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, 2001
--------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-14294
--------------------------------
Greater Community Bancorp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 942-1111
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NASDAQ National Market
------------------------ -----------------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.50 per share
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------------ ------------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by
non-affiliates of the registrant at February 22, 2002 was approximately
$74,534,131. This calculation does not reflect a determination that persons are
affiliates for any other purpose.
The number of shares outstanding of the registrant's common stock as of
February 22, 2002 was 6,699,277.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Stockholders to be held on April 16, 2002 is incorporated
by reference into Part III, Items 10 through 13, inclusive.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
------------------------------------------
Index to Form 10-K for December 31, 2001
----------------------------------------
PART I PAGE NO.
- ------ --------
Item 1. Business.................................................................................................. 1
Item 2. Properties................................................................................................ 7
Item 3. Legal Proceedings......................................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 7
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................... 8
Item 6. Selected Financial Data....................................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................................9
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................................................23
Item 8. Financial Statements......................................................................................24
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................................................48
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant........................................................48
Item 11. Executive Compensation....................................................................................48
Item 12. Security Ownership of Certain Beneficial Owners and Management............................................48
Item 13. Certain Relationships and Related Transactions............................................................48
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................................49
EXHIBIT INDEX..........................................................................................................E-1
SIGNATURES..............................................................................................................50
- ----------
PART I
Item 1 BUSINESS
--------
THE HOLDING COMPANY
- -------------------
Greater Community Bancorp (the "Company") is a New Jersey business
corporation, incorporated in 1984. Until January, 2002, it was registered as a
bank holding company with the Board of Governors of the Federal Reserve System
("Federal Reserve") under the Federal Bank Holding Company Act of 1956, as
amended ("Holding Company Act"). In December, 2001 the Company filed its
declaration with the Federal Reserve to become a "financial holding company"
pursuant to the Gramm-Leach-Bliley Act of 1999 (the "1999 Act"). The 1999 Act
permits a bank holding company to qualify as a financial holding company and
expand into a wide variety of services that are financial in nature, provided
that its subsidiary depository institutions are well-managed, well-capitalized
and have received a "satisfactory" rating on their last Community Reinvestment
Act examination. The Federal Reserve accepted the Company's declaration shortly
after it was filed. (See "SUPERVISION AND REGULATION -- Financial Holding
Company Regulation" below.)
The Company's primary business activity is the ownership and operation of
Greater Community Bank (formerly Great Falls Bank) ("GCBank"), 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 2001, the Company demonstrated continued sustainable growth both in
assets and earnings in an increasingly competitive and volatile environment. As
of December 31, 2001, the Company's consolidated assets were $660.8 million, as
compared with consolidated assets of $607.3 million at December 31, 2000.
Earnings for the full year 2001 were $6.1 million or $0.88 per diluted share
($0.91 per basic share), up from $4.8 million or $0.71 per diluted share ($0.73
per basic share) in 2000. Cash earnings per diluted share, which excludes
goodwill amortization, were $0.99 for 2001, a 19% increase compared to 2000. The
Company declared total cash dividends of $0.33 per share and $0.28 per share
during 2001 and 2000, respectively.
NONBANK SUBSIDIARIES
- --------------------
The Company owns five nonbank subsidiaries. (i) Highland Capital Corp.
("HCC"), is a New Jersey corporation located in Little Falls, New Jersey. HCC's
purpose is to engage in the business of leasing commercial office equipment to
small and mid-size businesses in Bergen, Passaic and surrounding counties. Also,
HCC has a branch office in Arlington Heights, IL.
(ii) GCB Realty, L.L.C. ("Realty") is a New Jersey limited liability company
located in Totowa, New Jersey. Its purposes are to acquire and manage real
estate properties. Realty owns a property in Bergen County, New Jersey. BCB and
five other tenants lease space in the building.
(iii) GCB Capital Trust (the "Trust") was formed in 1997 under the Business
Trust Act of Delaware. The sole purpose 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 Debentures are the sole assets of the Trust and the payments under
the 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
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 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 1996, a nonbank subsidiary opened for business under the name of
Greater Community Financial, LLC ("GCF"), a New Jersey limited liability company
located in Clifton, New Jersey. This Company engages in the business of
securities broker and dealer.
1
BANK SUBSIDIARIES
- -----------------
GCBank received its charter from the New Jersey Department of Banking &
Insurance (the "Department") in 1985 and commenced operations as a commercial
bank in 1986. Its main office is located at 55 Union Boulevard, Totowa, New
Jersey. During 2001, GCBank had six additional branches, all of which are
located in Passaic County, New Jersey. Three branches are located in Little
Falls, two branches are located in Clifton, and a sixth branch is located at 100
Furler Street, Totowa. Effective February 2002, a new branch was established in
Lincoln Park, Morris County, New Jersey.
GCBank conducts a general commercial and retail banking business
encompassing a wide range of traditional deposits and lending functions. GCBank
offers a broad variety of lending services, including commercial and residential
real estate loans, short and medium term loans, revolving credit arrangements,
lines of credit and consumer installment loans. In the depository area, GCBank
offers a broad variety of deposit accounts, including consumer and commercial
checking accounts and NOW accounts. GCBank also offers other customary banking
services.
BCB was incorporated in New Jersey in 1987 and commenced banking operations
in 1988. BCB concentrates its operations in commercial lending and loan
origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. BCB also offers other
customary banking services. In addition to its main office at Two Sears Drive in
Paramus, New Jersey, BCB has five additional branch offices, located in
Hasbrouck Heights, Wood-Ridge, Wallington, Hackensack. and Little Ferry.
GCBank and BCB each has a wholly-owned investment company subsidiary, a New
Jersey corporation, formed to manage their respective investment portfolios.
Each of the investment companies in turn has a wholly-owned Delaware subsidiary
established in 2000 to hold and manage securities investments.
RCB commenced its banking operations 1999. RCB's sole office is located at
175 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
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 towards consolidation of
the banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Bank Subsidiaries to
compete with larger national and regional banking institutions. Several of the
Bank Subsidiaries' competitors are affiliated with major banking and financial
institutions that are substantially larger and have far greater financial
resources than the Bank Subsidiaries.
Competitive factors between financial institutions can be classified into
two categories: competitive rates and competitive service. Rate competition is
intense especially in the area of time deposits. The Bank Subsidiaries compete
with larger institutions with respect to the interest rates they offer. From a
service standpoint, the Bank Subsidiaries' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Bank Subsidiaries. Such competitors also perform certain functions for their
customers, such as trust and international services, which the Bank Subsidiaries
have chosen not to provide.
SUPERVISION AND REGULATION
- --------------------------
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business, limit its management's
options to deploy assets and maximize income and may significantly limit the
activities of institutions which do not meet regulatory capital or other
requirements. Areas subject to regulation and supervision by the bank regulatory
agencies include, among others: minimum capital levels; dividends; affiliate
transactions; expansion of locations; acquisitions and mergers; reserves against
deposits; deposit insurance premiums; credit underwriting standards; management
and 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
2
federal or state legislation may have in the future. The following summary does
not purport to be complete and is qualified in its entirety by reference to such
statutes and regulations.
Bank Holding Company Regulation
- -------------------------------
During 2001, the Company was 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, 2001, the Company
had approximately $11.1 million in financial resources in addition to its
investment in the Bank Subsidiaries and nonbank subsidiaries. The Federal
Reserve has adopted guidelines regarding the capital adequacy of bank holding
companies that require them to maintain specified minimum ratios of capital to
total assets and capital to risk-weighted assets.
Holding Company Activities
- --------------------------
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
nonbank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The Company's activities are subject to these legal and regulatory limitations
under the Holding Company Act and related Federal Reserve regulations.
Satisfactory capital ratios and Community Reinvestment Act ("CRA") ratings are
generally prerequisites to obtaining regulatory approval to make acquisitions.
The federal Interstate Banking and Branching Act of 1994 permits a bank
holding company to acquire banks in states other than its home state, regardless
of applicable state law. The 1994 law also permits banks to create interstate
branches, either by merging across state lines or by creating new branches,
subject to a state's ability to opt out of these enabling provisions. As have
most states, New Jersey has enacted legislation to authorize interstate banking
either by merger or by branching into New Jersey if the foreign bank already has
branches in New Jersey; however, that legislation did not authorize de novo
branching into New Jersey.
Holding Company Dividends and Stock Repurchases
- -----------------------------------------------
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. It is the Federal Reserve's view that
a bank holding company should pay cash dividends only to the extent that its
net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with its capital needs, asset
quality and overall financial condition.
As a bank holding company, the Company is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive or any condition imposed by or
written agreement with the Federal Reserve.
Financial Holding Company Regulation
- ------------------------------------
The Gramm-Leach-Bliley Act of 1999 ("1999 Act") removes long-standing legal
barriers separating banks and securities firms, and facilitates affiliations of
securities firms, insurance companies and banks. As a "financial holding
company" effective in January, 2002, the Company may engage in any activity that
the Federal Reserve determines to be financial in nature or incidental to such
financial activity, or is complementary to a financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions or
the financial system generally. The 1999 Act provides that the following
activities shall be considered to be financial in nature: (a) lending,
exchanging, transferring, investing for others or safeguarding money or
securities; (b) insuring, guaranteeing or indemnifying against loss, harm,
damage, illness, disability or death, or providing and issuing annuities, and
acting as principal, agent or broker for purposes of the foregoing, in any
State; (c) providing financial, investment or economic advisory services,
including advising an investment company; (d) issuing or selling instruments
representing interests in pools of assets permissible for a bank to hold
directly; (e) underwriting, dealing in or making a market in securities; (f)
engaging in any activity that
3
the Federal Reserve has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto; (g) engaging
in the United States in any activity that a bank holding company may engage in
outside of the United States that the Federal Reserve has determined to be usual
in connection with the transaction of banking or other financial operations
abroad; (h) engaging through non-bank subsidiaries in various underwriting or
merchant or investment banking activities; and (i) acquiring investment assets
through insurance company affiliates in the ordinary course of an insurance
company business.
Bank Regulation
- ---------------
As state-chartered banks 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. GCBank and BCB
received "satisfactory" CRA ratings in their most recent examinations.
Bank Dividends
- --------------
New Jersey law permits the Bank Subsidiaries to declare dividends only if,
after payment of the dividends, their capital would be unimpaired and their
remaining surplus would equal at least 50% of their capital. Under the FDIA, the
Bank Subsidiaries are prohibited from declaring or paying dividends or making
any other capital distribution if, after that distribution, they would fail to
meet their regulatory capital requirements. At December 31, 2001, 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".
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.
4
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. 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 2000 and 2001.
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 GCBank and BCB for 1997 through 2001 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 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 the Bank Subsidiaries meet all adopted standards.
Enforcement Powers
- ------------------
The bank regulatory agencies have broad discretion to issue cease and desist
orders if they determine that the Company or its Bank Subsidiaries are engaging
in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities may impose substantial civil money penalties for
violations of certain federal banking statutes and regulations, violation of a
fiduciary duty, or violation of a final or temporary cease and desist orders,
among other things. Financial institutions and a broad range of persons
associated with them are subject to the imposition of fines, penalties, and
other enforcement actions based upon the conduct of their relationships with the
institutions.
The FDIC may be appointed as a conservator or receiver for a depository
institution based upon a number of events and circumstances. The FDIC as a
conservator or receiver of a depository institution also has express authority
to repudiate most contracts with such institution which it determines to be
burdensome or if such repudiation will promote the orderly administration of the
institution's affairs. The FDIC is also given authority to enforce contracts
made by a depository institution 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
5
specified minimum ratio of capital to total assets, and risk-based capital
rules, which require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.
These regulations require bank holding companies and state nonmember banks
to maintain a minimum leverage ratio of "Tier I capital" to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of 1 under the rating system used by the federal bank regulators, would
be permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding company experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve has indicated that whenever appropriate, and in particular when
a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier I
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules require bank holding companies and state
nonmember banks to maintain minimum regulatory capital levels based upon a
weighting of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a Tier I or core capital
requirement and a Tier II or supplementary capital requirement. Tier I capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less most intangible assets, primarily goodwill. Tier II capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier I and
long-term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; and subordinated debt and intermediate-term preferred
stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan losses which may be included as capital to 1.25% of total risk-weighted
assets.
At December 31, 2001, the Company's total risk-based capital and leverage
capital ratios were 13.89% and 7.23%, 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 subject to increased monitoring by the appropriate federal
banking regulator and other restrictions.
