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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14294
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Greater Community Bancorp
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(Exact name of registrant as specified in its charter)
New Jersey 22-2545165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 942-1111
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Nasdaq National Market
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.50 Per Share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market price
shall be computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of filing.
$43,936,907 AS OF FEBRUARY 22, 2001. For purposes of this calculation,
directors, executive officers and beneficial owners of more than 5% of
the registrant's outstanding voting stock are affiliates.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, was as follows:
6,329,172 AS OF FEBRUARY 22, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its
2001 Annual Meeting of Stockholders to be held on April 17, 2001 is incorporated
by reference into Part III, Items 9 through 12, inclusive.
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
INDEX TO FORM 10-K FOR DECEMBER 31, 2000
PART I PAGE NO.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 7a. Quantitative and Qualitative Market Risk.................... 24
Item 8. Financial Statements........................................ 25
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 50
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 51
SIGNATURES................................................................ 53
PART I
ITEM 1 - BUSINESS
THE HOLDING COMPANY
Greater Community Bancorp (the "Company") is a New Jersey business
corporation. It is registered as a bank holding company with the Board of
Governors of the Federal Reserve System ("Federal Reserve") under the Federal
Bank Holding Company Act of 1956, as amended ("Holding Company Act"). The
Company was incorporated in 1984.
The Company's only substantive business activity is the ownership and
operation of Great Falls Bank ("GFB"), Bergen Commercial Bank ("BCB") and Rock
Community Bank ("RCB") (the "Bank Subsidiaries"), which the Company acquired in
1985, 1995 and 1999, respectively (see "BANK SUBSIDIARIES" below) and its
nonbank subsidiaries (see "NONBANK SUBSIDIARIES" below).
During 2000, the Company demonstrated continued sustainable growth both in
assets and earnings in an increasingly competitive and volatile environment. As
of December 31, 2000, the Company's consolidated assets were $607.3 million, as
compared with consolidated assets of $567.5 million at December 31, 1999.
Earnings for the full year 2000 were $4.8 million or $0.75 per diluted share
($0.76 per basic share), up from $4.2 million or $0.65 per diluted share ($0.68
per basic share) in 1999. Cash earnings per diluted share, which excludes
goodwill amortization, were $0.87 for 2000, a 16% increase compared to 1999. The
Company declared total cash dividends of $0.30 per share and $0.26 per share
during 2000 and 1999, respectively.
NONBANK SUBSIDIARIES
The Company owns five nonbank subsidiaries. (i) In March 1998, the Company
continued its expansion efforts by forming another nonbank subsidiary, Highland
Capital Corp. ("HCC"). HCC is a New Jersey corporation located in Paramus, New
Jersey. The purpose of HCC is to engage in the business of leasing commercial
office equipment to small and mid-size businesses in Bergen and surrounding
counties.
(ii) GCB Realty, L.L.C. ("Realty") was formed in July 1997 as a New Jersey
limited liability company located in Totowa, New Jersey. The purposes of Realty
are to acquire and manage real estate properties. Realty owns a property in
Bergen County, New Jersey. BCB and three other tenants lease space in the
building.
(iii) GCB Capital Trust (the "Trust") was formed in April 1997 under the
Business Trust Act of Delaware. The sole purposes of the Trust were issuing and
selling Preferred Securities and Common Securities and using the sales proceeds
to acquire Junior Subordinated Debentures (the "Debentures" issued by the
Company. The Junior Subordinated Debentures are the sole assets of the Trust and
the payments under the Junior Subordinated Debentures are its sole revenues. The
Company owns all of the Trust's Common Securities.
The Company through the Trust sold 920,000 Preferred Securities with a
liquidation preference of $25 per share for an aggregate amount of $23.0
million. It has a distribution rate of 10% per annum payable at the end of each
calendar quarter. Although the Debentures are treated as debt of the Company,
they currently qualify for Tier I capital treatment. The Preferred Securities
have no maturity date and are callable by the Company on or about June 1, 2002,
or earlier in the event the deduction of related interest for federal income tax
is prohibited, treatment as Tier I capital is no longer permitted or certain
other contingencies arise. The Debentures mature in 2027, at which time the
Preferred Securities must be redeemed.
(iv) Greater Community Services, Inc., activated in March 1997, provides
accounting/bookkeeping, data processing and management information systems, loan
operations and various other banking-related services at cost to the Bank
Subsidiaries.
(v) In October 1996, a nonbank subsidiary opened for business under the
name of Greater Community Financial, L.L.C. ("GCF"), a New Jersey limited
liability company located in Clifton, New Jersey. This Company engages in the
business of securities broker and dealer.
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BANK SUBSIDIARIES
GFB received its charter from the New Jersey Department of Banking &
Insurance (the "Department") in 1985 and commenced operations as a commercial
bank in 1986. Its main office is located at 55 Union Boulevard, Totowa, New
Jersey. GFB has six additional branches, all of which are located in Passaic
County, New Jersey. Three branches are located in Little Falls, two of which
were acquired by merger in April 1999 and the other has operated since March
1988. Two branches are located in Clifton, one of which were acquired by merger
in April 1995 and the other was a de novo branch established in 1997. A sixth
branch, located at 100 Furler Street, Totowa, has been in operation since 1996.
GFB conducts a general commercial and retail banking business encompassing a
wide range of traditional deposits and lending functions. GFB offers a broad
variety of lending services, including commercial and residential real estate
loans, short and medium term loans, revolving credit arrangements, lines of
credit, and consumer installment loans. In the depository area, GFB offers a
broad variety of deposit accounts, including consumer and commercial checking
accounts and NOW accounts. GFB also offers other customary banking services.
BCB was incorporated in New Jersey in 1987 and commenced its banking
operations in 1988. BCB concentrates its operations in commercial lending and
loan origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. BCB also offers other
customary banking services. In addition to its main office at Two Sears Drive in
Paramus, New Jersey, BCB has four additional branch offices, located in
Hasbrouck Heights, Wood-Ridge, Wallington, and Hackensack. A fifth branch in
Little Ferry was acquired by merger in April 1999.
GFB and BCB each has a wholly-owned investment company subsidiary, a New
Jersey corporation, formed to manage their respective investment portfolios.
Each of the investment companies in turn has a wholly-owned Delaware subsidiary
established in June 2000 whose purpose is to hold and manage securities
investments.
RCB commenced its banking operations in 2nd quarter 1999. RCB's main office
is located at 175 Glen Rock Road in Glen Rock, New Jersey, primarily servicing
Bergen County. RCB offers a variety of banking services, including commercial
and real estate lending, revolving credit arrangements and consumer loans. It
also offers the traditional deposit services and other customary banking
services.
COMPETITION
The Company, through the Bank Subsidiaries, competes with other New Jersey
commercial banks, savings banks, savings and loan associations, finance
companies, insurance companies, and credit unions. A substantial number of
offices of competing financial institutions are located within the Bank
Subsidiaries' respective market areas. The past trend toward consolidation of
the banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Bank Subsidiaries to
compete with larger national and regional banking institutions. Several of the
Bank Subsidiaries' competitors are affiliated with major banking and financial
institutions which are substantially larger and have far greater financial
resources than the Bank Subsidiaries.
Competitive factors between financial institutions can be classified into
two categories: competitive rates and competitive service. Rate competition is
intense especially in the area of time deposits. The Bank Subsidiaries compete
with larger institutions with respect to the interest rates they offer. From a
service standpoint, the Bank Subsidiaries' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Bank Subsidiaries. Such competitors also perform certain functions for their
customers, such as trust and international services, which the Bank Subsidiaries
have chosen not to provide.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business, limit its management's
options to deploy assets and maximize income and may significantly limit the
activities of institutions which do not meet regulatory capital or other
requirements. Areas subject to regulation and supervision by the bank regulatory
agencies include, among others: minimum capital levels; dividends; affiliate
transactions; expansion of locations; acquisitions and mergers; reserves against
deposits; deposit insurance premiums; credit
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underwriting standards; management and internal controls; investments; and
general safety and soundness of banks and bank holding companies. Supervision,
regulation and examination of the Company and the Bank Subsidiaries by the bank
regulatory agencies are intended primarily for the protection of depositors, the
communities served by the institutions or other governmental interests, rather
than for holders of stock of the Company.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank Subsidiaries. A number of other statutes and
regulations and governmental policies have an impact on their operations. The
Company is unable to predict the nature or the extent of the effects on its
business and earnings that fiscal or monetary policies, economic control or new
federal or state legislation may have in the future. The following summary does
not purport to be complete and is qualified in its entirety by reference to such
statutes and regulations.
BANK HOLDING COMPANY REGULATION
The Company is registered as a bank holding company under the Holding
Company Act. As such, it is subject to regular examination, supervision and
regulation by the Federal Reserve. The Company is required to file reports with
the Federal Reserve and to furnish such additional information as the Federal
Reserve may require pursuant to the Holding Company Act. The Company also is
subject to regulation by the Department.
