarily
reflects higher net interest income, partially offset by higher salaries and
employee benefits, all other expenses (including amortization of intangible
assets), and higher provisions for possible loan losses and income taxes.
AVERAGE BALANCES AND NET INTEREST INCOME
Net interest income, the primary source of the Company's results of
operations, is the difference between interest, dividends and fees earned on
loans and other earning assets, and interest paid on interest-bearing
liabilities. Earning assets include loans to businesses and individuals,
investment securities, interest-bearing deposits with banks and federal funds
sold in the interbank market. Interest-bearing liabilities include primarily
interest-bearing demand, savings and time deposits. Net interest income is
determined by the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and the
relative amounts of earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flows
and general levels of nonperforming assets.
The following table sets forth the Company's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest income and expense on related items, and the Company's average yield
for the years ended December 31, 2000, 1999 and 1998. The yields are not shown
on a fully taxable basis.
11
AVERAGE BALANCE SHEET, INTEREST INCOME AND EXPENSE, AND AVERAGE INTEREST RATES
For the Years Ended
---------------------------------------------------------------------------
December 31, 2000 December 31, 1999
------------------------------------ ------------------------------------
Average Interest Average Average Interest Average
Balance Earned/paid Yield/rate Balance Earned/paid Yield/rate
--------- ----------- ---------- --------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $ 144,980 $ 9,369 6.46% $ 137,983 $ 8,094 5.87%
Due from banks - interest-bearing................ 8,543 549 6.43% 13,121 762 5.82%
Federal funds sold............................... 9,789 538 5.50% 11,900 612 5.14%
Loans (1)........................................ 358,636 31,002 8.64% 298,278 25,096 8.41%
--------- --------- --------- ---------
Total earning assets......................... 521,948 41,458 7.94% 461,282 34,564 7.49%
Less: Allowance for possible loan losses......... (5,387) -- (4,409) --
Unearned income - loans...................... 1,661 -- (1,264) --
All other assets................................. 60,114 -- 57,175 --
--------- --------- --------- ---------
Total assets................................. $ 578,336 $ 41,458 $ 512,784 $ 34,564
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $ 135,953 $ 3,187 2.34% $ 123,776 $ 2,725 2.20%
Time deposits.................................. 223,834 12,512 5.59% 207,460 10,651 5.13%
Federal funds and short-term borrowings (2).... 46,748 2,665 5.70% 28,938 1,464 5.06%
Trust preferred securities..................... 23,000 2,300 10.00% 23,000 2,300 10.00%
--------- --------- --------- ---------
Total interest-bearing liabilities... 429,535 20,664 4.81% 383,174 17,140 4.47%
Non interest-bearing deposits.................... 103,209 -- 88,003 --
Other liabilities................................ 9,622 -- 6,777 --
Shareholders' equity............................. 35,970 -- 34,830 --
--------- --------- --------- ---------
Total liabilities and
shareholders' equity..................... $ 578,336 $ 20,664 $ 512,784 $ 17,140
========= --------- ========= ---------
NET INTEREST INCOME ............................ $ 20,794 $ 17,424
========= =========
NET INTEREST MARGIN.............................. 3.98% 3.78%
==== ====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
For the Years Ended
------------------------------------
December 31, 1998
------------------------------------
Average Interest Average
Balance Earned/paid Yield/rate
--------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $ 126,719 $ 7,348 5.80%
Due from banks - interest-bearing................ 9,917 578 5.83%
Federal funds sold............................... 11,524 605 5.25%
Loans (1)........................................ 183,676 16,335 8.89%
--------- ---------
Total earning assets......................... 331,836 24,866 7.49%
Less: Allowance for possible loan losses......... (3,078) --
Unearned income - loans...................... (630) --
All other assets................................. 26,753 --
--------- --------
Total assets................................. $ 354,881 $ 24,866
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $ 83,645 $ 1,766 2.11%
Time deposits.................................. 127,477 7,253 5.69%
Federal funds and short-term borrowings (2).... 13,521 633 4.68%
Trust preferred securities..................... 23,669 2,357 9.96%
--------- --------
Total interest-bearing liabilities... 248,312 12,009 4.84%
Non interest-bearing deposits.................... 71,010 --
Other liabilities................................ 5,748 --
Shareholders' equity............................. 29,811 --
--------- --------
Total liabilities and
shareholders' equity..................... $ 354,881 $ 12,009
========= --------
NET INTEREST INCOME ............................ $ 12,857
========
NET INTEREST MARGIN.............................. 3.87%
====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
12
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. Taxable net interest income was $20.8 million in
2000, a $3.4 million or 19% increase compared to 1999. Interest and fee income
on loans during 2000 increased by $5.9 million or 24% over the comparable period
in 1999 as a result of an increase of 20% in average total loans. The average
yield on loans increased to 8.64% in 2000 compared to 8.41% in 1999 as a result
of repricing of loans at prevailing rates. Loans represent 68% and 65% of
average earning assets in 2000 and 1999, respectively. Income earned on
investment securities during 2000 increased by $1.3 million, or 16% compared to
the same period in 1999. The increase was primarily due to a 5% increase in
average investments for the year ended December 31, 2000 over 1999. The average
yield on securities was 6.46% for the year ended December 31, 2000, compared to
5.87% for the same period in the prior year. Investments represent 28% and 30%
at 2000 and 1999, respectively, of average earning assets. Interest income on
federal funds sold and deposits with banks during 2000 decreased by $287,000, or
21% compared to 1999 as a result of a $6.7 million, or 26%, decrease in average
federal funds sold and deposits with banks. Federal funds sold and deposits with
banks represent 4% and 5% of average earning assets at 2000 and 1999,
respectively.
In 1999, taxable 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 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.
Interest expense for the year ended December 31, 2000, increased by $3.5
million or 21% from the level of interest expense for 1999. $2.3 million of the
increase was related to the increase in interest expense on deposits, while $1.2
million was related to the increase in interest expense on short-term
borrowings. For the year 2000, average interest rate paid increased by 34 basis
points compared to 1999. The increase in total interest expense was related to
the increase in average interest-bearing liabilities of $46.4 million or 12%.
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%.
Average interest-bearing deposits comprised 84%, 87% and 86% of Company
total funding sources in 2000, 1999 and 1998, 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 3.98%, 3.78% and 3.87% for the years
ended December 31, 2000, 1999 and 1998, 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,
2000 and 1999 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.
13
Full Year 2000 Full Year 1999
Compared to Full Year 1999 Compared to Full Year 1998
Increase (Decrease) Increase (Decrease)
----------------------------- ----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
INTEREST EARNED ON:
Loans ............................... $ 5,207 $ 699 $ 5,906 $ 9,636 $ (875) $ 8,761
Investment securities ............... 458 817 1,275 663 83 746
Other earning assets ................ (410) 123 (287) 205 (14) 191
------- ------- ------- ------- ------- -------
Total earning assets .............. $ 5,255 $ 1,639 $ 6,894 $10,504 $ (806) $ 9,698
======= ======= ======= ======= ======= =======
INTEREST PAID ON:
Savings and interest-bearing deposits $ 284 $ 178 $ 462 $ 883 $ 76 $ 959
Time deposits ....................... 907 954 1,861 4,090 (692) 3,398
Borrowings (1) ...................... 1,269 (68) 1,201 1,069 (295) 774
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 2,460 $ 1,064 $ 3,524 $ 6,042 $ (911) $ 5,131
======= ======= ======= ======= ======= =======
(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 $1.0 million in
2000 compared with $885,000 in 1999 and $520,000 on 1998. 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
Non-interest income was $6.2 million in 2000 and represented 23% of total
income (net interest income plus other income) compared with $7.3 million and
29%, respectively, in 1999. The decrease of $1.1 million or 15% over 1999 is
primarily due to decrease in gains on sales of investment securities.
Non-interest income for 2000 included $517,000 in gains from sale of other
assets and $107,000 in realized gains on sale of investment securities
available-for-sale. All other income includes $937,000 from fees and sales of
lease financing, $532,000 from bank-owned life insurance and $264,000 from
rental income. Service charges on deposit accounts increased by $51,000 while
other commissions and fees decreased by $150,000 over 1999. Fees and sales of
lease financing increased by $370,000 over 1999 primarily due to increased
volume of sale of lease financing by HCC.
Total non-interest income for the year 1999 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 $578,000 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.