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.
6
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 that would alter the
powers of, and place restrictions on, different types of banking organizations.
It is impossible to predict whether any of these proposals will be adopted and
any impact of such adoption on the business of the Company and/or the Bank
Subsidiaries.
The Bank Subsidiaries are also subject to various Federal and State laws
such as usury laws and consumer protection laws.
EMPLOYEES
- ---------
As of December 31, 2001, the Company employed a total of approximately 199
employees, including 168 full-time employees. Management considers relations
with employees to be satisfactory.
Item 2 PROPERTIES
----------
The Company does not directly own or lease any land, buildings or equipment.
However, the Company's nonbank subsidiary, Realty, owns a property in Bergen
County, New Jersey.
GCBank leases its main office banking facility and certain other office
space at 55 Union Boulevard, Totowa, New Jersey. Such space is owned by a
general partnership of which the Company's chairman and vice chairman are both
partners. During 2001, GCBank also leased space for its 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 branches
located in Hasbrouck Heights and Little Ferry, New Jersey.
RCB leases its main office space at 175 Rock Road, Glen Rock, New Jersey.
Sinabaldo Leone, Jr., a director of RCB, owns the leased space.
In the opinion of management, all such leased properties are adequately
insured and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease obligations,
see Note 14 of the Company's Notes to Consolidated Financial Statements for the
year ended December 31, 2001, contained in Item 8 -- "Financial Statements".
Item 3 LEGAL PROCEEDINGS
-----------------
The Company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
there is no proceeding threatened or pending against the Company which, if
determined adversely, would have a material effect on the Company's business,
consolidated financial position or consolidated results of operations.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter was submitted during the fourth quarter of 2001, to a vote of
security holders through the solicitation of proxies or otherwise.
7
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
-------------------------------------------------
The Company's common stock was held by approximately 1,042 holders of record
on December 31, 2001, 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 2001 and 2000, respectively.
Cash
Market Quotations Dividends
----------------------------------- ------------
High Low Declared
------------- ------------ ------------
Year Ended December 31, 2000
First Quarter $ 8.50 $ 5.90 $ .066
Second Quarter 7.93 6.35 .066
Third Quarter 8.46 7.38 .076
Fourth Quarter 8.57 7.62 .076
Year Ended December 31, 2001
First Quarter $ 12.14 $ 8.21 $ .071
Second Quarter 11.90 9.62 .085
Third Quarter 12.00 10.24 .085
Fourth Quarter 12.59 10.06 .085
The Company's ability to pay dividends on its Common Stock in the future is
subject to numerous regulatory restrictions that are potentially applicable.
However, management does not expect any of such restrictions to become
applicable so long as the Company and the Bank Subsidiaries continue to operate
profitably.
8
Item 6 SELECTED FINANCIAL DATA
------------------------
The selected consolidated financial highlights of the Company set forth
below should be read in conjunction with the more detailed information included
in the Consolidated Financial Statements, related Notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
appearing elsewhere herein.
As of the Years Ended December 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- --------- -------- -------- --------
(In Thousands, except per share data)
Summary of Operations:
Total interest income .................................. $ 42,775 $ 41,458 $ 34,564 $ 24,866 $ 20,548
Total interest expense ................................. 20,497 20,664 17,140 12,009 8,948
Net interest income .................................... 22,278 20,794 17,424 12,857 11,600
Provision for possible loan losses ..................... 885 1,048 885 520 485
Net interest income after provision for
possible loan losses ............................... 21,393 19,746 16,539 12,337 1,115
Other income ........................................... 6,515 6,167 7,270 4,656 2,755
Other expenses ......................................... 18,664 18,290 17,288 11,450 9,775
Income before income taxes ............................. 9,244 7,623 6,521 5,543 4,095
Provision for income taxes ............................. 3,164 2,793 2,349 2,000 1,495
Net Income ............................................. $ 6,080 $ 4,830 $ 4,172 $ 3,543 $ 2,600
Per Common Share Data: (1)
Earnings Per Share--Basic .............................. $ 0.91 $ 0.73 $ 0.64 $ 0.58 $ 0.52
Earnings Per Share--Diluted ............................ $ 0.88 $ 0.71 $ 0.62 $ 0.55 $ 0.49
Cash dividends per common share ........................ $ 0.33 $ 0.28 $ 0.24 $ 0.20 $ 0.15
Stock splits and dividends per common share ............ 5% 5% 5% 2 for 1 10%
Book value per common share ............................ $ 6.87 $ 6.06 $ 5.32 $ 5.24 $ 4.77
Selected Operating Ratios:
Return on average assets ............................... 0.95% 0.84% 0.81% 1.00% 0.92%
Return on average equity ............................... 14.18% 13.43% 11.98% 11.88% 10.82%
Interest rate spread ................................... 2.93% 3.13% 3.02% 2.65% 3.20%
Net interest margin .................................... 3.79% 3.98% 3.78% 3.87% 4.40%
Financial Condition Data:
Total Assets ........................................... $660,839 $607,305 $567,453 $372,400 $321,985
Cash and cash equivalents .............................. 46,997 56,292 19,200 23,640 22,845
Investment securities .................................. 151,906 138,153 151,191 111,601 126,776
Total Loans, net ....................................... 404,250 366,139 340,563 201,765 158,125
Allowance for possible loan losses ..................... 6,320 5,657 4,953 3,525 2,731
Total Deposits ......................................... 484,623 465,245 460,634 293,395 257,555
Other borrowings ....................................... 115,347 90,020 64,403 40,103 30,141
Shareholders' equity ................................... $ 46,112 $ 40,231 $ 35,402 $ 32,309 $ 29,261
Capital Ratios:
Equity to assets ....................................... 6.98% 6.62% 6.23% 8.68% 9.09%
Total risk-based capital ratio ......................... 13.89% 13.88% 13.73% 21.58% 26.19%
Tier I risk-based capital ratio ........................ 10.70% 10.14% 9.59% 15.32% 17.94%
Leverage ratio ......................................... 7.23% 7.10% 7.18% 11.21% 12.71%
(1) All per share data has been adjusted to reflect stock dividends and
stock split.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
------------------------------------------------------------------
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing the Company's financial condition and
results of operations for each of the past three years and its financial
condition at the end of each of the past two years. In order to fully appreciate
this analysis, the reader is encouraged to review the consolidated financial
statements and statistical data presented in this document. Data is presented
for the Company and its subsidiaries in the aggregate unless otherwise
indicated.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K, both in this MD&A section and elsewhere (including documents
incorporated by reference herein), contains both historical information and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not historical
facts and include expressions about management's confidence and strategies and
its expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions.
9
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, 2001, 2000 and 1999
In 2001, the Company recorded earnings of $6.1 million or $0.88 per diluted
share an increase of 26% over 2000. During 2000, the Company earned $4.8 million
or $0.71 per diluted share, a 16% increase over $4.2 million or $0.62 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.
Cash earnings (net income before amortization of intangible assets) per
diluted share were $0.99, $0.83 and $0.71 for the years ending December 31,
2001, 2000 and 1999, respectively.
The increase in net income for the year ended December 31, 2001 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, 2001, 2000 and 1999. The yields are not shown
on a fully taxable basis.
10
Average Balance Sheet, Interest Income and Expense and Average Interest Rates
For the Years Ended
----------------------------------------------------------------------
December 31, 2001 December 31, 2000
--------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
--------- ----------- ---------- --------- ------------ ---------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities .................................... $ 145,477 $ 8,647 5.94% $ 144,980 $ 9,369 6.46%
Due from banks - interest-bearing ........................ 14,237 587 4.12% 8,543 549 6.43%
Federal funds sold ....................................... 38,299 1,591 4.15% 9,789 538 5.50%
Loans (1) ................................................ 390,354 31,950 8.18% 358,636 31,002 8.64%
--------- ------- --------- -------
Total earning assets ................................ 588,367 42,775 7.27% 521,948 41,458 7.94%
Less: Allowance for possible loan losses ................. (6,022) -- (5,387) --
Unearned income - loans ............................. (2,287) -- (1,661) --
All other assets ......................................... 59,539 -- 60,114 --
--------- ------- --------- -------
Total assets ........................................ $ 639,597 $42,775 $ 578,336 $41,458
========= ======= ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits .................. $ 166,916 $ 3,515 2.11% $ 135,953 $ 3,187 2.34%
Time deposits .......................................... 192,952 10,114 5.24% 223,834 12,512 5.59%
Federal funds and short-term borrowings (2)............. 89,514 4,568 5.10% 46,748 2,665 5.70%
Trust preferred securities ............................. 23,000 2,300 10.00% 23,000 2,300 10.00%
--------- ------- --------- -------
Total interest-bearing liabilities ........... 472,382 20,497 4.34% 429,535 20,664 4.81%
Non interest-bearing deposits ............................ 113,203 -- 103,209 --
Other liabilities ........................................ 11,127 -- 9,622 --
Shareholders' equity ..................................... 42,885 -- 35,970 --
--------- ------- --------- -------
Total liabilities and
Shareholders' equity ............................. $ 639,597 $20,497 $ 578,336 $20,664
========= ======= ========= -------
NET INTEREST INCOME ...................................... $22,278 $20,794
======= =======
NET INTEREST MARGIN ...................................... 3.79% 3.98%
==== ====
December 31, 1999
---------------------------------
Average Interest Average
Balance Earned/Paid Yield/Rate
--------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities .................................... $137,983 $8,094 5.87%
Due from banks - interest-bearing ........................ 13,121 762 5.82%
Federal funds sold ....................................... 11,900 612 5.14%
Loans (1) ................................................ 298,278 25,096 8.41%
Total earning assets ................................ 461,282 34,564 7.49%
Less: Allowance for possible loan losses ................. (4,409) --
Unearned income - loans ............................. (1,264) --
All other assets ......................................... 57,175 --
-------- -------
Total assets ........................................ $512,784 $34,564
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits .................. $123,776 $2,725 2.20%
Time deposits .......................................... 207,460 10,651 5.13%
Federal funds and short-term borrowings (2) ............ 28,938 1,464 5.06%
Trust preferred securities ............................. 23,000 2,300 10.00%
-------- -------
Total interest-bearing liabilities ........... 383,174 17,140 4.47%
Non interest-bearing deposits ............................ 88,003 --
Other liabilities ........................................ 6,777 --
Shareholders' equity ..................................... 34,830 --
-------- -------
Total liabilities and
Shareholders' equity ............................. $512,784 $17,140
======== -------
NET INTEREST INCOME ...................................... $17,424
=======
NET INTEREST MARGIN ...................................... 3.78%
====
1 Average balance includes nonperforming loans.
2 Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase
11
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. Net interest income was $22.3 million in 2001, a
$1.5 million or 7% increase compared to 2000. Interest and fee income on loans
during 2001 increased by $1.0 million or 3% over 2000 as a result of an increase
of 9% in average total loans. The average yield on loans decreased to 8.18% in
2001 compared to 8.64% in 2000 as a result of repricing of loans at prevailing
rates and a general decline in overall interest rates during the year. Loans
represent 66% and 68% of average earning assets in 2001 and 2000, respectively.
Income earned on investment securities during 2001 decreased by $722,000, or 8%
compared to 2000. Since the average investment securities were almost unchanged
from 2001, the decrease was largely due to declining interest rates during 2001
over 2000. The average yield on securities was 5.94% for the year ended December
31, 2001, compared to 6.46% for the prior year. Investments represent 25% and
28% at 2001 and 2000, respectively, of average earning assets. Interest income
on federal funds sold and deposits with banks during 2001 increased by $1.1
million or 196% compared to 2000 as a result of a $34.2 million, or 187%,
increase in average federal funds sold and deposits with banks. Federal funds
sold and deposits with banks represent 9% and 4% of average earning assets at
December 31, 2001 and 2000, respectively.
In 2000, net interest income was $20.8 million 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 1999, as a result of a 20% increase 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 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 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.
Interest expense for the year ended December 31, 2001, decreased by
$167,000 or 1% from the level of interest expense for 2000. Interest expense on
deposits decreased by $2.1 million primarily due to declining interest rates
during 2001, while interest expense on short-term borrowings increased by $1.9
million as a direct result of increase in federal home loan bank advances. For
the year 2001, average interest rate paid decreased by 47 basis points compared
to 2000.
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%.
Average interest-bearing deposits comprised 76%, 84% and 87% of Company
total funding sources in 2001, 2000 and 1999, 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 3.79%, 3.98% and 3.78% for the years
ended December 31, 2001, 2000 and 1999, 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,
2001 and 2000 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, change 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.
