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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ______________
Commission file number 0-14294
Greater Community Bancorp
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(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 942-1111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NASDAQ National Market System
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.50 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market price
shall be computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of filing.
$36,203,846 as of February 15, 2000. For purposes of this calculation,
directors, executive officers and beneficial owners of more than 5% of the
registrant's outstanding voting stock are affiliates.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, was as follows: 6,023,894
as of February 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2000 Annual Meeting of Stockholders to be held on April 18, 2000 is incorporated
by reference into Part III, Items 9 through 12, inclusive.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
Index to Form 10-K for December 31, 1999
PART I PAGE NO.
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Item 1. Business..............................................................1
Item 2. Properties............................................................8
Item 3. Legal Proceedings.....................................................9
Item 4. Submission of Matters to a Vote of Security Holders...................9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...............................................................9
Item 6. Selected Financial Data..............................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................11
Item 7a. Quantitative and Qualitative Market Risk.............................25
Item 8. Financial Statements.................................................26
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................52
PART III
Item 10. Directors and Executive Officers of the Registrant...................52
Item 11. Executive Compensation...............................................52
Item 12. Security Ownership of Certain Beneficial Owners and Management.......52
Item 13. Certain Relationships and Related Transactions.......................53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......53
SIGNATURES....................................................................55
PART I
Item 1 - BUSINESS
THE HOLDING COMPANY
Greater Community Bancorp (the "Company") is a New Jersey business
corporation. It is registered as a bank holding company with the Board of
Governors of the Federal Reserve System ("Federal Reserve") under the Federal
Bank Holding Company Act of 1956, as amended ("Holding Company Act"). The
Company was incorporated in 1984.
The Company's only substantive business activity is the ownership and
operation of Great Falls Bank ("GFB"), Bergen Commercial Bank ("BCB") and Rock
Community Bank ("RCB") (the "Bank Subsidiaries"), which the Company acquired in
1985, 1995 and 1999, respectively (see "BANK SUBSIDIARIES" below) and its
nonbank subsidiaries (see "NONBANK SUBSIDIARIES" below).
During 1999, the Company demonstrated continued growth. As of December 31,
1999, the Company's consolidated assets were $567.4 million, as compared with
consolidated assets of $372.4 million at December 31, 1998. Net income for the
year ended December 31, 1999 was $4.2 million ($0.71 per share-basic and $0.69
per share-diluted), up from $3.5 million ($0.64 per share-basic and $0.61 per
share-diluted) in 1998. The Company declared total cash dividends of $0.27 per
share and $0.23 per share during 1999 and 1998, respectively.
NONBANK SUBSIDIARIES
The Company owns five nonbank subsidiaries. (i) In March 1998, the Company
continued its expansion efforts by forming another nonbank subsidiary, Highland
Capital Corp. ("HCC"). HCC is a New Jersey corporation located in Paramus, New
Jersey. The purpose of HCC is to engage in the business of leasing commercial
office equipment to small and mid-size businesses in Bergen and surrounding
counties.
(ii) GCB Realty, L.L.C. ("Realty") was formed in July 1997 as a New Jersey
limited liability company located in Totowa, New Jersey. The purposes of Realty
are to acquire and manage real estate properties. Realty owns two properties
purchased for a total of $2.2 million in Bergen County, New Jersey. BCB, HCC and
two other tenants lease space in one of the buildings. BCB also leases its
Lyndhurst location from Realty. Annual rentals from both properties are
estimated at $348,000.
(iii) GCB Capital Trust (the "Trust") was formed in April 1997 under the
Business Trust Act of Delaware. The sole purposes of the Trust were issuing and
selling Preferred Securities and Common Securities and using the sales proceeds
to acquire Junior Subordinated Debentures (the "Debentures") issued by the
Company. The Junior Subordinated Debentures are the sole assets of the Trust and
the payments under the Junior Subordinated Debentures are its sole revenues. The
Company owns all of the Trust's Common Securities.
In May 1997, the Company through the Trust sold 920,000 Preferred
Securities with a liquidation preference of $25 per share for an aggregate
amount of $23.0 million. It has a distribution rate of 10% per annum payable at
the end of each calendar quarter. Although the Debentures are treated as debt of
the Company, they currently qualify for Tier I capital treatment. The Preferred
Securities have no maturity date and are callable by the Company on or about
June 1, 2002, or earlier in the event the deduction of related interest for
federal income tax is prohibited, treatment as Tier I capital is no longer
permitted or certain other contingencies arise. The Debentures mature in 2027,
at which time the Preferred Securities must be redeemed.
(iv) Greater Community Services, Inc., activated in March 1997, provides
accounting/bookkeeping, data processing and management information systems, loan
operations and various other banking-related services at cost to the Bank
Subsidiaries.
(v) In October 1996, a nonbank subsidiary opened for business under the
name of Greater Community Financial, L.L.C. ("GCF"), a New Jersey limited
liability company located in Clifton, New Jersey. This Company engages in the
business of securities broker and dealer. Effective November 30, 1999, the
Company acquired the minority interest of this subsidiary, resulting in a 100%
ownership as of this date.
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BANK SUBSIDIARIES
GFB received its charter from the New Jersey Department of Banking &
Insurance (the "Department") in 1985 and commenced operations as a commercial
bank in 1986. Its main office is located at 55 Union Boulevard, Totowa, New
Jersey. GFB has five additional branches, all of which are located in Passaic
County, New Jersey. Two branches are located in Little Falls, one of which was
acquired by merger in April 1999 and the other has operated since March 1988.
Three branches are located in Clifton, two of which were acquired by merger in
April 1995 and the other was a de novo branch established in 1997. A sixth
branch, located at 100 Furler Street, Totowa, has been in operation since 1996.
The seventh branch was acquired by merger in April 1999, located at 123
Newark-Pompton Turnpike in Singac.
GFB conducts a general commercial and retail banking business encompassing
a wide range of traditional deposits and lending functions. GFB offers a broad
variety of lending services, including commercial and residential real estate
loans, short and medium term loans, revolving credit arrangements, lines of
credit, and consumer installment loans. In the depository area, GFB offers a
broad variety of deposit accounts, including consumer and commercial checking
accounts and NOW accounts. GFB also offers other customary banking services.
BCB was incorporated in New Jersey in 1987 and commenced its banking
operations in 1988. BCB concentrates its operations in commercial lending and
loan origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. BCB also offers other
customary banking services. In addition to its main office at Two Sears Drive in
Paramus, New Jersey, BCB has six additional branch offices, located in Hasbrouck
Heights, Wood-Ridge, Wallington, Hackensack, and Lyndhurst. The sixth branch,
acquired by merger in April 1999, is located at 100 Washington Avenue in Little
Ferry.
GFB and BCB each have a wholly-owned investment company subsidiary formed
to manage their respective investment portfolios to increase net yields.
RCB is located in Glen Rock, Bergen County, New Jersey. RCB commenced its
banking operations in 2nd quarter 1999. RCB's main office is located at 175 Glen
Rock Road in Glen Rock, New Jersey, primarily servicing Bergen County. RCB
offers a variety of banking services, including commercial and real estate
lending, revolving credit arrangements and consumer loans. It also offers the
traditional deposit services and other customary banking services.
ACQUISITION
On April 1, 1999, the Company consummated its previously announced
acquisition of First Savings Bancorp of Little Falls, Inc. ("First Savings"),
parent of First Savings Bank of Little Falls located in Little Falls, New
Jersey. Each share of common stock of First Savings was exchanged for $52.26 in
cash for a total of $23.0 million. The merger was accounted for using the
purchase method of accounting.
As of the date of acquisition First Savings had total assets of $193.0
million, total loans of $109.2 million and total deposits of $172.3 million,
with 3 banking offices. The purchase price exceeded the fair market value of net
assets acquired by approximately $13.2 million, which is reflected as goodwill,
included in the accompanying consolidated balance sheet.
COMPETITION
The Company, through the Bank Subsidiaries, competes with other New Jersey
commercial banks, savings banks, savings and loan associations, finance
companies, insurance companies, and credit unions. A substantial number of
offices of competing financial institutions are located within the Bank
Subsidiaries' respective market areas. The past trend toward consolidation of
the banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Bank Subsidiaries to
compete with larger national and regional banking institutions. Several of the
Bank Subsidiaries' competitors are affiliated with major banking and financial
institutions which are substantially larger and have far greater financial
resources than the Bank Subsidiaries.