14
OTHER EXPENSES
Total other expenses were $18.3 million for 2000 compared with $17.3 million
in 1999. The increase was primarily to support the Company's growth in 2000. On
a comparable basis, total other expenses increased $1.0 million or 6% over 1999.
Of the total increase, $566,000 is attributable to increases in salaries and
employee benefits. Occupancy and equipment expense increased by $247,000, other
operating expenses increased by $212,000 and amortization of intangibles
increased by $169,000. Other real estate operating expenses decreased by
$201,000 due to decrease in other real estate owned.
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
is 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.
INCOME TAXES
The Company recorded income tax provisions of $2.8 million, $2.3 million and
$2.0 million for the years ended December 31, 2000, 1999 and 1998, 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, 2000, the Company's total assets were $607.3 million, an
increase of $39.9 million or 7% over the amount reported at December 31, 1999.
Gross loans increased by $27.0 million reflecting increased loan demand.
Investment securities and interest-bearing due from banks decreased by $13.0
million and $5.9 million, respectively. These declines were related to the
maturities of such assets and the proceeds were subsequently used to fund the
loan demand. Federal funds sold increased by $33.4 million. The increase in
federal funds sold is a direct result of increase in FHLB advances.
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 fund the loan demand.
INVESTMENT SECURITIES
The investment securities portfolio decreased by $13.0 million or 9% over
the amount reported at December 31, 1999 to $138.2 million at December 31, 2000.
The decrease was primarily related to the maturities of the investment
securities and the proceeds were subsequently used in funding the loan demand.
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 purchase
of $47.0 million. 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, 2000, 1999 and 1998.
15
December 31,
---------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
(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 ... $ 65,768 $ 65,684 $ 63,851 $ 62,443 $ 16,370 $ 16,638
State and political subdivisions .. 5,446 5,426 7,957 7,790 934 934
Other debt and equity securities .. 16,802 18,306 13,790 14,347 18,159 21,564
Mortgage-backed securities ........ 45,188 45,176 58,583 57,656 54,576 54,661
---------- ---------- ---------- ---------- ---------- ----------
Total available-for-sale ....... $ 133,204 $ 134,592 $ 144,181 $ 142,236 $ 90,039 $ 93,797
---------- ---------- ---------- ---------- ---------- ----------
HELD-TO-MATURITY
U.S. Treasury and U.S. ...........
Government agencies securities ... $ 1,000 $ 791 $ 4,500 $ 4,088 $ 5,899 $ 5,576
State and political subdivisions .. 870 870 872 871 898 902
Mortgage-backed securities ........ 1,691 1,695 3,583 3,546 11,007 11,076
---------- ---------- ---------- ---------- ---------- ----------
Total held-to-maturity ......... $ 3,561 $ 3,356 $ 8,955 $ 8,505 $ 17,804 $ 17,554
---------- ---------- ---------- ---------- ---------- ----------
Total investment securities .... $ 136,765 $ 137,948 $ 153,136 $ 150,741 $ 107,843 $ 111,351
========== ========== ========== ========== ========== ==========
In year 2000, the Company realized net gains of $107,000 resulting from the
sale of $1.4 million in investment securities. 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, 2000 is accumulated other comprehensive loss in the
amount of $825,000, an increase of $2.0 million or 42% over the end of 1999. 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, 2000
------------------------------
Average Amortized Fair
Yield Cost Value
------- -------- --------
(Dollars in Thousands)
AVAILABLE-FOR-SALE
Due in one year or less.................... 5.69% $ 14,858 $ 14,864
Due after one year through 5 years......... 6.62% 33,262 33,448
Due after five years through 10 years...... 5.92% 5,048 5,031
Due after ten years........................ 6.89% 18,046 17,767
Mortgage-backed securities................. 6.73% 45,188 45,176
Other debt and equity securities........... n/a 16,802 18,306
-------- --------
Total available-for-sale................ $133,204 $134,592
======== ========
HELD-TO-MATURITY
Due in one year or less.................... 4.20% $ 684 $ 684
Due after one year through 5 years......... 4.22% 186 186
Due after five years through 10 years...... 2.12% 1,000 791
Mortgage-backed securities................. 6.43% 1,691 1,695
-------- --------
Total held-to-maturity................... n/a $ 3,561 $ 3,356
======== ========
Total investment securities.............. $136,765 $137,948
======== ========
LOAN PORTFOLIO
Loans outstanding of $374.0 million at December 31, 2000 increased $27.0
million from year-end 1999 primarily due to the increased loan demand in the
primary market areas of the Company. 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. The following table summarizes the
components of the gross loan portfolio at the dates indicated.
16
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one-to-four-family residential properties $160,359 $154,822 $ 66,485 $ 45,700 $ 43,100
Loans secured by nonresidential properties ............... 149,304 140,200 100,687 81,064 58,106
Loans to individuals ..................................... 10,639 9,405 10,609 10,549 9,997
Commercial loans ......................................... 40,124 30,702 21,107 16,847 14,106
Construction loans ....................................... 13,014 10,024 5,163 5,784 5,534
Other loans .............................................. 532 1,782 2,069 1,305 6,567
-------- -------- -------- -------- --------
Total gross loans ................................... $373,972 $346,935 $206,120 $161,249 $137,410
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 2000.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 2000
-----------------------------------------
Within 1 - 5 Over 5
1 Year Years Years Total
-------- -------- -------- --------
(In Thousands)
LOANS WITH PREDETERMINED INTEREST RATES:
Loans secured by nonresidential properties ....... $ 6,776 $ 33,553 $ 7,654 $ 47,983
Commercial loans ................................. 3,882 18,470 677 23,029
Construction loans ............................... 374 -- -- 374
-------- -------- -------- --------
Total loans with predetermined interest rates $ 11,032 $ 52,023 $ 8,331 $ 71,386
LOANS WITH FLOATING INTEREST RATES:
Loans secured by nonresidential properties ....... 6,779 15,337 79,205 101,321
Commercial loans ................................. 11,788 3,758 1,549 17,095
Construction loans ............................... 4,894 6,826 920 12,640
-------- -------- -------- --------
Total loans with floating interest rates .... $ 23,461 $ 25,921 $ 81,674 $131,056
-------- -------- -------- --------
Total gross loans ....................... $ 34,493 $ 77,944 $ 90,005 $202,442
======== ======== ======== ========
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, 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.
17
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated.
December 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans ................................. $1,281 $1,678 $1,657 $1,741 $1,033
Renegotiated loans ................................ 845 606 416 521 726
------ ------ ------ ------ ------
Total nonperforming loans ...................... 2,126 2,284 2,073 2,262 1,759
Loans past due 90 days and accruing ............... 54 248 461 135 876
Other real estate ................................. -- 467 495 373 1,834
------ ------ ------ ------ ------
Total nonperforming assets ..................... $2,180 $2,999 $3,029 $2,770 $4,469
====== ====== ====== ====== ======
Nonperforming loans to total gross loans .......... .57% .66% 1.01% 1.40% 1.28%
Nonperforming assets to total gross loans and other
real estate owned ............................. .58% .86% 1.47% 1.71% 3.21%
Nonperforming assets to total assets .............. .36% .53% .81% .86% 1.74%
Allowance for loan losses to nonperforming loans . 266.09% 216.86% 170.04% 120.73% 144.40%
Nonperforming loans decreased by $158,000 at December 31, 2000 compared to
December 31, 1999. The decrease is primarily due to the reclassification of
certain loans from nonaccruing to current loans coupled with current to
renegotiated status. 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 2000, 1999 and 1998 had continued to
pay interest, interest income during the same years would have increased by
$53,000, $60,000 and $138,000, 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, 2000, 1999 and 1998, such loans
totaled $7.2 million, $8.3 million and $5.3 million with an allowance of
$855,000, $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, 2000, the allowance for possible loan losses was $5.7
million as compared to $5.0 million at December 31, 1999, an increase of
$700,000. 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 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.
