_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 1, 1998
MAIN STREET BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2444807
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Ident. No.)
601 Penn Street, Reading, Pennsylvania 19601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 685-1400
N/A
(Former name or former address, if changed since last report.)
_________________________________________________________________
_________________________________________________________________
PAGE 1
<PAGE>
ITEM 7.
(a) Registrant is the corporation resulting from the
consolidation of Heritage Bancorp, Inc. and BCB Financial
Services Corporation. On May 15, 1998, the registrant filed a
current report on form 8-K reporting completion of the
consolidation. Filed herewith are the supplemental audited
consolidated balance sheets of the registrant as of December 31,
1997 and 1996 and the related supplemental audited consolidated
statements of income, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31,
1997. Also filed herewith are supplemental unaudited
consolidated balance sheets as of March 31, 1998 and 1997 and the
related supplemental unaudited consolidated statements of income,
stockholders' equity and cash flows for the periods then ended.
(b) The registrant is the result of a consolidation
accounted for as a pooling of interests. Therefore, in
accordance with generally accepted accounting principles, prior
periods are presented in item 7(a) above as if the combining
companies had been consolidated for all periods presented.
Accordingly, pro forma financial statements for the registrant
are omitted because such statements would be identical to the
supplemental financial statements of the registrant presented
pursuant to item 7(a).
PAGE 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
MAIN STREET BANCORP, INC.
Dated: June 25, 1998
By/s/Nelson R. Oswald
Nelson R. Oswald
Chairman and
Chief Executive Officer
PAGE 3
<PAGE>
EXHIBIT INDEX
Exhibit Number
23.1 Consent of Beard & Company, Inc.
27.1 Financial Data Schedule
99.1 Financial Statements
_______________ <PAGE 4>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Current Report on
Form 8-K/A of our report dated May 29, 1998, relating to the
supplemental consolidated financial statements of Main Street
Bancorp, Inc. for each of the years in the three year period
ended December 31, 1997.
/s/ Beard & Company, Inc.
BEARD & COMPANY, INC.
Reading, Pennsylvania
June 19, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 24,200
<INT-BEARING-DEPOSITS> 59
<FED-FUNDS-SOLD> 470
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 218,483
<INVESTMENTS-CARRYING> 75,461
<INVESTMENTS-MARKET> 74,896
<LOANS> 505,326
<ALLOWANCE> 5,817
<TOTAL-ASSETS> 857,339
<DEPOSITS> 661,828
<SHORT-TERM> 32,997
<LIABILITIES-OTHER> 16,457
<LONG-TERM> 54,450
0
0
<COMMON> 9,662
<OTHER-SE> 81,945
<TOTAL-LIABILITIES-AND-EQUITY> 857,339
<INTEREST-LOAN> 10,612
<INTEREST-INVEST> 4,385
<INTEREST-OTHER> 11
<INTEREST-TOTAL> 15,008
<INTEREST-DEPOSIT> 6,014
<INTEREST-EXPENSE> 7,247
<INTEREST-INCOME-NET> 7,761
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 1,682
<EXPENSE-OTHER> 5,242
<INCOME-PRETAX> 5,188
<INCOME-PRE-EXTRAORDINARY> 3,715
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,715
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
<YIELD-ACTUAL> 4.00
<LOANS-NON> 4,732
<LOANS-PAST> 1,883
<LOANS-TROUBLED> 71
<LOANS-PROBLEM> 1,245
<ALLOWANCE-OPEN> 5,738
<CHARGE-OFFS> 215
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 5,817
<ALLOWANCE-DOMESTIC> 3,335
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,482
</TABLE>
C O N T E N T S
Main Street Bancorp, Inc. and Subsidiaries
Page
INDEPENDENT AUDITOR'S REPORT
ON THE SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS F-1
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Supplemental consolidated balance sheets -
as of December 31, 1997 and 1996 F-2
Supplemental consolidated statements of
income - for the years ended December 31,
1997, 1996 and 1995 F-3
Supplemental consolidated statements of stock-
holders' equity - for the years ended
December 31, 1997, 1996 and 1995 F-4
Supplemental consolidated statements of cash
flows - for the years ended December 31,
1997, 1996 and 1995 F-5 and F-6
Notes to supplemental consolidated financial
statements F-7 - F-27
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Supplemental consolidated balance sheets -
as of March 31, 1998 and December 31,
1997 F-28
Supplemental consolidated statements of
income - for the three months ended
March 31, 1998 and 1997 F-29
Supplemental consolidated statements of stock-
holders' equity - for the three months ended
March 31, 1998 F-30
Supplemental consolidated statements of cash
flows - for the three months ended March 31,
1998 and 1997 F-31 and F-32
Notes to supplemental consolidated financial
statements F-33 - F-35
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Main Street Bancorp, Inc. and Subsidiaries
Reading, Pennsylvania
We have audited the supplemental consolidated balance sheets
of Main Street Bancorp, Inc. and subsidiaries, as of December 31,
1997 and 1996, and the related supplemental consolidated
statements of income, stockholders' equity and cash flows for
each of the years in the three year period ended December 31,
1997. These supplemental consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
The supplemental consolidated financial statements give
retroactive effect to the merger of BCB Financial Services
Corporation and Heritage Bancorp, Inc. into the Company on May 1,
1998, which has been accounted for as a pooling of interests as
described in Note 2 to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe
giving effect to a consummated business combination accounted for
by the pooling of interests method in financial statements that
do not include the date of consummation. These financial
statements do not extend through the date of consummation.