12
Full Year 2001 Full Year 2000
Compared to Full Year 2000 Compared to Full Year 1999
Increase(Decrease) Increase(Decrease)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
Interest Earned On:
Loans ........................................... $ 2,580 $(1,632) $ 948 $ 5,207 $ 699 $ 5,906
Investment securities ........................... 26 (748) (722) 458 817 1,275
Other earning assets ............................ 1,420 (329) 1,091 (410) 123 (287)
------- ------- ------- ------- ------- -------
Total earning assets ......................... $ 4,026 $(2,709) $ 1,317 $ 5,255 $ 1,639 $ 6,894
======= ======= ======= ======= ======= =======
Interest Paid On:
Savings and interest-bearing deposits ........... $ 650 $ (322) $ 328 $ 284 $ 178 $ 462
Time deposits ................................... (1,623) (775) (2,398) 907 954 1,861
Borrowings (1) .................................. 2,612 (709) 1,903 1,269 (68) 1,201
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities .......... $ 1,639 $(1,806) $ (167) $ 2,460 $ 1,064 $ 3,524
======= ======= ======= ======= ======= =======
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase and trust preferred securities.
Provision for Possible Loan Losses
The Company recorded a provision for possible loan losses of $885,000 in
2001 compared with $1.0 million in 2000 and $885,000 on 1999. 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 $6.5 million in 2001 and represented 23% of total
income (net interest income plus other income) compared with $6.2 million and
23%, respectively, in 2000. The increase of $348,000 or 6% over 2000 is
primarily due to increases in service charges on deposit accounts, gains on
sales of investment securities and leasing income offsetting decreases in other
commission and fees and gain on sale of assets. Service charges on deposit
accounts increased by $437,000, gains on sale of investment securities increased
by $526,000 and leasing income increased by $243,000 while other commission and
fees declined $416,000 and gain on sale of assets declined by $517,000. The
majority of such increases resulted from the overall growth of the Company.
Included in all other income is $274,000 in rental income and $288,000 in
automated teller machine service fees.
Total 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 for 2000 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.
Other Expenses
Total other expenses increased $374,000 or 2% to $18.7 million in 2001
compared with 2000. The level of operating expenses during 2001 favorably
impacted by management's commitment to control increases in non-interest
expenses. While management continues to emphasize expense control, the year to
year increase in expenses is attributable to the continued growth of the
Company, its investment in technology and the need to attract and retain
high-caliber employees. Of the total increase, salaries and employee benefits
accounted for $509,000, other operating expenses accounted for $137,000 and
office expenses accounted for $48,000, offset part by decreases in occupancy and
equipment expense of $114,000 and regulatory and professional fees of
13
$215,000. The decrease in occupancy and equipment expense is attributable to
decline in depreciation expense resulting from certain fully depreciated fixed
assets and the decrease in regulatory and professional fees resulted from a
decline in legal 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 in 2000 relative to 1999
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.
Income Taxes
The Company recorded income tax provisions of $3.2 million, $2.8 million and
$2.3 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The Company's effective rate is 34%, 37% and 36%, for the years ended December
31, 2001, 2000 and 1999. The decrease in the effective rate is due to tax
planning strategies offset by non deductible goodwill.
Financial Condition
The Company's performance for 2001 was highlighted by loan growth,
particularly in the commercial mortgage portfolio. At December 31, 2001, the
Company's total assets amounted to $660.8 million, an increase of $53.5 million
or 9% over the amount reported at December 31, 2000. Gross loans increased by
$38.8 million reflecting increased loan demand. Investment securities and
interest-bearing due from banks increased by $13.8 million and $9.1 million,
respectively, while federal funds sold decreased by $12.1 million. These
increases were supported by increases in total deposits and FHLB advances.
A key element of the Company's consistent performance is its strong capital
base. The Company's risk-based capital ratios at December 31, 2001 were 10.70%
and 13.89% for Tier 1 Capital and total risk-based capital, respective,
substantially exceeding the minimum requirements under regulatory guidelines.
The Company's return on average equity in 2001 was 14.18% compared to 13.43% in
2000.
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 loan
demand. Federal funds sold increased by $33.4 million. The increase in federal
funds sold is a direct result of an increase in FHLB advances.
Investment Securities
At December 31, 2001, the investment securities portfolio amounted to $151.9
million, an increase of $13.8 million or 10% over the amount reported at
December 31, 2000. The increase was primarily related to the liquidity arising
from the deposit growth. Investment securities at December 31, 2000 decreased by
$13.0 million or 9% over the amount reported at December 31, 1999. The decrease
was primarily related to the maturities and the principal paydowns and the
proceeds were subsequently used to meet loan demand. The following table
presents the composition of the investment securities portfolio along with the
amortized cost and fair values of those components at December 31, 2001, 2000
and 1999.
14
December 31
- --------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
----------------------- ------------------------- -----------------------
(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 .... $ 21,288 $ 21,712 $ 65,768 $ 65,684 $ 63,851 $ 62,443
State and political subdivisions .... 7,279 7,253 5,446 5,426 7,957 7,790
Other debt and equity securities .... 23,796 26,679 16,802 18,306 13,790 14,347
Mortgage-backed securities .......... 93,860 94,568 45,188 45,176 58,583 57,656
-------- -------- -------- -------- -------- --------
Total available-for-sale ....... $146,223 $150,212 $133,204 $134,592 $144,181 $142,236
======== ======== ======== ======== ======== ========
Held-to-maturity
U.S. Treasury and U.S.
Government agencies securities .... $ 1,000 $ 950 $ 1,000 $ 791 $ 4,500 $ 4,088
State and political subdivisions .... 185 186 870 870 872 871
Mortgage-backed securities .......... 509 521 1,691 1,695 3,583 3,546
-------- -------- -------- -------- -------- --------
Total held-to-maturity ......... $ 1,694 $ 1,657 $ 3,561 $ 3,356 $ 8,955 $ 8,505
-------- -------- -------- -------- -------- --------
Total investment securities .... $147,917 $151,869 $136,765 $137,948 $153,136 $150,741
======== ======== ======== ======== ======== ========
During 2001, the Company realized net gains of $633,000 from the sale of
$17.6 million in investment securities. In 2000, the Company realized net gains
of $107,000 from the sale of $1.4 million in investment securities. Included in
shareholders' equity at December 31, 2001 is accumulated other comprehensive
income in the amount of $2.4 million, an increase of $1.6 million or 191% over
the end of 2000. The Company has no investment securities held for trading
purposes.
The following table shows the average yields, amortized cost and fair values
of the Company's investment securities by maturity.
December 31, 2001
---------------------------------------------
Average Amortized Fair
Yield Cost Value
------- ---------- --------
(Dollars in Thousands)
Available-for-sale
Due in one year or less ......................................... $ 5,739 $ 5,804
Due after one year through 5 years .............................. 4.80% 16,453 16,815
Due after five years through 10 years ........................... 5.26 1,171 1,170
Due after ten years ............................................. 4.61 5,204 5,176
Mortgage-backed securities ...................................... 4.00 93,860 94,568
Other debt and equity securities ................................ 5.90 23,796 26,679
-------- --------
Total available-for-sale ..................................... n/a $146,223 $150,212
======== ========
Held-to-maturity
Due in one year or less ......................................... 4.22% $ 185 $ 186
Due after five years through 10 years ........................... 5.16 1,000 950
Mortgage-backed securities ...................................... 4.69 509 521
-------- --------
Total held-to-maturity ..................................... $ 1,694 $ 1,657
-------- --------
Total investment securities ................................ $147,917 $151,869
======== ========
Loan Portfolio
Loan growth during 2001 occurred primarily in loans secured by
nonresidential properties and commercial loans. The growth reflected the
Company's aggressive business development programs and capitalizing upon new
opportunities. The loan portfolio at December 31, 2001, totaled $412.8 million,
an increase of $38.8 million over the amount reported at December 31, 2000.
Average loan volume for the year 2001 increased $31.7 million, while the average
yield on loans decreased by 46 basis points over 2000 as a result of declining
interest rates.
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 following table summarizes the
components of the gross loan portfolio at the dates indicated.
15
December 31,
-----------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one-to-four-family residential
properties.............................................. $159,489 $160,359 $154,822 $ 66,485 $ 45,700
Loans secured by nonresidential properties.............. 181,959 149,304 140,200 100,687 81,064
Loans to individuals.................................... 8,491 10,639 9,405 10,609 10,549
Commercial loans........................................ 47,155 40,124 30,702 21,107 16,847
Construction loans...................................... 14,054 13,014 10,024 5,163 5,784
Other loans............................................. 1,643 532 1,782 2,069 1,305
-------- -------- -------- -------- --------
Total gross loans.................................. $412,791 $373,972 $346,935 $206,120 $161,249
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 2001.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 2001
------------------------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
------- ------- -------- --------
(In Thousands)
Loans with predetermined interest rates:
Loans secured by nonresidential properties ...................... $ 9,732 $25,109 $ 10,557 $ 45,398
Commercial loans ................................................ 5,783 14,984 681 21,448
Construction loans .............................................. 789 -- -- 789
------- ------- -------- --------
Total loans with predetermined interest rates .............. $16,304 $40,093 $ 11,238 $ 67,635
Loans with floating interest rates:
Loans secured by nonresidential properties ...................... 9,935 7,277 119,349 136,561
Commercial loans ................................................ 18,210 6,080 1,417 25,707
Construction loans .............................................. 4,753 8,101 411 13,265
------- ------- -------- --------
Total loans with floating interest rates ................... $32,898 $21,458 $121,177 $175,533
------- ------- -------- --------
Total gross loans ................................ $49,202 $61,551 $132,415 $243,168
======= ======= ======== ========
At the date indicated in the above 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, GCBank 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 that tend to affect portfolio risks are
changes in local or regional real estate values, income levels and energy
prices. These factors, coupled with unemployment levels and tax rates, as well
as governmental actions and weakened market conditions 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 that are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are either doubtful of collection or are involved in a protracted
collection process. The current year's uncollected interest is reversed on such
nonaccrual loans. Management has also restructured the terms of certain loans to
accommodate changes in the financial condition of borrowers. A typical
concession would be a reduction in the currently payable interest rate to one
that is lower than the current market rate for new debt with similar risks;
interest foregone would be deferred until maturity.
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated
16
December 31,
---------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans ............................................... $1,373 $1,281 $1,678 $1,657 $1,741
Renegotiated loans .............................................. 545 845 606 416 521
------ ------ ------ ------ ------
Total nonperforming loans ................................... 1,918 2,126 2,284 2,073 2,262
Loans past due 90 days and accruing ............................. 34 54 248 461 135
Other real estate ............................................... 175 -- 467 495 373
------ ------ ------ ------ ------
Total nonperforming assets ................................... $2,127 $2,180 $2,999 $3,029 $2,770
====== ====== ====== ====== ======
Nonperforming loans to total gross loans ........................ .46% .57% .66% 1.01% 1.40%
Nonperforming assets to total gross loans and other
Real estate owned ............................................ .52% .58% .86% 1.47% 1.71%
Nonperforming assets to total assets ............................ .32% .36% .53% .81% .86%
Allowance for loan losses to nonperforming loans ........... 329.51% 266.09% 216.86% 170.04% 120.73%
Nonperforming loans decreased by $208,000 at December 31, 2001 compared to
December 31, 2000. The decrease is primarily due to the reclassification of
certain loans to current loans as a result of renegotiation offset in part by a
reclassification of current loans to nonaccruing status. 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. If the
nonaccruing loans in 2001, 2000 and 1999 had continued to pay interest, interest
income during the same years would have increased by $45,000, $53,000 and
$60,000, respectively.
Potential Problem Loans. As part of the loan review process, management
routinely identifies performing loans when there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and allocates
specific reserves against them. At December 31, 2001, 2000 and 1999, such loans
totaled $5.1 million, $7.2 million and $8.3 million with an allowance of
$833,000, $855,000 and $1.0 million respectively, specifically allocated to
them.
Foreign Loans. The Company has no foreign loans or any other foreign exposure.
Allowance for Possible Loan Losses
The allowance for possible loan losses increased by $663,000 to $6.3 million
at December 31, 2001 compared to the end of the prior year. At December 31,
2000, the allowance for possible loan losses was $5.7 million 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, are adequate reserves allotted.