18
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
Years Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Dollars in Thousands)
Balance at beginning of year .......................... $ 4,953 $ 3,525 $ 2,731 $ 2,540 $ 2,332
Charge-offs:
Commercial .......................................... (141) (102) (5) (356) (21)
Real estate - mortgages ............................. (198) -- (31) -- (281)
Installment loans to individuals .................... (49) (45) (34) (9) (63)
Credit cards and related plans ...................... (60) (59) (53) (42) --
------- ------- ------- ------- -------
(448) (206) (123) (407) (365)
------- ------- ------- ------- -------
Recoveries:
Commercial .......................................... 18 59 376 104 124
Real estate - mortgages ............................. 69 50 11 7 9
Installment loans to individuals .................... 7 4 5 1 9
Credit cards and related plans ...................... 10 12 5 1 --
------- ------- ------- ------- -------
104 125 397 113 142
------- ------- ------- ------- -------
Net recoveries (charge-offs) .......................... (345) (81) 274 (294) (223)
Provision for possible loan losses .................... 1,048 885 520 485 440
Adjustment (1) ........................................ -- 624 -- -- (9)
------- ------- ------- ------- -------
Balance at end of year ................................ $ 5,657 $ 4,953 $ 3,525 $ 2,731 $ 2,540
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period....... (0.10%) (0.03%) .15% (.20%) (.16%)
(1) Allowance for possible loan losses acquired from First Savings in 1999.
19
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,
------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- --------------------------
% 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.. $1,745 31% 50% $1,558 32% 49% $1,467 43% 59%
Construction................ 107 2 3 115 2 3 49 1 2
Loans secured by 1-4 families 1,999 35 44 2,183 44 45 919 26 34
Loans to individuals........ 343 6 3 264 5 3 369 10 5
Unallocated reserves........ 1,463 26 -- 833 17 -- 721 20 --
------ ------ ----- ------ ------ ----- ------ ------ -----
Total allowance for
possible loan losses.... $5,657 100% 100% $4,953 100% 100% $3,525 100% 100%
====== ====== ===== ====== ====== ===== ====== ====== =====
At December 31,
-------------------------------------------------------
1997 1996
-------------------------- --------------------------
% of % of
Loans Loans
to to
% of Total % of Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in Thousands)
BALANCE AT END OF
PERIOD ALLOCABLE TO:
Commercial and non-
residential properties.. $1,077 39% 60% $ 859 34% 53%
Construction................ 47 2 4 -- -- 4
Loans secured by 1-4 families 898 33 29 670 26 31
Loans to individuals........ 280 10 7 206 8 12
Unallocated reserves........ 429 16 -- 805 32 --
------ ------ ----- ------ ------ -----
Total allowance for
possible loan losses.... $2,731 100% 100% $2,540 100% 100%
====== ====== ===== ====== ====== =====
20
OTHER REAL ESTATE
As of December 31, 2000, other real estate decreased by $467,000, which
represented the entire balance at year-end 1999. The net decrease was primarily
due to sale of foreclosed properties. As of year-end 2000, the Company had no
other real estate to reflect on its books.
DEPOSITS
Total deposit sources were $465.2 million at December 31, 2000, an increase
of $4.6 million compared with December 31, 1999. Non interest-bearing and
interest-bearing demand deposits increased by $14.8 million and $27.7 million,
respectively, while savings and time deposits decreased by $6.4 million and
$31.2 million, respectively. The decrease in time deposits was a direct result
of maturity run off. 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. 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
2000 Yield/Rate 1999 Yield/Rate 1998 Yield/Rate
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Non interest-bearing ....... $103,209 -- $ 88,003 -- $ 71,010 --
Savings and interest-bearing 135,953 2.34% 123,776 2.20% 83,645 2.11%
Time ....................... 223,834 5.59 207,460 5.13 127,477 5.69
-------- -------- -------- -------- -------- --------
$462,996 3.39% $419,239 3.19% $282,132 3.20%
======== ======== ======== ======== ======== ========
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December 31, 2000
--------------------
(In Thousands)
Three months or less............................... $ 26,226
Over three months through six months.............. 8,796
Over six months through twelve months.............. 10,258
Over twelve months................................. 1,722
--------
$ 47,002
========
FEDERAL HOME LOAN BANK ADVANCES
At December 31, 2000, Federal Home Loan Bank ("FHLB") advances totaled $50.0
million, an increase of $25.0 million compared with December 31, 1999. The
Company considers the FHLB advances as an added source of funding and
accordingly executed transactions during the year 2000 to meet its funding
needs. These FHLB advances have varying terms and interest rates.
SHORT-TERM BORROWINGS
As of December 31, 2000, federal funds purchased and securities sold under
agreements to repurchase were $17.0 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):
21
Years Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
Securities sold under repurchase agreements and
federal funds purchased
Balance at year-end............................... $17,020 $16,403 $ 7,103
Average during the year........................... 15,201 13,316 10,164
Maximum month-end balance......................... 40,420 20,466 12,843
Weighted average rate during the year............. 5.64% 4.90% 4.49%
Rate at December 31............................... 5.52% 6.34% 5.82%
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
In 1997, the Company, through the GCB 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 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, 2000. 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.
The following table summarizes, as of December 31, 2000, 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.................$ $ 31,936 $ 35,082 $ 25,352 $ 29,345 $ 16,438 $ 138,153 $ 137,948
Rate 6.95% 6.45% 6.37% 6.55% 7.48% 6.71%
Federal funds sold and deposits
from banks.........................$ 38,745 1,296 500 -- -- 40,541 40,541
Rate 6.45% 6.06% 6.25% -- -- 6.44%
Total loans net of unearned income.....$ 79,904 44,270 40,160 117,287 90,175 371,796 370,626
Rate 10.00% 7.93% 7.93% 8.21% 7.49% 8.37%
--------- --------- --------- --------- --------- --------- ---------
Total rate-sensitive assets........ $ 150,585 $ 80,648 $ 66,012 $ 146,632 $ 106,613 $ 550,490 $ 549,115
========= ========= ========= ========= ========= ========= =========
22
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 LIABILITIES:
Interest-bearing demand deposits.......$ $ 37,558 $ 4,394 $ 20,766 $ 26,635 $ 8,715 $ 98,068 $ 98,068
Rate 2.72% 2.72% 2.72% 2.72% 2.72% 2.72%
Savings deposits.......................$ 15,916 209 8,261 19,074 10,812 54,272 54,272
Rate 2.39% 2.39% 2.39% 2.39% 2.39% 2.39%
Time deposits..........................$ 65,126 117,583 16,905 4,486 2 204,102 204,611
Rate 5.66% 5.83% 5.55% 4.20% 4.20% 5.78%
Total borrowings (1)...................$ 16,603 36 10,050 37,672 25,659 90,020 92,836
Rate 5.90% 5.90% 5.60% 5.60% 9.54% 6.72%
--------- --------- --------- --------- --------- --------- ---------
Total rate-sensitive liabilities... $ 135,203 $ 122,222 $ 55,982 $ 87,867 $ 45,188 $ 446,462 $ 449,787
========= ========= ========= ========= ========= ========= =========
Interest rate-sensitivity gap........... 15,382 (41,574) 10,030 58,765 61,425 104,028
Interest rate-sensitivity gap as a percentage
of total rate-sensitive assets......... 2.79% (7.55%) 1.82% 10.68% 11.16%
Cumulative interest rate-sensitivity gap 15,382 (26,192) (16,162) 42,603 104,028
========= ========= ========= ========= =========
Cumulative interest rate-sensitivity gap as
a percentage of total rate-sensitive assets 2.79% (4.76%) (2.94%) 7.74% 18.90%
(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, 2000 totaled $199.2 million or 33% of
total assets, consisting of investment securities of $138.1 million and $61.1
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity sources 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.
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, 2000, 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 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.
23
The following table presents the risk-based and leverage capital ratios for
the Company, GFB, BCB, and RCB respectively, as of December 31, 2000 and 1999.
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, 2000
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 55,019 13.88% $ 31,706 8.00% N/A N/A
Great Falls Bank .................... 28,497 11.27 20,223 8.00 $ 25,278 10.00%
Bergen Commercial Bank .............. 11,879 10.46 9,088 8.00 11,360 10.00
Rock Community Bank ................. 4,823 32.24 1,197 8.00 1,496 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 40,190 10.14 15,853 4.00 N/A N/A
Great Falls Bank .................... 25,328 10.02 10,111 4.00 15,167 6.00
Bergen Commercial Bank .............. 10,458 9.21 4,544 4.00 6,816 6.00
Rock Community Bank ................. 4,646 31.06 598 4.00 898 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp ........... 40,190 7.10 22,639 4.00 N/A N/A
Great Falls Bank .................... 25,328 6.67 15,184 4.00 18,980 5.00
Bergen Commercial Bank .............. 10,458 6.42 6,512 4.00 8,140 5.00
Rock Community Bank ................. 4,646 19.30 963 4.00 1,204 5.00
AS OF DECEMBER 31, 1999
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 50,811 13.73% $ 29,615 8.00% N/A N/A
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 67.03 563 704 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 35,497 9.59 14,808 4.00 N/A N/A
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 N/A N/A
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
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.