Competitive factors between financial institutions can be classified into
two categories: competitive rates and competitive service. Rate competition is
intense especially in the area of time deposits. The Bank Subsidiaries compete
with larger institutions with respect to the interest rates they offer. From a
service standpoint, the Bank Subsidiaries' competitors, by virtue
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of their superior financial resources, have substantially greater lending limits
than the Bank Subsidiaries. Such competitors also perform certain functions for
their customers, such as trust and international services, which the Bank
Subsidiaries have chosen not to provide.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory
controls increase a bank holding company's cost of doing business, limit its
management's options to deploy assets and maximize income and may significantly
limit the activities of institutions which do not meet regulatory capital or
other requirements. Areas subject to regulation and supervision by the bank
regulatory agencies include, among others: minimum capital levels; dividends;
affiliate transactions; expansion of locations; acquisitions and mergers;
reserves against deposits; deposit insurance premiums; credit underwriting
standards; management and internal controls; investments; and general safety and
soundness of banks and bank holding companies. Supervision, regulation and
examination of the Company and the Bank Subsidiaries by the bank regulatory
agencies are intended primarily for the protection of depositors, the
communities served by the institutions or other governmental interests, rather
than for holders of stock of the Company.
The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank Subsidiaries. A number of other
statutes and regulations and governmental policies have an impact on their
operations. The Company is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
control or new federal or state legislation may have in the future. The
following summary does not purport to be complete and is qualified in its
entirety by reference to such statutes and regulations.
Bank Holding Company Regulation
The Company is registered as a bank holding company under the Holding
Company Act. As such, it is subject to regular examination, supervision and
regulation by the Federal Reserve. The Company is required to file reports with
the Federal Reserve and to furnish such additional information as the Federal
Reserve may require pursuant to the Holding Company Act. The Company also is
subject to regulation by the Department.
A policy of the Federal Reserve requires the Company to act as a source of
financial and managerial strength to the Bank Subsidiaries and to commit
resources to support them. In addition, any loans by the Company to the Bank
Subsidiaries would be subordinate in right of payment to deposits and certain
other indebtedness of the Bank Subsidiaries. At December 31, 1999, the Company
had approximately $6.9 million in financial resources in addition to its
investment in the Bank Subsidiaries and nonbank subsidiaries. The Federal
Reserve has adopted guidelines regarding the capital adequacy of bank holding
companies which require them to maintain specified minimum ratios of capital to
total assets and capital to risk-weighted assets.
Holding Company Activities
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
nonbank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The Company's activities are subject to these legal and regulatory limitations
under the Holding Company Act and related Federal Reserve regulations.
Satisfactory capital ratios and Community Reinstatement Act ("CRA")
ratings are generally prerequisites to obtaining regulatory approval to make
acquisitions. The Financial Modernization Act of 1999, discussed below (see
"Recent Legislation"), allows the Company to expand into insurance, securities,
merchant banking and other activities that are financial in nature.
The federal Interstate Banking and Branching Act of 1994 permits a bank
holding company to acquire banks in states other than its home state, regardless
of applicable state law. The 1994 law also permits banks to create interstate
branches, either by merging across state lines or by creating new branches,
subject to a state's ability to opt out of these enabling provisions. As have
most states, New Jersey has enacted legislation to authorize interstate banking
either by merger or by branching into New
3
Jersey if the foreign bank already has branches in New Jersey; however, that
legislation did not authorize de novo branching into New Jersey.
Recent Legislation
During November, 1999, the President signed the Gramm-Leach-Bliley
Financial Modernization Act of 1999 into law. Under the new Act, effective March
13, 2000:
- Bank holding companies meeting standards as to management, capital
and Community Reinvestment Act compliance will be permitted to
engage in a substantially broader range of nonbanking activities
than has previously been permissible, including insurance
underwriting and making merchant banking investments in commercial
and financial companies. If a bank holding company elects to become
a financial holding company, it files a certification, effective in
30 days, and thereafter may engage in certain financial activities
without further approvals.
- Insurers and other financial services companies are allowed to
acquire banks.
- Various restrictions currently applicable to bank holding company
ownership of securities firms and mutual fund advisory companies are
removed.
- A new overall regulatory structure is established for bank holding
companies also engaged in insurance and securities operations.
On January 19, 2000, the Federal Reserve adopted an interim rule allowing
bank holding companies to submit certifications by February 15 to become
financial holding companies on March 13, 2000. The Federal Reserve also
established procedures which would be used against financial holding companies
which have depository institutions which have fallen out of compliance with the
management or capital criteria. Only financial holding companies can own
insurance companies and engage in merchant banking.
The Modernization Act also modifies other current financial laws,
including laws related to financial privacy and community reinvestment.
Notwithstanding the Federal Reserve's prior approval of specific
nonbanking activities, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity, or to terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that the continuation of such activity or such ownership or control constitutes
a serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company. Bank holding companies and their
subsidiaries are also prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Holding Company Dividends and Stock Repurchases
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. It is the Federal Reserve's view that
a bank holding company should pay cash dividends only to the extent that its net
income for the past year is sufficient to cover both the cash dividends and a
rate of earnings retention that is consistent with its capital needs, asset
quality and overall financial condition.
As a bank holding company, the Company is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive, or any condition imposed by or
written agreement with, the Federal Reserve.
Bank Regulation
As state-chartered banks which are not members of the Federal Reserve
System, the Bank Subsidiaries are subject to the primary federal supervision of
the FDIC under the Federal Deposit Insurance Act (the "FDIA"). Prior approval of
the FDIC
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is required for the Bank Subsidiaries to establish or relocate a branch office
or to engage in any merger, consolidation or significant purchase or sale of
assets. The Bank Subsidiaries are also subject to regulation and supervision by
the Department. In addition, they are subject to numerous federal and state laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the
respective Bank Subsidiaries and their condition, including capital adequacy,
reserves, loans, investments and management practices. These examinations are
for the protection of the Bank Subsidiaries' depositors and the Bank Insurance
Fund ("BIF") and not the Company. The Bank Subsidiaries are also required to
furnish quarterly and annual reports to the FDIC. The FDIC's enforcement
authority includes the power to remove officers and directors and the authority
to issue orders to prevent a bank from engaging in unsafe or unsound practices
or violating laws or regulations governing its business.
The FDIC has adopted regulations regarding the capital adequacy of banks
subject to its primary supervision. Such regulations require those banks to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See "Regulatory Capital Requirements," below.
Statewide branching is permitted in New Jersey. Branch approvals are
subject to statutory standards relating to safety and soundness, competition,
public convenience and CRA performance.
Community Reinvestment Act
Under the CRA, the Subsidiary Banks have a continuing and affirmative
obligation, consistent with their safe and sound operation, to help meet the
credit needs of their entire communities, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. GFB and BCB
received "satisfactory" CRA ratings in their most recent examinations.
Bank Dividends
New Jersey law permits the Bank Subsidiaries to declare dividends only if,
after payment of the dividends, their capital would be unimpaired and their
remaining surplus would equal at least 50% of their capital. Under the FDIA, the
Bank Subsidiaries are prohibited from declaring or paying dividends or making
any other capital distribution if, after that distribution, they would fail to
meet their regulatory capital requirements. At December 31, 1999, the Bank
Subsidiaries met their regulatory capital requirements. The FDIC also has
authority to prohibit the payment of dividends by a bank when it determines such
payment to be an unsafe and unsound banking practice. The FDIC may prohibit bank
holding companies of banks which are deemed to be "significantly
undercapitalized" under the FDIA or which fail to properly submit and implement
capital restoration plans required by the FDIA from paying dividends or making
other capital distributions without the FDIC's permission. See "Holding Company
Dividends and Stock Repurchases," above.
Restrictions Upon Intercompany Transactions
The Bank Subsidiaries are subject to restrictions imposed by federal law
on extensions of credit to, and certain other transactions with, the Company and
other affiliates. Such restrictions prevent the Company and its affiliates from
borrowing from the Bank Subsidiaries unless the loans are secured by specified
collateral, and require such transactions to have terms comparable to terms of
arms-length transactions with third persons. Such transactions by each of the
Bank Subsidiaries are generally limited in amount as to the Company and as to
any other affiliate to 10% of the Subsidiary Bank's capital and surplus. As to
the Company and all other affiliates, such transactions are limited to an
aggregate of 20% of the Subsidiary Bank's capital and surplus. These regulations
and restrictions may limit the Company's ability to obtain funds from the Bank
Subsidiaries for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses.
Real Estate Lending Guidelines
Under FDIC regulations, state banks must adopt and maintain written
policies establishing appropriate limits and standards for real estate lending
activities. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits that
are clear and measurable), loan administration procedures and documentation,
5
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by federal bank regulators.