The Company maintains an allowance for loan losses at an amount considered
adequate by management to provide for potential credit losses based upon
periodic evaluation of the risk characteristics of the loan portfolio.
Management reviews the adequacy of the allowance on a monthly basis, in doing
so, it takes into consideration factors such as actual versus estimated losses,
regional and national economic conditions, portfolio concentration and the
impact of government regulations. The Company makes specific allocations to
impaired loans and for doubtful or watchlist loans, an allocated reserve based
on historical trends and an unallocated portion. The Company consistently
applies the following comprehensive methodology.
The first category of reserves consists of specific allocation of the
allowance for doubtful or watchlist loans, which is established for specific
commercial and industrial loans, real estate development loans, and construction
loans which have been identified by bank management as being high risk loan
assets. These loans are assigned a doubtful risk rating grade solely on its
nonperformance according to its payment terms and there is reason to believe
that repayment of the loan principal in whole or part is unlikely. The specific
allocation of the allowance is the total amount of potential unconfirmed losses
for these individual doubtful or watchlist loans. To assist in determining the
fair value of loan collateral, the Company often utilizes independent third
party qualified appraisal firms which in turn employ their own criteria and
assumptions that may include occupancy rates, rental rates, and property
expenses, among others.
The second category of reserves consists of the allocated portion of the
allowance. This is determined by taking the loan portfolios outstanding and
creating individual loan pools for commercial loans, real estate loans and
construction loans and various types of loans to individuals that have similar
characteristics and applying historical loss experience for each pool. This
estimate represents the potential unconfirmed losses within the portfolio. The
historical estimation for each loan pool is then adjusted to account for current
conditions, current loan portfolio performance, loan policy or management
changes or any other factor which may cause future losses to deviate from
historical levels.
17
Finally, the Company also maintains an unallocated allowance, which is used to
cover any factors or conditions, which may cause a potential loan loss, but are
not specifically identifiable. Management considers an unallocated portion of
allowance is necessary irrespective of how detailed an analysis of potential
loan losses is performed, these estimates by definition lack precision.
Management must make estimates using assumptions and information, which is often
subjective and changing rapidly. At December 31, 2001, management believes that
the allowance for loan losses and nonperforming loans remained safely within
acceptable levels.
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
Years ended December 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(Dollars in Thousands)
Balance at beginning of year ............................ $ 5,657 $ 4,953 $ 3,525 $ 2,731 $ 2,540
Charge-offs:
Commercial ........................................... (263) (141) (102) (5) (356)
Real estate - mortgages .............................. (7) (198) -- (31) --
Installment loans to individuals ..................... (8) (49) (45) (34) (9)
Credit cards and related plans ....................... (42) (60) (59) (53) (42)
------- ------- ------- ------- -------
(320) (448) (206) (123) (407)
------- ------- ------- ------- -------
Recoveries:
Commercial ........................................... 73 18 59 376 104
Real estate - mortgages .............................. 3 69 50 11 7
Installment loans to individuals ..................... 12 7 4 5 1
Credit cards and related plans ....................... 10 10 12 5 1
------- ------- ------- ------- -------
98 104 125 397 113
------- ------- ------- ------- -------
Net recoveries (charge-offs) ............................ (222) (345) (81) 274 (294)
Provision for possible loan losses ...................... 885 1,048 885 520 485
Adjustment(1) ........................................... -- -- 624 -- --
------- ------- ------- ------- -------
Balance at end of year .................................. $ 6,320 $ 5,657 $ 4,953 $ 3,525 $ 2,731
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during
the period
To average loans outstanding during the
period ............................................... (0.07%) (0.10%) (0.03%) 0.15% (0.20%)
(1) Allowance for possible loan losses acquired from First Savings in 1999.
18
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,
-------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- -------------------------- ----------------------------
% of % of % of
Loans Loans Loans
to to to
% of Total % of Total % of Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------- --------- ----- ------- ---------- ----- -------- ----------- -----
(Dollars in Thousands)
Balance at end of
Period allocable to:
Commercial and non-
Residential properties ............... $3,388 53% 56% $1,745 31% 50% $1,558 32% 49%
Construction ............................. 164 3 3 107 2 3 115 2 3
Loans secured by 1-4
families ............................. 1,918 30 39 1,999 35 44 2,183 44 45
Loans to individuals ..................... 292 5 2 343 6 3 264 5 3
Unallocated reserves ..................... 558 9 -- 1,463 26 -- 833 17 --
------ --- --- ------ --- --- ------ --- ---
Total allowance for
Possible loan losses ................. $6,320 100% 100% $5,657 100% 100% $4,953 100% 100%
====== === === ====== === === ====== === ===
At December 31,
-------------------------------------------------------
1998 1997
--------------------------- --------------------------
% 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 ............... $1,467 43% 59% $1,077 39% 60%
Construction ............................. 49 1 2 47 2 4
Loans secured by 1-4
families ............................. 919 26 34 898 33 29
Loans to individuals ..................... 369 10 5 280 10 7
Unallocated reserves ..................... 721 20 -- 429 16 --
------ --- --- ------ --- ---
Total allowance for
Possible loan losses ................. $3,525 100% 100% $2,731 100% 100%
====== ==== ==== ====== ==== ====
19
Deposits
A certain portion of Company's liquidity is funded through its deposit
sources. At December 31, 2001, total deposits totaled $484.6 million, an
increase of $19.4 million over 2000. Of the total increases in demand deposits,
interest bearing and savings deposits accounted for $12.0 million, $30.8 million
and $13.2 million, respectively, while time deposits less than $100,000 and time
deposits greater than $100,000 decreased by $23.0 million and $13.6 million,
respectively. The majority of such increases were a result of aggressive
marketing efforts. The decrease in time deposits was a result of maturity run
off. 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.
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
2001 Yield/Rate 2000 Yield/Rate 1999 Yield/Rate
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
Non interest-bearing.......... $113,203 -0- $103,209 -0- $88,003 -0-
Savings and interest-bearing.. 166,916 2.11% 135,953 2.34% 123,776 2.20%
Time.......................... 192,952 5.24 223,834 5.59 207,460 5.13
-------- ---- -------- ---- -------- ----
$473,071 2.88% $462,996 3.39% $419,239 3.19%
======== ==== ======== ==== ======== ====
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December 31, 2001
--------------------
(In Thousands)
Three months or less.................................................. $18,359
Over three months through six months................................. 5,673
Over six months through twelve months................................. 9,387
Over twelve months 1,427
-------
$34,846
=======
Federal Home Loan Bank Advances
At December 31, 2001, Federal Home Loan Bank ("FHLB") advances totaled $70.0
million, an increase of $20.0 million compared with December 31, 2000. The
Company considers the FHLB advances as an added source of funding and
accordingly executed transactions during 2001 to meet its funding needs. These
FHLB advances have varying terms and interest rates.
Short-Term Borrowings
As of December 31, 2001, federal funds purchased and securities sold under
agreements to repurchase were $22.3 million. Short-term borrowings include
various other borrowings, which generally have maturities of less than one year.
The details of these categories for the last three years are presented below (in
thousands):
-------------------------------
Years ended December 31,
--------- --------- ---------
2001 2000 1999
------- ------- -------
Securities sold under repurchase agreements and federal funds purchased
Balance at year-end................................................. $22,347 $17,020 $16,403
Average during the year............................................. 17,326 15,201 13,316
Maximum month-end balance........................................... 64,010 40,420 20,466
Weighted average rate during the year............................... 3.32% 5.64% 4.90%
Rate at December 31................................................. 1.67% 5.52% 6.34%
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 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.
20
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, 2001. 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, 2001, 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..............$ $ 27,942 $ 25,854 $ 26,273 $ 32,750 $ 39,087 $151,906 $151,861
Rate 4.62% 5.51% 5.43% 5.97% 7.04% 5.83%
Federal funds sold and deposits from
banks..............................$ 27,529 9,048 1,000 -- -- 37,577 37,577
Rate 1.86% 4.60% 4.37% -- -- 6.44%
Total loans net of unearned income..$ 90,669 39,236 50,031 133,905 96,729 410,570 407,445
Rate 6.17% 7.70% 7.77% 7.95% 7.13% 7.32%
-------- -------- -------- -------- -------- --------
Total rate-sensitive assets........ $146,140 $ 74,138 $ 77,304 $166,655 $135,816 $600,053 $596,883
======== ======== ======== ======== ======== ======== ========
Rate-sensitive liabilities
Interest-bearing demand deposits....$ $ 51,615 $ 2,732 $ 24,637 $ 38,201 $11,697 $128,882 $128,882
Rate 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Savings deposits....................$ 14,527 213 12,910 26,359 13,449 67,458 67,458
Rate 2.05% 2.05% 2.05% 2.05% 2.05% 2.05%
Time deposits.......................$ 62,691 91,573 8,826 4,353 2 167,445 168,718
Rate 4.62% 3.87% 4.00% 3.08% 3.93% 4.22%
Total borrowings (1)................$ 21,988 37 53 10,181 83,088 115,347 126,382
Rate 2.97% 2.97% 2.97% 5.53% 9.54% 4.79%
-------- -------- -------- -------- -------- --------
Total rate-sensitive liabilities... $150,821 $ 94,555 $ 46,426 $ 79,094 $108,236 $479,132 $491,440
======== ======== ======== ======== ======== ======== ========
Interest rate-sensitivity gap........ (4,681) (20,417) 30,878 87,561 27,580 120,921
Interest rate-sensitivity gap as a
percentage
Total rate-sensitive assets........ (0.78%) (3.40%) 5.15% 14.59% 4.60%
Cumulative interest rate-sensitivity
gap ................................ (4,681) (25,098) 5,780 93,341 120,921
======== ======== ======== ======== ========
Cumulative interest rate-sensitivity
gap as a Percentage of total
rate-sensitive assets .............. (0.78%) (4.18%) 0.96% 15.56% 20.15%
(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, 2001 totaled $212.8 million or 32% of
total assets, consisting of investment securities of $151.9 million and $60.9
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total 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.
21
The Company maintains financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit. At December 31, 2001, the Company had outstanding commitments
totaling $84.4 million. All of these commitments either mature or renew withiin
one year.
The Company currently does not have any unconsolidated subsidiaries or
special purpose entities.
The Company is responsible for payments under operating leases as disclosed
in footnote 14 of the Company's financial statements. The Company has no capital
leases.
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, 2001, the minimum Tier I
and 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.
The following table presents the risk-based and leverage capital ratios for
the Company, GCBank, BCB and RCB, respectively, as of December 31, 2001 and
2000.