24
ITEM 8 - FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
------------------------
ASSETS 2000 1999
---------- ----------
CASH AND DUE FROM BANKS - Non interest-bearing ....................................... $ 20,542 $ 16,850
FEDERAL FUNDS SOLD ................................................................... 35,750 2,350
---------- ----------
Total cash and cash equivalents ............................................. 56,292 19,200
DUE FROM BANKS - Interest-bearing .................................................... 4,791 10,675
INVESTMENT SECURITIES - Available-for-sale ........................................... 134,592 142,236
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$3,356 and $8,505 at December 31, 2000 and 1999, respectively) ................... 3,561 8,955
---------- ----------
138,153 151,191
LOANS ................................................................................ 373,972 346,935
Allowance for possible loan losses ................................................. (5,657) (4,953)
Unearned income .................................................................... (2,176) (1,419)
---------- ----------
Net loans ................................................................... 366,139 340,563
PREMISES AND EQUIPMENT, net .......................................................... 6,665 7,840
ACCRUED INTEREST RECEIVABLE .......................................................... 4,467 3,825
BANK OWNED LIFE INSURANCE ............................................................ 11,222 10,690
GOODWILL ............................................................................. 12,351 13,128
OTHER ASSETS ......................................................................... 7,225 10,341
---------- ----------
TOTAL ASSETS ......................................................................... $ 607,305 $ 567,453
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing .............................................................. $ 108,803 $ 93,968
Interest-bearing .................................................................. 98,068 70,356
Savings ........................................................................... 54,272 60,635
Time Deposits less than $100 ...................................................... 157,100 198,523
Time Deposits $100 and over ....................................................... 47,002 37,152
---------- ----------
Total deposits .............................................................. 465,245 460,634
FHLB ADVANCES ........................................................................ 50,000 25,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ....................................... 17,020 16,403
ACCRUED INTEREST PAYABLE ............................................................. 4,021 3,022
OTHER LIABILITIES .................................................................... 7,788 3,992
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT ................................................................ 23,000 23,000
---------- ----------
Total liabilities ........................................................... 567,074 532,051
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, par value $0.50 per share: 10,000,000 shares authorized, 6,317,679 and
6,031,994 shares outstanding at December 31, 2000 and 1999, respectively .......... 3,159 3,016
Additional paid-in capital ......................................................... 34,178 31,891
Retained earnings .................................................................. 2,069 1,636
Accumulated other comprehensive income (loss) ...................................... 825 (1,141)
---------- ----------
Total shareholders' equity .................................................. 40,231 35,402
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................... $ 607,305 $ 567,453
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
25
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Years Ended
December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
INTEREST INCOME:
Loans, including fees ...................................... $ 31,002 $ 25,096 $ 16,335
Investment securities ...................................... 9,369 8,094 7,348
Federal funds sold and deposits with banks ................. 1,087 1,374 1,183
---------- ---------- ----------
Total interest income ................................. 41,458 34,564 24,866
INTEREST EXPENSE:
Deposits ................................................... 15,699 13,376 9,019
Short-term borrowings ...................................... 2,665 1,464 633
Long-term borrowings ....................................... 2,300 2,300 2,357
---------- ---------- ----------
Total interest expense ................................ 20,664 17,140 12,009
---------- ---------- ----------
NET INTEREST INCOME ............................................ 20,794 17,424 12,857
PROVISION FOR POSSIBLE LOAN LOSSES ............................. 1,048 885 520
---------- ---------- ----------
Net interest income after provision for possible loan losses 19,746 16,539 12,337
OTHER INCOME:
Service charges on deposit accounts ........................ 2,023 1,972 1,761
Other commission and fees .................................. 1,132 1,282 925
Gain on sale of investment securities ...................... 107 2,211 1,083
Gain on sale of assets ..................................... 517 -- --
Leasing income ............................................. 937 578 --
Bank owned life insurance .................................. 532 480 --
All other income ........................................... 919 747 887
---------- ---------- ----------
Total other income .................................... 6,167 7,270 4,656
OTHER EXPENSES:
Salaries and employee benefits ............................ 9,140 8,574 5,703
Occupancy and equipment ................................... 3,170 2,923 2,383
Regulatory, professional and other fees ................... 1,559 1,553 654
Amortization of intangibles ............................... 777 608 108
Computer services ......................................... 377 387 193
Office expenses ........................................... 1,005 992 545
Other real estate operating expenses ...................... -- 201 161
Other operating expenses .................................. 2,262 2,050 1,703
---------- ---------- ----------
Total other expenses .................................. 18,290 17,288 11,450
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES ....................... 7,623 6,521 5,543
PROVISION FOR INCOME TAXES ..................................... 2,793 2,349 2,000
---------- ---------- ----------
NET INCOME ..................................................... $ 4,830 $ 4,172 $ 3,543
========== ========== ==========
Net income per share - basic ................................... $ 0.76 $ 0.68 $ 0.61
========== ========== ==========
Net income per share - diluted ................................. $ 0.75 $ 0.65 $ 0.58
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
26
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
Accumulated Total
Common Stock Additional Other Share-
------------------- Paid-in Retained Comprehensive Treasury Comprehensive holders'
Shares Par Value Capital Earnings Income (Loss) Stock Income Equity
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, January 1, 1998 .............. 2,647 $ 2,647 $ 25,138 $ (391) $ 1,867 $ -- $ 29,261
Net income - 1998 .................. -- -- -- 3,543 -- -- $ 3,543 3,543
2 for 1 stock split ................. 2,647 -- -- -- -- -- --
Exercise of stock options ........... 48 24 438 -- -- -- 462
Cash dividends ...................... -- -- -- (1,220) -- -- (1,220)
Other comprehensive income, net of
reclassification adjustments and
taxes............................. -- -- -- -- 385 -- 385 385
--------
Total comprehensive income .......... $ 3,928
========
Purchase of treasury stock .......... -- -- -- -- -- (122) (122)
Retirement of treasury stock ........ (12) (6) (116) -- -- 122 --
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1998 ............ 5,330 $ 2,665 $ 25,460 $ 1,932 $ 2,252 $ -- $ 32,309
======== ======== ======== ======== ======== ======== ========
Net income - 1999 .................. -- -- -- 4,172 -- -- $ 4,172 4,172
5% stock dividend ................... 286 143 2,744 (2,887) -- -- --
Issuance of common stock-private
placement......................... 391 196 3,555 -- -- -- 3,751
Issuance of common stock - dividend
reinvestment plan ................ 29 14 236 -- -- -- 250
Exercise of stock options ........... 36 18 295 -- -- -- 313
Cash dividends ...................... -- -- -- (1,581) -- (1,581)
Other comprehensive loss, net of
reclassification adjustments and
taxes............................. -- -- -- -- (3,393) -- (3,393) (3,393)
--------
Total comprehensive income .......... $ 779
========
Purchase of treasury stock .......... -- -- -- -- -- (419) (419)
Retirement of treasury stock ........ (40) (20) (399) -- -- 419 --
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1999 ............ 6,032 $ 3,016 $ 31,891 $ 1,636 $ (1,141) $ -- $ 35,402
======== ======== ======== ======== ======== ======== ========
Net income - 2000 .................. -- -- -- 4,830 -- -- $ 4,830 4,830
5% stock dividend ................... 300 151 2,402 (2,553) -- -- --
Issuance of common stock - dividend
reinvestment plan ................ 60 29 460 -- -- -- 489
Exercise of stock options ........... 22 10 167 -- -- -- 177
Cash dividends ...................... -- -- -- (1,844) -- (1,844)
Other comprehensive income, net of
reclassification adjustments and
taxes............................. -- -- -- -- 1,966 -- 1,966 1,966
--------
Total comprehensive income .......... $ 6,766
========
Purchase of treasury stock .......... -- -- -- -- -- (789) (789)
Retirement of treasury stock ........ (96) (47) (742) -- -- 789 --
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 2000 ............ 6,318 $ 3,159 $ 34,178 $ 2,069 $ 825 $ -- $ 40,231
======== ======== ======== ======== ======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
27
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Years Ended
December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................ $ 4,830 $ 4,172 $ 3,543
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization .......................................................... 2,278 2,001 1,201
Accretion of discount on securities, net ............................................... (72) 85 125