A policy of the Federal Reserve requires the Company to act as a source of
financial and managerial strength to the Bank Subsidiaries and to commit
resources to support them. In addition, any loans by the Company to the Bank
Subsidiaries would be subordinate in right of payment to deposits and certain
other indebtedness of the Bank Subsidiaries. At December 31, 2000, the Company
had approximately $8.2 million in financial resources in addition to its
investment in the Bank Subsidiaries and nonbank subsidiaries. The Federal
Reserve has adopted guidelines regarding the capital adequacy of bank holding
companies which require them to maintain specified minimum ratios of capital to
total assets and capital to risk-weighted assets.
HOLDING COMPANY ACTIVITIES
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
nonbank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The Company's activities are subject to these legal and regulatory limitations
under the Holding Company Act and related Federal Reserve regulations.
Satisfactory capital ratios and Community Reinvestment Act ("CRA") ratings
are generally prerequisites to obtaining regulatory approval to make
acquisitions. The Financial Modernization Act of 1999, allows the Company to
expand into insurance, securities, merchant banking and other activities that
are financial in nature.
The federal Interstate Banking and Branching Act of 1994 permits a bank
holding company to acquire banks in states other than its home state, regardless
of applicable state law. The 1994 law also permits banks to create interstate
branches, either by merging across state lines or by creating new branches,
subject to a state's ability to opt out of these enabling provisions. As have
most states, New Jersey has enacted legislation to authorize interstate banking
either by merger or by branching into New Jersey if the foreign bank already has
branches in New Jersey; however, that legislation did not authorize de novo
branching into New Jersey.
HOLDING COMPANY DIVIDENDS AND STOCK REPURCHASES
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. It is the Federal Reserve's view that
a bank holding company should pay cash dividends only to the extent that its net
income for the past year is sufficient to cover both the cash dividends and a
rate of earnings retention that is consistent with its capital needs, asset
quality and overall financial condition.
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As a bank holding company, the Company is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive, or any condition imposed by or
written agreement with, the Federal Reserve.
BANK REGULATION
As state-chartered banks which are not members of the Federal Reserve
System, the Bank Subsidiaries are subject to the primary federal supervision of
the FDIC under the Federal Deposit Insurance Act (the "FDIA"). Prior approval of
the FDIC is required for the Bank Subsidiaries to establish or relocate a branch
office or to engage in any merger, consolidation or significant purchase or sale
of assets. The Bank Subsidiaries are also subject to regulation and supervision
by the Department. In addition, they are subject to numerous federal and state
laws and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the
respective Bank Subsidiaries and their condition, including capital adequacy,
reserves, loans, investments and management practices. These examinations are
for the protection of the Bank Subsidiaries' depositors and the Bank Insurance
Fund ("BIF") and not the Company. The Bank Subsidiaries are also required to
furnish quarterly and annual reports to the FDIC. The FDIC's enforcement
authority includes the power to remove officers and directors and the authority
to issue orders to prevent a bank from engaging in unsafe or unsound practices
or violating laws or regulations governing its business.
The FDIC has adopted regulations regarding the capital adequacy of banks
subject to its primary supervision. Such regulations require those banks to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See "Regulatory Capital Requirements".
Statewide branching is permitted in New Jersey. Branch approvals are subject
to statutory standards relating to safety and soundness, competition, public
convenience and CRA performance.
COMMUNITY REINVESTMENT ACT
Under the CRA, the Subsidiary Banks have a continuing and affirmative
obligation, consistent with their safe and sound operation, to help meet the
credit needs of their entire communities, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. GFB and BCB
received "satisfactory" CRA ratings in their most recent examinations.
BANK DIVIDENDS
New Jersey law permits the Bank Subsidiaries to declare dividends only if,
after payment of the dividends, their capital would be unimpaired and their
remaining surplus would equal at least 50% of their capital. Under the FDIA, the
Bank Subsidiaries are prohibited from declaring or paying dividends or making
any other capital distribution if, after that distribution, they would fail to
meet their regulatory capital requirements. At December 31, 2000, the Bank
Subsidiaries met their regulatory capital requirements. The FDIC also has
authority to prohibit the payment of dividends by a bank when it determines such
payment to be an unsafe and unsound banking practice. The FDIC may prohibit bank
holding companies of banks which are deemed to be "significantly
undercapitalized" under the FDIA or which fail to properly submit and implement
capital restoration plans required by the FDIA from paying dividends or making
other capital distributions without the FDIC's permission. See "Holding Company
Dividends and Stock Repurchases".
4
RESTRICTIONS ON INTERCOMPANY TRANSACTIONS
The Bank Subsidiaries are subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Company and
other affiliates. Such restrictions prevent the Company and its affiliates from
borrowing from the Bank Subsidiaries unless the loans are secured by specified
collateral, and require such transactions to have terms comparable to terms of
arms-length transactions with third persons. Such transactions by each of the
Bank Subsidiaries are generally limited in amount as to the Company and as to
any other affiliate to 10% of the Subsidiary Bank's capital and surplus. As to
the Company and all other affiliates, such transactions are limited to an
aggregate of 20% of the Subsidiary Bank's capital and surplus. These regulations
and restrictions may limit the Company's ability to obtain funds from the Bank
Subsidiaries for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses.
REAL ESTATE LENDING GUIDELINES
Under FDIC regulations, state banks must adopt and maintain written policies
establishing appropriate limits and standards for real estate lending
activities. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits that
are clear and measurable), loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by federal bank regulators.
DEPOSIT INSURANCE
Since the Bank Subsidiaries are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC. The Bank Subsidiaries are also required to
pay deposit insurance premiums to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums. FDICIA permits the
FDIC to make special assessments on insured depository institutions in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any other
purpose the FDIC deems necessary. Under a risk-based insurance premium system
which became permanent in 1994, banks are assessed insurance premiums according
to how much risk they are deemed to present to the BIF. Banks with higher levels
of capital and involving a low degree of supervisory concern are assessed lower
premiums than banks with lower levels of capital and/or involving a higher
degree of supervisory concern. Specifically, the assessment rate for an insured
depository institution depends upon the risk classification assigned to the
institution by the FDIC based upon the institution's capital level and
supervisory evaluations. Institutions are assigned to one of three capital
groups--well- capitalized, adequately capitalized or undercapitalized.
Well-capitalized institutions are institutions satisfying the following capital
ratio standards: (i) total risk-based capital ratios of 10.0% or greater, (ii)
Tier I risk-based capital ratios of 6.0% or greater, and (iii) Tier I leverage
ratios of 5.0% or greater. Adequately capitalized institutions are institutions
that do not meet the standards for well-capitalized institutions but that
satisfy the following capital ratio standards: (i) total risk-based capital
ratios of 8.0% or greater; (ii) Tier I risk-based capital ratios of 4.0% or
greater, and (iii) Tier I leverage ratios of 4.0% or greater. Undercapitalized
institutions consist of institutions that do not qualify as either
"well-capitalized" or "adequately capitalized." Within each capital group,
institutions are assigned to one of three subgroups on the basis of supervisory
evaluations by the institution's primary supervisory authority and such other
information as the FDIC determines to be relevant. Effective January 1, 1997 the
assessment rates ranged from 0.00% to 0.27% of deposits. The Bank Subsidiaries'
deposit assessment rates were 0.00% in 1999 and 2000.
In addition, the Deposit Insurance Act of 1996 authorized the Financing
Corporation ("FICO") to levy assessments on BIF assessable deposits and
stipulated that the rate must equal one-fifth the FICO assessment rate that is
applied to deposits assessable by the Savings Association Insurance Fund
("SAIF"). The rates established for GFB and BCB for 1997 through 2000 are 0.065%
and 0.013%, respectively.
STANDARDS FOR SAFETY AND SOUNDNESS
Under FDICIA, each federal banking agency is required to prescribe
noncapital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the Federal Reserve and the FDIC, have
adopted interagency guidelines which cover internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees, benefits, and
standards for asset quality and earnings sufficiency. An institution which fails
to meet any of these standards may be required to develop a plan acceptable to
the agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company believes that the Bank
Subsidiaries meet all adopted standards.
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ENFORCEMENT POWERS
The bank regulatory agencies have broad discretion to issue cease and desist
orders if they determine that the Company or its Bank Subsidiaries are engaging
in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities may impose substantial civil money penalties for
violations of certain federal banking statutes and regulations, violation of a
fiduciary duty, or violation of a final or temporary cease and desist orders,
among other things. Financial institutions and a broad range of persons
associated with them are subject to the imposition of fines, penalties, and
other enforcement actions based upon the conduct of their relationships with the
institutions.
The FDIC may be appointed as a conservator or receiver for a depository
institution based upon a number of events and circumstances. The FDIC as a
conservator or receiver of a depository institution also has express authority
to repudiate most contracts with such institution which it determines to be
burdensome or if such repudiation will promote the orderly administration of the
institution's affairs. The FDIC is also given authority to enforce contracts
made by a depository institution notwithstanding any contractual provision
providing for termination, default, acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the appointment of a conservator or receiver.