However, they will become the historical supplemental
consolidated financial statements of Main Street Bancorp, Inc.
and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Main Street Bancorp, Inc. and
subsidiaries, at December 31, 1997 and 1996, and the results of
their operations and cash flows for each of the years in the
three year period ended December 31, 1997 in conformity with
<PAGE F-1> generally accepted accounting principles applicable
after financial statements are issued for a period which includes
the date of consummation of the business combination.
BEARD & COMPANY, INC.
Reading, Pennsylvania
May 29, 1998
PAGE F-2
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,918 $ 18,428
Interest-bearing deposits with banks 200 21,427
Federal funds sold 470 1,290
Securities available for sale 209,106 148,711
Securities held to maturity, fair value
1997 $71,769; 1996 $54,864 70,914 54,525
Loans receivable, net of allowance for loan
losses 1997 $5,738; 1996 $5,072 477,838 397,790
Mortgage loans held for sale - 609
Due from mortgage investors 5,425 3,478
Premises and equipment, net 11,511 9,726
Accrued interest receivable 5,825 4,217
Other assets 7,656 6,275
Total assets $813,863 $666,476
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 73,985 $ 60,506
Demand, interest bearing 193,358 127,824
Savings 98,490 103,571
Time deposits 260,975 226,666
Total deposits 626,808 518,567
Accrued interest payable and other liabilities 13,625 7,004
Other borrowed funds 30,260 29,670
Long-term debt 54,450 51,450
Total liabilities 725,143 606,691
Stockholders' equity:
Preferred stock, authorized and unissued
5,000,000 shares - -
Common stock, par value $1.00 per share;
authorized 50,000,000 shares; issued and
outstanding 1997 9,639,808 shares;
1996 7,801,406 shares 9,640 7,801
Surplus 49,985 30,969
Retained earnings 26,721 20,669
Net unrealized appreciation on securities
available for sale, net of taxes 2,374 346
Total stockholders' equity 88,720 59,785
Total liabilities and stockholders' equity $813,863 $666,476
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-3
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 38,658 $ 31,057 $ 27,886
Interest and dividends on securities:
Taxable 12,671 8,271 7,042
Tax-exempt 2,869 2,040 834
Other 284 565 651
Total interest income 54,482 41,933 36,413
Interest expense:
Deposits 21,119 16,740 14,590
Other borrowed funds 2,000 1,271 672
Long-term debt 2,859 643 541
Total interest expense 25,978 18,654 15,803
Net interest income 28,504 23,279 20,610
Provision for loan losses 1,140 867 828
Net interest income after provision
for loan losses 27,364 22,412 19,782
Other income:
Income from fiduciary activities 875 781 683
Customer services fees 1,551 1,305 1,120
Mortgage banking activities 1,034 687 605
Net realized gains (losses) on sales of
securities 357 (1) (34)
Other 669 634 395
Total other income 4,486 3,406 2,769
Other expenses:
Salaries and wages 8,006 6,369 5,781
Employee benefits 1,912 1,591 1,560
Occupancy 1,449 1,425 1,377
Equipment depreciation and maintenance 1,351 1,193 1,165
Other 6,486 5,929 6,467
Total other expenses 19,204 16,507 16,350
Income before income taxes 12,646 9,311 6,201
Federal income taxes 3,317 2,428 1,890
Net income $ 9,329 $ 6,883 $ 4,311
Basic earnings per share $ 1.09 $ 0.88 $ 0.54
Diluted earnings per share $ 1.07 $ 0.88 $ 0.54
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-4
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Number of On
Shares of Securities
Common Common Retained Available
Stock Stock Surplus Earnings For Sale Total
---------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 7,900,534 $ 7,900 $31,102 $15,106 $(1,543) $ 52,565
Pre-merger stock transactions of
pooled entities (57,120) (57) 333 (1,027) - (751)
Net change in unrealized appreciation
(depreciation) of securities avail-
able for sale - - - - 2,284 2,284
Cash dividends declared by pooled
entities, $.27 per share - - - (2,098) - (2,098)
Net income - - - 4,311 - 4,311
--------- ------- ------- ------- ------- --------
Balance, December 31, 1995 7,843,414 7,843 31,435 16,292 741 56,311
Pre-merger stock transactions of
pooled entities (42,008) (42) (466) (11) - (519)
Net change in unrealized appreciation
(depreciation) of securities avail-
able for sale - - - - (395) (395)
Cash dividends declared by pooled
entities, $.32 per share - - - (2,495) - (2,495)
Net income - - - 6,883 - 6,883
--------- ------- ------- ------- ------- --------
Balance, December 31, 1996 7,801,406 7,801 30,969 20,669 346 59,785
Pre-merger stock transactions of
pooled entities (1,828) (1) (13) - - (14)
Net proceeds of stock offering of
pooled entity (net of offering
costs of $1,728) 1,840,230 1,840 19,029 - - 20,869
Net change in unrealized appreciation
(depreciation) of securities avail-
able for sale - - - - 2,028 2,028
Cash dividends declared by pooled
entities, $.38 per share - - - (3,277) - (3,277)
Net income - - - 9,329 - 9,329
--------- ------- ------- ------- ------- --------
Balance, December 31, 1997 9,639,808 $ 9,640 $49,985 $26,721 $ 2,374 $ 88,720
========= ======= ======= ======= ======= ========