Gain on sale of assets ................................................................. (517) -- --
Gain on sale of securities, net ........................................................ (107) (2,211) (1,083)
Gain on sale of other real estate owned ................................................ -- (93) --
Provision for possible loan losses ..................................................... 1,048 885 520
Deferred income tax benefit ............................................................ (491) (457) (310)
Decrease (increase) in accrued interest receivable ..................................... (642) (207) 83
Decrease (increase) in Bank owned life insurance and other assets ...................... 3,361 (7,258) (7,895)
Increase in accrued interest and other liabilities ..................................... 4,799 1,088 1,565
-------- -------- --------
Net cash (used in) provided by operating activities .......................... 14,487 (1,995) (2,251)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale investment securities -
Purchases ............................................................................ (19,180) (47,256) (56,752)
Sales ................................................................................ 1,371 16,409 6,928
Maturities ........................................................................... 27,417 37,235 48,568
Held-to-maturity investment securities -
Purchases ............................................................................ -- (684) (21,224)
Maturities ........................................................................... 5,394 9,533 38,945
Net decrease (increase) in interest-bearing deposits with banks ......................... 5,884 4,869 (13,182)
Net increase in loans ................................................................... (25,576) (30,323) (43,640)
Capital expenditures .................................................................... (835) (1,326) (1,281)
(Increase) decrease in other real estate ................................................ -- 2,021 (122)
Cash paid in purchase transaction, First Savings ........................................ -- (23,000) --
Cash of equity acquired, First Savings .................................................. -- 11,239 --
-------- -------- --------
Net cash used in investing activities ........................................ (5,525) (21,283) (41,760)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposit accounts ............................................. 4,611 (5,099) 35,840
Increase in securities sold under agreement to repurchase ............................... 617 6,854 765
Proceeds from long term FHLB advances ................................................... 25,000 15,000 10,000
Repayments of redeemable subordinated debentures ........................................ -- -- (803)
Dividends paid .......................................................................... (1,844) (1,581) (1,220)
Proceeds from exercise of stock options ................................................. 177 176 235
Proceeds from the issuance of common stock, net of costs ................................ 489 4,064 --
Purchases of treasury stock ............................................................. (789) (419) (122)
Other, net .............................................................................. (131) (157) 111
-------- -------- --------
Net cash provided by financing activities .................................... 28,130 18,838 44,806
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......................... 37,092 (4,440) 795
CASH AND CASH EQUIVALENTS, beginning of year ............................................... 19,200 23,640 22,845
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year ..................................................... $ 56,292 $ 19,200 $ 23,640
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
28
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Greater Community Bancorp ("the Company"), through its subsidiary banks,
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 fourteen full service offices located in
Bergen and Passaic Counties, New Jersey.
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. Six warehouse lines, two funded by
GFB and BCB, provide funding of leases.
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 accounting principles generally accepted in the United States of
America and predominant practices within the banking industry. The consolidated
financial statements include the accounts of the Company and the Company's
wholly owned subsidiaries GFB, BCB, RCB, HCC, GCB Realty, L.L.C., GCF, Greater
Community Services, Inc., GFB's wholly owned subsidiaries, Great Falls
Investment Company and Union Blvd, Inc., and BCB's wholly owned subsidiaries,
BCB Investment Company and Sears Drive Inc. 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.
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
29
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.
SFAS No.131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in subsequent interim financial reports issued to stockholders. It also
establishes standards for related disclosure about products and services,
geographic area, and major customers. The statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments.
The Company has one reportable segment, "Community Banking." All of the
Company's activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the other.
For example, a bank's commercial lending is dependent upon its ability to fund
itself with retail deposits and other borrowings and to manage interest rate and
credit risk. This situation is also similar for consumer and residential
mortgage lending. Accordingly, all significant operating decisions are based
upon analysis of the Company as one operating segment or unit.
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. In
June, 2000, SFAS No. 133 was amended by SFAS No.138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." SFAS No.138 is required
for all fiscal years beginning after June 15, 2000. The adoption of SFAS No.138
is not anticipated to have a material impact on the Company's financial
condition or results of operations.
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
30
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.
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.
In September 2000, the Financial Accounting Standards Board issued SFAS
No.140, "Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities," which replaces SFAS No.125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and revises the standards for accounting for the securitization of other
transfers of financial assets and collateral. This new standard also requires
certain disclosures, but carries over most of the provisions of SFAS No.125.
SFAS No.140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. However, for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral this statement is effective for
fiscal years ending after December 15, 2000 with earlier applications not
allowed and is to be applied prospectively. The adoption of this statement is
not expected to have a material impact on the Company's consolidated financial
statements.
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, 2000 and 1999, was
approximately $12,351,000 and $13,128,000, respectively. The amortization
charged to income was $777,000 for the year ended December 31, 2000 and $608,000
for the year ended December 31, 1999 and $108,000 for the year ended December
31, 1998.
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, 2000 and 1999 was $1,084,000 and
$1,125,000, respectively.
31
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.
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, $2.5 million
and $1.9 million for the years ended December 31, 2000, 1999, and 1998,
respectively. Cash paid for interest was $16.1 million, $16.7 million and $11.5
million for the years ended December 31, 2000, 1999, and 1998, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 2000, 1999, and 1998 were approximately
$235,470, $265,000, and $209,000, respectively.
STOCK OPTIONS
The Company follows the disclosure provisions 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
The Company follows the disclosure provisions of 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.
32
The income tax effects allocated to comprehensive income (loss) are as follows:
December 31, 2000 December 31, 1999 December 31, 1998
---------------------------- ----------------------------- ----------------------------
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 $ 3,440 $(1,410) $ 2,030 $(3,492) $ 1,426 $(2,066) $ 1,747 $ (712) $ 1,035
Less reclassification adjustment
for gains realized in net income . 107 (43) 64 2,211 (884) 1,327 1,083 (433) 650
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive (loss)
income, net ....................... $ 3,333 $(1,367) $ 1,966 $(5,703) $ 2,310 $(3,393) $ 644 $ (279) $ 385
======= ======= ======= ======= ======= ======= ======= ======= =======
RECLASSIFICATIONS
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the classifications used in 2000.
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.
For the years ended
December 31,
----------------------
1999 1998
------- -------
(In Thousands)
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
33
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,
-------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- -------- -------- -------- -------- -------- -------- --------
AVAILABLE-FOR-SALE (In Thousands)
U.S. Treasury and U.S. .........
Government agencies securities $ 65,768 $ 290 $ (374) $ 65,684 $ 63,851 $ 104 $ (1,512) $ 62,443
State and political
subdivisions ................. 5,446 -- (20) 5,426 7,957 -- (167) 7,790
Other debt and equity
securities ................... 16,802 3,005 (1,501) 18,306 13,790 2,158 (1,601) 14,347
Mortgage-backed securities:
FHLMC .................... 18,675 41 (84) 18,632 25,441 -- (496) 24,945
FNMA ..................... 16,861 114 (76) 16,899 22,648 12 (366) 22,294
Other .................... 9,652 25 (32) 9,645 10,494 3 (80) 10,417
-------- -------- -------- -------- -------- -------- -------- --------
45,188 180 (192) 45,176 58,583 15 (942) 57,656
-------- -------- -------- -------- -------- -------- -------- --------
Total Available-for-sale ........ $133,204 $ 3,475 $ (2,087) $134,592 $144,181 $ 2,277 $ (4,222) $142,236
======== ======== ======== ======== ======== ======== ======== ========
HELD-TO-MATURITY
U.S. Treasury and U.S. .........