Deposit Insurance
Since the Bank Subsidiaries are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC. The Bank Subsidiaries are also required to
pay deposit insurance premiums to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") included provisions to reform the federal deposit insurance system,
including the implementation of risk-based deposit insurance premiums. FDICIA
permits the FDIC to make special assessments on insured depository institutions
in amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources or for
any other purpose the FDIC deems necessary. Under a risk-based insurance premium
system which became permanent in 1994, banks are assessed insurance premiums
according to how much risk they are deemed to present to the BIF. Banks with
higher levels of capital and involving a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital and/or involving
a higher degree of supervisory concern. Specifically, the assessment rate for an
insured depository institution depends upon the risk classification assigned to
the institution by the FDIC based upon the institution's capital level and
supervisory evaluations. Institutions are assigned to one of three capital
groups--well-capitalized, adequately capitalized or undercapitalized.
Well-capitalized institutions are institutions satisfying the following capital
ratio standards: (i) total risk-based capital ratios of 10.0% or greater, (ii)
Tier I risk-based capital ratios of 6.0% or greater, and (iii) Tier I leverage
ratios of 5.0% or greater. Adequately capitalized institutions are institutions
that do not meet the standards for well-capitalized institutions but that
satisfy the following capital ratio standards: (i) total risk-based capital
ratios of 8.0% or greater; (ii) Tier I risk-based capital ratios of 4.0% or
greater, and (iii) Tier I leverage ratios of 4.0% or greater. Undercapitalized
institutions consist of institutions that do not qualify as either
"well-capitalized" or "adequately capitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis of supervisory
evaluations by the institution's primary supervisory authority and such other
information as the FDIC determines to be relevant. Effective January 1, 1997 the
assessment rates ranged from 0.00% to 0.27% of deposits. The Bank Subsidiaries'
deposit assessment rates were 0.00% in 1998 and 1999.
In addition, the Deposit Insurance Act of 1996 authorized the Financing
Corporation ("FICO") to levy assessments on BIF assessable deposits and
stipulated that the rate must equal one-fifth the FICO assessment rate that is
applied to deposits assessable by the Savings Association Insurance Fund
("SAIF"). The rates established for GFB and BCB for 1997 through 2000 are 0.065%
and 0.013%, respectively.
Standards for Safety and Soundness
Under FDICIA, each federal banking agency is required to prescribe
noncapital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the Federal Reserve and the FDIC, have
adopted interagency guidelines which cover internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees, benefits, and
standards for asset quality and earnings sufficiency. An institution which fails
to meet any of these standards may be required to develop a plan acceptable to
the agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company believes that the Bank
Subsidiaries meet all adopted standards.
Enforcement Powers
The bank regulatory agencies have broad discretion to issue cease and
desist orders if they determine that the Company or its Bank Subsidiaries are
engaging in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities may impose substantial civil money penalties for
violations of certain federal banking statutes and regulations, violation of a
fiduciary duty, or violation of a final or temporary cease and desist orders,
among other things. Financial institutions and a broad range of persons
associated with them are subject to the imposition of fines, penalties, and
other enforcement actions based upon the conduct of their relationships with the
institutions.
The FDIC may be appointed as a conservator or receiver for a depository
institution based upon a number of events and circumstances. The FDIC as a
conservator or receiver of a depository institution also has express authority
to repudiate most contracts with such institution which it determines to be
burdensome or if such repudiation will promote the orderly administration of the
institution's affairs. The FDIC is also given authority to enforce contracts
made by a depository institution
6
notwithstanding any contractual provision providing for termination, default,
acceleration, or exercise of rights upon, or solely by reason of, insolvency or
the appointment of a conservator or receiver. Insured depository institutions
also are prohibited from entering into contracts for goods, products or services
which would adversely affect their safety and soundness.
Regulatory Capital Requirements
The Federal Reserve and the FDIC have established guidelines with respect
to the maintenance of appropriate levels of capital by bank holding companies
and state-chartered banks that are not members of the Federal Reserve System
("state nonmember banks"). The regulations impose two sets of capital adequacy
requirements: minimum leverage rules, which require maintenance of a specified
minimum ratio of capital to total assets, and risk-based capital rules, which
require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.
These regulations require bank holding companies and state nonmember banks
to maintain a minimum leverage ratio of "Tier I capital" to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of 1 under the rating system used by the federal bank regulators, would
be permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding company experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve has indicated that whenever appropriate, and in particular when
a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier I
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules require bank holding companies and state
nonmember banks to maintain minimum regulatory capital levels based upon a
weighting of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a Tier I or core capital
requirement and a Tier II or supplementary capital requirement. Tier I capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less most intangible assets, primarily goodwill. Tier II capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier I and
long-term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; and subordinated debt and intermediate-term preferred
stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan losses which may be included as capital to 1.25% of total risk-weighted
assets.
At December 31, 1999, the Company's total risk-based capital and leverage
capital ratios were 13.73% and 7.18%, respectively. The minimum levels
established by the regulators for these measures are 8% and 4%, respectively.
FDICIA also required the federal banking regulators to classify insured
depository institutions by capital levels and to take various prompt corrective
actions to resolve the problems of any institution that fails to satisfy the
capital standards. Under FDICIA and its "prompt corrective action" regulations,
all institutions, regardless of their capital levels, are restricted from making
any capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements.
Under the FDIC's prompt corrective action regulation, a "well-capitalized"
bank is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier I risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately-capitalized" bank is one that does
not qualify as "well-capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital ratio
7
of 8%, a Tier I risk-based capital ratio of 4%, and a leverage ratio of either
4% or 3% if the bank has the highest composite examination rating. A bank not
meeting these criteria will be treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which the bank's capital levels are below these standards. A bank that falls
within any of the three "undercapitalized" categories established by the prompt
corrective action regulation will be: (i) subject to increased monitoring by the
appropriate federal banking regulator; (ii) required to submit an acceptable
capital restoration plan within 45 days; (iii) subject to asset growth limits;
and (iv) required to obtain prior regulatory approval for acquisitions,
branching and new lines of businesses. The capital restoration plan must include
a guarantee by the institution's holding company that the institution will
comply with the plan until it has been adequately capitalized on average for
four consecutive quarters, under which the holding company would be liable up to
the lesser of 5% of the institution's total assets or the amount necessary to
bring the institution into capital compliance as of the date it failed to comply
with its capital restoration plan. A significantly undercapitalized institution,
as well as any undercapitalized institution that did not submit an acceptable
capital restoration plan, will be subject to regulatory demands for
recapitalization, broader application of restrictions on transactions with
affiliates, limitations on interest rates paid on deposits, asset growth and
other activities, possible replacement of directors and officers, and
restrictions on capital distributions by any bank holding company controlling
the institution. Any company controlling the institution may be required to
divest its interest in the institution. If an institution's ratio of tangible
capital to total assets falls below a "critical capital level" established by
the appropriate federal banking regulator, the institution will be subject to
conservatorship or receivership unless periodic determinations are made that
forbearance from such action would better protect the deposit insurance fund.
EFFECT OF GOVERNMENT MONETARY POLICIES; POSSIBLE FURTHER LEGISLATION
The Company's earnings are and will be affected by domestic and
international economic conditions and the monetary and fiscal policies of the
United States and foreign governments and their agencies.
The Federal Reserve's monetary policies have had, and will probably
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The Federal Reserve has a
major effect upon the levels of bank loans, investments and deposits through its
open market operations in United States Government securities and through its
regulation of, among other things, the discount rate on borrowings of banks and
the imposition of nonearning reserve requirements against member bank deposits.
It is not possible to predict the nature and impact of future changes in
monetary and fiscal policies.
From time to time, proposals are made in the United States Congress, the
New Jersey Legislature, and various bank regulatory authorities which would
alter the powers of, and place restrictions on, different types of banking
organizations. It is impossible to predict whether any of these proposals will
be adopted and any impact of such adoption on the business of the Company and/or
the Bank Subsidiaries.
The Bank Subsidiaries are also subject to various Federal and State laws
such as usury laws and consumer protection laws.
EMPLOYEES
As of December 31, 1999, the Company employed a total of approximately 188
employees, including 152 full-time employees. Management considers relations
with employees to be satisfactory.
Item 2 - PROPERTIES
The Company does not directly own or lease any land, buildings or
equipment. However, the Company's wholly-owned nonbank subsidiary, Realty, owns
two properties in Bergen County, New Jersey.
GFB leases its main office banking facility and certain other office space
at 55 Union Boulevard, Totowa, New Jersey. Such main office leased space is
owned by a general partnership of which the Company's chairman and vice chairman
are both partners. GFB also leases space for its five other branches in Totowa,
Little Falls and Clifton, New Jersey.
8
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
and the Lyndhurst, New Jersey branch from Realty. BCB also leases space for
three other branches in Hackensack, Wallington and Wood-Ridge, New Jersey. BCB
owns the space for its branch located in Hasbrouck Heights, New Jersey.