Insured depository institutions also are prohibited from entering into contracts
for goods, products or services which would adversely affect their safety and
soundness.
REGULATORY CAPITAL REQUIREMENTS
The Federal Reserve and the FDIC have established guidelines with respect to
the maintenance of appropriate levels of capital by bank holding companies and
state-chartered banks that are not members of the Federal Reserve System ("state
nonmember banks"). The regulations impose two sets of capital adequacy
requirements: minimum leverage rules, which require maintenance of a specified
minimum ratio of capital to total assets, and risk-based capital rules, which
require the maintenance of specified minimum ratios of capital to
"risk-weighted" assets.
These regulations require bank holding companies and state nonmember banks
to maintain a minimum leverage ratio of "Tier I capital" to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of 1 under the rating system used by the federal bank regulators, would
be permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding company experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve has indicated that whenever appropriate, and in particular when
a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier I
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules require bank holding companies and state
nonmember banks to maintain minimum regulatory capital levels based upon a
weighting of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a Tier I or core capital
requirement and a Tier II or supplementary capital requirement. Tier I capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less most intangible assets, primarily goodwill. Tier II capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier I and
long-term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; and subordinated debt and intermediate-term preferred
stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets.
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The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan losses which may be included as capital to 1.25% of total risk-weighted
assets.
At December 31, 2000, the Company's total risk-based capital and leverage
capital ratios were 13.88% and 7.10%, respectively. The minimum levels
established by the regulators for these measures are 8% and 4%, respectively.
FDICIA also required the federal banking regulators to classify insured
depository institutions by capital levels and to take various prompt corrective
actions to resolve the problems of any institution that fails to satisfy the
capital standards. Under FDICIA and its "prompt corrective action" regulations,
all institutions, regardless of their capital levels, are restricted from making
any capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements.
Under the FDIC's prompt corrective action regulation, a "well-capitalized"
bank is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier I risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately- capitalized" bank is one that does
not qualify as "well-capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital ratio of 8%, a Tier I risk-based
capital ratio of 4%, and a leverage ratio of either 4% or 3% if the bank has the
highest composite examination rating. A bank not meeting these criteria will be
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which the bank's capital levels are
below these standards. A bank that falls within any of the three
"undercapitalized" categories established by the prompt corrective action
regulation will be: (i) subject to increased monitoring by the appropriate
federal banking regulator; (ii) required to submit an acceptable capital
restoration plan within 45 days; (iii) subject to asset growth limits; and (iv)
required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses. The capital restoration plan must include a guarantee by
the institution's holding company that the institution will comply with the plan
until it has been adequately capitalized on average for four consecutive
quarters, under which the holding company would be liable up to the lesser of 5%
of the institution's total assets or the amount necessary to bring the
institution into capital compliance as of the date it failed to comply with its
capital restoration plan. A significantly undercapitalized institution, as well
as any undercapitalized institution that did not submit an acceptable capital
restoration plan, will be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates, limitations
on interest rates paid on deposits, asset growth and other activities, possible
replacement of directors and officers, and restrictions on capital distributions
by any bank holding company controlling the institution. Any company controlling
the institution may be required to divest its interest in the institution. If an
institution's ratio of tangible capital to total assets falls below a "critical
capital level" established by the appropriate federal banking regulator, the
institution will be subject to conservatorship or receivership unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund.
EFFECT OF GOVERNMENT MONETARY POLICIES; POSSIBLE FURTHER LEGISLATION
The Company's earnings are and will be affected by domestic and
international economic conditions and the monetary and fiscal policies of the
United States and foreign governments and their agencies.
The Federal Reserve's monetary policies have had, and will probably continue
to have, an important impact on the operating results of commercial banks
through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The Federal Reserve has a major
effect upon the levels of bank loans, investments and deposits through its open
market operations in United States Government securities and through its
regulation of, among other things, the discount rate on borrowings of banks and
the imposition of nonearning reserve requirements against member bank deposits.
It is not possible to predict the nature and impact of future changes in
monetary and fiscal policies.
From time to time, proposals are made in the United States Congress, the New
Jersey Legislature, and various bank regulatory authorities which would alter
the powers of, and place restrictions on, different types of banking
organizations. It is impossible to predict whether any of these proposals will
be adopted and any impact of such adoption on the business of the Company and/or
the Bank Subsidiaries.
7
The Bank Subsidiaries are also subject to various Federal and State laws
such as usury laws and consumer protection laws.
EMPLOYEES
As of December 31, 2000, the Company employed a total of approximately 198
employees, including 163 full-time employees. Management considers relations
with employees to be satisfactory.
ITEM 2 - PROPERTIES
The Company does not directly own or lease any land, buildings or equipment.
However, the Company's wholly-owned nonbank subsidiary, Realty, owns a property
in Bergen County, New Jersey.
GFB leases its main office banking facility and certain other office space
at 55 Union Boulevard, Totowa, New Jersey. Such main office leased space is
owned by a general partnership of which the Company's chairman and vice chairman
are both partners. GFB also leases space for its five other branches in Totowa,
Little Falls and Clifton, New Jersey.
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
from Realty. BCB also leases space for three other branches in Hackensack,
Wallington and Wood-Ridge, New Jersey. BCB owns the space for its branch located
in Hasbrouck Heights, New Jersey.
RCB leases its main office space at 175 Glen Rock Road, Glen Rock, New
Jersey. The leased space is owned by Sinabaldo Leone, Jr., a director of RCB.
In the opinion of management, all such leased properties are adequately
insured and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease obligations,
see Note 14 of the Company's Notes to Consolidated Financial Statements for the
year ended December 31, 2000, contained in Item 7 -"Financial Statements."
ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
there is no proceeding threatened or pending against the Company which, if
determined adversely, would have a material effect on the Company's business,
financial position or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 2000 to a vote of
security holders, through the solicitation of proxies or otherwise.
8
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,046 holders of record
on December 31, 2000, and is traded on the Nasdaq National Market under the
symbol GFLS.
The following table indicates the range of high and low market quotations of
the Common Stock, as reported by NASDAQ, and the cash dividends declared per
share on the Common Stock, in each case for the quarterly periods indicated. The
market quotation and cash dividends have been adjusted to take into account the
effect of the 5% stock dividends paid in 2000 and 1999, respectively.
Cash
Market Quotations Dividends
--------------------
High Low Declared
-------- ----- ----------
Year Ended December 31, 1999
First Quarter $10.66 $ 8.85 $.06
Second Quarter 9.87 8.73 .06
Third Quarter 10.88 9.05 .07
Fourth Quarter 10.44 8.81 .07
Year Ended December 31, 2000
First Quarter $ 8.93 $ 6.19 $.07
Second Quarter 8.33 6.67 .07
Third Quarter 8.88 7.75 .08
Fourth Quarter 9.00 8.00 .08
The Company's ability to pay dividends on its Common Stock in the future is
subject to numerous regulatory restrictions which are potentially applicable.
(See above, Item 1 "--DESCRIPTION OF BUSINESS--SUPERVISION AND REGULATION--Bank
Holding Company Regulation--Holding Company Dividends and Stock Repurchases";
and "--Bank Regulation--Bank Dividends"). However, management does not expect
any of such restrictions to become applicable so long as the Company and the
Bank Subsidiaries continue to operate profitably.
9
ITEM 6 - SELECTED FINANCIAL DATA
The selected consolidated financial highlights of Greater Community Bancorp
(the "Company") set forth below should be read in conjunction with the more
detailed information included in the Consolidated Financial Statements, related
Notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing elsewhere herein.