Government agencies securities $ 1,000 $ -- $ (209) $ 791 $ 4,500 $ -- $ (412) $ 4,088
State and political
subdivisions ................. 870 -- -- 870 872 -- (1) 871
Mortgage-backed securities:
FHLMC .................... 1,011 10 (2) 1,019 2,505 -- (25) 2,480
FNMA ..................... 680 -- (4) 676 1,078 -- (12) 1,066
-------- -------- -------- -------- -------- -------- -------- --------
1,691 10 (6) 1,695 3,583 -- (37) 3,546
-------- -------- -------- -------- -------- -------- -------- --------
Total Held-to-maturity .......... $ 3,561 $ 10 $ (215) $ 3,356 $ 8,955 $ -- $ (450) $ 8,505
======== ======== ======== ======== ======== ======== ======== ========
34
The amortized cost and fair value of securities at December 31, 2000, 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, 2000
-----------------------
Amortized Fair
Cost Value
---------- ----------
(In Thousands)
AVAILABLE-FOR-SALE
Due in one year or less ................... $ 14,858 $ 14,864
Due after one year through five years ..... 33,262 33,448
Due after five years through ten years .... 5,048 5,031
Due after ten years ....................... 18,046 17,767
Mortgage-backed securities ................ 45,188 45,176
Other debt and equity securities .......... 16,802 18,306
---------- ----------
$ 133,204 $ 134,592
========== ==========
HELD-TO-MATURITY
Due in one year or less ................... 684 684
Due after one year through five years ..... 186 186
Due after five years through ten years .... 1,000 791
Mortgage-backed securities ................ 1,691 1,695
---------- ----------
$ 3,561 $ 3,356
========== ==========
Proceeds from sales of available-for-sale securities for the years ended
December 31, 2000, 1999 and 1998 were $1.4 million, $16.4 million, and $6.9
million, respectively. Gross gains of $107,000, $2.2 million, and $1.1 million
were realized on these sales for the years ended December 31, 2000, 1999 and
1998 respectively. Gross losses were not significant for the years ended
December 31, 2000, 1999 and 1998.
Securities with a carrying value of $92.5 million and $52.9 million at
December 31, 2000 and 1999, 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,
--------------------
2000 1999
-------- --------
(In Thousands)
Loans secured by one- to four-family residential properties..... $160,359 $154,822
Loans secured by nonresidential properties...................... 149,304 140,200
Loans to individuals............................................ 10,639 9,405
Commercial loans................................................ 40,124 30,702
Construction loans.............................................. 13,014 10,024
Other loans..................................................... 532 1,782
-------- --------
$373,972 $346,935
======== ========
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,
--------------------
2000 1999
-------- --------
(In Thousands)
Nonaccrual loans.................................. $ 1,281 $ 1,678
Renegotiated loans................................ 845 606
-------- --------
Total nonperforming loans....................... $ 2,126 $ 2,284
======== ========
Loans past due 90 days and accruing............... $ 54 $ 248
======== ========
Gross interest income which would have been
recorded under original terms................... $ 67 $ 60
======== ========
35
The balance of impaired loans was $1.1 million, $1.2 million, and $907,000
at December 31, 2000, 1999, and 1998, 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
$196,000, $186,000, and $138,000 at December 31, 2000, 1999, and 1998,
respectively. The average recorded investment in impaired loans was $1.4
million, $1.1 million, and $419,000 at December 31, 2000, 1999, and 1998,
respectively. The income recognized on impaired loans for the years ended
December 31, 2000, 1999, and 1998, was $67,000, $60,000, and $44,000,
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, 2000, loans outstanding to these related parties
amounted to $ 14.3 million. During the year ended December 31, 2000, there were
new loans to related parties of $1.6 million and repayments of $1.8 million. All
such loans are current as to principal and interest payments at December 31,
2000.
NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
Years Ended December 31,
-----------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Balance at beginning of year.......... $ 4,953 $ 3,525 $ 2,731
Provision charged to operations....... 1,048 885 520
Charge-offs........................... (448) (206) (123)
Recoveries............................ 104 125 397
Acquisition of First Savings.......... -- 624 --
------- ------- -------
Balance at end of year................ $ 5,657 $ 4,953 $ 3,525
======= ======= =======
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
Estimated --------------------
Useful Lives 2000 1999
------------- -------- --------
(In Thousands)
Land.............................................. indefinite $ 1,165 $ 1,357
Buildings and improvements........................ 5 to 20 years 3,952 4,097
Furniture, fixtures and equipment................. 3 to 10 years 4,322 6,084
Leasehold improvements............................ 3 to 40 years 1,962 2,500
-------- --------
11,401 14,038
Less accumulated depreciation and amortization.... (4,736) (6,198)
-------- --------
$ 6,665 $ 7,840
======== ========
36
NOTE 7 - DEPOSITS
At December 31, 2000, the schedule of maturities of Certificates of Deposit
is as follows (in thousands):
2001.............................................. $ 182,689
2002 ............................................. 16,927
2003 ............................................. 3,517
2004.............................................. 744
2005.............................................. 225
---------
$ 204,102
=========
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,
--------------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Securities sold under repurchase agreements
and federal funds purchased
Balance at year-end........................... $17,020 $16,403 $ 7,103
Average during the year....................... 15,201 13,316 10,190
Maximum month-end balance..................... 40,420 20,466 12,843
Weighted average rate during the year......... 5.64% 4.90% 4.49%
Rate at December 31........................... 5.52% 6.34% 5.82%
HCC maintains four revolving lines of credit totaling $2.5 million which
pay interest at 10% annually and mature through 2001. The total amount
outstanding at December 31, 2000 was $2.5 million and is included in other
liabilities.
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, 2000 and 1999 there were no outstanding
balances.
At December 31, 2000, the Company had $50.0 million of advances from the
FHLB. These advances are collateralized by certain first mortgage loans. The
weighted average interest rate was 5.70%. At December 31, 2000, $5.0 million
will mature in 2008 and $20.0 million will mature in 2009 and $25.0 million will
mature in 2010.
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.
37
NOTE 9 - INCOME TAXES
The provision for income taxes was as follows:
Years Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Federal
Current.................... $ 2,768 $ 2,381 $ 1,953
Deferred................... (372) (346) (223)
State
Current..................... 516 425 346
Deferred.................... (119) (111) (76)
------- ------- -------
$ 2,793 $ 2,349 $ 2,000
======= ======= =======
The reconciliation of the tax computed at the statutory federal rate was as
follows:
Years Ended December 31,
---------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Tax at statutory rate............................ $ 2,591 $ 2,221 $ 1,884
Increase (reduction) in tax resulting from:
Tax-exempt income.............................. (116) (95) (197)
Amortization of intangible assets.............. 37 37 37
State income tax, net of federal benefit....... 278 235 181
Other.......................................... 3 (49) 95
------- ------- -------
Provision for income taxes................ $ 2,793 $ 2,349 $ 2,000
======= ======= =======
The net deferred tax asset consists of the following:
December 31,
-----------------
2000 1999
------- -------
(In Thousands)
Allowance for possible losses on loans and
other real estate............................... $ 2,160 $ 1,814
Interest income on nonaccrual loans............... 300 341
Depreciation and amortization..................... 642 493
Acquired net operating loss carryforward.......... 111 151
Difference between book and tax basis of
assets acquired................................. 312 333
Unrealized holding losses (gains) on investment
securities available-for-sale................... (563) 804
Other............................................. (88) (186)
------- -------
Total net deferred tax asset (included
in other assets)......................... $ 2,874 $ 3,750
======= =======
As a result of the acquisition of First Savings, the Company computed a net
deferred tax asset of $405,000, which includes unrealized holding gains of
$90,000, during 1999.
At December 31, 2000, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $332,000. 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 July 31, 2000, the Company paid a 5% stock dividend on its Common Stock
to shareholders of record on July 14, 2000. 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 for 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.
38
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, 2000
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- --------- ---------
(In Thousands, except for per share data)
BASIC EPS
Net income available to common stockholders........ $ 4,830 6,323 $ 0.76
EFFECT OF DILUTIVE SECURITIES
Options............................................ -- 119 (0.01)
--------- --------- ---------
DILUTED EPS
Net income available to common stockholders
plus assumed conversions......................... $ 4,830 6,442 $ 0.75
========= ========= =========
Options to purchase 229,690 shares of common stock from $8.50 -
$10.15 per share were outstanding during 2000. They were not included in the
computation of diluted EPS because the option exercise price was greater than
the average market price of the common stock.
For Year Ended December 31, 1999
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- --------- ---------
BASIC EPS
Net income available to common stockholders........ $ 4,172 6,179 $ 0.68
EFFECT OF DILUTIVE SECURITIES
Options............................................ -- 209 (0.03)
--------- --------- ---------
DILUTED EPS
Net income available to common stockholders
plus assumed conversions........................ $ 4,172 6,388 $ 0.65
========= ========= =========
Options to purchase 27,038 shares of common stock from $10.06 to $10.66 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, 1999
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- --------- ---------
BASIC EPS
Net income available to common stockholders........ $ 3,543 5,840 $ 0.61
EFFECT OF DILUTIVE SECURITIES
Options............................................ -- 231 (0.03)
--------- --------- ---------
DILUTED EPS
Net income available to common stockholders
plus assumed conversions........................ $ 3,543 6,071 $ 0.58
========= ========= =========
Options to purchase 101,375 shares of common stock at $9.41 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.