RCB leases its main office space at 175 Glen Rock Road, Glen Rock, New
Jersey. The leased space is owned by Sinabaldo Leone, Jr., a director of RCB.
In the opinion of management, all such leased properties are adequately
insured and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease
obligations, see Note 14 of the Company's Notes to Consolidated Financial
Statements for the year ended December 31, 1999, contained in Item 7 -"Financial
Statements."
Item 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
there is no proceeding threatened or pending against the Company which, if
determined adversely, would have a material effect on the Company's business,
financial position or results of operations.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,077 holders of
record on December 31, 1999, and is traded on the NASDAQ National Market System
under the symbol GFLS.
The following table indicates the range of high and low market quotations
of the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
cash dividends have been adjusted to take into account the effect of the 5%
stock dividend paid in 1999 and 2 for 1 stock split in 1998.
Market Quotations
----------------- Cash
Dividends
High Low Declared
---- --- --------
Year Ended December 31, 1998
First Quarter $10.75 $ 9.06 $ .048
Second Quarter 12.19 10.63 .057
Third Quarter 12.25 9.75 .057
Fourth Quarter 11.75 8.25 .058
Year Ended December 31, 1999
First Quarter $11.19 $ 9.29 $ .06
Second Quarter 10.36 9.17 .07
Third Quarter 11.42 9.50 .07
Fourth Quarter 10.96 9.25 .07
The Company's ability to pay dividends on its Common Stock in the future
is subject to numerous regulatory restrictions which are potentially applicable.
(See above, Item 1 "--DESCRIPTION OF BUSINESS--SUPERVISION AND REGULATION--Bank
Holding Company Regulation--Holding Company Dividends and Stock Repurchases";
and "--Bank
9
Regulation--Bank Dividends"). However, management does not expect any of such
restrictions to become applicable so long as the Company and the Bank
Subsidiaries continue to operate profitably.
Item 6 - SELECTED FINANCIAL DATA
The selected consolidated financial highlights of Greater Community
Bancorp (the "Company") set forth below should be read in conjunction with the
more detailed information included in the Consolidated Financial Statements,
related Notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations, appearing elsewhere herein.
As of the Years Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Summary of Operations:
Total interest income............................ $34,564 $24,866 $20,548 $18,693 $17,433
Total interest expense........................... 17,140 12,009 8,948 7,154 6,550
Net interest income.............................. 17,424 12,857 11,600 11,539 10,883
Provision for possible loan losses............... 885 520 485 440 414
Net interest income after provision for
possible loan losses......................... 16,539 12,337 11,115 11,099 10,469
Other income..................................... 7,270 4,656 2,755 1,929 2,177
Other expenses................................... 17,288 11,450 9,775 9,379 9,400
Income before income taxes....................... 6,521 5,543 4,095 3,649 3,246
Provision for income taxes....................... 2,349 2,000 1,495 1,312 1,174
Net Income....................................... $4,172 $3,543 $2,600 $2,337 $2,072
Per Common Share Data:
Earnings Per Share - Basic....................... $0.71 $0.64 $0.57 $0.54 $0.50
Earnings Per Share - Diluted..................... $0.69 $0.61 $0.54 $0.51 $0.48
Cash dividends per common share.................. $0.27 $0.22 $0.17 $0.12 $0.09
Stock splits and dividends per common share...... 5% 2 for 1 10% 10% 10%
Book value per common share...................... $5.86 $5.77 $5.26 $4.82 $4.51
Selected Operating Ratios:
Return on average assets......................... 0.81% 1.00% 0.92% 0.93% 0.93%
Return on average equity......................... 11.98% 11.88% 10.82% 11.69% 11.99%
Interest rate spread............................. 3.02% 2.65% 3.20% 4.01% 4.24%
Net interest margin.............................. 3.78% 3.87% 4.40% 4.95% 5.24%
Financial Condition Data:
Total Assets..................................... $567,453 $372,400 $321,985 $256,506 $253,045
Cash and cash equivalents........................ 19,200 23,640 22,845 18,294 29,046
Investment securities............................ 151,191 111,601 126,776 89,679 83,986
Total Loans, net................................. 340,563 201,765 158,125 134,587 129,107
Allowance for possible loan losses............... 4,953 3,525 2,731 2,540 2,332
Total Deposits................................... 460,634 293,395 257,555 223,242 222,766
Other borrowings................................. 64,403 40,103 30,141 9,147 7,732
Shareholders' equity............................. 35,402 32,309 29,261 21,061 19,595
Capital Ratios:
Equity to assets................................. 6.23% 8.68% 9.09% 8.21% 7.74%
Total risk-based capital ratio................... 13.73% 21.58% 26.19% 17.29% 16.77%
Tier I risk-based capital ratio.................. 9.59% 15.32% 17.94% 12.86% 7.27%
Leverage ratio................................... 7.18% 11.21% 12.71% 8.01% 8.28%
All per share data has been adjusted to reflect stock dividends and stock
split.
10
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing the Company's financial condition and
results of operations for each of the past three years and its financial
condition at the end of each of the past two years. In order to fully appreciate
this analysis, the reader is encouraged to review the consolidated financial
statements and statistical data presented in this document. Data is presented
for the Company and its subsidiaries in the aggregate unless otherwise
indicated.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K, both in this MD&A section and elsewhere (including
documents incorporated by reference herein), contains both historical
information and "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are not
historical facts and include expressions about management's confidence and
strategies and its expectations about new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements
may be identified by an asterisk (*) or such forward-looking terminology as
"projected," "expect," "look," "believe," "anticipate," "may," "will," or
similar statements or variations of such terms. Such forward-looking statements
involve certain risks and uncertainties. These include, but are not limited to,
the ability of the Company's bank subsidiaries to generate deposits and loans
and attract qualified employees, the direction of interest rates, continued
levels of loan quality and origination volume, continued relationships with
major customers including sources for loans as well as the effects of economic
conditions and legal and regulatory barriers and structure. Actual results may
differ materially from such forward-looking statements. The Company assumes no
obligation for updating any such forward-looking statement at any time.
RECENT DEVELOPMENTS
On April 1, 1999, the Company acquired First Savings, a $193.0 million
thrift institution, for $23.0 million in cash and the assumption of liabilities.
The Company divided the business of First Savings between GFB and BCB. GFB
acquired two former branches of First Savings in Little Falls, adjacent to
Totowa, New Jersey, where GFB has its headquarters. BCB acquired a former branch
of First Savings in Little Ferry, in Bergen County, New Jersey, BCB's primary
market area.
During the second quarter of 1999 the Company also capitalized RCB, a new
wholly-owned subsidiary bank located in Glen Rock, New Jersey, with $5.0
million. Approximately $4.1 million of the Company's capital contribution to RCB
was raised by a private placement of the Company's common stock. RCB commenced
business as a de novo bank in April 1999.
During the second half of 1999 the Company continued its banking
operations, including efforts to assimilate the business of First Savings. The
Company also continued to devote attention to the establishment of RCB's new
business operations.
Results of Operations: Fiscal Years Ended December 31, 1999, 1998 and 1997
The results of operations for the year ended December 31, 1999 were
significantly affected by the purchase of First Savings on April 1, 1999.
The Company earned $4.2 million or $0.69 per diluted share, a 20% increase
over $3.5 million or $0.61 per diluted share earned during 1998. Excluding gains
on the sale of investment securities and non-recurring expenses of $1.4 million
related to the purchase of First Savings incurred in the second quarter of 1999,
net income for the year ended December 31, 1999 was approximately $3.4 million
compared to $2.5 million in 1998. The Company earned $2.6 million or $0.54 per
diluted share in 1997, which included $216,000 in gains on sale of investment
securities.
Cash earnings (earnings before amortization of intangible assets) per
diluted share were $0.79, $0.63 and $0.56 for the years ending December 31,
1999, 1998 and 1997, respectively.
The increase in net income for the year ended December 31, 1999 primarily
reflects higher net interest income and higher gain on the sale of investment
securities and other income, partially offset by higher salaries and employee
benefits, all other
11
expenses (including amortization of intangible assets and other charges related
to the acquisition of First Savings), and higher provisions for possible loan
losses and income taxes. Net operating losses from RCB for 1999 (its first nine
months of operations) were $283,000.
Average Balances and Net Interest Income
Net interest income, the primary source of the Company's results of
operations, is the difference between interest, dividends and fees earned on
loans and other earning assets, and interest paid on interest-bearing
liabilities. Earning assets include loans to businesses and individuals,
investment securities, interest-bearing deposits with banks and federal funds
sold in the interbank market. Interest-bearing liabilities include primarily
interest-bearing demand, savings and time deposits. Net interest income is
determined by the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and the
relative amounts of earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flows
and general levels of nonperforming assets.