22
To Be Well-Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------------- --------------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
--------- -------- ---------- ---------- --------- ---------
(Dollars in Thousands)
As of December 31, 2001
Total capital (to risk-weighted
assets)
Greater Community Bancorp..... $60,607 13.89% $34,915 8.00% N/A N/A
Greater Community Bank........ 31,165 11.52 21,646 8.00 $27,057 10.00%
Bergen Commercial Bank ....... 13,433 10.20 10,533 8.00 13,166 10.00
Rock Community Bank........... 5,047 15.57 2,593 8.00 3,241 10.00
Tier 1 capital (to risk-weighted
assets)
Greater Community Bancorp..... 46,713 10.70 17,457 4.00 N/A N/A
Greater Community Bank........ 27,773 10.26 10,823 4.00 16,234 6.00
Bergen Commercial Bank........ 11,786 8.95 5,266 4.00 7,899 6.00
Rock Community Bank........... 4,783 22.66 844 4.00 1,267 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp..... 46,713 7.23 25,861 4.00 N/A N/A
Greater Community Bank........ 27,773 6.66 16,681 4.00 20,852 5.00
Bergen Commercial Bank........ 11,786 6.41 7,354 4.00 9,193 5.00
Rock Community Bank........... 4,783 15.57 1,229 4.00 1,536 5.00
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
Greater Community 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
Greater Community 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
Greater Community 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
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 DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
23
Item 8 FINANCIAL STATEMENTS
--------------------
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
December 31,
--------------------------
2001 2000
--------- ----------
ASSETS
CASH AND DUE FROM BANKS - Non interest-bearing .................................................. $ 23,297 $ 20,542
FEDERAL FUNDS SOLD .............................................................................. 23,700 35,750
--------- ---------
Total cash and cash equivalents ........................................................ 46,997 56,292
DUE FROM BANKS - Interest-bearing ............................................................... 13,877 4,791
INVESTMENT SECURITIES - Available-for-sale ...................................................... 150,212 134,592
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$1,657 and $3,356 at December 31, 2001 and 2000, respectively) .............................. 1,694 3,561
--------- ---------
151,906 138,153
LOANS ........................................................................................... 412,791 373,972
Allowance for possible loan losses ............................................................ (6,320) (5,657)
Unearned income ............................................................................... (2,221) (2,176)
--------- ---------
Net loans .............................................................................. 404,250 366,139
PREMISES AND EQUIPMENT, net ..................................................................... 6,905 6,665
ACCRUED INTEREST RECEIVABLE ..................................................................... 3,214 4,467
BANK OWNED LIFE INSURANCE ....................................................................... 11,837 11,222
GOODWILL ........................................................................................ 11,574 12,351
OTHER ASSETS .................................................................................... 10,279 7,225
--------- ---------
TOTAL ASSETS .................................................................................... $ 660,839 $ 607,305
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing ......................................................................... $ 120,838 $ 108,803
Interest-bearing ............................................................................. 128,882 98,068
Savings ...................................................................................... 67,458 54,272
Time Deposits less than $100 ................................................................. 132,599 157,100
Time Deposits $100 and over .................................................................. 34,846 47,002
--------- ---------
Total deposits ......................................................................... 484,623 465,245
FHLB ADVANCES ................................................................................... 70,000 50,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE .................................................. 22,347 17,020
ACCRUED INTEREST PAYABLE ........................................................................ 2,799 4,021
OTHER LIABILITIES ............................................................................... 11,958 7,788
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT ........................................................................... 23,000 23,000
--------- ---------
Total liabilities ...................................................................... 614,727 567,074
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, par value $0.50 per share: 20,000,000 shares authorized, 6,708,402 and
6,317,679 shares outstanding at December 31, 2001 and 2000, respectively ................... 3,354 3,159
Additional paid-in capital .................................................................... 38,040 34,178
Retained earnings ............................................................................. 2,321 2,069
Accumulated other comprehensive income ........................................................ 2,397 825
--------- ---------
Total shareholders' equity .................................................................. 46,112 40,231
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................................... $ 660,839 $ 607,305
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
24
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
For the Years Ended
December 31,
-----------------------------------------
2001 2000 1999
------- ------- -------
INTEREST INCOME:
Loans, including fees ....................................................... $31,950 $31,002 $25,096
Investment securities ....................................................... 8,647 9,369 8,094
Federal funds sold and deposits with banks .................................. 2,178 1,087 1,374
------- ------- -------
Total interest income .................................................. 42,775 41,458 34,564
INTEREST EXPENSE:
Deposits .................................................................... 13,629 15,699 13,376
Short-term borrowings ....................................................... 4,568 2,665 1,464
Long-term borrowings ........................................................ 2,300 2,300 2,300
------- ------- -------
Total interest expense ................................................. 20,497 20,664 17,140
------- ------- -------
NET INTEREST INCOME ............................................................. 22,278 20,794 17,424
PROVISION FOR POSSIBLE LOAN LOSSES .............................................. 885 1,048 885
------- ------- -------
Net interest income after provision for possible loan losses ................ 21,393 19,746 16,539
NON INTEREST INCOME:
Service charges on deposit accounts ......................................... 2,460 2,023 1,972
Other commission and fees ................................................... 716 1,132 1,282
Gain on sale of investment securities ....................................... 633 107 2,211
Gain on sale of assets ...................................................... -- 517 --
Leasing income .............................................................. 1,180 937 578
Bank owned life insurance ................................................... 615 532 480
All other income ............................................................ 911 919 747
------- ------- -------
Total other income .................................................... 6,515 6,167 7,270
NON INTEREST EXPENSES:
Salaries and employee benefits ............................................. 9,649 9,140 8,574
Occupancy and equipment .................................................... 3,056 3,170 2,923
Regulatory, professional and other fees .................................... 1,344 1,559 1,553
Amortization of intangibles ................................................ 777 777 608
Computer services .......................................................... 386 377 387
Office expenses ............................................................ 1,053 1,005 992
Other real estate operating expenses ....................................... -- -- 201
Other operating expenses ................................................... 2,399 2,262 2,050
------- ------- -------
Total expenses ......................................................... 18,664 18,290 17,288
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES ........................................ 9,244 7,623 6,521
PROVISION FOR INCOME TAXES ...................................................... 3,164 2,793 2,349
------- ------- -------
NET INCOME ...................................................................... $ 6,080 $ 4,830 $ 4,172
======= ======= =======
Net income per share - basic .................................................... $ 0.91 $ 0.73 $ 0.64
======= ======= =======
Net income per share - diluted .................................................. $ 0.88 $ 0.71 $ 0.62
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
25
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
Additional
Paid-in Retained
Common Stock Capital Earnings
------------------------ ----------- --------
Shares Par Value
-------- ----------
BALANCE, January 1, 1999 .............................. 5,330 $ 2,665 $ 25,460 $1.932
===== ======= ======== ======
Net income - 1999 .................................. -- -- -- 4,172
5% stock dividend ................................... 286 143 2,744 (2,887)
Issuance of common stock-private placement ......... 391 196 3,555 --
Issuance of common stock - dividend
Reinvestment plan ................................ 29 14 236 --
Exercise of stock options ........................... 36 18 295 --
Cash dividends ...................................... -- -- -- (1,581)
Other comprehensive loss, net of
Reclassification adjustments and taxes ........... -- -- -- --
Total comprehensive income ..........................
Purchase of treasury stock ......................... -- -- -- --
Retirement of treasury stock ........................ (40) (20) (399) --
----- ------- -------- -------
BALANCE, December 31, 1999 ........................... 6,032 $ 3,016 $ 31,891 $ 1,636
===== ======= ======== =======
Net income - 2000 ................................... -- -- -- 4,830
5% stock dividend ................................... 300 151 2,402 (2,553)
Issuance of common stock - dividend
Reinvestment plan ................................ 60 29 460 --
Exercise of stock options ........................... 22 10 167 --
Cash dividends ...................................... -- -- -- (1,844)
Other comprehensive income, net of
Reclassification adjustments and taxes ........... -- -- -- --
Total comprehensive income .......................... --
Purchase of treasury stock .......................... -- -- -- --
Retirement of treasury stock ........................ (96) (47) (742) --
----- ------- -------- -------
BALANCE, December 31, 2000 ............................ 6,318 $ 3,159 $ 34,178 $ 2,069
===== ======= ======== =======
Net income - 2001 .................................. -- -- -- 6,080
5% stock dividend ................................... 314 157 3,495 (3,652)
Issuance of common stock - dividend
Reinvestment plan ................................ 40 20 390 --
Exercise of stock options ........................... 84 42 461 --
Cash dividends ...................................... -- -- -- (2,176)
Other comprehensive income, net of
Reclassification adjustments and taxes ........... -- -- -- --
Total comprehensive income .......................... --
Purchase of treasury stock .......................... -- -- -- --
Retirement of treasury stock ........................ (48) (24) (484) --
----- ------- -------- -------
BALANCE, December 31, 2001 ............................ 6,708 $ 3,354 $ 38,040 $ 2,321
===== ======= ======== =======
Accumulated
Other Total
Comprehensive Treasury Comprehensive Shareholders'
Income (loss) Stock Income Equity
------------- -------- ------------ -------------
BALANCE, January 1, 1999 .............................. $2,252 $ -- $33,309
====== ===== =======
Net income - 1999 ................................... -- -- $ 4,172 4,172
5% stock dividend ................................... -- -- --
Issuance of common stock - private placement ........ -- -- 3,751
Issuance of common stock - dividend
Reinvestment plan ................................ -- -- 250
Exercise of stock options ........................... -- -- 313
Cash dividends ...................................... -- (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 ........................ -- 419 --
------- ----- -------
BALANCE, December 31, 1999 ........................... $(1,141) $ -- $35,402
======= ===== =======
Net income - 2000 ................................... -- -- $ 4,830 4,830
5% stock dividend ................................... -- -- --
Issuance of common stock - dividend
Reinvestment plan ................................ -- -- 489
Exercise of stock options ........................... -- -- 177
Cash dividends ...................................... -- (1,844)
Other comprehensive income, net of
Reclassification adjustments and taxes ........... 1,966 -- 1,966 1,966
-------
Total comprehensive income .......................... $ 6,766
=======
Purchase of treasury stock .......................... -- (789) (789)
Retirement of treasury stock ........................ -- 789 --
------- ----- -------
BALANCE, December 31, 2000 ............................ $ 825 $ -- $40,231
======= ===== =======
Net income - 2001 ................................. -- -- $6,080 6,080
5% stock dividend ................................... -- -- --
Issuance of common stock - dividend
Reinvestment plan ................................ -- -- 410
Exercise of stock options ........................... -- -- 503
Cash dividends ...................................... -- (2,176)
Other comprehensive income, net of
Reclassification adjustments and taxes ........... 1,572 -- 1,572 1,572
-------
Total comprehensive income .......................... $ 7,652
=======
Purchase of treasury stock .......................... -- (508) (508)
Retirement of treasury stock ........................ -- 508 --
------- ----- -------
BALANCE, December 31, 2001 ............................ $ 2,397 $ -- $46,112
======= ===== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Years Ended
December 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 6,080 $ 4,830 $ 4,172
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization ....................................................... 2,094 2,278 2,001
Amortization (Accretion) of discount on securities, net ............................. 194 (72) 85
Gain on sale of assets .............................................................. -- (517) --
Gain on sale of securities, net ..................................................... (633) (107) (2,211)
Gain on sale of other real estate owned ............................................. -- -- (93)
Provision for possible loan losses .................................................. 885 1,048 885
Deferred income tax benefit ......................................................... (580) (491) (457)
Decrease (increase) in accrued interest receivable .................................. 1,253 (642) (207)
Decrease (increase) in Bank owned life insurance and other assets ................... (2,808) 3,361 (7,258)
Increase in accrued interest and other liabilities .................................. 2,948 4,799 1,088
--------- -------- --------
Net cash (used in) provided by operating activities ....................... 9,433 14,487 (1,995)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale investment securities -
Purchases ......................................................................... (127,143) (19,180) (47,256)
Sales ............................................................................. 17,655 1,371 16,409
Maturities ........................................................................ 93,868 27,417 37,235
Held-to-maturity investment securities -
Purchases ......................................................................... -- -- (684)
Maturities ........................................................................ 1,867 5,394 9,533
Net (increase) decrease in interest-bearing deposits with banks ...................... (9,086) 5,884 4,869
Net increase in loans ................................................................ (38,112) (25,576) (30,323)
Capital expenditures ................................................................. (1,556) (835) (1,326)
(Increase) decrease in other real estate ............................................. -- -- 2,021
Cash paid in purchase transaction, First Savings ..................................... -- -- (23,000)
Cash of equity acquired, First Savings ............................................... -- -- 11,239
--------- -------- --------
Net cash used in investing activities ..................................... (62,507) (5,525) (21,283)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts .......................................... 19,378 4,611 (5,099)
Increase in securities sold under agreement to repurchase ............................ 5,327 617 6,854
Proceeds from long term FHLB advances ................................................ 20,000 25,000 15,000
Dividends paid ....................................................................... (2,176) (1,844) (1,581)
Proceeds from exercise of stock options .............................................. 503 177 176
Proceeds from the issuance of common stock, net of costs ............................. 410 489 4,064
Purchases of treasury stock .......................................................... (508) (789) (419)
Other, net ........................................................................... -- (131) (157)
--------- -------- --------
Net cash provided by financing activities ................................. 42,934 28,130 18,838
--------- -------- --------
Net (decrease) increase in cash and cash equivalents ...................... (10,140) 37,092 (4,440)
CASH AND CASH EQUIVALENTS, beginning of year ............................................ 56,292 19,200 23,640
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of year .................................................. $ 46,997 $ 56,292 $ 19,200
========= ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
27
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Greater Community Bancorp ("the Company"), through its subsidiary banks,
Greater Community Bank (formerly Great Falls Bank), ("GCBank"), Bergen
Commercial Bank ("BCB") and Rock Community Bank ("RCB") (collectively the "Bank
Subsidiaries"), offers a broad range of lending, depository and related
financial services to individual consumers, 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. Greater Community Financial LLC
("GCF"), a wholly-owned New Jersey limited liability company located in Clifton,
New Jersey, is a registered broker-dealer with the Securities and Exchange
Commission and is a member of the National Association of Security Dealers.