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 245,425 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, 2000 and 1999, options to purchase 15,503 and 26,942
shares were outstanding.
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 533,610
shares is authorized to be granted under the 1996 Employee Plan. During 2000 and
1999, options to acquire 74,425 and 78,750 shares were granted under this plan.
At December 31, 2000 and 1999, options to purchase a total of 499,872 and
495,225 shares were outstanding under the 1996 Employee Plan.
39
The 1996 Stock Option Plan for Nonemployee Directors (the "1996 Directors
Plan") provides for the granting of nonqualified stock options to nonemployee
directors of the Bank Subsidiaries. A total of 253,465 shares is authorized to
be granted under the 1996 Directors Plan. During 1996, options to acquire
253,465 shares were granted under this plan. At December 31, 2000 and 1999,
options to purchase a total of 235,888 and 235,319 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.
2000 1999 1998
------ ------ ------
(In Thousands, except per share data)
Net income.......................... As reported $4,830 $4,172 $3,543
Pro forma $4,603 $3,999 $3,412
Net income per share - basic........ As reported $ 0.75 $ 0.68 $ 0.61
Pro forma $ 0.71 $ 0.65 $ 0.58
Net income per share - diluted...... As reported $ 0.75 $ 0.65 $ 0.58
Pro forma $ 0.71 $ 0.62 $ 0.56
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 2000, 1999 and 1998, respectively: dividend
yields of 3.0 % 3.3% and 2.1%; expected volatility of 38%, 35%, and 22%;
risk-free interest rates of 5.63%, 5.74%, and 4.58%; and expected lives of five
and ten years.
A summary of the status of the Company's stock option plans as of December
31, 2000, 1999 and 1998 and the changes during the years ending on those dates
is represented below.
2000 1999 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
Outstanding, beginning of year.. 710,822 $ 7.06 673,360 $ 6.62 632,334 $ 6.00
Granted ........................ 74,425 8.24 82,688 9.41 101,375 9.42
Exercised ...................... (24,925) 7.76 (38,341) 4.59 (53,288) 4.42
Terminated ..................... (13,705) 8.70 (6,885) 7.12 (7,061) 7.06
-------- -------- -------- -------- -------- --------
Outstanding, end of year ....... 746,617 $ 7.46 710,822 $ 7.06 673,360 $ 6.62
-------- -------- -------- -------- -------- --------
Options exercisable at year-end. 229,847 126,821 70,707
======== ======== ========
Weighted average fair value of
options granted during the year.... $ 4.92 $ 2.82 $ 2.17
======== ======== ========
The following table summarizes information about nonqualified options
outstanding at December 31, 2000.
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 2000 Contractual Life Exercise Price 2000 Exercise Price
--------------- -------------- ----------------- -------------- -------------- --------------
$ 3.48 - $ 5.22 15,724 2.85 years $ 4.10 9,725 $ 4.10
$ 6.32 - $ 9.48 703,330 6.77 years $ 7.17 214,611 $ 6.77
$ 9.58 - $10.15 27,563 8.15 years $ 9.92 5,511 $ 9.92
---------- ----------
$ 746,617 $ 229,847
========== ==========
40
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 $476,000, $405,000 and $325,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
The Company adopted two Supplemental Executive Retirement Plans ("SERPs")
effective January 1999. The SERPs are designed to provide key executives a
benefit equal to the difference between (I) 70% of their respective highest
average three consecutive years of annual salary at retirement and (ii) the
benefits in fact provided from the respective subsidiary bank's funding of
tax-qualified retirement plans (such as the 401(k) Plan). Under the SERPs, the
aggregate amount of benefits to which the key executives would be entitled has
been actuarially determined to be approximately $211,000 for the years ended
December 31, 2000 and 1999. 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 payouts under the plans are
based upon the individual director's retirement ages and range from
approximately $5,000 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 $832,000, $820,000, and $630,000 for the years ended December 31,
2000, 1999, and 1998, respectively. Included in these amounts are $226,000,
$226,000, and $215,000 in 2000, 1999, and 1998, respectively, paid to a general
partnership that includes two directors of the Company.
As of December 31, 2000, future approximate minimum annual rental payments
under these leases are as follows (in thousands):
2001................................... $ 583
2002................................... 323
2003 .................................. 200
2004 .................................. 163
2005................................... 71
-------
Total............................. $ 1,340
=======
41
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,
-------------------
2000 1999
-------- --------
Financial instruments whose contract
amounts represent credit risk (In Thousands)
Commitments to extend credit.................. $ 63,958 $ 63,103
Standby letters of credit and financial
guarantees written......................... 2,117 3,590
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 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, 2000 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.
42
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, 2000 and 1999 are outlined
below.
For cash and due from banks, the recorded book values of $56.3 million and
$19.2 million at December 31, 2000 and 1999, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values of
$4.8 million and $10.7 million at December 31, 2000, and 1999, 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, 2000 and 1999 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, 2000 and 1999.
2000 1999
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Investment securities available-for-sale .... $ 134,592 $ 134,592 $ 142,236 $ 142,236
Investment securities held-to-maturity ..... 3,561 3,356 8,955 8,505
Loans, net of unearned income ............... 366,140 370,626 345,516 341,114
The estimated fair values of demand deposits (i.e., interest-bearing (NOW)
and non interest-bearing demand accounts, savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts of
variable rate accounts and certificates of deposit approximate their fair values
at the reporting date. The carrying amount of accrued interest payable
approximates its fair value.
The following table describes the carrying amounts and estimated fair
values of time deposits, federal funds purchased and securities sold under
agreements to repurchase and FHLB advances at December 31, 2000 and 1999.
2000 1999
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Time deposits.................................. $ 204,102 $ 204,611 $ 235,675 $ 236,205
Securities sold under agreements to repurchase. 16,592 16,592 16,403 16,403
FHLB Advances ................................. 50,000 50,790 25,000 25,229
43
The fair value of the guaranteed preferred beneficial interest in the
Company's subordinated debt totaling $23.0 million at December 31, 2000 and 1999
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
$66.0 million and $66.7 million at December 31, 2000 and 1999, 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 $12.5 million and $15.5
million as of December 31, 2000 and 1999, BCB had $4.0 million and $4.1 million
as of December 31, 2000 and 1999, and RCB had $1.2 million as of December 31,
2000 and 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,
2000, management believes that the Company and the Bank Subsidiaries meet all
capital adequacy requirements to which they are subject.
As of December 31, 2000, 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.