As of the Years Ended December 31,
----------------------------------------------------------------
(In thousands, except per share data) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS:
Total interest income............................ $ 41,458 $ 34,564 $ 24,866 $ 20,548 $ 18,693
Total interest expense........................... 20,664 17,140 12,009 8,948 7,154
Net interest income.............................. 20,794 17,424 12,857 11,600 11,539
Provision for possible loan losses............... 1,048 885 520 485 440
Net interest income after provision for
possible loan losses......................... 19,746 16,539 12,337 11,115 11,099
Other income..................................... 6,167 7,270 4,656 2,755 1,929
Other expenses................................... 18,290 17,288 11,450 9,775 9,379
Income before income taxes....................... 7,623 6,521 5,543 4,095 3,649
Provision for income taxes....................... 2,793 2,349 2,000 1,495 1,312
Net Income....................................... $ 4,830 $ 4,172 $ 3,543 $ 2,600 $ 2,337
PER COMMON SHARE DATA:
Earnings Per Share - Basic....................... $ 0.76 $ 0.68 $ 0.61 $ 0.54 $ 0.51
Earnings Per Share - Diluted..................... $ 0.75 $ 0.65 $ 0.58 $ 0.51 $ 0.49
Cash dividends per common share.................. $ 0.30 $ 0.26 $ 0.21 $ 0.16 $ 0.11
Stock splits and dividends per common share...... 5% 5% 2 for 1 10% 10%
Book value per common share...................... $ 6.37 $ 5.59 $ 5.50 $ 5.01 $ 4.59
SELECTED OPERATING RATIOS:
Return on average assets......................... 0.84% 0.81% 1.00% 0.92% 0.93%
Return on average equity......................... 13.43% 11.98% 11.88% 10.82% 11.69%
Interest rate spread............................. 3.13% 3.02% 2.65% 3.20% 4.01%
Net interest margin.............................. 3.98% 3.78% 3.87% 4.40% 4.95%
FINANCIAL CONDITION DATA:
Total Assets..................................... $607,305 $567,453 $372,400 $321,985 $256,506
Cash and cash equivalents........................ 56,292 19,200 23,640 22,845 18,294
Investment securities............................ 138,153 151,191 111,601 126,776 89,679
Total Loans, net................................. 366,139 340,563 201,765 158,125 134,587
Allowance for possible loan losses............... 5,657 4,953 3,525 2,731 2,540
Total Deposits................................... 465,245 460,634 293,395 257,555 223,242
Other borrowings................................. 90,020 64,403 40,103 30,141 9,147
Shareholders' equity............................. $ 40,231 $ 35,402 $ 32,309 $ 29,261 $ 21,061
CAPITAL RATIOS:
Equity to assets................................. 6.62% 6.23% 8.68% 9.09% 8.21%
Total risk-based capital ratio................... 13.88% 13.73% 21.58% 26.19% 17.29%
Tier I risk-based capital ratio.................. 10.14% 9.59% 15.32% 17.94% 12.86%
Leverage ratio................................... 7.10% 7.18% 11.21% 12.71% 8.01%
All per share data has been adjusted to reflect stock dividends and stocksplit.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing the Company's financial condition and
results of operations for each of the past three years and its financial
condition at the end of each of the past two years. In order to fully appreciate
this analysis, the reader is encouraged to review the consolidated financial
statements and statistical data presented in this document. Data is presented
for the Company and its subsidiaries in the aggregate unless otherwise
indicated.
10
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K, both in this MD&A section and elsewhere (including documents
incorporated by reference herein), contains both historical information and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not historical
facts and include expressions about management's confidence and strategies and
its expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by an asterisk (*) or such forward- looking terminology as
"projected," "expect," "look," "believe," "anticipate," "may," "will," or
similar statements or variations of such terms. Such forward-looking statements
involve certain risks and uncertainties. These include, but are not limited to,
the ability of the Company's bank subsidiaries to generate deposits and loans
and attract qualified employees, the direction of interest rates, continued
levels of loan quality and origination volume, continued relationships with
major customers including sources for loans as well as the effects of economic
conditions and legal and regulatory barriers and structure. Actual results may
differ materially from such forward-looking statements. The Company assumes no
obligation for updating any such forward-looking statement at any time.
RESULTS OF OPERATIONS: FISCAL YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
The Company earned $4.8 million or $0.75 per diluted share, a 16% increase
over $4.2 million or $0.65 per diluted share earned during 1999. Excluding gains
on the sale of investment securities and non-recurring expenses of $1.4 million
related to the purchase of First Savings incurred in the second quarter of 1999,
net income for the year 1999 was approximately $3.4 million compared to $2.5
million in 1998. The Company earned $3.5 million or $0.58 per diluted share in
1998, which included $1.1 million in gains on sale of investment securities.
Cash earnings (net income before amortization of intangible assets) per
diluted share were $0.87, $0.75 and $0.60 for the years ending December 31,
2000, 1999 and 1998, respectively.
The increase in net income for the year ended December 31, 2000 primarily
reflects higher net interest income, partially offset by higher salaries and
employee benefits, all other expenses (including amortization of intangible
assets), and higher provisions for possible loan losses and income taxes.
AVERAGE BALANCES AND NET INTEREST INCOME
Net interest income, the primary source of the Company's results of
operations, is the difference between interest, dividends and fees earned on
loans and other earning assets, and interest paid on interest-bearing
liabilities. Earning assets include loans to businesses and individuals,
investment securities, interest-bearing deposits with banks and federal funds
sold in the interbank market. Interest-bearing liabilities include primarily
interest-bearing demand, savings and time deposits. Net interest income is
determined by the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and the
relative amounts of earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flows
and general levels of nonperforming assets.
The following table sets forth the Company's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest income and expense on related items, and the Company's average yield
for the years ended December 31, 2000, 1999 and 1998. The yields are not shown
on a fully taxable basis.
11
AVERAGE BALANCE SHEET, INTEREST INCOME AND EXPENSE, AND AVERAGE INTEREST RATES
For the Years Ended
---------------------------------------------------------------------------
December 31, 2000 December 31, 1999
------------------------------------ ------------------------------------
Average Interest Average Average Interest Average
Balance Earned/paid Yield/rate Balance Earned/paid Yield/rate
--------- ----------- ---------- --------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $ 144,980 $ 9,369 6.46% $ 137,983 $ 8,094 5.87%
Due from banks - interest-bearing................ 8,543 549 6.43% 13,121 762 5.82%
Federal funds sold............................... 9,789 538 5.50% 11,900 612 5.14%
Loans (1)........................................ 358,636 31,002 8.64% 298,278 25,096 8.41%
--------- --------- --------- ---------
Total earning assets......................... 521,948 41,458 7.94% 461,282 34,564 7.49%
Less: Allowance for possible loan losses......... (5,387) -- (4,409) --
Unearned income - loans...................... 1,661 -- (1,264) --
All other assets................................. 60,114 -- 57,175 --
--------- --------- --------- ---------
Total assets................................. $ 578,336 $ 41,458 $ 512,784 $ 34,564
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $ 135,953 $ 3,187 2.34% $ 123,776 $ 2,725 2.20%
Time deposits.................................. 223,834 12,512 5.59% 207,460 10,651 5.13%
Federal funds and short-term borrowings (2).... 46,748 2,665 5.70% 28,938 1,464 5.06%
Trust preferred securities..................... 23,000 2,300 10.00% 23,000 2,300 10.00%
--------- --------- --------- ---------
Total interest-bearing liabilities... 429,535 20,664 4.81% 383,174 17,140 4.47%
Non interest-bearing deposits.................... 103,209 -- 88,003 --
Other liabilities................................ 9,622 -- 6,777 --
Shareholders' equity............................. 35,970 -- 34,830 --
--------- --------- --------- ---------
Total liabilities and
shareholders' equity..................... $ 578,336 $ 20,664 $ 512,784 $ 17,140
========= --------- ========= ---------
NET INTEREST INCOME ............................ $ 20,794 $ 17,424
========= =========
NET INTEREST MARGIN.............................. 3.98% 3.78%
==== ====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
For the Years Ended
------------------------------------
December 31, 1998
------------------------------------
Average Interest Average
Balance Earned/paid Yield/rate
--------- ----------- ----------
(Dollars in Thousands)
ASSETS
Earning Assets:
Investment securities............................ $ 126,719 $ 7,348 5.80%
Due from banks - interest-bearing................ 9,917 578 5.83%
Federal funds sold............................... 11,524 605 5.25%
Loans (1)........................................ 183,676 16,335 8.89%
--------- ---------
Total earning assets......................... 331,836 24,866 7.49%
Less: Allowance for possible loan losses......... (3,078) --
Unearned income - loans...................... (630) --
All other assets................................. 26,753 --
--------- --------
Total assets................................. $ 354,881 $ 24,866
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits.......... $ 83,645 $ 1,766 2.11%
Time deposits.................................. 127,477 7,253 5.69%
Federal funds and short-term borrowings (2).... 13,521 633 4.68%
Trust preferred securities..................... 23,669 2,357 9.96%
--------- --------
Total interest-bearing liabilities... 248,312 12,009 4.84%
Non interest-bearing deposits.................... 71,010 --
Other liabilities................................ 5,748 --
Shareholders' equity............................. 29,811 --
--------- --------
Total liabilities and
shareholders' equity..................... $ 354,881 $ 12,009
========= --------
NET INTEREST INCOME ............................ $ 12,857
========
NET INTEREST MARGIN.............................. 3.87%
====
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities
sold under agreements to repurchase.