The Bank Subsidiaries compete with other banking and financial institutions
in their primary market communities, including financial institutions with
resources substantially greater than their own. Commercial banks, savings banks,
savings and loan associations, credit unions, and money market funds actively
compete for deposits and 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 GCBank, BCB, RCB, HCC, GCB Realty, LLC, GCF, Greater
Community Services, Inc., GCBank's wholly owned subsidiaries, Great Falls
Investment Company and Union Blvd Corp., and BCB's wholly owned subsidiaries,
BCB Investment Company and Sears Drive Corp. 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
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,
28
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
SFAS No.107, "Disclosure about Fair Financial Instruments," 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 that the Company has the ability and intent to hold to
maturity are classified as held-to-maturity and are stated at cost, adjusted for
premium amortization and discount accretion. Securities which are held for
indefinite periods of time which management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, increased capital requirements or other
similar factors, are classified as available-for-sale and are carried at fair
market value. Net unrealized gains and losses for such securities, net of income
tax effect, are charged/credited directly to shareholders' equity. The Company
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.
SFAS No.133, "Accounting for Derivative Instruments and Hedging Activity,"
established accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 was amended by SFAS No.138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The adoption of SFAS No.138 did not have a material impact on the Company's
financial condition or results of operations.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans that management has the intent or the ability to hold for the
foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal net of unearned discount, unearned loan fees, and an allowance
for possible loan losses. The allowance for possible loan losses is established
through a provision for possible loan losses charged to expense. Loans are
charged against the allowance for possible loan losses when management believes
that the collectibility of the principal is unlikely. The allowance for possible
loan losses is maintained at a level considered by management to be adequate to
provide for potential loan losses inherent in the loan portfolio at the
reporting date. The level of the allowance is based on management's evaluation
of potential losses in the loan portfolio after consideration of prevailing and
anticipated economic conditions, including estimates and appraisals, among other
items, known or anticipated at each reporting date. Credit reviews of the loan
portfolio, designed to identify potential charges to the allowance, are made on
a periodic basis during the year by management.
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.
29
On April 1, 2001, the Company adopted 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 standard also requires certain disclosures, but carries over
most of the provisions of SFAS No.125. The adoption of this statement did not
have a material impact on the Company's consolidated financial statements.
On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and
Documentation Issues. This SAB was effective upon issuance and provides guidance
on the development, documentation, and application of a systematic methodology
for determining the allowance for loans and leases in accordance with US GAAP
and was effective upon issuance. The adoption of SAB No. 102 did not have a
material impact on the Company's consolidated financial position or results of
operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the term of the lease or estimated useful life, whichever is
shorter.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS No.144) was issued. SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived assets to be
held and used or to be disposed of by sale. However, SFAS No.144 makes changes
to the scope and certain measurement requirements of existing accounting
guidance. SFAS No.144 also changes the requirements relating to reporting the
effects of a disposal or discontinuation of a segment of a business. SFAS No.144
is effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The adoption of
this statement is not expected to have a significant impact on the consolidated
financial condition or consolidated results of operations of the Company.
BANK OWNED LIFE INSURANCE
The Company invests in bank owned life insurance (BOLI). BOLI involves the
purchasing of life insurance by the Company on a chosen group of employees. The
Company is the owner and beneficiary of the policies
GOODWILL
Goodwill represents the excess of the cost over the fair value of net
assets of acquired businesses. Substantially all outstanding goodwill resulted
from the acquisition of First Savings in 1999 and is being amortized over 20
years on a straight line basis. Goodwill at December 31, 2001 and 2000, was
approximately $11,574,000 and $12,351,000, respectively. The amortization
expense charged to income was $777,000 for the years ended December 31, 2001 and
2000 and $608,000 for the year ended December 31, 1999.
On June 29, 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Intangible Assets". These statements are expected to
result in significant modifications relative to the Company's accounting for
goodwill and other intangible assets. SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 must be accounted for under the
purchase method of accounting. SFAS No. 141 was effective upon issuance. SFAS
No. 142 modifies the accounting for all purchased goodwill and intangible
assets, including those purchased before the issuance of SFAS No. 142. SFAS No.
142 includes requirements to test goodwill and indefinite lived intangible
assets for impairment rather than amortize them. SFAS No. 142 is effective for
fiscal years beginning after December 31, 2001. The Company is currently
evaluating the provisions of SFAS No. 142, but its preliminary assessment is
that this Statement will not have a material impact on the Company's financial
position or results of operations.
Upon adoption of SFAS No.142 on January 1, 2002, the Company will no longer
amortize goodwill, thereby eliminating annual amortization expense of
approximately $777,000.
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 balances at December 31, 2001 and 2000 were $1,043,000
and $1,084,000, respectively.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured
30
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, 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 $3.2 million, $2.5 million
and $2.5 million for the years ended December 31, 2001, 2000 and 1999,
respectively. Cash paid for interest was $21.7 million, $16.1 million and $16.7
million for the years ended December 31, 2001, 2000 and 1999, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 2001, 2000 and 1999 were approximately
$297,000, $235,000 and $265,000, 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."
Basic earnings per share exclude dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock. All weighted
average actual shares and per share information in the financial statements has
been adjusted retroactively for the effect of stock split and stock dividends.
COMPREHENSIVE INCOME
The Company follows the disclosure provisions of SFAS No.130, "Reporting
Comprehensive Income." This standard establishes new standards for reporting
comprehensive income, which includes net income as well as certain other items
that result in a change to equity during the period.
The income tax effects allocated to comprehensive income (loss) are as
follows:
December 31, 2001 December 31, 2000 December 31, 1999
--------------------------- ------------------------- ------------------------------
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 ............................... $3,234 $(1,282) $1,952 $3,440 $(1,410) $2,030 $(3,492) $ 1,426 $(2,066)
Less reclassification
adjustment
for gains realized in net
income ............................... 633 (253) 380 107 (43) 64 2,211 (884) 1,327
------ ------- ------ ------ ------- ------ ------- ------- -------
Other comprehensive (loss)
income, net ............................ $2,601 $(1,029) $1,572 $3,333 $(1,367) $1,966 $(5,703) $ 2,310 $(3,393)
====== ======= ====== ====== ======= ====== ======= ======= =======
31
RECLASSIFICATIONS
Certain reclassifications have been made in the 2000 and 1999 financial
statements to conform to the classifications used in 2001.
NOTE 2 - ACQUISITION
On April 1, 1999, the Company, GCBank 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 has been 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 period 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 and are not effected for stock
dividends paid after the date of acquisition.
For the year ended
December 31,
------------------
1999
------------------
(In Thousands)
Interest Income................................. $37,542
Interest Expense................................ 19,369
Net Interest Income............................. 18,173
Net Income...................................... 3,937
Net Income per share - Basic.................... 0.67
Net Income per share - Diluted.................. 0.65
32
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,
---------------------------------------------------------------------------------------
2001 2000
----------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ---------- ----------- -------- --------- ---------- ---------- ------
(In Thousands)
Available-for-sale
U.S. Treasury and U.S.
Government agencies securities .. $ 21,288 $ 436 $ (12) $ 21,712 $ 65,768 $ 290 $ (374) $ 65,684
State and political
Subdivisions .................... 7,279 -- (26) 7,253 5,446 -- (20) 5,426
Other debt and equity
Securities ...................... 23,796 3,657 (774) 26,679 16,802 3,005 (1,501) 18,306
Mortgage-backed securities:
FHLMC ....................... 50,052 447 (87) 50,412 18,675 41 (84) 18,632
FNMA ........................ 23,842 245 (62) 24,025 16,861 114 (76) 16,899
Other ....................... 19,966 188 (23) 20,131 9,652 25 (32) 9,645
-------- ------- -------- -------- -------- ------- -------- --------
93,860 880 (172) 94,568 45,188 180 (192) 45,176
-------- ------- -------- -------- -------- ------- -------- --------
Total Available-for-sale ........... $146,223 $ 4,973 $ (984) $150,212 $133,204 $ 3,475 $ (2,087) $134,592
======== ======= ======== ======== ======== ======= ======== ========
Held-to-maturity
U.S. Treasury and U.S.
Government agencies securities .. $ 1,000 $ -- $ (50) $ 950 $ 1,000 $ -- $ (209) $ 791
State and political
Subdivisions .................... 185 1 -- 186 870 -- -- 870
Mortgage-backed securities:
FHLMC ....................... 502 12 -- 514 1,011 10 (2) 1,019
FNMA ........................ 7 -- -- 7 680 -- (4) 676
-------- ------- -------- -------- -------- ------- -------- --------
509 12 -- 521 1,691 10 (6) 1,695
-------- ------- -------- -------- -------- ------- -------- --------
Total Held-to-maturity .......... $ 1,694 $ 13 $ (50) $ 1,657 $ 3,561 $ 10 $ (215) $ 3,356
======== ======= ======== ======== ======== ======= ======== ========
33
The amortized cost and fair value of securities at December 31, 2001 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because issuers and borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
--------- --------
(In Thousands)
Available-for-sale
Due in one year or less .......................... $ 5,739 $ 5,804
Due after one year through five years ............ 16,453 16,815
Due after five years through ten years ........... 1,171 1,170
Due after ten years .............................. 5,204 5,176
Mortgage-backed securities ....................... 93,860 94,568
Other debt and equity securities ................. 23,796 26,679
-------- --------
$146,223 $150,212
======== ========
Held-to-maturity
Due in one year or less .......................... $ 185 $ 186
Due after five years through ten years ........... 1,000 950
Mortgage-backed securities ....................... 509 521
-------- --------
$ 1,694 $ 1,657
======== ========
Proceeds from sales of available-for-sale securities for the years ended
December 31, 2001, 2000 and 1999 were $17.7 million, $1.4 million and $16.4
million, respectively. Gross gains of $633,000, $107,000 and $2.2 million were
realized on these sales for the years ended December 31, 2001, 2000 and 1999,
respectively. Gross losses were not significant for the years ended December 31,
2001, 2000 and 1999.
Securities with a carrying value of $73.7 million and $92.5 million at
December 31, 2001 and 2000, 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,
--------------------------------
2001 2000
-------- --------
(In Thousands)
Loans secured by one- to four-family residential properties ......................... $159,489 $160,359
Loans secured by nonresidential properties .......................................... 181,959 149,304
Loans to individuals ................................................................ 8,491 10,639
Commercial loans .................................................................... 47,155 40,124
Construction loans .................................................................. 14,054 13,014
Other loans ......................................................................... 1,643 532
-------- --------
$412,791 $373,972
======== ========
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,
-----------------------
2001 2000
------ ------
(In Thousands)
Nonaccrual loans .............................................................................. $1,373 $1,281
Renegotiated loans ............................................................................ 545 845
------ ------
Total nonperforming loans ................................................................... $1,918 $2,126
====== ======
Loans past due 90 days and accruing ........................................................... $ 34 $ 54
====== ======
Gross interest income which would have been recorded under original terms ..................... $ 45 $ 67
====== ======
The balance of impaired loans was $1.4 million, $1.1 million, and $1.2
million at December 31, 2001, 2000 and 1999, 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 $549,000, $196,000 and $186,000, at December 31, 2001, 2000 and 1999,
respectively. The average recorded investment in impaired loans was $1.3
million, $1.4 million, and $1.1 million, December 31, 2001, 2000 and 1999,
respectively. The income recognized on impaired loans for the years ended
December 31, 2001, 2000 and 1999 was $45,000, $67,000 and $60,000, respectively.
The Bank Subsidiaries' policy for interest income recognition on impaired loans
is to recognize income on restructured
34
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, 2001, loans outstanding to these related parties
amounted to $18.2 million. During the year ended December 31, 2001, there were
new loans to related parties of $6.9 million and repayments of $3.5 million. All
such loans are current as to principal and interest payments at December 31,
2001.
NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
Years ended December 31,
------------------------------------------------
2001 2000 1999
------- ------- -------
(In Thousands)
Balance at beginning of year .............................. $ 5,657 $ 4,953 $ 3,525
Provision charged to operations ........................... 885 1,048 885
Charge-offs ............................................... (320) (448) (206)
Recoveries ................................................ 98 104 125
Acquisition of First Savings .............................. -- -- 624
------- ------- -------
Balance at end of year .................................... $ 6,320 $ 5,657 $ 4,953
======= ======= =======
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
December 31,
Estimated ----------------------------
Useful Lives 2001 2000
------------- -------- --------
(In Thousands)
Land .............................................................. indefinite $ 1,531 $ 1,165
Buildings and improvements ........................................ 5 to 20 years 4,244 3,952
Furniture, fixtures and equipment ................................. 3 to 10 years 5,037 4,322
Leasehold improvements ............................................ 3 to 40 years 2,145 1,962
-------- --------
Less accumulated depreciation and amortization .................... 12,957 11,401
(6,052) (4,736)
-------- --------
$ 6,905 $ 6,665
======== ========
Depreciation and amortization expense was $1.3 million, $1.5 million and
$1.4 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
NOTE 7 - DEPOSITS
At December 31, 2001, the schedule of maturities of certificates of deposit
is as follows (in thousands):
2002........................................... $154,263
2003 .......................................... 8,825
2004 .......................................... 3,294
2005........................................... 378
2006........................................... 685
--------
$167,445
========
35
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,
-----------------------------
2001 2000 1999
------- ------- -------
(In Thousands)
Securities sold under repurchase agreements
and federal funds purchased
Balance at year-end..................................... $22,347 $17,020 $16,403
Average during the year................................. 17,326 15,201 13,316
Maximum month-end balance............................... 64,010 40,420 20,466
Weighted average rate during the year................... 3.32% 5.64% 4.90%
Rate at December 31..................................... 1.67% 5.52% 6.34%
HCC maintains four revolving lines of credit totaling $4.0 million that pay
interest at 6% to 10% annually and mature through 2002. The total amount
outstanding at December 31, 2001 and 2000 was $3.5 million and $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, 2001 and 2000 there were no outstanding
balances.
At December 31, 2001 the Company had $70.0 million of advances from the
FHLB. These advances are collateralized by certain first mortgage loans. The
weighted average interest rate during 2001 was 5.39%. The FHLB advances mature
as follows: $5.0 million will mature in 2005 and the remaining $65.0 million
will mature from 2008 through 2011.
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 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.
NOTE 9 - INCOME TAXES
The provision for income taxes was as follows:
Years Ended December 31,
----------------------------
2001 2000 1999
------ ------ ------
(In Thousands)
Federal
Current................................................. $3,484 $2,768 $2,381
Deferred................................................ (440) (372) (346)
State
Current.................................................. 260 516 425
Deferred................................................. (140) (119) (111)
------ ------ ------
$3,164 $2,793 $2,349
====== ====== ======
36
The reconciliation of the tax computed at the statutory federal rate was as
follows:
Years Ended December 31,
---------------------------
2001 2000 1999
------ ------ ------
(In Thousands)
Tax at statutory rate.................................... $3,143 $2,591 $2,221
Increase (reduction) in tax resulting from:
Tax-exempt income...................................... (86) (116) (95)
Amortization of intangible assets...................... 36 37 37
State income tax, net of federal benefit............... 104 278 235
Other.................................................. (33) 3 (49)
------ ------ ------
Provision for income taxes........................... $3,164 $2,793 $2,349
====== ====== ======
The net deferred tax asset consists of the following:
December 31,
------------------
2001 2000
------- -------
(In Thousands)
Allowance for possible losses on loans and other real estate $ 2,573 $ 2,160
Interest income on nonaccrual loans ......................... 296 300
Depreciation and amortization ............................... 773 642
Acquired net operating loss carryforward .................... 70 111
Difference between book and tax basis of assets acquired .... 290 312
Unrealized holding losses (gains) on investment securities
available-for-sale .......................................... (1,592) (563)
Other ....................................................... 15 (88)
------- -------
Total net deferred tax asset (included in other assets) .. $ 2,425 $ 2,874
======= =======
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, 2001 the Company had a net operating loss carryforward for
federal income tax purposes of approximately $214,000. 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, 2001, the Company paid a 5% stock dividend on its common stock
to shareholders of record on July 13, 2001. On July 31, 2000, the Company paid a
5% stock dividend on its common stock to shareholders of record on July 14,
2000. 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 410,550 shares of the Company's stock at $9.12 per share. The
proceeds were used to fund the initial capital of RCB, which opened for business
in April, 1999.
37
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, 2001
-----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In Thousands, except for per share data)
Basic EPS
Net income available to common stockholders ............................... $6,080 6,646 $ 0.91
Effect of Dilutive Securities
Options ................................................................... -- 293 (0.03)
------ ----- ------
Diluted EPS
Net income available to common stockholders plus assumed
conversions ............................................................. $6,080 6,939 $ 0.88
====== ===== ======
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 6,639 $ 0.73
Effect of Dilutive Securities
Options ................................................................... -- 146 (0.02)
------ ----- ------
Diluted EPS
Net income available to common stockholders plus assumed
conversions ............................................................. $4,830 6,785 $ 0.71
====== ===== ======
Options to purchase 183,423 shares of common stock from $8.71 - $9.96
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
----------- ------------- ---------
(In Thousands, except for per share data)
Basic EPS
Net income available to common stockholders ............................... $4,172 6,488 $ 0.64
Effect of Dilutive Securities
Options ................................................................... -- 219 (0.02)
------ ----- ------
Diluted EPS
Net income available to common stockholders plus assumed
conversions ............................................................. $4,172 6,707 $ 0.62
====== ===== ======
Options to purchase 28,390 shares of common stock from $9.58 to $10.15
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.
NOTE 12 - STOCK OPTIONS
In April 2001, the Company adopted two new stock option plans. The 2001
Employee Stock Option Plan (the "2001 Employee Plan") provides for the granting
of incentive stock options, non-qualified stock options and stock appreciation
rights to employee of the Company and its subsidiaries. A total of 315,000
shares are authorized to be granted under the 2001 Employee Plan. Options to
acquire 52,500 shares were granted and are outstanding under the 2001 Employee
Plan at December 31, 2001.
The 2001 Stock Option Plan for Nonemployee Directors (the "2001 Directors
Plan) provides for the granting of non-qualified stock options to nonemployee
directors of the Bank Subsidiaries. A total of 58,800 shares are authorized to
be granted under the 2001 Directors Plan. Options to acquire 58,800 shares were
granted and are outstanding at December 31, 2001.
The 1996 Employee Stock Option Plan (the "1996 Employee Plan") provides for
the granting of incentive stock options, nonqualified stock options and stock
appreciation rights to employees of the Company and its subsidiaries. A total of
560,291 shares is authorized to be granted under the 1996 Employee Plan. During
2001 and 2000, options to acquire -0- and 78,146 shares were granted under this
plan. At December 31, 2001 and 2000, options to purchase a total of 438,237
shares and 524,866 shares,
38
respectively, were outstanding under the 1996 Employee Plan. As a result of the
approval of the 2001 Employee Plan, no further options will be granted under the
1996 Employee Plan.
The 1996 Stock Option Plan for Nonemployee Directors (the "1996 Directors
Plan") provides for the granting of nonqualified stock options to nonemployee
directors of the Bank Subsidiaries. A total of 266,138 shares is authorized to
be granted under the 1996 Directors Plan. During 1996, options to acquire
266,139 shares were granted under this plan. At December 31, 2001 and 2000,
options to purchase a total of 244,669 and 247,682 shares were outstanding under
the 1996 Directors Plan.
The 1998 nonstatutory stock option plan (the "1988 Plan") allows for the
granting to employees of options to acquire up to a maximum of 257,696 shares of
the Company's common stock. As a result of the approval of the 1996 Employee
Plan, no further options will be granted under the 1988 Plan. At December 31,
2001 and 2000, options to purchase 2,011 and 16,278 shares were outstanding.
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.
2001 2000 1999
------ ------ ------
(In Thousands, except per share data)
Net income................................. As reported $6,080 $4,830 $4,172
Pro forma $5,840 $4,603 $3,999
Net income per share - basic............... As reported $0.91 $0.73 $0.64
Pro forma $0.98 $0.69 $0.61
Net income per share - diluted............. As reported $0.88 $0.71 $0.62
Pro forma $0.84 $0.69 $0.59
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 2001, 2000 and 1999, respectively: dividend
yields of 2.6% 3.0% and 3.3%; expected volatility of 38%, 38% and 35%; risk-free
interest rates of 5.46%, 5.63%, and 5.74%; and expected lives of five and ten
years.
A summary of the status of the Company's stock option plans as of December
31, 2001, 2000 and 1999 and the changes during the years ending on those dates
is represented below.
2001 2000 1999
---------------------- ----------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------- ---------
Outstanding, beginning of year..... 783,946 $ 7.10 746,363 $ 6.72 707,028 $ 6.30
Granted............................ 111,300 10.24 78,146 7.84 86,822 8.96
Exercised.......................... (84,600) 10.58 (26,169) 7.39 (40,258) 4.37
Terminated......................... (14,429) 5.75 (14,390) 8.29 (7,229) 6.78
------- ------ ------- ------ ------- ------
Outstanding, end of year........... 796,217 $ 7.26 783,946 $ 7.10 746,363 $ 6.72
------- ------ ------- ------ ------- ------
Options exercisable at year-end.... 308,571 241,339 133,162
======= ======= =======
Weighted average fair value of
Options granted during the year. $ 6.09 $ 4.92 $ 2.69
====== ====== ======
The following table summarizes information about nonqualified options
outstanding at December 31, 2001.
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 2001 Contractual Life Exercise Price 2001 Exercise Price
--------------- -------------- ---------------- -------------- -------------- --------------
$4.06 - 6.02 403,562 4.78 $6.01 209,957 $6.01
392,655 7.95 $8.54 98,614 $8.66
$6.63 - 9.67 ------- ------
796,217 308,571
======= =======
39
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 $529,000, $476,000 and $405,000 for the years ended
December 31, 2001, 2000 and 1999, 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, 2001, 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 this plan 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 2012,
containing certain renewal options. Rent expenses charged to operations
approximated $836,000, $832,000 and $820,000, for the years ended December 31,
2001, 2000 and 1999, respectively. Included in these amounts are $241,000 in
2001 and $226,000 in 2000 and 1999, respectively, paid to a general partnership
that includes two directors of the Company.
As of December 31, 2001, future approximate minimum annual rental payments
under these leases are as follows (in thousands):
2002........................................... $ 666
2003........................................... 545
2004 .......................................... 504
2005........................................... 393
2006........................................... 327
Thereafter .................................... 1,665
------
Total..................................... $4,100
======
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.
40
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,
----------------
2001 2000
----- -----
(In Thousands)
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit......................................... $81,653 $63,958
Standby letters of credit and financial guarantees written.......... 2,753 2,117
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, 2001 varies up to 100%.
The Bank Subsidiaries grant various commercial and consumer loans,
primarily within the State of New Jersey. Although the Bank Subsidiaries have
diversified loan portfolios, a substantial portion of the ability of their
borrowers to honor their loan payment obligations in a timely fashion is
dependent on the success of the real estate industry. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
Commercial and standby letters of credit were granted primarily to commercial
borrowers.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No.107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the Company,
as for most financial institutions, the majority of its assets and liabilities
are considered financial instruments as defined in SFAS No.107. However, many
such instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction. Also, it is the Company's
general practice and intent to hold its financial instruments to maturity and
not to engage in trading or sales activities. Therefore, the Company had to use
significant estimations and present value calculations to prepare this
disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.
41
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, 2001 and 2000 are outlined
below.
For cash and due from banks, the recorded book values of $47.0 million and
$56.3 million at December 31, 2001 and 2000, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values of
$13.9 million and $4.8 million at December 31, 2001 and 2000, 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, 2001 and 2000 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, 2001 and 2000.
2001 2000
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
Investment securities available-for-sale.... $150,212 $150,212 $134,592 $134,592
Investment securities held-to-maturity...... 1,694 1,657 3,561 3,356
Loans, net.................................. 404,250 407,445 366,139 370,626
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, 2001and 2000.
2001 2000
---------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
Time deposits................................ $167,445 $168,718 $204,102 $204,611
Securities sold under agreements to
repurchase ............................... 22,347 22,367 16,592 16,592
FHLB Advances ............................... 70,000 81,015 50,000 50,790
The fair value of the guaranteed preferred beneficial interest in the
Company's subordinated debt totaling $23.0 million at December 31, 2001and 2000
approximates fair value.
The fair value of commitments to extend credit is estimated based on the
amount of unamortized deferred loan commitment fees. The fair value of letters
of credit is based on the amount of unearned fees plus the estimated cost to
terminate the letters of credit. Fair values of unrecognized financial
instruments, including commitments to extend credit and the fair value of
letters of credit, are considered immaterial.