The following table sets forth the Company's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest expense on related items, and the Company's average yield for the years
ended December 31, 1999, 1998 and 1997. The yields are not shown on a fully
taxable basis.
12
Average Balance Sheet, Interest Income and Expense, and Average Interest Rates
For the Years ended
----------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
--------------------------------------- ---------------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
------- ----------- ---------- ------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities.......................... $137,983 $ 8,094 5.87% $126,719 $ 7,348 5.80%
Due from banks - interest-bearing.............. 13,121 762 5.82% 9,917 578 5.83%
Federal funds sold............................. 11,900 612 5.14% 11,524 605 5.25%
Loans(1)....................................... 298,278 25,096 8.41% 183,676 16,335 8.89%
-------- ------- -------- -------
Total earning assets....................... 461,282 34,564 7.49% 331,836 24,866 7.49%
Less: Allowance for possible loan losses....... (4,409) -- (3,078) --
Unearned income-- loans.................... (1,264) -- (630) --
All other assets............................... 57,175 -- 26,753 --
-------- ------- -------- -------
Total assets............................... $512,784 $34,564 $354,881 $24,866
======== ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits........ $123,776 $ 2,725 (2)20% $ 83,645 $ 1,766 (2)11%
Time deposits................................ 207,460 10,651 5.13% 127,477 7,253 5.69%
Federal funds and short-term borrowings(2)... 28,938 1,464 5.06% 13,521 633 4.68%
Trust preferred securities................... 23,000 2,300 10.00% 23,669 2,357 9.96%
-------- ------- -------- -------
Total interest-bearing liabilities. 383,174 17,140 4.47% 248,312 12,009 4.84%
Non interest-bearing deposits.................. 88,003 -- 71,010 --
Other liabilities.............................. 6,777 -- 5,748 --
Shareholders' equity........................... 34,830 -- 29,811 --
-------- ------- -------- -------
Total liabilities and
shareholders' equity................... $512,784 $17,140 $354,881 $12,009
======== ======= ======== =======
NET INTEREST INCOME .......................... $17,424 $12,857
======= =======
NET INTEREST MARGIN............................ 3.78% 3.87%
===== ====
For the Years ended
----------------------------------------
December 31, 1997
----------------------------------------
Average Interest Average
Balance Earned/Paid Yield/Rate
------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $102,021 $ 6,241 6.12%
Due from banks - interest-bearing................ 5,052 267 5.29%
Federal funds sold............................... 7,676 415 5.41%
Loans(1)......................................... 149,024 13,625 9.14%
-------- -------
Total earning assets......................... 263,773 20,548 7.79%
Less: Allowance for possible loan losses......... (2,644) --
Unearned income-- loans...................... (341) --
All other assets................................. 22,229 --
-------- -------
Total assets................................. $283,017 $20,548
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $76,466 $ 1,689 2.21%
Time deposits.................................. 92,435 5,128 5.55%
Federal funds and short-term borrowings(2)..... 7,507 366 4.88%
Trust preferred securities..................... 18,721 1,765 9.43%
-------- -------
Total interest-bearing liabilities... 195,129 8,948 4.59%
Non interest-bearing deposits.................... 60,481 --
Other liabilities................................ 3,382 --
Shareholders' equity............................. 24,025 --
-------- -------
Total liabilities and
shareholders' equity..................... $283,017 $ 8,948
======== =======
NET INTEREST INCOME ............................ $11,600
=======
NET INTEREST MARGIN.............................. 4.40%
=====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
13
Net Interest Income
Changes in net interest income and margin result from the interaction
between the volume and composition of earning assets, related yields and
associated funding costs. Net interest income is the largest source of the
Company's operating income. In 1999, net interest income increased by $4.6
million or 36% compared to 1998. Interest and fee income on loans during 1999
increased by $8.8 million or 54% over the comparable period in 1998 as a result
of an increase of 62% in average total loans. The average yield on loans
decreased to 8.41% in 1999 compared to 8.89% in 1998 as a result of repricing of
loans at prevailing rates. Loans represent 65% and 55% of average earning assets
in 1999 and 1998, respectively. Income earned on investment securities during
1999 increased by $746,000, or 10% compared to the same period in 1998. The
increase was primarily due to a 9% increase in average investments for the year
ended December 31, 1999 over 1998. The average yield on securities was 5.87% for
the year ended December 31, 1999, compared to 5.80% for the same period in the
prior year. Investments represent 30% and 38% at 1999 and 1998, respectively, of
average earning assets. Interest income on federal funds sold and deposits with
banks during 1999 increased by $191,000, or 16% compared to 1998 as a result of
a $3.6 million, or 17%, increase in average federal funds sold and deposits with
banks. Federal funds sold and deposits with banks represent 5% and 7% of average
earning assets at 1999 and 1998, respectively.
In 1998, net interest income increased by $4.3 million or 21% compared to
1997. Interest and fee income on loans during 1999 increased by $2.7 million or
20% over the comparable period in 1997 as a result of an increase of 23% in
average total loans. The average yield on loans decreased to 8.89% in 1998 from
9.14% in 1997 as a result of repricing of loans at the prevailing rates. Income
earned on investment securities during 1998 increased by $1.1 million, or 18%
compared to 1997. The increase was primarily due to a 24% increase in average
investments for the year ended December 31, 1998 over 1997. The average yield on
securities was 5.80% for the year ended December 31, 1998 compared to 6.12% for
the prior year; the decline was due to general market conditions. Interest
income on federal funds sold and deposits with banks during 1998 increased by
$501,000 or 73% compared to the same period in the prior year as a result of a
$8.7 million, or 68%, increase in average federal funds sold and deposits with
banks due to the purchase of $13.1 million of interest-bearing deposits.
Interest expense for the year ended December 31, 1999, increased by $5.1
million or 43% from the level of interest expense for 1998. $4.4 million of the
total increase was related to the increase in interest expense on deposits,
$831,000 was related to the increase in interest expense on short-term
borrowings, coupled with a decline of $57,000 related to interest expense on
long-term borrowings, coupled with a 37 basis point decrease in the average rate
paid. The increase in total interest expense was related to the increase in
average interest-bearing liabilities of $134.9 million or 54%.
Interest expense for the year ended December 31, 1998, increased by $3.1
million or 34% from the level of interest expense for 1997. $2.2 million of the
total increase in interest expense was related to the increase in interest
expense on deposits, $592,000 was related to the increase in interest expense on
long-term borrowings, and the remaining $267,000 was related to the increase in
interest expense on short-term borrowings. The increase in total interest
expense was related to the increase in average interest-bearing liabilities of
$53.0 million or 27% primarily due to a $23.0 million increase in the 10% Trust
Preferred Securities in May 1997, offset to some extent by the decrease in 8.5%
Subordinated Debentures effective November 1, 1997.
Average interest-bearing deposits comprised 86%, 85% and 87% of Company
total funding sources in 1999, 1998 and 1997, respectively, with the balance
comprised of short- and long-term funding.
The Company's net interest margin, which measures net interest income as a
percentage of average earning assets, was 3.78%, 3.87% and 4.40% for the years
ended December 31, 1999, 1998 and 1997, respectively.
Rate/Volume Analysis
The following table sets forth the changes in interest income and expenses
as they relate to changes in volume and rate for the years ended December 31,
1999 and 1998 compared to the prior years. Because of numerous simultaneous
balance and rate changes during the periods indicated, it is difficult to
allocate the changes precisely between balances and rates. For purposes of this
table, changes which are not due solely to changes in balances or rates are
allocated between such categories based on the average percentage changes in
average balances and average rates.
14
Full Year 1999 Full Year 1998
Compared to Full Year 1998 Compared to Full Year 1997
Increase(Decrease) Increase (Decrease)
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
Interest Earned On:
Loans $ 9,636 $ (875) $ 8,761 $ 3,078 $ (368) $ 2,710
Investment securities 663 83 746 1,435 (328) 1,107
Other earning assets 205 (14) 191 486 15 501
------- ------- ------- ------- ------- -------
Total earning assets $10,504 $ (806) $ 9,698 $ 4,999 $ (681) $ 4,318
======= ======= ======= ======= ======= =======
Interest Paid On:
Savings and interest-bearing deposits $ 883 $ 76 $ 959 $ 152 $ (75) $ 77
Time deposits 4,090 (692) 3,398 1,995 130 2,125
Borrowings (1) 1,069 (295) 774 880 (21) 859
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 6,042 $ (911) $ 5,131 $ 3,027 $ 34 $ 3,061
======= ======= ======= ======= ======= =======
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase, and trust preferred securities.