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-5
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,329 $ 6,883 $ 4,311
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and foreclosed real estate losses 1,255 1,100 1,061
Provision for depreciation and amortization 1,220 1,047 962
Provision for deferred income taxes (333) (5) (191)
Net realized (gains) losses on sales of securities (357) 1 34
(Gain) loss on sale of equipment and foreclosed real estate (210) (55) 25
Proceeds from sale of mortgage loans 54,820 34,710 33,431
Net (gain) loss on sale of mortgage loans (111) 11 (4)
Mortgage loans originated for sale (54,100) (34,878) (33,705)
Net accretion (amortization) of securities premiums and
discounts 241 17 53
(Increase) decrease in:
Due from mortgage investors (1,947) (274) (2,232)
Accrued interest receivable (1,221) (2,050) 366
Prepaid expenses and other assets (2,584) (350) (31)
Increase in accrued interest payable and other liabilities (320) 1,558 (74)
-------- -------- -------
Net cash provided by operating activities 5,682 7,715 4,006
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 63,052 2,882 14,464
Proceeds from maturities and calls of and principal repayments on
securities available for sale 32,468 15,571 11,465
Proceeds from maturities and calls of securities held to
maturity 9,225 10,335 9,356
Purchases of securities available for sale (135,296) (63,603) (29,877)
Purchases of securities held to maturity (37,094) (29,428) (14,596)
(Increase) decrease in interest-bearing deposits with banks 21,227 (11,360) (7,554)
(Increase) decrease in federal funds sold 820 1,755 (2,245)
Loans made to customers, net of principal collected (81,930) (80,404) (15,618)
Proceeds from sales of foreclosed real estate 1,821 575 149
Purchases of premises and equipment (3,026) (1,901) (1,880)
-------- -------- -------
Net cash used in investing activities (128,733) (155,578) (36,336)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net income in demand and savings deposits 73,932 64,273 23,064
Net increase in time deposits 34,309 21,306 28,086
Net proceeds from other borrowed funds 590 21,845 (7,861)
Proceeds from long-term debt 40,000 47,000 9,000
Principal payments on long-term debt (37,000) (4,000) (14,000)
Pre-merger stock transactions of pooled entity (36) (666) (1,014)
Net proceeds from stock offering of pooled entity 20,869 - -
Cash dividends paid (3,123) (2,456) (2,078)
-------- -------- -------
Net cash provided by financing activities 129,541 147,302 35,197
-------- -------- -------
Increase (decrease) in cash and due from banks 6,490 (561) 2,867
Cash and due from banks:
January 1 18,428 18,989 16,122
-------- -------- -------
December 31 $ 24,918 $ 18,428 $18,989
======== ======== =======
<PAGE F-6>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 25,530 $ 18,480 $15,303
======== ======== =======
Income taxes $ 3,237 $ 2,709 $ 2,075
======== ======== =======
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-7
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The supplemental consolidated financial statements include
the accounts of Main Street Bancorp, Inc. ("the Company"), a
multi-bank holding company, and its wholly-owned
subsidiaries, Berks County Bank, Heritage National Bank
("the Banks") and Heritage Holding Corporation (see Note 2).
All significant intercompany accounts and transactions have
been eliminated.
Nature of operations:
The Banks operate under a state bank and national bank
charter respectively, and provide full banking services.
The Company and Berks County Bank are subject to regulation
of the Pennsylvania Department of Banking and the Federal
Reserve Bank, while Heritage National Bank is subject to
regulation of the Office of the Comptroller of the Currency.
The area served by the Banks is principally Berks, Bucks,
Chester, Dauphin, Lehigh, Montgomery and Schuylkill Counties
in Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks.
Securities:
Securities that management has both the positive intent and
ability to hold to maturity are classified as securities
held to maturity and are carried at cost, adjusted for
amortization of premium or accretion of discount using the
interest method. Securities that may be sold prior to
maturity for asset/liability management purposes, or that
may be sold in response to changes in interest rates,
changes in prepayment risk, to increase regulatory capital
or other similar factors, are classified as securities
available for sale and carried at fair value with
adjustments to fair value, after tax, reported as a separate
component of stockholders' equity. Management determines
the appropriate classification of debt securities at the
<PAGE F-8> time of purchase and reevaluates such designation
at each balance sheet date.
Interest and dividends on securities, including the
amortization of premiums and the accretion of discounts, are
reported in interest and dividends on securities using the
interest method. Gains and losses on the sale of securities
are recorded on the trade date and are calculated using the
specific identification method.