44
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, 2000
Total capital (to risk-weighted assets)
Greater Community Bancorp...... $55,019 13.88% $31,706 8.00% N/A N/A
Great Falls Bank............... 28,497 11.27 20,223 8.00 $25,278 10.00%
Bergen Commercial Bank ........ 11,879 10.46 9,088 8.00 11,360 10.00
Rock Community Bank............ 4,823 32.24 1,197 8.00 1,496 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp...... 40,190 10.14 15,853 4.00 N/A N/A
Great Falls Bank............... 25,328 10.02 10,111 4.00 15,167 6.00
Bergen Commercial Bank......... 10,458 9.21 4,544 4.00 6,816 6.00
Rock Community Bank............ 4,646 31.06 598 4.00 898 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp...... 40,190 7.10 22,639 4.00 N/A N/A
Great Falls Bank............... 25,328 6.67 15,184 4.00 18,980 5.00
Bergen Commercial Bank......... 10,458 6.42 6,512 4.00 8,140 5.00
Rock Community Bank............ 4,646 19.30 963 4.00 1,204 5.00
AS OF DECEMBER 31, 1999
Total capital (to risk-weighted assets)
Greater Community Bancorp...... $50,811 13.73% $29,615 8.00% N/A N/A
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 67.03 563 704 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp...... 35,497 9.59 14,808 4.00 N/A N/A
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 N/A N/A
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
45
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,
--------------------
2000 1999
-------- --------
ASSETS: (In Thousands)
Cash .......................................... $ 787 $ 141
Investment securities available-for-sale ...... 7,411 6,732
Accrued interest receivable ................... 43 48
Investment in subsidiaries .................... 55,492 52,454
Other assets .................................. 1,862 2,989
-------- --------
Total assets ............................. $ 65,595 $ 62,364
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Guaranteed preferred beneficial interest in
the Company's subordinated debt ........... $ 23,711 $ 23,711
Other liabilities ............................. 1,653 3,251
Shareholders' equity .......................... 40,231 35,402
-------- --------
Total liabilities and shareholders' equity $ 65,595 $ 62,364
======== ========
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
INCOME: (In Thousands)
Equity in undistributed income of Bank Subsidiaries . $ 948 $ 3,067 $ 1,450
Dividends from Bank Subsidiaries ..................... 5,447 1,172 2,167
Interest income ...................................... 283 601 1,457
Gain on sale of investment securities ................ 107 2,209 1,026
-------- -------- --------
6,785 7,049 6,100
-------- -------- --------
EXPENSES:
Interest on subordinated debt ........................ 2,465 2,384 2,357
Other expenses ....................................... 262 516 327
-------- -------- --------
2,727 2,900 2,684
-------- -------- --------
Income before income tax benefit ................ 4,058 4,149 3,416
Income tax benefit ................................... 772 23 127
-------- -------- --------
Net income ...................................... $ 4,830 $ 4,172 $ 3,543
======== ======== ========
46
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 4,830 $ 4,172 $ 3,543
Adjustments to reconcile net income to cash (used in) provided
by operating activities:
Gain on sale of investment securities available-for-sale ....... (107) (2,209) (1,026)
(Increase) decrease in other assets ........................... 664 751 (253)
Increase (decrease) in other liabilities ....................... 317 (239) 605
Equity in undistributed income of subsidiaries ................. (950) (3,067) (1,450)
-------- -------- --------
Net cash provided by (used in) operating activities .... 4,754 (592) 1,419
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale .......... (1,550) -- (8,597)
Proceeds from sales of investment securities, available-for-sale -- 16,079 11,547
Cash paid in purchase transaction, First Savings ............... -- (23,000) --
Payments for investments in and advances to subsidiaries ....... (400) (1,798) (500)
Proceeds from advances to Subsidiaries ......................... 1,796 -- --
-------- -------- --------
Net cash provided by (used in) investing activities ..... (154) (8,719) 2,450
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) Proceeds from short-term debt ...................... (1,990) 1,995 --
Proceeds from issuance of common stock, net .................... 489 4,064 --
Proceeds from exercise of stock options ........................ 177 176 235
Repayment of redeemable subordinated debentures ................ -- -- (803)
Dividends paid ................................................. (1,844) (1,581) (1,220)
Purchase of treasury stock ..................................... (789) (419) (122)
Other, net ..................................................... 3 -- --
-------- -------- --------
Net cash provided by (used in) financing activities ..... (3,954) 4,235 (1,910)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .... 646 (5,076) 1,959
CASH AND CASH EQUIVALENTS, beginning of year ........................ 141 5,217 3,258
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year .............................. $ 787 $ 141 $ 5,217
======== ======== ========
47
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)
2000
Interest income ............................. $ 10,402 $ 10,589 $ 10,321 $ 10,146
Interest expense ............................ 5,121 5,349 5,129 5,065
Net interest income ......................... 5,282 5,240 5,191 5,081
Provision for possible loan losses .......... 262 213 417 156
Other operating income ...................... 1,532 1,370 1,866 1,399
Other operating expenses .................... 4,348 4,507 4,795 4,631
Income before income taxes .................. 2,203 1,890 1,846 1,693
Net income .................................. $ 1,411 $ 1,217 $ 1,145 $ 1,057
Average common shares outstanding - basic ... 6,311 6,316 6,329 6,335
Average common shares outstanding - diluted . 6,443 6,445 6,443 6,440
PER SHARE DATA
Net income per common share - basic ......... $ 0.22 $ 0.19 $ 0.18 $ 0.17
Net income per common share - diluted ....... 0.22 0.19 0.18 0.16
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
Average common shares outstanding - basic ... 6,327 6,642 6,170 5,887
Average common shares outstanding - diluted . 6,507 6,852 6,372 6,098
PER SHARE DATA
Net income per common share - basic ......... $ 0.19 $ 0.15 $ 0.16 $ 0.15
Net income per common share - diluted ....... 0.19 0.14 0.17 0.15
48
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, 2000 and 1999 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Greater Community Bancorp and subsidiaries as of December 31, 2000 and 1999, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania
January 16, 2001
49
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 2001 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 2001 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 2001 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 2001 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.
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 2001 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
50
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).
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).
51
10.3 Employment Agreement of Erwin D. Knauer
dated July 1, 1999 (incorporated by
reference to Exhibit 10.3 to Form 10-Q
for quarter ended September 30, 1999).
10.4 Executive Supplemental Retirement Income
Agreement for George E. Irwin dated as of
January 1, 1999 among Great Falls Bank,
George E. Irwin and Greater Community
Bancorp (as guarantor) (incorporated by
reference to Exhibit 10.4 to Form 10-K
for the year ended December 31, 1999).
10.5 Executive Supplemental Retirement Income
Agreement for C. Mark Campbell dated as
of January 1, 1999 among Bergen
Commercial Bank, C. Mark Campbell and
Greater Community Bancorp (as guarantor)
(incorporated by reference to Exhibit
10.5 to Form 10-K for the year ended
December 31, 1999).
10.6 Greater Community Bancorp 2001 Employee
Stock Option Plan Adopted February 20,
2001.
10.7 Greater Community Bancorp 2001 Stock
Option Plan for Nonemployee Directors
Adopted February 20, 2001.
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
B. Reports on Form 8-K: None during the fourth quarter of 2000.
52
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 16, 2001 BY: /s/ GEORGE E. IRWIN
--------------------------------------
George E. Irwin
President and Chief Executive Officer
Date: March 16, 2001 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 16, 2001 BY: /s/ GEORGE E. IRWIN
--------------------------------------
George E. Irwin
President, Chief Executive Officer and
Director
Date: March 16, 2001 BY: /s/ ANTHONY M. BRUNO, JR.
--------------------------------------
Anthony M. Bruno, Jr.
Vice Chairman of the Board
Date: March 16, 2001 BY: /s/ CHARLES J. VOLPE
--------------------------------------
Charles J. Volpe
Director
Date: March 16, 2001 BY: /s/ C. MARK CAMPBELL
--------------------------------------
C. Mark Campbell
Executive Vice President and Director
Date: March 16, 2001 BY: /s/ JOSEPH A. LOBOSCO
--------------------------------------
Joseph A. Lobosco
Director
Date: March 16, 2001 BY: /s/ JOHN L. SOLDOVERI
--------------------------------------
John L. Soldoveri
Chairman of the Board
53
MARKET AND DIVIDEND INFORMATION (unaudited)
The Company's common stock was held by approximately 1,046 holders of
record on December 31, 2000, and is traded on the NASDAQ National Market under
the symbol GFLS.
The following table indicates the range of high and low market quotations
of the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
market quotations and cash dividends have been adjusted to take into account the
effect of the 5% stock dividends paid in 2000 and 1999, respectively.
Cash
Market Quotations Dividends
--------------------
High Low Declared
------- ------- ----------
Year Ended December 31, 1999
First Quarter $ 10.66 $ 8.85 $ .06
Second Quarter 9.87 8.73 .06
Third Quarter 10.88 9.05 .07
Fourth Quarter 10.44 8.81 .07
Year Ended December 31, 2000
First Quarter $ 8.93 $ 6.19 $ .07
Second Quarter 8.33 6.67 .07
Third Quarter 8.88 7.75 .08
Fourth Quarter 9.00 8.00 .08
The Company's ability to pay dividends on its Common Stock in the future
is subject to numerous regulatory restrictions which are potentially applicable.
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.
SHAREHOLDER INFORMATION
ANNUAL MEETING STOCK TRANSFER AGENT
The annual meeting of shareholders First City Transfer Company
of Greater Community Bancorp will PO Box 170
be held on April 17, 2001 at 4:00 Iselin, NJ 08830
p.m. at the offices of Great Falls 732-906-9227 Ext. 14
Bank at 55 Union Boulevard,
Totowa, NJ.
INDEPENDENT AUDITOR COUNSEL
Grant Thornton LLP Williams, Caliri, Miller, Otley
Two Commerce Square & Stern, P.C.
2001 Market Street 1428 Route 23 N
Philadelphia, PA 19103-7080 PO Box 995
Wayne, NJ 07474-0995
54