Provision for Possible Loan Losses
The Company recorded a provision for possible loan losses of $885,000 in
1999 compared with $520,000 in 1998 and $485,000 on 1997. Management of each
Bank Subsidiary regularly performs an analysis to identify the inherent risk of
loss in its loan portfolio. This analysis includes evaluation of concentrations
of credit, past loss experience, current economic conditions, amount and
composition of the loan portfolio (including loans being specifically monitored
by management), estimated fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other factors.
The Bank Subsidiaries will continue to monitor their allowance for
possible loan losses and make future adjustments to the allowance through the
provision for possible loan losses as economic conditions dictate. Although the
Bank Subsidiaries maintain their allowances for possible loan losses at levels
that they consider to be adequate to provide for the inherent risk of loss in
their loan portfolios, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for possible loan losses
will not be required in future periods. In addition, the Bank Subsidiaries'
determinations as to the amount of their allowances for possible loan losses are
subject to review by the FDIC and the Department, as part of their examination
process, which may result in the establishment of an additional allowance based
upon the judgment of the FDIC or the Department, after a review of the
information available at the time of their examination.
Other Income
Total non-interest income continues to represent a considerable source of
income for the Company. In 1999 such non- interest income totaled $7.3 million,
an increase of $2.6 million or 56% over 1998. Non-interest income for 1999
included $2.2 million in realized gains on sale of investment securities
available-for-sale, an increase of $1.1 million over 1998. All other income
includes $567,000 from fees and sales of lease financing, $480,000 from
bank-owned life insurance and $207,000 from rental income. Service charges on
deposit accounts increased by $211,000 over 1998 and other commissions and fees
increased by $357,000. The majority of the increase in service charges on
deposit accounts is attributable to the increase in deposit- related services
during 1999. The increase in realized gain on sale of investment securities
available-for-sale resulted from sale of $16.4 million of securities.
Total non-interest income for the year ended December 31, 1998 was $4.7
million, an increase of $1.9 million or 69% compared to 1997. The $1.9 million
net increase was the result of significant fluctuations within the major
components of other income. Of the net increase in 1998, service charges on
deposit accounts increased by $280,000, other commissions and fees increased by
$298,000, realized gain on sale of securities available-for-sale increased by
$867,000, and all other income increased $456,000 over 1997. The majority of the
increase in service charges on deposit accounts is attributable to the increase
in deposit-related services during 1998. The increase in realized gain on sale
of securities available-for-sale resulted from sale of $6.9 million of
available-for-sale securities during 1998.
15
Other Expenses
Total other expenses increased by $5.8 million for the year ended December
31, 1999 over 1998. Of the total increase, $2.9 million is attributable to
increases in salaries and employee benefits as a direct result of the
acquisition of First Savings coupled with severance and bonuses paid out to
certain key employees of First Savings. Occupancy and equipment expense, which
includes the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by
$540,000. Regulatory, professional and other fees increased by $899,000.
Computer services, office expenses and other operating expenses increased by
$194,000, $447,000 and $347,000, respectively. The majority of these increases
are attributable to the acquisition of First Savings and the balance is due to
the overall growth of the Company. Amortization of intangibles increased by
$500,000 over 1998. This increase reflect the amortization of goodwill resulting
from the acquisition of First Savings.
Total non-interest expenses increased by $1.7 million for the year ended
December 31, 1998 over 1997. The $1.7 million net increase was a result of
fluctuations within the components of other expenses. More specifically,
salaries and employee benefits increased by $962,000 or 20% as a result of an
increase in number of employees and general salary increases coupled with an
increase in employee benefits. Occupancy and equipment expense, which includes
the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by
$244,000 or 11% primarily due to the addition of office space and equipment.
Regulatory, professional and other fees, and office expenses in 1998 both
decreased from 1997 by $80,000 or 11% and $25,000 or 4%, respectively. Other
real estate operating expense increased by $101,000 or 168% due to an increase
in ORE properties owned. Computer services expenses increased by $26,000 or 16%.
All other operating expenses increased by $439,000 or 33%. The primary reason
for the increase in such expenses is the growth of the Bank Subsidiaries.
Income Taxes
The Company recorded income tax provisions of $2.3 million, $2.0 million
and $1.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increases in income tax provision are attributable to
increased earnings for each of the years over the prior year.
Financial Condition
At December 31, 1999, the Company's total assets were $567.4 million, an
increase of $195.1 million or 52% over the amount reported at December 31, 1998.
Gross loans increased by $140.8 million. The increase in loans was a direct
result of the acquisition of First Savings coupled with increased loan demand.
Investment securities increased by $39.6 million, while interest-bearing due
from banks and federal funds sold decreased by $4.9 million and $3.5 million.
These declines were related to the maturities of such assets and the proceeds
were subsequently used to meet the loan demand.
At December 31, 1998, the Company's total assets were $372.4 million, an
increase of $50.4 million or 16% over the amount reported at December 31, 1997.
Gross loans increased by $44.9 million while investment securities decreased by
$15.2 million. The increase in loans was a direct result of increased loan
demand while the decrease in investment securities was related to the maturities
which were used in purchasing interest-bearing due from banks. Interest-bearing
due from banks increased by $13.2 million. Cash and non interest-bearing due
from banks increased by $5.1 as a result of the overall growth of the Company.
Federal funds sold decreased by $4.3 million and the proceeds were used in
meeting loan demand.
Investment Securities
Investment securities at December 31, 1999 increased by $39.6 million or
35% over the amount reported at December 31, 1998. The increase was a result of
investment securities totaling $57.0 million acquired in the acquisition of
First Savings coupled with the maturity and sale of $63.2 million and purchases
of $47.9 million. Investment securities at December 31, 1998 decreased by $15.2
million or 12% over the amount reported at December 31, 1997. The decrease was a
result of investment securities either maturing or being sold. The proceeds were
partly used in funding the increase in interest-bearing due from banks. The
following table presents the composition of the investment securities portfolio
along with the amortized cost and fair values of those components at December
31, 1999, 1998 and 1997.
16
December 31,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
(In Thousands)
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-------- -------- -------- -------- -------- --------
Available-for-sale
U.S. Treasury and U.S.
Government agencies securities $ 63,851 $ 62,443 $ 16,370 $ 16,638 $ 33,590 $ 33,884
State and political subdivisions 7,957 7,790 934 934 558 558
Other debt and equity securities 13,790 14,347 18,159 21,564 13,410 16,244
Mortgage-backed securities 58,583 57,656 54,576 54,661 40,599 40,565
-------- -------- -------- -------- -------- --------
Total available-for-sale $144,181 $142,236 $ 90,039 $ 93,797 $ 88,157 $ 91,251
-------- -------- -------- -------- -------- --------
Held-to-maturity
U.S. Treasury and U.S.
Government agencies securities $ 4,500 $ 4,088 $ 5,899 $ 5,576 $ 14,822 $ 14,519
State and political subdivisions 872 871 898 902 1,390 1,391
Mortgage-backed securities 3,583 3,546 11,007 11,076 19,313 19,302
-------- -------- -------- -------- -------- --------
Total held-to-maturity $ 8,955 $ 8,505 $ 17,804 $ 17,554 $ 35,525 $ 35,212
-------- -------- -------- -------- -------- --------
Total investment securities . $153,136 $150,741 $107,843 $111,351 $123,682 $126,463
======== ======== ======== ======== ======== ========
During 1999, the Company realized net gains of $2.2 million through the
sale of $16.4 million of investment securities from its available-for-sale
portfolio. Included in shareholders' equity at December 31, 1999 is accumulated
other comprehensive loss in the amount of $1.1 million, a decrease of $3.4
million or 151% over the end of 1998. In 1998, the Company realized net gains of
$1.1 million through the sale of $6.9 million of investment securities from its
available-for-sale portfolio. Included in shareholders' equity at December 31,
1998 is accumulated other comprehensive income in the amount of $2.3 million, an
increase of $385,000 or 21% over the end of 1997. The Company has no investment
securities held for trading purposes.
Statement of Financial Accounting Standards ("SFAS") No. 133 allows a
reassessment of investment securities classified without calling into question
the intent of the Company to hold other investment securities to maturity in the
future. On October 1, 1998, the Company reclassified securities with a fair
market value of $5.5 million resulting in an increase of accumulated other
comprehensive income of $28,000.
The following table shows the average yields, amortized cost and fair
values of the Company's investment securities by maturity.