Loans receivable:
Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or
payoff are stated at their outstanding unpaid principal
balances, net of an allowance for loan losses and any
deferred fees or costs. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and
recognized as an adjustment of the yield (interest income)
of the related loans. The Banks are generally amortizing
these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal
and interest payments due in accordance with the terms of
the loan agreement. The accrual of interest is generally
discontinued when the contractual payment of principal or
interest has become 90 days past due or management has
serious doubts about further collectibility of principal or
interest, even though the loan is currently performing. A
loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against
the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against
principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time
and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or
<PAGE F-9> the fair value, less selling costs, of the
collateral for collateral dependent loans. By the time a
loan becomes probable of foreclosure it has been charged
down to fair value, less estimated cost to sell.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation of
the adequacy of the allowance is based on the Banks' past
loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current
economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows
expected to be received on impaired loans.
Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or
estimated fair value. Net unrealized losses are recognized
through a valuation allowance by corresponding charges in
the statements of income. All sales are made without
recourse.
Due from mortgage investors:
A division of one of the Bank subsidiaries performs
underwriting and origination services for various mortgage
investors. As part of this program, the Bank will
temporarily fund the investors' mortgage commitments for
periods generally ranging from three to forty-five days.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line
and accelerated depreciation methods over the related assets
estimated useful lives.
Foreclosed real estate:
Foreclosed real estate is comprised of property acquired
through a foreclosure proceeding or acceptance of a deed-in-
lieu of foreclosure and loans classified as in-substance
foreclosure. A loan is classified as in-substance
foreclosure when the Bank has taken possession of the
collateral regardless of whether formal foreclosure
proceedings take place.
Foreclosed real estate is initially recorded at fair value,
net of estimated selling costs at the date of foreclosure,
establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less
estimated costs to sell. Revenues and expenses from
<PAGE F-10> operations, net realized gains and losses on
sales and changes in the valuation allowance are included in
other expenses.
Advertising costs:
The Banks follow the policy of charging the costs of
advertising to expense as incurred.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of
the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. The
Company and the Banks will file a consolidated federal
income tax return.
Earnings per share:
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share". Statement No. 128
replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options,
warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts
for all periods have been presented to conform to the
requirements of Statement No. 128.
Dividends:
Dividends declared represent the total of dividends declared
of the two entities merged into the Company, BCB Financial
Services Corporation and Heritage Bancorp, Inc., and not
historical dividends of the Company. Dividends per share
represent the total of dividends declared of the two
entities divided by the weighted average number of shares
outstanding. Total dividends declared by BCB Financial
Services Corporation were $ 846,000, $ 435,000 and $ 332,000
for the years ended 1997, 1996 and 1995 respectively. Total
dividends declared by Heritage Bancorp, Inc. were
$ 2,431,000, $ 2,060,000 and $ 1,766,000 for the years ended
December 31, 1997, 1996 and 1995 respectively.
Off-balance sheet financial instruments:
In the ordinary course of business, the Banks have entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and
commitments to sell loans. Such financial instruments are
<PAGE F-11> recorded in the supplemental consolidated
balance sheets when they are funded.
Trust assets:
Assets held in a fiduciary capacity for customers are not
included in the supplemental consolidated financial
statements since such items are not assets of the Bank.
Trust income is recorded on the accrual method.
2. MERGERS AND ACQUISITIONS
The supplemental consolidated financial statements give
retroactive effect to the pooling of interests merger of BCB
Financial Services Corporation and Heritage Bancorp, Inc. as more
fully described below. As a result, the supplemental
consolidated balance sheets as of December 31, 1997 and 1996, and
the related supplemental consolidated statements of income,
stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, are presented as if
the combining companies had been consolidated for all periods
presented. As required by generally accepted accounting
principles, the supplemental consolidated financial statements
will become the historical consolidated financial statements upon
issuance of the supplemental consolidated financial statements
for the period that includes the date of the acquisition. The
supplemental consolidated statements of stockholders' equity
reflect the accounts of the Company as if the common stock had
been issued during all periods presented.
On May 1, 1998, the Company was formed upon the completion
of a merger between BCB Financial Services Corporation (BCB) and
Heritage Bancorp, Inc. (Heritage). The merger was accounted for
as a pooling of interests by the Company. A summary of
consolidated operating results and financial condition of BCB and
Heritage for the year ended December 31, 1997 is as follows:
BCB Heritage Combined
Net loans $246,207 $231,631 $477,838
Deposits 360,552 266,256 626,808
Stockholders' equity 44,101 44,619 88,720
Total assets 447,594 366,269 813,863
Net interest income 12,117 16,387 28,504
Net income 3,301 6,028 9,329
As a result of the merger, each of the 3,471,062 outstanding
shares of BCB common stock as of December 31, 1997 was converted
into 1.3335 shares of the Company's common stock and each of the
4,772,521 outstanding shares of Heritage common stock as of
December 31, 1997 was converted into 1.05 shares of the Company's
common stock, with cash being paid for fractional share
interests.