12
NET INTEREST INCOME
Changes in net interest income and margin result from the interaction
between the volume and composition of earning assets, related yields and
associated funding costs. Net interest income is the largest source of the
Company's operating income. Taxable net interest income was $20.8 million in
2000, a $3.4 million or 19% increase compared to 1999. Interest and fee income
on loans during 2000 increased by $5.9 million or 24% over the comparable period
in 1999 as a result of an increase of 20% in average total loans. The average
yield on loans increased to 8.64% in 2000 compared to 8.41% in 1999 as a result
of repricing of loans at prevailing rates. Loans represent 68% and 65% of
average earning assets in 2000 and 1999, respectively. Income earned on
investment securities during 2000 increased by $1.3 million, or 16% compared to
the same period in 1999. The increase was primarily due to a 5% increase in
average investments for the year ended December 31, 2000 over 1999. The average
yield on securities was 6.46% for the year ended December 31, 2000, compared to
5.87% for the same period in the prior year. Investments represent 28% and 30%
at 2000 and 1999, respectively, of average earning assets. Interest income on
federal funds sold and deposits with banks during 2000 decreased by $287,000, or
21% compared to 1999 as a result of a $6.7 million, or 26%, decrease in average
federal funds sold and deposits with banks. Federal funds sold and deposits with
banks represent 4% and 5% of average earning assets at 2000 and 1999,
respectively.
In 1999, taxable net interest income increased by $4.6 million or 36%
compared to 1998. Interest and fee income on loans during 1999 increased by $8.8
million or 54% over the comparable period in 1998 as a result of an increase of
62% in average total loans. The average yield on loans decreased to 8.41% in
1999 compared to 8.89% in 1998 as a result of repricing of loans at prevailing
rates. Loans represent 65% and 55% of average earning assets in 1999 and 1998,
respectively. Income earned on investment securities during 1999 increased by
$746,000, or 10% compared to 1998. The increase was primarily due to a 9%
increase in average investments for the year ended December 31, 1999 over 1998.
The average yield on securities was 5.87% for the year ended December 31, 1999,
compared to 5.80% for the same period in the prior year. Investments represent
30% and 38% at 1999 and 1998, respectively, of average earning assets. Interest
income on federal funds sold and deposits with banks during 1999 increased by
$191,000, or 16% compared to 1998 as a result of a $3.6 million, or 17%,
increase in average federal funds sold and deposits with banks. Federal funds
sold and deposits with banks represent 5% and 7% of average earning assets at
1999 and 1998, respectively.
Interest expense for the year ended December 31, 2000, increased by $3.5
million or 21% from the level of interest expense for 1999. $2.3 million of the
increase was related to the increase in interest expense on deposits, while $1.2
million was related to the increase in interest expense on short-term
borrowings. For the year 2000, average interest rate paid increased by 34 basis
points compared to 1999. The increase in total interest expense was related to
the increase in average interest-bearing liabilities of $46.4 million or 12%.
Interest expense for the year ended December 31, 1999, increased by $5.1
million or 43% from the level of interest expense for 1998. $4.4 million of the
total increase was related to the increase in interest expense on deposits,
$831,000 was related to the increase in interest expense on short-term
borrowings, coupled with a decline of $57,000 related to interest expense on
long-term borrowings, coupled with a 37 basis point decrease in the average rate
paid. The increase in total interest expense was related to the increase in
average interest-bearing liabilities of $134.9 million or 54%.
Average interest-bearing deposits comprised 84%, 87% and 86% of Company
total funding sources in 2000, 1999 and 1998, respectively, with the balance
comprised of short- and long-term funding.
The Company's net interest margin, which measures net interest income as a
percentage of average earning assets, was 3.98%, 3.78% and 3.87% for the years
ended December 31, 2000, 1999 and 1998, respectively.
RATE/VOLUME ANALYSIS
The following table sets forth the changes in interest income and expenses
as they relate to changes in volume and rate for the years ended December 31,
2000 and 1999 compared to the prior years. Because of numerous simultaneous
balance and rate changes during the periods indicated, it is difficult to
allocate the changes precisely between balances and rates. For purposes of this
table, changes which are not due solely to changes in balances or rates are
allocated between such categories based on the average percentage changes in
average balances and average rates.
13
Full Year 2000 Full Year 1999
Compared to Full Year 1999 Compared to Full Year 1998
Increase (Decrease) Increase (Decrease)
----------------------------- ----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
INTEREST EARNED ON:
Loans ............................... $ 5,207 $ 699 $ 5,906 $ 9,636 $ (875) $ 8,761
Investment securities ............... 458 817 1,275 663 83 746
Other earning assets ................ (410) 123 (287) 205 (14) 191
------- ------- ------- ------- ------- -------
Total earning assets .............. $ 5,255 $ 1,639 $ 6,894 $10,504 $ (806) $ 9,698
======= ======= ======= ======= ======= =======
INTEREST PAID ON:
Savings and interest-bearing deposits $ 284 $ 178 $ 462 $ 883 $ 76 $ 959
Time deposits ....................... 907 954 1,861 4,090 (692) 3,398
Borrowings (1) ...................... 1,269 (68) 1,201 1,069 (295) 774
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 2,460 $ 1,064 $ 3,524 $ 6,042 $ (911) $ 5,131
======= ======= ======= ======= ======= =======
(1) Includes FHLB advances, federal funds purchased, securities sold under
agreements to repurchase, and trust preferred securities.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company recorded a provision for possible loan losses of $1.0 million in
2000 compared with $885,000 in 1999 and $520,000 on 1998. Management of each
Bank Subsidiary regularly performs an analysis to identify the inherent risk of
loss in its loan portfolio. This analysis includes evaluation of concentrations
of credit, past loss experience, current economic conditions, amount and
composition of the loan portfolio (including loans being specifically monitored
by management), estimated fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other factors.
The Bank Subsidiaries will continue to monitor their allowance for possible
loan losses and make future adjustments to the allowance through the provision
for possible loan losses as economic conditions dictate. Although the Bank
Subsidiaries maintain their allowances for possible loan losses at levels that
they consider to be adequate to provide for the inherent risk of loss in their
loan portfolios, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for possible loan losses will
not be required in future periods. In addition, the Bank Subsidiaries'
determinations as to the amount of their allowances for possible loan losses are
subject to review by the FDIC and the Department, as part of their examination
process, which may result in the establishment of an additional allowance based
upon the judgment of the FDIC or the Department, after a review of the
information available at the time of their examination.
OTHER INCOME
Non-interest income was $6.2 million in 2000 and represented 23% of total
income (net interest income plus other income) compared with $7.3 million and
29%, respectively, in 1999. The decrease of $1.1 million or 15% over 1999 is
primarily due to decrease in gains on sales of investment securities.
Non-interest income for 2000 included $517,000 in gains from sale of other
assets and $107,000 in realized gains on sale of investment securities
available-for-sale. All other income includes $937,000 from fees and sales of
lease financing, $532,000 from bank-owned life insurance and $264,000 from
rental income. Service charges on deposit accounts increased by $51,000 while
other commissions and fees decreased by $150,000 over 1999. Fees and sales of
lease financing increased by $370,000 over 1999 primarily due to increased
volume of sale of lease financing by HCC.
Total non-interest income for the year 1999 totaled $7.3 million, an
increase of $2.6 million or 56% over 1998. Non- interest income for 1999
included $2.2 million in realized gains on sale of investment securities
available-for-sale, an increase of $1.1 million over 1998. All other income
includes $578,000 from fees and sales of lease financing, $480,000 from
bank-owned life insurance and $207,000 from rental income. Service charges on
deposit accounts increased by $211,000 over 1998 and other commissions and fees
increased by $357,000. The majority of the increase in service charges on
deposit accounts is attributable to the increase in deposit-related services
during 1999. The increase in realized gain on sale of investment securities
available-for-sale resulted from sale of $16.4 million of securities.
14
OTHER EXPENSES
Total other expenses were $18.3 million for 2000 compared with $17.3 million
in 1999. The increase was primarily to support the Company's growth in 2000. On
a comparable basis, total other expenses increased $1.0 million or 6% over 1999.
Of the total increase, $566,000 is attributable to increases in salaries and
employee benefits. Occupancy and equipment expense increased by $247,000, other
operating expenses increased by $212,000 and amortization of intangibles
increased by $169,000. Other real estate operating expenses decreased by
$201,000 due to decrease in other real estate owned.
Total other expenses increased by $5.8 million for the year ended December
31, 1999 over 1998. Of the total increase, $2.9 million is attributable to
increases in salaries and employee benefits as a direct result of the
acquisition of First Savings coupled with severance and bonuses paid out to
certain key employees of First Savings. Occupancy and equipment expense, which
includes the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by
$540,000. Regulatory, professional and other fees increased by $899,000.
Computer services, office expenses and other operating expenses increased by
$194,000, $447,000 and $347,000, respectively. The majority of these increases
is attributable to the acquisition of First Savings and the balance is due to
the overall growth of the Company. Amortization of intangibles increased by
$500,000 over 1998. This increase reflect the amortization of goodwill resulting
from the acquisition of First Savings.
INCOME TAXES
The Company recorded income tax provisions of $2.8 million, $2.3 million and
$2.0 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The increases in income tax provision are attributable to increased earnings for
each of the years over the prior year.
FINANCIAL CONDITION
At December 31, 2000, the Company's total assets were $607.3 million, an
increase of $39.9 million or 7% over the amount reported at December 31, 1999.