December 31, 1999
-------------------------------------
Average Amortized Fair
Yield Cost Value
----- ---- -----
(Dollars in Thousands)
Available-for-sale
Due in one year or less.................... 5.05% $ 9,852 $ 9,793
Due after one year through 5 years......... 6.30% 36,693 36,254
Due after five years through 10 years...... 5.81% 5,589 5,426
Due after ten years........................ 5.54% 19,674 18,760
Mortgage-backed securities................. 6.02% 58,583 57,656
Other debt and equity securities........... n/a 13,790 14,347
-------- --------
Total available-for-sale................ $144,181 $142,236
======== ========
Held-to-maturity
Due in one year or less.................... 4.44% $ 4,184 $ 4,172
Due after one year through 5 years......... 4.22% 188 187
Due after five years through 10 years...... 2.49% 1,000 600
Mortgage-backed securities................. 6.82% 3,583 3,546
-------- --------
Total held-to-maturity................... n/a $ 8,955 $ 8,505
======== ========
Total investment securities.............. $153,136 $150,741
======== ========
17
Loan Portfolio
The Company's gross loan portfolio at December 31, 1999 totaled $346.9
million, an increase of $140.8 million or 68% compared to the amount reported at
December 31, 1998. Of the total increase in 1999, $109.0 million were acquired
through the acquisition of First Savings and the balance was due to internal
growth. At December 31, 1998, the gross loan portfolio totaled $206.1 million,
an increase of $44.9 million or 28% compared to the amount reported at December
31, 1997. This increase was primarily due to increased loan demand. The
Company's gross loan portfolio increased $23.8 million to $161.2 million at
December 31, 1997 compared to the amount reported at December 31, 1996. The
following table summarizes the components of the gross loan portfolio at the
dates indicated.
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one- to - four-family residential
properties ........................................... $154,822 $ 66,485 $ 45,700 $ 43,100 $ 43,328
Loans secured by nonresidential properties.............. 140,200 100,687 81,064 58,106 51,133
Loans to individuals.................................... 9,405 10,609 10,549 9,997 8,661
Loans to depository institutions........................ - - - - 4,600
Commercial loans........................................ 30,702 21,107 16,847 14,106 14,823
Construction loans...................................... 10,024 5,163 5,784 5,534 4,292
Other loans............................................. 1,782 2,069 1,305 6,567 4,905
-------- -------- -------- -------- --------
Total gross loans.................................. $346,935 $206,120 $161,249 $137,410 $131,742
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 1999.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 1999
-----------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
-------- -------- -------- --------
(In Thousands)
Loans with predetermined interest rates:
Loans secured by nonresidential properties ........ $ 5,121 $ 40,229 $ 10,372 $ 55,722
Commercial loans .................................. 1,606 9,855 1,212 12,673
Construction loans ................................ 620 391 223 1,234
-------- -------- -------- --------
Total loans with predetermined interest rates $ 7,347 $ 50,475 $ 11,807 $ 69,629
Loans with floating interest rates:
Loans secured by nonresidential properties ........ 8,335 13,403 61,740 84,478
Commercial loans .................................. 13,478 2,335 2,216 18,029
Construction loans ................................ 5,508 3,593 689 8,790
-------- -------- -------- --------
Total loans with floating interest rates ..... $ 27,321 $ 19,331 $ 64,645 $111,297
-------- -------- -------- --------
Total gross loans ........................ $ 34,668 $ 69,806 $ 76,452 $180,926
======== ======== ======== ========
At the date indicated in the foregoing loan table, no loans were
concentrated within a single industry or group of related industries and the
Company had no foreign loans.
Asset Quality
Various degrees of risk are associated with substantially all investing
activities. The lending function, however, carries the greatest risk of loss.
The senior lending officers of BCB, GFB and RCB are charged with monitoring
asset quality, establishing credit policies and procedures and seeking
consistent application of these procedures. Nonperforming assets include past
due, nonaccrual and renegotiated and other real estate loans. Since lending is
concentrated within the local market area, nonperforming loans were also made
primarily to customers operating in the area. The degree of risk inherent in all
lending activities is influenced heavily by general economic conditions in the
immediate market area. Among the factors which tend to affect portfolio risks
are changes in local or regional real estate values, income levels and energy
prices. These factors,
18
coupled with unemployment levels and tax rates, as well as governmental actions
and weakened market conditions which reduce the demand for credit among
qualified borrowers, are also important determinants of the risk inherent in
lending.
Past Due, Nonaccruing and Renegotiated Loans. It is the Company's policy
to review monthly all loans which are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are either doubtful of collection or are involved in a protracted
collection process. The current year's uncollected interest is reversed on such
nonaccrual loans. Management has also restructured the terms of certain loans to
accommodate changes in the financial condition of borrowers. A typical
concession would be a reduction in the currently payable interest rate to one
which is lower than the current market rate for new debt with similar risks;
interest foregone would be deferred until maturity.
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated.
December 31,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans ......................................... $1,678 $1,657 $1,741 $1,033 $1,422
Renegotiated loans ........................................ 606 416 521 726 517
------ ------ ------ ------ ------
Total nonperforming loans .............................. 2,284 2,073 2,262 1,759 1,939
Loans past due 90 days and accruing ....................... 248 461 135 876 1,125
Other real estate ......................................... 467 495 373 1,834 2,070
------ ------ ------ ------ ------
Total nonperforming assets ............................. $2,999 $3,029 $2,770 $4,469 $5,134
====== ====== ====== ====== ======
Nonperforming loans to total gross loans .................. .66% 1.01% 1.40% 1.28% 1.47%
Nonperforming assets to total gross loans and other
real estate owned ..................................... .86% 1.47% 1.71% 3.21% 3.84%
Nonperforming assets to total assets ...................... .53% .81% .86% 1.74% 2.03%
Allowance for possible loan losses to nonperforming loans . 216.86% 170.04% 120.73% 144.40% 120.27%
Nonperforming loans increased by $211,000 at December 31, 1999 compared to
December 31, 1998. The increase is primarily due to the reclassification of
certain loans from current loans to either nonaccruing or renegotiated status.
Nonperforming loans decreased by $189,000 at December 31, 1998 compared to
December 31, 1997. The decrease is primarily due to the reclassification of
certain loans from nonaccruing or renegotiated status to current loans. If the
nonaccruing loans in 1999, 1998 and 1997 had continued to pay interest, interest
income during the same years would have increased by $60,000, $138,000 and
$291,000, respectively.
Potential Problem Loans. As part of the loan review process, management
routinely identifies performing loans where there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and allocates
specific reserves against them. At December 31, 1999 and 1998, such loans
totaled $8.3 million and $5.3 million with an allowance of $1.0 million and
$664,000, respectively, specifically allocated to them.
Foreign Loans. The Company has no foreign loans or any other foreign
exposure.
Allowance for Possible Loan Losses
At December 31, 1999, the allowance for possible loan losses was $4.9
million as compared to $3.5 million at December 31, 1998, an increase of $1.4
million of which $624,000 arose from the acquisition of First Savings. The
allowance for possible loan losses is increased periodically through charges to
earnings in the form of a provision for possible loan losses. Loans that are
deemed uncollectible are charged against the allowance and any recoveries of
such loans are credited to it. It is management's belief that, although
charge-offs may occur in the future, there are adequate reserves allotted. The
level of the allowance is based on the ongoing evaluation by management of the
respective Bank Subsidiaries of potential losses in the loan portfolio. Such
evaluation includes consideration of the current financial status and credit
standing of borrowers, prior loss experiences, results of periodic regulatory
examinations, comments and recommendations of the Company's independent
19
accountants, and management's judgment as to prevailing and anticipated real
estate values and other economic conditions in the Bank Subsidiaries' market
areas. Since future events that may affect these financial conditions are
unpredictable, there is uncertainty as to the final outcome of the Bank
Subsidiaries' loans and nonperforming assets.
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
Years ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Dollars in Thousands)
Balance at beginning of year ........................... $ 3,525 $ 2,731 $ 2,540 $ 2,332 $ 1,824
Charge-offs:
Commercial ........................................... (102) (5) (356) (21) (589)
Real estate - mortgages .............................. -- (31) -- (281) (364)
Installment loans to individuals ..................... (45) (34) (9) (63) (82)
Credit cards and related plans ....................... (59) (53) (42) -- --
------- ------- ------- ------- -------
(206) (123) (407) (365) (1,035)
------- ------- ------- ------- -------
Recoveries:
Commercial ........................................... 59 376 104 124 87
Real estate - mortgages .............................. 50 11 7 9 --
Installment loans to individuals ..................... 4 5 1 9 3
Credit cards and related plans ....................... 12 5 1 -- --
------- ------- ------- ------- -------
125 397 113 142 90
------- ------- ------- ------- -------
Net recoveries (charge-offs) ........................... (81) 273 (294) (223) (945)
Provision for possible loan losses ..................... 885 520 485 440 414
Adjustment (1) ......................................... 624 -- -- (9) 1,039
------- ------- ------- ------- -------
Balance at end of year ................................. $ 4,953 $ 3,525 $ 2,731 $ 2,540 $ 2,332
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period ....... (.03%) .15% (.20%) (.16%) (.79%)
(1) Allowances for possible loan losses acquired from First Savings in
1999 and Family First in 1995
20
Allocation of the Allowance for Possible Loan Losses
The following table sets forth the allocation of the allowance for loan
losses by loan category amounts, the percent of loans in each category to total
loans in the allowance, and the percent of loans in each category to total
loans, at each of the dates indicated.