NOTE 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. GCBank had $13.0 million and $12.5
million as of December 31, 2001 and 2000, BCB had $4.1 million and $4.0 million
as of December 31, 2001 and 2000, and RCB had $1.2 million as of December 31,
2001 and 2000, of funds available for the payment of dividends to the Company,
respectively.
42
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,
2001, management believes that the Company and the Bank Subsidiaries meet all
capital adequacy requirements to which they are subject.
As of December 31, 2001, 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 that have occurred that management believes
have changed the category of the Company or any of the Bank Subsidiaries.
To Be Well-Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
--------------------- ----------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- ------- -----
(Dollars in Thousands)
As of December 31, 2001
Total capital (to risk-weighted
assets)
Greater Community Bancorp..... $60,607 13.89% $34,915 8.00% N/A N/A
Greater Community Bank........ 31,165 11.52 21,646 8.00 $27,057 10.00%
Bergen Commercial Bank ....... 13,433 10.20 10,533 8.00 13,166 10.00
Rock Community Bank........... 5,047 15.57 2,593 8.00 3,241 10.00
Tier 1 capital (to risk-weighted
assets)
Greater Community Bancorp..... 46,713 10.70 17,457 4.00 N/A N/A
Greater Community Bank........ 27,773 10.26 10,823 4.00 16,234 6.00
Bergen Commercial Bank........ 11,786 8.95 5,266 4.00 7,899 6.00
Rock Community Bank........... 4,783 22.66 844 4.00 1,267 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp..... 46,713 7.23 25,861 4.00 N/A N/A
Greater Community Bank........ 27,773 6.66 16,681 4.00 20,852 5.00
Bergen Commercial Bank........ 11,786 6.41 7,354 4.00 9,193 5.00
Rock Community Bank........... 4,783 15.57 1,229 4.00 1,536 5.00
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
Greater Community 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
Greater Community 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
Greater Community 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
43
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,
----------------------
2001 2000
------- -------
ASSETS: (In Thousands)
Cash............................................................................ $ 2,076 $ 787
Investment securities available-for-sale......................................... 9,058 7,411
Accrued interest receivable...................................................... 41 43
Investment in subsidiaries....................................................... 59,779 55,492
Other assets..................................................................... 1,048 1,862
------- -------
Total assets................................................................ $72,002 $65,595
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Guaranteed preferred beneficial interest in the Company's subordinated debt...... $23,711 $23,711
Other liabilities................................................................ 2,179 1,653
Shareholders' equity............................................................. 46,112 40,231
------- -------
Total liabilities and shareholders' equity.................................. $72,002 $65,595
======= =======
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2001 2000 1999
------ ------ ------
INCOME: (In Thousands)
Equity in undistributed income of Bank Subsidiaries............... $3,350 $ 948 $3,067
Dividends from Bank Subsidiaries................................... 3,900 5,447 1,172
Interest income.................................................... 319 283 601
Gain on sale of investment securities.............................. 337 107 2,209
------ ------ ------
7,906 6,785 7,049
------ ------ ------
EXPENSES:
Interest on subordinated debt...................................... 2,300 2,465 2,384
Other expenses..................................................... 172 262 516
------ ------ ------
2,472 2,727 2,900
------ ------ ------
Income before income tax benefit.............................. 5,434 4,058 4,149
Income tax benefit................................................. 646 772 23
------ ------ ------
Net income......................................................... $6,080 $4,830 $4,172
====== ====== ======
44
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------------
2001 2000 1999
------- ------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 6,080 $ 4,830 $ 4,172
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Gain on sale of investment securities available-for-sale ........................... (337) (107) (2,209)
(Increase) decrease in other assets ............................................... 621 664 751
Increase (decrease) in other liabilities ........................................... 805 319 (239)
Equity in undistributed income of subsidiaries ..................................... (3,350) (948) (3,067)
------- ------- --------
Net cash (used in) operating activities ......................................... 3,819 4,754 (592)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale .............................. (697) (1,550) --
Proceeds from sales of investment securities, available-for-sale ................... -- -- 16,079
Cash paid in purchase transaction, First Savings ................................... -- -- (23,000)
Payments for investments in and advances to subsidiaries ........................... (100) (400) (1,798)
Proceeds from advances to Subsidiaries ............................................. -- 1,796 --
------- ------- --------
Net cash provided by (used in) investing activities ............................ (797) (154) (8,719)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) Proceeds from short-term debt .......................................... -- (1,990) 1,995
Proceeds from issuance of common stock, net ........................................ 410 489 4,064
Proceeds from exercise of stock options ............................................ 503 177 176
Dividends paid ..................................................................... (2,176) (1,844) (1,581)
Purchase of treasury stock ......................................................... (508) (789) (419)
Other, net ......................................................................... 38 3 --
------- ------- --------
Net cash provided by (used in) financing activities ........................... (1,733) (3,954) 4,235
------- ------- --------
Net increase (decrease) in cash and cash equivalents .......................... 1,289 646 (5,076)
------- ------- --------
CASH AND CASH EQUIVALENTS, beginning of year ........................................... 787 141 5,217
CASH AND CASH EQUIVALENTS, end of year ................................................. $ 2,076 $ 787 $1411
======= ======= ========
45
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)
2001
----
Interest income ......................................... $10,362 $10,787 $10,825 $10,801
Interest expense ........................................ 4,430 5,199 5,364 5,504
Net interest income ..................................... 5,932 5,588 5,461 5,297
Provision for possible loan losses ...................... 249 221 211 204
Non-interest income ..................................... 2,099 1,444 1,589 1,383
Non-interest income ..................................... 4,649 4,718 4,683 4,614
Income before income taxes .............................. 3,133 2,093 2,156 1,862
Net income .............................................. $ 2,044 $ 1,386 $ 1,431 $ 1,219
Average common shares outstanding - basic ............... 6,691 6,627 6,630 6,637
Average common shares outstanding - diluted ............. 6,975 6,934 6,872 6,852
Per share data
--------------
Net income per common share - basic .................... $ 0.30 $ 0.21 $ 0.22 $ 0.18
Net income per common share - diluted .................. 0.29 0.20 0.21 0.18
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
Non-interest income ..................................... 1,532 1,370 1,866 1,399
Non-interest income ..................................... 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 ............... 6,628 6,632 6,645 6,652
Average common shares outstanding - diluted ............. 6,778 6,767 6,765 6,762
Per share data
--------------
Net income per common share - basic .................... $ 0.21 $ 0.18 $ 0.18 $ 0.16
Net income per common share - diluted .................. 0.20 0.18 0.17 0.16
46
Report Of Independent Certified Public Accountants
To the Board of Directors and Shareholders
Greater Community Bancorp
We have audited the accompanying consolidated balance sheets of Greater
Community Bancorp and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001.
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,
2001 and 2000, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 11, 2002
47
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 2002 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 GCBank, is the father of Robert C. Soldoveri, a director
of both the Company and GCBank and 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 2002 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 2002 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 2002 Annual Meeting of Stockholders to be furnished
to the Commission pursuant to Regulation 14A.
C. Changes in Control: Not applicable. The registrant knows of no
contractual arrangements that may, at a future date, result in a
change of control of the registrant.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information required by Item 404 of Reg. S-K is contained in the
registrant's definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
48
PART IV
Item 14 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. Exhibits. An Exhibit index has been filed as part of this Report on
page E-1 and is incorporated herein by reference.
B. Reports on Form 8-K.
On November 7, 2001, the Company filed a Form 8-K reporting the first
nine months and third quarter 2001 earnings.
On January 25, 2002, the Company filed a Form 8-K reporting the fourth
quarter and full year 2001 earnings
49
================================================================================
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
EXHIBITS
--------
TO
FORM 10-K
For the fiscal year ended December 31, 2001
Commission File No. 0-14294
Greater Community Bancorp
-------------------------
================================================================================
Exhibit Index
Certain of the following exhibits, as indicated parenthetically, were previously
filed as exhibits to registration statements filed by Greater Community Bancorp
under the Securities Act of 1933, as amended, or to reports or registration
statements filed by Greater Community Bancorp under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), respectively, and are hereby
incorporated by reference to such statements or reports. Greater Community
Bancorp's Exchange Act filing number is 0-14294.
Exhibit
-------
No. Description
3.1 Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.4 to Form 10-QSB for the quarter ended
June 30, 1998, filed on August 14, 1998).
3.2 Bylaws of the Company as amended and restated effective December 16,
1997 (incorporated by reference to Exhibit 3 to Form 10-KSB for the
year ended December 31, 1997, filed on March 23, 1998).
4.1 Junior Subordinated Indenture between the Company and Bankers Trust
Company as Trustee, dated May 1997 (incorporated by reference to
Exhibit 4.1 of Exhibits to Form S-2/A Registration Statement filed
by GCB Capital Trust and Greater Community Bancorp under the
Securities Act of 1933, Registration Nos. 333-26453-01, 333-26453,
filed May 9, 1997).
4.2 Form of Junior Subordinated Debenture Certificates for junior
subordinated debentures 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).
10.3 Employment Agreement of Erwin D. Knauer dated July 1, 1999
(incorporated by reference to Exhibit 10.3 to Form 10-Q for quarter
ended September 30, 1999).
10.4 Executive Supplemental Retirement Income Agreement for George E.
Irwin dated as of January 1, 1999 among Great Falls Bank, George E.
Irwin and Greater Community Bancorp (as guarantor) (incorporated by
reference to Exhibit 10.4 to Form 10-K for the year ended December
31, 1999).
10.5 Executive Supplemental Retirement Income Agreement for C. Mark
Campbell dated as of January 1, 1999 among Bergen Commercial Bank,
C. Mark Campbell and Greater Community Bancorp (as guarantor)
(incorporated by reference to Exhibit 10.5 to Form 10-K for the year
ended December 31, 1999)
10.6 Greater Community Bancorp 2001 Employee Stock Option Plan Adopted
February 20, 2001, (incorporated by reference to Exhibit 10.6 to
Form 10-K for the year ended December 31, 2000).
10.7 Greater Community Bancorp 2001 Stock Option Plan for Nonemployee
Directors Adopted February 20, 2001, (incorporated by reference to
Exhibit 10.7 to Form 10-K for the year ended December 31, 2000).
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
E-1
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 15, 2002 BY: /s/ George E. Irwin
-------------------------------------
George E. Irwin
President and Chief Executive Officer
Date: March 15, 2002 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 15, 2002 BY: /s/ George E. Irwin
-------------------------------------
George E. Irwin
President and Chief Executive Officer
Date: March 15, 2002 BY: /s/ Anthony M. Bruno, Jr.
-------------------------------------
Anthony M. Bruno, Jr.
Vice Chairman of the Board
Date: March 15, 2002 BY: /s/ Charles J. Volpe
-------------------------------------
Charles J. Volpe
Director
Date: March 15, 2002 BY: /s/ C. Mark Campbell
-------------------------------------
C. Mark Campbell
Executive Vice President and Director
Date: March 15, 2002 BY: /s/ Joseph A. Lobosco
-------------------------------------
Joseph A. Lobosco
Director
Date: March 15, 2002 BY: /s/ John L. Soldoveri
-------------------------------------
John L. Soldoveri
Chairman of the Board
50
MARKET AND DIVIDEND INFORMATION (unaudited)
The Company's common stock was held by approximately 1,042 holders of record
on December 31, 2001, 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 2001 and 2000, respectively.
Cash
Market Quotations Dividends
-------------------------- ---------
High Low Declared
------ ------ -------
Year Ended December 31, 2000
First Quarter $ 8.50 $ 5.90 $.066
Second Quarter 7.93 6.35 .066
Third Quarter 8.46 7.38 .076
Fourth Quarter 8.57 7.62 .076
Year Ended December 31, 2001
First Quarter $12.14 $ 8.21 $.071
Second Quarter 11.90 9.62 .085
Third Quarter 12.00 10.24 .085
Fourth Quarter 12.59 10.06 .085
The Company's ability to pay dividends on its Common Stock in the future is
subject to numerous regulatory restrictions that are potentially applicable.
However, management does not expect any 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 of Greater Community First City Transfer Company
Bancorp will be held on April 16, 2002 at 4:00 p.m. at PO Box 170
the offices of Greater Community Bank at 55 Union Iselin, NJ 08830
Boulevard, Totowa, NJ. 732-906-9227 Ext. 14
Independent Accountant Counsel
Grant Thornton LLP Williams, Caliri, Miller, Otley & Stern, P.C.
Two Commerce Square 1428 Route 23 N
2001 Market Street PO Box 995
Philadelphia, PA 19103-7080 Wayne, NJ 07474-0995
51