Gross loans increased by $27.0 million reflecting increased loan demand.
Investment securities and interest-bearing due from banks decreased by $13.0
million and $5.9 million, respectively. These declines were related to the
maturities of such assets and the proceeds were subsequently used to fund the
loan demand. Federal funds sold increased by $33.4 million. The increase in
federal funds sold is a direct result of increase in FHLB advances.
At December 31, 1999, the Company's total assets were $567.4 million, an
increase of $195.1 million or 52% over the amount reported at December 31, 1998.
Gross loans increased by $140.8 million. The increase in loans was a direct
result of the acquisition of First Savings coupled with increased loan demand.
Investment securities increased by $39.6 million, while interest-bearing due
from banks and federal funds sold decreased by $4.9 million and $3.5 million.
These declines were related to the maturities of such assets and the proceeds
were subsequently used to fund the loan demand.
INVESTMENT SECURITIES
The investment securities portfolio decreased by $13.0 million or 9% over
the amount reported at December 31, 1999 to $138.2 million at December 31, 2000.
The decrease was primarily related to the maturities of the investment
securities and the proceeds were subsequently used in funding the loan demand.
Investment securities at December 31, 1999 increased by $39.6 million or 35%
over the amount reported at December 31, 1998. The increase was a result of
investment securities totaling $57.0 million acquired in the acquisition of
First Savings coupled with the maturity and sale of $63.2 million and purchase
of $47.0 million. The following table presents the composition of the investment
securities portfolio along with the amortized cost and fair values of those
components at December 31, 2000, 1999 and 1998.
15
December 31,
---------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
(In Thousands)
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- ---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and U.S. ............
Government agencies securities ... $ 65,768 $ 65,684 $ 63,851 $ 62,443 $ 16,370 $ 16,638
State and political subdivisions .. 5,446 5,426 7,957 7,790 934 934
Other debt and equity securities .. 16,802 18,306 13,790 14,347 18,159 21,564
Mortgage-backed securities ........ 45,188 45,176 58,583 57,656 54,576 54,661
---------- ---------- ---------- ---------- ---------- ----------
Total available-for-sale ....... $ 133,204 $ 134,592 $ 144,181 $ 142,236 $ 90,039 $ 93,797
---------- ---------- ---------- ---------- ---------- ----------
HELD-TO-MATURITY
U.S. Treasury and U.S. ...........
Government agencies securities ... $ 1,000 $ 791 $ 4,500 $ 4,088 $ 5,899 $ 5,576
State and political subdivisions .. 870 870 872 871 898 902
Mortgage-backed securities ........ 1,691 1,695 3,583 3,546 11,007 11,076
---------- ---------- ---------- ---------- ---------- ----------
Total held-to-maturity ......... $ 3,561 $ 3,356 $ 8,955 $ 8,505 $ 17,804 $ 17,554
---------- ---------- ---------- ---------- ---------- ----------
Total investment securities .... $ 136,765 $ 137,948 $ 153,136 $ 150,741 $ 107,843 $ 111,351
========== ========== ========== ========== ========== ==========
In year 2000, the Company realized net gains of $107,000 resulting from the
sale of $1.4 million in investment securities. During 1999, the Company realized
net gains of $2.2 million through the sale of $16.4 million of investment
securities from its available-for-sale portfolio. Included in shareholders'
equity at December 31, 2000 is accumulated other comprehensive loss in the
amount of $825,000, an increase of $2.0 million or 42% over the end of 1999. The
Company has no investment securities held for trading purposes.
Statement of Financial Accounting Standards ("SFAS") No.133 allows a
reassessment of investment securities classified without calling into question
the intent of the Company to hold other investment securities to maturity in the
future. On October 1, 1998, the Company reclassified securities with a fair
market value of $5.5 million resulting in an increase of accumulated other
comprehensive income of $28,000.
The following table shows the average yields, amortized cost and fair values
of the Company's investment securities by maturity.
December 31, 2000
------------------------------
Average Amortized Fair
Yield Cost Value
------- -------- --------
(Dollars in Thousands)
AVAILABLE-FOR-SALE
Due in one year or less.................... 5.69% $ 14,858 $ 14,864
Due after one year through 5 years......... 6.62% 33,262 33,448
Due after five years through 10 years...... 5.92% 5,048 5,031
Due after ten years........................ 6.89% 18,046 17,767
Mortgage-backed securities................. 6.73% 45,188 45,176
Other debt and equity securities........... n/a 16,802 18,306
-------- --------
Total available-for-sale................ $133,204 $134,592
======== ========
HELD-TO-MATURITY
Due in one year or less.................... 4.20% $ 684 $ 684
Due after one year through 5 years......... 4.22% 186 186
Due after five years through 10 years...... 2.12% 1,000 791
Mortgage-backed securities................. 6.43% 1,691 1,695
-------- --------
Total held-to-maturity................... n/a $ 3,561 $ 3,356
======== ========
Total investment securities.............. $136,765 $137,948
======== ========
LOAN PORTFOLIO
Loans outstanding of $374.0 million at December 31, 2000 increased $27.0
million from year-end 1999 primarily due to the increased loan demand in the
primary market areas of the Company. The Company's gross loan portfolio at
December 31, 1999 totaled $346.9 million, an increase of $140.8 million or 68%
compared to the amount reported at December 31, 1998. Of the total increase in
1999, $109.0 million were acquired through the acquisition of First Savings and
the balance was due to internal growth. The following table summarizes the
components of the gross loan portfolio at the dates indicated.
16
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In Thousands)
Loans secured by one-to-four-family residential properties $160,359 $154,822 $ 66,485 $ 45,700 $ 43,100
Loans secured by nonresidential properties ............... 149,304 140,200 100,687 81,064 58,106
Loans to individuals ..................................... 10,639 9,405 10,609 10,549 9,997
Commercial loans ......................................... 40,124 30,702 21,107 16,847 14,106
Construction loans ....................................... 13,014 10,024 5,163 5,784 5,534
Other loans .............................................. 532 1,782 2,069 1,305 6,567
-------- -------- -------- -------- --------
Total gross loans ................................... $373,972 $346,935 $206,120 $161,249 $137,410
======== ======== ======== ======== ========
The following table sets forth the contractual maturity and interest rate
sensitivity of certain components of the loan portfolio at December 31, 2000.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
December 31, 2000
-----------------------------------------
Within 1 - 5 Over 5
1 Year Years Years Total
-------- -------- -------- --------
(In Thousands)
LOANS WITH PREDETERMINED INTEREST RATES:
Loans secured by nonresidential properties ....... $ 6,776 $ 33,553 $ 7,654 $ 47,983
Commercial loans ................................. 3,882 18,470 677 23,029
Construction loans ............................... 374 -- -- 374
-------- -------- -------- --------
Total loans with predetermined interest rates $ 11,032 $ 52,023 $ 8,331 $ 71,386
LOANS WITH FLOATING INTEREST RATES:
Loans secured by nonresidential properties ....... 6,779 15,337 79,205 101,321
Commercial loans ................................. 11,788 3,758 1,549 17,095
Construction loans ............................... 4,894 6,826 920 12,640
-------- -------- -------- --------
Total loans with floating interest rates .... $ 23,461 $ 25,921 $ 81,674 $131,056
-------- -------- -------- --------
Total gross loans ....................... $ 34,493 $ 77,944 $ 90,005 $202,442
======== ======== ======== ========
At the date indicated in the foregoing loan table, no loans were
concentrated within a single industry or group of related industries and the
Company had no foreign loans.
ASSET QUALITY
Various degrees of risk are associated with substantially all investing
activities. The lending function, however, carries the greatest risk of loss.
The senior lending officers of BCB, GFB and RCB are charged with monitoring
asset quality, establishing credit policies and procedures and seeking
consistent application of these procedures. Nonperforming assets include past
due, nonaccrual and renegotiated and other real estate loans. Since lending is
concentrated within the local market area, nonperforming loans were also made
primarily to customers operating in the area. The degree of risk inherent in all
lending activities is influenced heavily by general economic conditions in the
immediate market area. Among the factors which tend to affect portfolio risks
are changes in local or regional real estate values, income levels and energy
prices. These factors, coupled with unemployment levels and tax rates, as well
as governmental actions and weakened market conditions which reduce the demand
for credit among qualified borrowers, are also important determinants of the
risk inherent in lending.
PAST DUE, NONACCRUING AND RENEGOTIATED LOANS. It is the Company's policy to
review monthly all loans which are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are either doubtful of collection or are involved in a protracted
collection process. The current year's uncollected interest is reversed on such
nonaccrual loans. Management has also restructured the terms of certain loans to
accommodate changes in the financial condition of borrowers. A typical
concession would be a reduction in the currently payable interest rate to one
which is lower than the current market rate for new debt with similar risks;
interest foregone would be deferred until maturity.
17
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated.