On March 1, 1995, Heritage acquired a financial institution
which was accounted for as a pooling of interests transaction.
<PAGE F-12> In the aggregate, this transaction added $ 81,497,000
in assets, $ 54,649,000 in net loans, $ 67,468,000 in deposits,
$ 8,911,000 in stockholders' equity and involved the issuance of
approximately 1,474,000 shares of common stock.
3. RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Banks are required to maintain average reserve balances
with the Federal Reserve Bank or in vault cash. The total of
those reserve balances was approximately $ 3,648,000 and
$ 2,724,000 at December 31, 1997 and 1996 respectively.
4. SECURITIES
The amortized cost and approximate fair value of securities
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
December 31, 1997:
U.S. Treasury securities $ 10,801 $ 58 $ (7) $ 10,852
U.S. Government agencies and
corporations 32,981 488 (9) 33,460
States and political subdivisions 45,538 1,248 (10) 46,776
Other securities 100 1 - 101
Mortgage-backed and asset-backed
securities 103,132 1,172 (224) 104,080
Equity Securities 12,853 984 -0- 13,837
$205,405 $ 3,951 $ (250) $209,106
December 31, 1996:
U.S. Treasury securities $ 3,465 $ 44 $ - $ 3,509
U.S. Government agencies and
corporations 25,328 59 (159) 25,228
States and political subdivisions 33,625 219 (249) 33,595
Other securities 1,100 17 (1) 1,116
Mortgage-backed and asset-backed
securities 75,051 769 (626) 75,194
Equity securities 9,562 507 - 10,069
$148,131 $ 1,615 $(1,035) $148,711
Held to maturity securities:
December 31, 1997:
U.S. Government agencies and
corporations $ 60,724 $ 602 $ (41) $ 61,285
States and political subdivisions 10,165 302 (8) 10,459
Other 25 - - 25
$ 70,914 $ 904 $ (49) $ 71,769
December 31, 1996:
U.S. Treasury securities $ 11,873 $ 62 $ (44) $ 11,891
U.S. Government agencies and
corporations 24,253 138 (217) 24,174
<PAGE F-13>
States and political subdivisions 18,374 426 (26) 18,774
Other 25 - - 25
$ 54,525 $ 626 $ (287) $ 54,864
</TABLE>
Equity securities are principally comprised of Pennsylvania
community banks, Federal Home Loan Bank and Federal Reserve Bank
stock.
The amortized cost and fair value of securities as of
December 31, 1997, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid with or without
any penalties.
<TABLE>
<CAPTION>
Available For Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 3,507 $ 3,519 $ 365 $ 384
Due after one year through five
years 20,443 20,707 1,704 1,714
Due after five years through ten
years 23,233 23,818 21,302 21,809
Due after ten years 42,237 43,145 47,543 47,862
Mortgage-backed and asset-backed
securities 103,132 104,080 - -
Equity securities 12,853 13,837 - -
$205,405 $209,106 $ 70,914 $ 71,769
</TABLE>
Gross gains of $ 606,000 and gross losses of $ 249,000 were
realized on sales of available for sale securities in 1997.
Gross gains of $ 2,000 and gross losses of $ 3,000 were realized
on sales of available for sale securities in 1996. Gross gains
of $ 88,000 and gross losses of $ 122,000 were realized on the
sales of available for sale securities in 1995.
Securities with an amortized cost of $ 35,142,000 and
$ 15,298,000 at December 31, 1997 and 1996 respectively were
pledged as collateral on public deposits and for other purposes
as required or permitted by law.
5. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31, 1997 and
1996 were as follows:
1997 1996
(In Thousands)
Commercial $222,050 $178,021
<PAGE F-14>
Installment 70,077 62,092
Mortgage 175,978 152,139
Construction 15,091 10,662
483,196 402,914
Less:
Allowance for loan losses 5,738 5,072
Net deferred loan fees and costs (380) 52
5,358 5,124
$477,838 $397,790
Changes in the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
(In Thousands)
Balance, beginning $5,072 $4,883 $4,449
Provision for loan losses 1,140 867 828
Loans charged off (705) (995) (588)
Recoveries 231 317 194
Balance, ending $5,738 $5,072 $4,883
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $ 2,409,000, $ 1,070,000 and
$ 1,066,000 at December 31, 1997, 1996 and 1995 respectively.
The recorded investment in impaired loans requiring an allowance
for loan losses was $ 614,000, $ 1,122,000 and $ 889,000 at
December 31, 1997, 1996 and 1995 respectively. At December 31,
1997, 1996 and 1995, the related allowance for loan losses
associated with those loans was $ 287,000, $ 407,000 and
$ 418,000 respectively. For the years ended December 31, 1997,
1996 and 1995, the average recorded investment in these impaired
loans was $ 2,704,000, $ 2,390,000 and $ 2,171,000 respectively.
Interest income on impaired loans of $ 63,000, $ 84,000 and
$ 37,000 was recognized for cash payments received in 1997, 1996
and 1995 respectively.
6. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997
and 1996 were as follows:
1997 1996
(In Thousands)
Land $ 2,162 $ 2,080
Building and improvements 10,327 8,712
Furniture, fixtures and equipment 7,301 7,243
Leasehold improvements 110 110
<PAGE F-15>
Construction in progress 83 104
19,983 18,249
Less accumulated depreciation 8,472 8,523
$ 11,511 $ 9,726
7. DEPOSITS
The aggregate amount of certificates of deposit with a
minimum denomination of $ 100,000 was approximately $ 18,528,000
and $ 20,261,000 at December 31, 1997 and 1996 respectively.
At December 31, 1997, the scheduled maturities of time
deposits are as follows (in thousands):
1998 $124,387
1999 70,661
2000 44,002
2001 10,317
2002 10,625
Thereafter 983
$260,975
8. OTHER BORROWED FUNDS AND LONG-TERM DEBT
A Bank subsidiary maintains a U.S. Treasury tax and loan
note option account for the deposit of withholding taxes,
corporate income taxes and certain other payments to the federal
government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this
note option account were $ 1,056,000 and $ 718,000 at
December 31, 1997 and 1996 respectively.
The Banks have other short-term borrowings from the Federal
Home Loan Bank at December 31, 1997 and 1996 in the amount of
$ 29,204,000 and $ 28,952,000 respectively. The December 31,
1997 balance outstanding is due in 1998, at an average interest
rate of 5.94%.
Long-term debt consisted of the following at December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes with the Federal Home Loan Bank (FHLB):
Term notes due May 1998 at 5.66% weighted
average fixed rate $ 3,450 $ 3,450
Term note due September 1998 at 5.05% fixed rate - 2,000
Term note due November 1998 at 5.56% fixed rate 1,000 1,000
<PAGE F-16>
3 year/3 month term note due October 1999 at
5.87% fixed rate 5,000 5,000
Term note due September 2001 at 6.05% fixed rate 5,000 5,000
5 year/3 month term note due December 2001 at
4.97% fixed rate(1) - 10,000
5 year/3 month term note due December 2001 at
4.92%(1) - 25,000
5 year/6 month term note due March 2002 at
5.46%(1) 30,000 -
5 year/3 month term note due July 2002 at 5.60%(1) 10,000 -
$54,450 $51,450
</TABLE>
(1) These notes contain a convertible option which allows the
FHLB, at quarterly intervals, to change the note to an
adjustable-rate advance at three-month LIBOR (5.81% at
December 31, 1997) plus 3 to 8 basis points. If the notes
are converted, the option allows the Bank to put the funds
back to the FHLB at no charge. The years/months refers to
the maturity of the note (in years) and the term until the
first convertible date (in months). All of these notes have
passed the original convertible date.
Contractual maturities of long-term debt at December 31,
1997 are as follows (in thousands):
1998 $ 4,450
1999 5,000
2000 -
2001 5,000
2002 40,000
$54,450
The Banks have a maximum borrowing capacity with the Federal
Home Loan Bank of approximately $ 309,379,000. Advances from the
Federal Home Loan Bank are secured by qualifying assets of the
Banks.
9. INCOME TAXES
The provision for federal income taxes for the years ended
December 31, 1997, 1996 and 1995 consisted of the following (in
thousands):
1997 1996 1995
Current $ 3,650 $ 2,433 $ 2,081
Deferred (333) (5) (191)
$ 3,317 $ 2,428 $ 1,890
A reconciliation of the statutory income tax at a rate of
34% to the income tax expense in the supplemental consolidated
<PAGE F-17> statements of income for the years ended December 31,
1997, 1996 and 1995 is as follows (in thousands):
1997 1996 1995
Federal income tax at
statutory rate $ 4,299 $ 3,166 $ 2,108
Tax-exempt interest (1,093) (807) (442)
Disallowance of interest
expense 143 97 48
Non-deductible merger
expenses - - 111
Other (32) (28) 65
$ 3,317 $ 2,428 $ 1,890
The income tax provision includes $ 121,000 in 1997, $ -0-
in 1996 and $ (11,000) in 1995 of income tax expense (benefit)
related to net realized securities gains (losses).
Net deferred tax assets consisted of the following
components as of December 31, 1997 and 1996:
1997 1996
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 1,363 $ 1,051
Interest on non-accrual loans 138 84
Deferred compensation 104 81
Other 85 70
Total deferred tax assets 1,690 1,286
Deferred tax liabilities:
Premises and equipment 279 274
Prepaid expenses 119 100
Loan origination fees and costs 164 116
Unrealized appreciation on securities
available for sale 1,327 235
Total deferred tax liabilities 1,889 725
Net deferred tax asset
(liability) $ (199) $ 561
10. EMPLOYEE BENEFIT PLANS
The Company's Bank subsidiaries have 401(k) plans which
cover employees who meet the eligibility requirements of having
worked 1,000 hours in a plan year and have attained the age of
21. Participants are permitted to contribute from 1% to 15% of
compensation. The Banks will match the participant's
contributions up to a maximum percentage. The expense related to
the Banks' 401(k) plans was $ 138,000, $ 105,000 and $ 81,000 for
the years ended December 31, 1997, 1996 and 1995 respectively.