At December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
% of % of % of
Loans Loans Loans
to to to
% of Total % of Total % of Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in Thousands)
Balance at end of
period allocable to:
Commercial and non-
residential properties . $1,558 32% 49% $1,467 43% 59% $1,077 39% 60%
Construction 115 2 3 49 1 2 47 2 4
Loans secured by 1-4 families 2,183 44 45 919 26 34 898 33 29
Loans to individuals 264 5 3 369 10 5 280 10 7
Unallocated reserves 833 17 -- 721 20 -- 429 16 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses $4,953 100% 100% $3,525 100% 100% $2,731 100% 100%
====== ====== ====== ====== ====== ====== ====== ====== ======
At December 31,
-----------------------------------------------------
1996 1995
------------------------ -------------------------
% of % of
Loans Loans
to to
% of Total % of Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in Thousands)
Balance at end of
period allocable to:
Commercial and non-
residential properties . $ 859 34% 53% $1,256 54% 53%
Construction -- -- 4 -- -- 3
Loans secured by 1-4 families 670 26 31 662 28 33
Loans to individuals 206 8 12 296 13 11
Unallocated reserves 805 32 -- 118 5 --
------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses $2,540 100% 100% $2,332 100% 100%
====== ====== ====== ====== ====== ======
21
Other Real Estate
As of December 31, 1999, other real estate totaled $467,000, a decrease of
$28,000 or 6% compared to December 31, 1998. The net decrease was primarily due
to sale of foreclosed properties. The $467,000 includes collateral acquired
through foreclosure of loans, stated at the lower of the loan value or fair
market value less estimated cost to sell. Management is actively seeking
repayment through sale of the underlying collateral.
Deposits
As of December 31, 1999, total deposits were $460.6 million, an increase
of $167.2 million or 57% over total deposits at December 31, 1998. This net
increase results from acquiring $172.3 million in deposits through the
acquisition of First Savings offset in part by a decrease of $5.1 million
primarily due to maturity runoff. Average deposits for 1999 were $419.3 million,
or 49% higher than for 1998. As of December 31, 1998, total deposits were $293.4
million, an increase of $35.8 million or 14% over total deposits at December 31,
1997. Average deposits for 1998 were $52.8 million higher than average deposits
for 1997. The following table summarizes the average yield/rate of the
components of average deposit liabilities for the years indicated.
Years ended December 31,
-------------------------------------------------------------------------------
Average Average Average
1999 Yield/Rate 1998 Yield/Rate 1997 Yield/Rate
---- ---------- ---- ---------- ---- ----------
(Dollars in Thousands)
Non interest-bearing ........................... $ 88,003 -- $ 71,010 -- $ 60,481 --
Savings and interest-bearing ................... 123,776 2.20% 83,645 2.11% 76,466 2.21%
Time ........................................... 207,460 5.13 127,477 5.69 92,435 5.55
-------- -------- -------- -------- -------- --------
$419,239 3.19% $282,132 3.20% $229,382 2.97%
======== ======== ======== ======== ======== ========
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December
31, 1999
---------
(In Thousands)
Three months or less............................................. $16,770
Over three months through six months............................ 6,876
Over six months through twelve months............................ 11.156
Over twelve months............................................... 2,350
-------
$37,152
=======
Short-Term Borrowings
As of December 31, 1999, federal funds purchased and securities sold under
agreements to repurchase were $16.4 million. Short-term borrowings include
various other borrowings which generally have maturities of less than one year.
The details of these categories are presented below (in thousands):
Years ended December 31,
-----------------------------
1999 1998 1997
-------- -------- -------
Securities sold under repurchase agreements and
federal funds purchased
Balance at year-end.............................. $16,403 $ 7,103 $6,338
Average during the year.......................... 13,316 10,164 7,507
Maximum month-end balance........................ 20,466 12,843 8,670
Weighted average rate during the year............ 4.90% 4.49% 4.88%
Rate at December 31.............................. 6.34% 5.82% 5.00%
22
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
On May 21, 1997, the Company, through the Trust, sold 920,000 Trust
Preferred Securities at a price of $25 per share, for a total of $23.0 million.
The Preferred Securities have an annual dividend rate of 10% payable quarterly.
The Trust Preferred Securities which are treated as Junior Subordinated
Debentures on the Company's books, currently qualify for Tier I capital
treatment. The Trust Preferred Securities do not have a maturity date and are
callable by the Company on or about June 1, 2002, or earlier if certain
contingencies arise. The Debentures mature in the year 2027, at which time the
Trust Preferred Securities must be redeemed.
Interest Rate Sensitivity
Banks are concerned with the extent to which they are able to match
maturities of interest-earning assets and interest-bearing liabilities. Such
matching is facilitated by examining the extent to which such assets and
liabilities are interest rate-sensitive and by monitoring an institution's
interest rate-sensitivity gap. An asset or liability is considered to be
interest rate-sensitive if it will mature or reprice within a specific time
period. The interest rate-sensitivity gap is defined as the excess of interest-
earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. The
Bank Subsidiaries monitor their gaps on a monthly basis, primarily their
six-month and one-year maturities, and work to maintain their gaps within a
range of 10% to (25)%.
The Company had a negative one-year gap position with respect to its
exposure to interest rate risk at December 31, 1999. The Asset/Liability
Management Committees of the Bank Subsidiaries' respective Boards of Directors
meet quarterly to discuss their interest rate risks. The Company uses simulation
models to measure the impact of potential changes in interest rates on the net
interest income, balance sheet mix and the spread relationship between market
rates and bank products. As described below, sudden changes in interest rates
should not have a material impact to the Bank Subsidiaries' results of
operations. Should the Bank Subsidiaries experience a positive or negative
mismatch in excess of the approved range, they have a number of remedial
options. They have the ability to reposition their investment portfolios to
include securities with more advantageous repricing and/or maturity
characteristics. They can attract variable or fixed-rate loan products as
appropriate. They can also price deposit products to attract deposits with
maturity characteristics that can lower their exposures to interest rate risk.
23
The following table summarizes, as of December 31, 1999, the repricing of
earning assets and interest-bearing liabilities in accordance with their
contractual terms in given time periods.
Due within Four to One to Two to Over
Three Twelve Two Five Five Fair
Months Months Years Years Years Total Value
----------- ------- ------ ------ --------- --------- ---------
(Dollars in Thousands)
Rate-sensitive assets:
Investment securities.................$ $ 32,089 $ 30,908 $ 24,308 $ 38,395 $ 25,491 $151,191 $150,741
Rate 6.23% 5.78% 6.10% 6.20% 6.30% 6.11%
Federal funds sold and deposits
from banks..........................$ 3,697 8,079 1,249 -- -- 13,025 13,025
Rate 5.90% 6.08% 5.99% -- -- 5.99%
Total loans net of unearned income.....$ 69,289 33,861 42,212 112,276 87,878 345,516 341,114
Rate 8.65% 8.34% 7.81% 8.12% 7.23% 7.96%
-------- -------- -------- -------- -------- -------- --------
Total rate-sensitive assets........ $105,075 $ 72,848 $ 67,769 $150,671 $113,369 $509,732 $504,880
======== ======== ======== ======== ======== ======== ========
Rate-sensitive liabilities:
Interest-bearing demand deposits.......$ $ 22,239 $ 6,414 $ 13,694 $ 20,852 $ 7,157 $ 70,356 $70,356
Rate 1.81% 1.81% 1.81% 1.81% 1.81% 1.81%
Savings deposits.......................$ 18,029 216 9,162 21,195 12,033 60,635 60,635
Rate 2.64% 2.64% 2.64% 2.64% 2.64% 2.64%
Time deposits..........................$ 47,996 156,161 25,081 6,435 2 235,675 236,205
Rate 4.54% 5.20% 5.13% 5.25% 4.80% 5.16%
Total borrowings (1)...................$ 13,957 -- 5,000 17,712 25,755 62,424 64,632
Rate 5.01% -- 5.01% 5.01% 7.51% 6.03%
-------- -------- -------- -------- -------- -------- --------
Total rate-sensitive liabilities... $102,221 $162,791 $ 52,937 $ 66,194 $ 44,947 $429,090 $431,828
======== ======== ======== ======== ======== ======== ========
Interest rate-sensitivity gap........... 2,854 (89,943) 14,832 84,477 68,422 80,642
Interest rate-sensitivity gap as a
percentage of total rate-sensitive
assets................................. 0.56% (17.65%) 2.91% 16.57% 13.42%
Cumulative interest rate-sen