December 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in Thousands)
Nonaccruing loans ................................. $1,281 $1,678 $1,657 $1,741 $1,033
Renegotiated loans ................................ 845 606 416 521 726
------ ------ ------ ------ ------
Total nonperforming loans ...................... 2,126 2,284 2,073 2,262 1,759
Loans past due 90 days and accruing ............... 54 248 461 135 876
Other real estate ................................. -- 467 495 373 1,834
------ ------ ------ ------ ------
Total nonperforming assets ..................... $2,180 $2,999 $3,029 $2,770 $4,469
====== ====== ====== ====== ======
Nonperforming loans to total gross loans .......... .57% .66% 1.01% 1.40% 1.28%
Nonperforming assets to total gross loans and other
real estate owned ............................. .58% .86% 1.47% 1.71% 3.21%
Nonperforming assets to total assets .............. .36% .53% .81% .86% 1.74%
Allowance for loan losses to nonperforming loans . 266.09% 216.86% 170.04% 120.73% 144.40%
Nonperforming loans decreased by $158,000 at December 31, 2000 compared to
December 31, 1999. The decrease is primarily due to the reclassification of
certain loans from nonaccruing to current loans coupled with current to
renegotiated status. Nonperforming loans increased by $211,000 at December 31,
1999 compared to December 31, 1998. The increase is primarily due to the
reclassification of certain loans from current loans to either nonaccruing or
renegotiated status. Nonperforming loans decreased by $189,000 at December 31,
1998 compared to December 31, 1997. The decrease is primarily due to the
reclassification of certain loans from nonaccruing or renegotiated status to
current loans. If the nonaccruing loans in 2000, 1999 and 1998 had continued to
pay interest, interest income during the same years would have increased by
$53,000, $60,000 and $138,000, respectively.
POTENTIAL PROBLEM LOANS. As part of the loan review process, management
routinely identifies performing loans where there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and allocates
specific reserves against them. At December 31, 2000, 1999 and 1998, such loans
totaled $7.2 million, $8.3 million and $5.3 million with an allowance of
$855,000, $1.0 million and $664,000, respectively, specifically allocated to
them.
FOREIGN LOANS. The Company has no foreign loans or any other foreign
exposure.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At December 31, 2000, the allowance for possible loan losses was $5.7
million as compared to $5.0 million at December 31, 1999, an increase of
$700,000. The allowance for possible loan losses is increased periodically
through charges to earnings in the form of a provision for possible loan losses.
Loans that are deemed uncollectible are charged against the allowance and any
recoveries of such loans are credited to it. It is management's belief that,
although charge-offs may occur in the future, there are adequate reserves
allotted. The level of the allowance is based on the ongoing evaluation by
management of the respective Bank Subsidiaries of potential losses in the loan
portfolio. Such evaluation includes consideration of the current financial
status and credit standing of borrowers, prior loss experiences, results of
periodic regulatory examinations, comments and recommendations of the Company's
independent accountants, and management's judgment as to prevailing and
anticipated real estate values and other economic conditions in the Bank
Subsidiaries' market areas. Since future events that may affect these financial
conditions are unpredictable, there is uncertainty as to the final outcome of
the Bank Subsidiaries' loans and nonperforming assets.
18
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
Years Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Dollars in Thousands)
Balance at beginning of year .......................... $ 4,953 $ 3,525 $ 2,731 $ 2,540 $ 2,332
Charge-offs:
Commercial .......................................... (141) (102) (5) (356) (21)
Real estate - mortgages ............................. (198) -- (31) -- (281)
Installment loans to individuals .................... (49) (45) (34) (9) (63)
Credit cards and related plans ...................... (60) (59) (53) (42) --
------- ------- ------- ------- -------
(448) (206) (123) (407) (365)
------- ------- ------- ------- -------
Recoveries:
Commercial .......................................... 18 59 376 104 124
Real estate - mortgages ............................. 69 50 11 7 9
Installment loans to individuals .................... 7 4 5 1 9
Credit cards and related plans ...................... 10 12 5 1 --
------- ------- ------- ------- -------
104 125 397 113 142
------- ------- ------- ------- -------
Net recoveries (charge-offs) .......................... (345) (81) 274 (294) (223)
Provision for possible loan losses .................... 1,048 885 520 485 440
Adjustment (1) ........................................ -- 624 -- -- (9)
------- ------- ------- ------- -------
Balance at end of year ................................ $ 5,657 $ 4,953 $ 3,525 $ 2,731 $ 2,540
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period....... (0.10%) (0.03%) .15% (.20%) (.16%)
(1) Allowance for possible loan losses acquired from First Savings in 1999.
19
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table sets forth the allocation of the allowance for loan
losses by loan category amounts, the percent of loans in each category to total
loans in the allowance, and the percent of loans in each category to total
loans, at each of the dates indicated.
At December 31,
------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- --------------------------
% of % of % of
Loans Loans Loans
to to to
% of Total % of Total % of Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in Thousands)
BALANCE AT END OF
PERIOD ALLOCABLE TO:
Commercial and non-
residential properties.. $1,745 31% 50% $1,558 32% 49% $1,467 43% 59%
Construction................ 107 2 3 115 2 3 49 1 2
Loans secured by 1-4 families 1,999 35 44 2,183 44 45 919 26 34
Loans to individuals........ 343 6 3 264 5 3 369 10 5
Unallocated reserves........ 1,463 26 -- 833 17 -- 721 20 --
------ ------ ----- ------ ------ ----- ------ ------ -----
Total allowance for
possible loan losses.... $5,657 100% 100% $4,953 100% 100% $3,525 100% 100%
====== ====== ===== ====== ====== ===== ====== ====== =====
At December 31,
-------------------------------------------------------
1997 1996
-------------------------- --------------------------
% of % of
Loans Loans
to to
% of Total % of Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in Thousands)
BALANCE AT END OF
PERIOD ALLOCABLE TO:
Commercial and non-
residential properties.. $1,077 39% 60% $ 859 34% 53%
Construction................ 47 2 4 -- -- 4
Loans secured by 1-4 families 898 33 29 670 26 31
Loans to individuals........ 280 10 7 206 8 12
Unallocated reserves........ 429 16 -- 805 32 --
------ ------ ----- ------ ------ -----
Total allowance for
possible loan losses.... $2,731 100% 100% $2,540 100% 100%
====== ====== ===== ====== ====== =====
20
OTHER REAL ESTATE
As of December 31, 2000, other real estate decreased by $467,000, which
represented the entire balance at year-end 1999. The net decrease was primarily
due to sale of foreclosed properties. As of year-end 2000, the Company had no
other real estate to reflect on its books.
DEPOSITS
Total deposit sources were $465.2 million at December 31, 2000, an increase
of $4.6 million compared with December 31, 1999. Non interest-bearing and
interest-bearing demand deposits increased by $14.8 million and $27.7 million,
respectively, while savings and time deposits decreased by $6.4 million and
$31.2 million, respectively. The decrease in time deposits was a direct result
of maturity run off. As of December 31, 1999, total deposits were $460.6
million, an increase of $167.2 million or 57% over total deposits at December
31, 1998. This net increase results from acquiring $172.3 million in deposits
through the acquisition of First Savings offset in part by a decrease of $5.1
million primarily due to maturity runoff. Average deposits for 1999 were $419.3
million, or 49% higher than for 1998. The following table summarizes the average
yield/rate of the components of average deposit liabilities for the years
indicated.
Years Ended December 31,
----------------------------------------------------------------
Average Average Average
2000 Yield/Rate 1999 Yield/Rate 1998 Yield/Rate
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Non interest-bearing ....... $103,209 -- $ 88,003 -- $ 71,010 --
Savings and interest-bearing 135,953 2.34% 123,776 2.20% 83,645 2.11%
Time ....................... 223,834 5.59 207,460 5.13 127,477 5.69
-------- -------- -------- -------- -------- --------
$462,996 3.39% $419,239 3.19% $282,132 3.20%
======== ======== ======== ======== ======== ========
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December 31, 2000
--------------------
(In Thousands)
Three months or less............................... $ 26,226
Over three months through six months.............. 8,796
Over six months through twelve months.............. 10,258
Over twelve months................................. 1,722
--------
$ 47,002
========
FEDERAL HOME LOAN BANK ADVANCES
At December 31, 2000, Federal Home Loan Bank ("FHLB") advances totaled $50.0
million, an increase of $25.0 million compared with December 31, 1999. The
Company considers the FHLB advances as an added source of funding and
accordingly executed transactions during the year 2000 to meet its funding
needs. These FHLB advances have varying terms and interest rates.
SHORT-TERM BORROWINGS
As of December 31, 2000, federal funds purchased and securities sold under
agreements to repurchase were $17.0 million. Short-term borrowings include
various other borrowings which generally have maturities of less than one year.