<PAGE F-18>
A Bank subsidiary has a noncontributory pension plan
covering eligible employees. Benefits are based on the
employee's compensation and years of service. The Bank's funding
policy is to contribute annually amounts not to exceed the
maximum amount deductible for federal income tax purposes.
Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be
earned in the future.
The following table sets forth the Plan's status and amounts
recognized in the supplemental consolidated financial statements
at and for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits 1997 $1,495; 1996 $1,533 $ (1,532) $ (1,552)
Projected benefit obligation for service rendered
to date $ (1,799) $ (1,831)
Plan assets at fair value, primarily listed
stocks and U.S. government obligations 2,950 2,493
Plan assets in excess of projected benefit
obligation 1,151 662
Unrecognized net gain from past experience
different than assumed (759) (266)
Unrecognized net transition asset (115) (137)
Prepaid pension cost included in other assets $ 277 $ 259
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Net pension expense included the following
components:
Service costs, benefits earned during
the period $ 77 $ 64 $ 56
Interest cost on projected benefit
obligation 126 122 119
Actual return on plan assets (185) (171) (156)
Net amortization and deferral (36) (28) (26)
Net periodic pension cost (income) $(18) $(13) $ (7)
</TABLE>
The weighted average discount rate and the rate of increase
of future compensation levels used in determining the actuarial
present value of the projected benefit obligation was 7.25% and
6.00% at December 31, 1997 and 1996 respectively. The expected
long-term rate of return on plan assets was 7.50% in 1997, 1996
and 1995.
<PAGE F-19>
In May 1998, the noncontributory pension plan was
terminated, and the plan assets in excess of the projected
benefit obligation were contributed to the plan's eligible
participants. The prepaid pension cost was charged to employee
benefits expense at this time.
11. OTHER EXPENSES
The following represents the most significant categories of
other expenses for the years ended December 31:
1997 1996 1995
(In Thousands)
Advertising $ 978 $ 991 $ 433
Data processing and MAC fees 802 626 495
F.D.I.C. insurance premiums 66 20 431
Loan expenses 391 297 282
Office supplies and expenses 1,136 885 933
Professional fees 936 746 862
Taxes, other than income 552 536 475
Telephone 264 243 230
Foreclosed real estate (4) 363 311
Merger - - 687
Restructuring - - 391
All other expenses 1,365 1,222 937
$6,486 $5,929 $6,467
12. STOCK OPTIONS AND GRANTS
The pooled entities to the Company have various qualified
and non-qualified stock option plans for employees and non-
employee directors which have carried over to the Company and
which cover approximately 765,000 shares of common stock. The
option prices under the plans are the fair market value of the
common stock on the date the options are granted and an option's
maximum term is generally ten years. Options are exercisable six
months to one year after the date of grant.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 259,094 $ 8.34 131,848 $ 6.83 122,448 $ 6.49
Granted 50,715 12.72 141,559 9.38 22,313 9.57
Exercised (18,515) 8.07 (14,313) 5.44 (12,913) 8.32
Forfeited (9,820) 12.74 - - - -
-----------------------------------------------------------------
Outstanding, end of year 281,474 $ 8.91 259,094 $ 8.34 131,848 $ 6.83
<PAGE F-20>
=================================================================
Exercisable at end of year 248,609 $ 8.40 125,404 $ 7.26 115,834 $ 6.45
=================================================================
</TABLE>
Stock options outstanding at December 31, 1997 are
exercisable at prices ranging from $ 4.57 to $ 12.72 a share.
The weighted average remaining contractual life of those options
is 7 years.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for options granted in 1997
and 1996. Had compensation cost for stock options granted in
1997 and 1996 been determined based on the fair value at the
grant date consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share for the years ended
December 31, 1997 and 1996 would have been reduced to the pro-
forma amounts indicated below (in thousands, except per share
amounts):
1997 1996
Net income:
As reported $9,329 $6,883
Pro forma $9,260 $6,703
Basic earnings per share:
As reported $ 1.09 $ 0.88
Pro forma $ 1.08 $ 0.86
Diluted earnings per share:
As reported $ 1.07 $ 0.88
Pro forma $ 1.07 $ 0.86
The fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following weighted-
average assumptions for 1997 and 1996 respectively: risk-free
interest rate of 6.5% and 6.0%, volatility .12 and .11, dividend
yield of 3.6% and 3.6%, and an expected life of 7.5 and 5.5
years. The weighted-average fair value of options granted was
$ 2.37 per share in 1997 and $ 2.28 per share in 1996.
13. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense:
The Banks rent facilities under lease agreements which
expire between 1998 and 2009, and require various minimum
annual rentals. The total minimum rental commitments at
December 31, 1997 are as follows: <PAGE F-21>
During the year ending December 31 (in thousands):
1998 $ 275
1999 108
2000 84
2001 86
2002 88
Later years 419
$1,060
The total rental expense included in the income statements
for the years ended December 31, 1997, 1996 and 1995 is
$ 347,000, $ 360,000 and $ 343,000 respectively.