The details of these categories are presented below (in thousands):
21
Years Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
Securities sold under repurchase agreements and
federal funds purchased
Balance at year-end............................... $17,020 $16,403 $ 7,103
Average during the year........................... 15,201 13,316 10,164
Maximum month-end balance......................... 40,420 20,466 12,843
Weighted average rate during the year............. 5.64% 4.90% 4.49%
Rate at December 31............................... 5.52% 6.34% 5.82%
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
In 1997, the Company, through the GCB Trust, sold 920,000 Trust Preferred
Securities at a price of $25 per share, for a total of $23.0 million. The
Preferred Securities have an annual dividend rate of 10% payable quarterly. The
Trust Preferred Securities which are treated as Junior Subordinated Debentures
on the Company's books, currently qualify for Tier I capital treatment. The
Trust Preferred Securities do not have a maturity date and are callable by the
Company on or about June 1, 2002, or earlier if certain contingencies arise. The
Debentures mature in 2027, at which time the Trust Preferred Securities must be
redeemed.
INTEREST RATE SENSITIVITY
Banks are concerned with the extent to which they are able to match
maturities of interest-earning assets and interest- bearing liabilities. Such
matching is facilitated by examining the extent to which such assets and
liabilities are interest rate- sensitive and by monitoring an institution's
interest rate-sensitivity gap. An asset or liability is considered to be
interest rate-sensitive if it will mature or reprice within a specific time
period. The interest rate-sensitivity gap is defined as the excess of
interest-earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. The
Bank Subsidiaries monitor their gaps on a monthly basis, primarily their six-
month and one-year maturities, and work to maintain their gaps within a range of
10% to (25)%.
The Company had a negative one-year gap position with respect to its
exposure to interest rate risk at December 31, 2000. The Asset/Liability
Management Committees of the Bank Subsidiaries' respective Boards of Directors
meet quarterly to discuss their interest rate risks. The Company uses simulation
models to measure the impact of potential changes in interest rates on the net
interest income, balance sheet mix and the spread relationship between market
rates and bank products. As described below, sudden changes in interest rates
should not have a material impact to the Bank Subsidiaries' results of
operations. Should the Bank Subsidiaries experience a positive or negative
mismatch in excess of the approved range, they have a number of remedial
options. They have the ability to reposition their investment portfolios to
include securities with more advantageous repricing and/or maturity
characteristics. They can attract variable or fixed-rate loan products as
appropriate. They can also price deposit products to attract deposits with
maturity characteristics that can lower their exposures to interest rate risk.
The following table summarizes, as of December 31, 2000, the repricing of
earning assets and interest-bearing liabilities in accordance with their
contractual terms in given time periods.
Due within Four to One to Two to Over
Three Twelve Two Five Five Fair
Months Months Years Years Years Total Value
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
RATE-SENSITIVE ASSETS:
Investment securities.................$ $ 31,936 $ 35,082 $ 25,352 $ 29,345 $ 16,438 $ 138,153 $ 137,948
Rate 6.95% 6.45% 6.37% 6.55% 7.48% 6.71%
Federal funds sold and deposits
from banks.........................$ 38,745 1,296 500 -- -- 40,541 40,541
Rate 6.45% 6.06% 6.25% -- -- 6.44%
Total loans net of unearned income.....$ 79,904 44,270 40,160 117,287 90,175 371,796 370,626
Rate 10.00% 7.93% 7.93% 8.21% 7.49% 8.37%
--------- --------- --------- --------- --------- --------- ---------
Total rate-sensitive assets........ $ 150,585 $ 80,648 $ 66,012 $ 146,632 $ 106,613 $ 550,490 $ 549,115
========= ========= ========= ========= ========= ========= =========
22
Due within Four to One to Two to Over
Three Twelve Two Five Five Fair
Months Months Years Years Years Total Value
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
RATE-SENSITIVE LIABILITIES:
Interest-bearing demand deposits.......$ $ 37,558 $ 4,394 $ 20,766 $ 26,635 $ 8,715 $ 98,068 $ 98,068
Rate 2.72% 2.72% 2.72% 2.72% 2.72% 2.72%
Savings deposits.......................$ 15,916 209 8,261 19,074 10,812 54,272 54,272
Rate 2.39% 2.39% 2.39% 2.39% 2.39% 2.39%
Time deposits..........................$ 65,126 117,583 16,905 4,486 2 204,102 204,611
Rate 5.66% 5.83% 5.55% 4.20% 4.20% 5.78%
Total borrowings (1)...................$ 16,603 36 10,050 37,672 25,659 90,020 92,836
Rate 5.90% 5.90% 5.60% 5.60% 9.54% 6.72%
--------- --------- --------- --------- --------- --------- ---------
Total rate-sensitive liabilities... $ 135,203 $ 122,222 $ 55,982 $ 87,867 $ 45,188 $ 446,462 $ 449,787
========= ========= ========= ========= ========= ========= =========
Interest rate-sensitivity gap........... 15,382 (41,574) 10,030 58,765 61,425 104,028
Interest rate-sensitivity gap as a percentage
of total rate-sensitive assets......... 2.79% (7.55%) 1.82% 10.68% 11.16%
Cumulative interest rate-sensitivity gap 15,382 (26,192) (16,162) 42,603 104,028
========= ========= ========= ========= =========
Cumulative interest rate-sensitivity gap as
a percentage of total rate-sensitive assets 2.79% (4.76%) (2.94%) 7.74% 18.90%
(1) Includes FHLB advances, Federal funds purchased, securities sold under
agreements to repurchase and trust preferred securities
LIQUIDITY
The Company actively manages its liquidity under the direction of the
Asset/Liability Management Committees of the Bank Subsidiaries. During the last
two years the Company has been highly liquid and its liquid funds are more than
sufficient to meet future loan demand or the possible outflow of deposits in
addition to being able to adapt to changing interest rate conditions. Management
expects this high liquidity trend to continue until overall economic conditions
improve and loan demand rises.
Sources of liquidity at December 31, 2000 totaled $199.2 million or 33% of
total assets, consisting of investment securities of $138.1 million and $61.1
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity sources at December 31, 1999, totaled $181.1 million
or 32% of total assets, consisting of investment securities of $151.2 million
and $29.9 million in cash and cash equivalents and interest-bearing due from
banks.
CAPITAL RESOURCES
The Company's primary regulator, the Federal Reserve (which regulates bank
holding companies), has issued guidelines classifying and defining bank holding
company capital into the following components: (1) Tier I capital, which
includes tangible shareholders' equity for common stock and certain qualifying
perpetual preferred stock, and (2) Tier II capital, which includes a portion of
the allowance for possible loan losses, certain qualifying long-term debt and
preferred stock that does not qualify as Tier II capital. The risk-based capital
guidelines require financial institutions to maintain specific defined credit
risk factors (risk-adjusted assets). As of December 31, 2000, the minimum Tier I
and the combined Tier I and Tier II capital ratios required by the Federal
Reserve Board for capital adequacy purposes were 4% and 8%, respectively.
In addition to the risk-based capital guidelines discussed above, the
Federal Reserve requires that a bank holding company which meets that
regulator's highest performance and operating standards maintain a minimum
leverage ratio (Tier I capital as a percentage of tangible assets) of 3%. Those
bank holding companies anticipating significant growth are expected to maintain
a leverage ratio above the minimum ratio. Minimum leverage ratios for each
entity will be evaluated through the ongoing regulatory examination process.
Regulations have also been issued by the Bank Subsidiaries' primary regulator,
the FDIC, establishing similar risk-based and leverage capital ratios which
apply to each bank as a separate entity.
23
The following table presents the risk-based and leverage capital ratios for
the Company, GFB, BCB, and RCB respectively, as of December 31, 2000 and 1999.
To Be Well-Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
AS OF DECEMBER 31, 2000
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 55,019 13.88% $ 31,706 8.00% N/A N/A
Great Falls Bank .................... 28,497 11.27 20,223 8.00 $ 25,278 10.00%
Bergen Commercial Bank .............. 11,879 10.46 9,088 8.00 11,360 10.00
Rock Community Bank ................. 4,823 32.24 1,197 8.00 1,496 10.00
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 40,190 10.14 15,853 4.00 N/A N/A
Great Falls Bank .................... 25,328 10.02 10,111 4.00 15,167 6.00
Bergen Commercial Bank .............. 10,458 9.21 4,544 4.00 6,816 6.00
Rock Community Bank ................. 4,646 31.06 598 4.00 898 6.00
Tier 1 capital (to average assets)
Greater Community Bancorp ........... 40,190 7.10 22,639 4.00 N/A N/A
Great Falls Bank .................... 25,328 6.67 15,184 4.00 18,980 5.00
Bergen Commercial Bank .............. 10,458 6.42 6,512 4.00 8,140 5.00
Rock Community Bank ................. 4,646 19.30 963 4.00 1,204 5.00
AS OF DECEMBER 31, 1999
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $ 50,811 13.73% $ 29,615 8.00% N/A N/A
Great Falls Bank .................... 27,659 11.53 19,184 8.00 $ 23,980 10.00%
Bergen Commercial Bank .............. 9,609