Commitments:
At December 31, 1997, a Bank subsidiary has entered into
agreements of sale to purchase land in Robesonia,
Pennsylvania to build a branch office, to purchase land and
a building in Boyertown, Pennsylvania for the use as a
branch office and to purchase a building in Reading,
Pennsylvania for the use as the Company's operations
facility. Deposits on the purchase of these properties of
$ 121,000 are included in premises and equipment as of
December 31, 1997. The estimated cost to acquire and
complete these projects is approximately $ 5,250,000 at
December 31, 1997. Settlement on the purchase of the
building in Reading occurred in February 1998.
Contingencies:
The Company is a defendant in various lawsuits wherein
various amounts are claimed. In the opinion of the
Company's management, these suits are without merit and
should not result in judgments which, in the aggregate,
would have a material adverse effect on the Company's
supplemental consolidated financial statements.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of their customers. These financial instruments
include commitments to extend credit, letters of credit and
commitments to sell loans. Those instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess
of the amount recognized in the balance sheets.
The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and letters of credit is represented
by the contractual amount of those instruments. The Banks use
the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
<PAGE F-22>
A summary of the contractual amount of the Banks' financial
instrument commitments at December 31, 1997 and 1996 is as
follows (in thousands):
1997 1996
Commitments to extend credit $85,851 $73,489
Outstanding letters of credit 4,900 3,113
Commitments to sell loans - -
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The Banks
evaluate each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary
upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or
commercial real estate, accounts receivable, inventory and
equipment.
Outstanding letters of credit are conditional commitments
issued by the Banks to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
Commitments to sell loans are to the Federal National
Mortgage Association and other mortgage investors. These
commitments are generally met through mortgage originations in
the normal course of business.
15. CONCENTRATION OF CREDIT RISK
The Banks grant commercial, residential and consumer loans
to customers primarily located in Berks, Bucks, Chester, Dauphin,
Lehigh, Montgomery and Schuylkill Counties in Pennsylvania. The
concentrations of credit by type of loan are set forth in Note 5.
Although the Banks have a diversified loan portfolio, their
debtors' ability to honor their contracts is influenced by the
region's economy.
16. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Banks have had, and may be expected to have in the
future, banking transactions in the ordinary course of business
with their executive officers and directors and their related
interests on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1997 and 1996, these
persons were indebted to the Banks for loans totaling $ 4,709,000
<PAGE F-23> and $ 6,447,000 respectively. During 1997,
$ 8,393,000 of new loans were made; repayments totaled
$ 10,131,000.
17. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Company and its Bank subsidiaries are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and its Bank
subsidiaries must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts and
ratios (set forth below) of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets, and of Tier 1
capital to average assets. Management believes, as of
December 31, 1997, that the Company and its bank subsidiaries
meet all capital adequacy requirements to which they are
subject.
As of December 31, 1997, the most recent notifications from
the banking agencies categorized the bank subsidiaries as well
capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that
notification that management believes have changed the Banks'
category.
The actual capital amounts and ratios are also presented in
the table below:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997: Greater Than or Equal to
Total capital (to risk weighted assets): --------------------------------------------
Company $ 92,182 18.72% $ 39,394 8.00% N/A
Berks County Bank 39,253 15.38 20,411 8.00 $ 25,514 10.00%
Heritage National Bank 42,276 19.13 17,679 8.00 22,099 10.00
Tier I capital (to risk weighted assets):
Company 86,444 17.56 19,691 4.00 N/A
Berks County Bank 36,650 14.36 10,206 4.00 15,308 6.00
Heritage National Bank 39,510 17.88 8,839 4.00 13,258 6.00
<PAGE F-24>
Tier I capital (to average assets):
Company 86,444 10.93 31,635 4.00 N/A
Berks County Bank 36,650 8.33 17,591 4.00 21,989 5.00
Heritage National Bank 39,510 11.38 13,888 4.00 17,359 5.00
As of December 31, 1996:
Total capital (to risk weighted assets):
Company $ 64,455 16.06% $ 32,107 8.00% N/A
Berks County Bank 19,873 10.46 15,205 8.00 $ 19,006 10.00%
Heritage National Bank 38,513 18.47 16,681 8.00 20,852 10.00
Tier I capital (to risk weighted assets):
Company 59,437 14.81 16,053 4.00 N/A
Berks County Bank 17,872 9.40 7,602 4.00 11,403 6.00
Heritage National Bank 35,901 17.22 8,339 4.00 12,509 6.00
Tier I capital (to average assets):
Company 59,437 9.81 24,235 4.00 N/A
Berks County Bank 17,872 6.18 11,572 4.00 14,465 5.00
Heritage National Bank 35,901 11.45 12,542 4.00 15,677 5.00
</TABLE>
State and federal banking laws and regulations limit the
amount of dividends that may be paid by the Bank subsidiaries to
the Company. As of December 31, 1997, the Bank subsidiaries had
retained earnings of approximately $ 17,231,000 available for
payment of dividends to the Company. Under Federal Reserve
Regulations, the Banks are limited as to the amount they may lend
affiliates, including the Company, unless such loans are
collateralized by specified obligations. At December 31, 1997,
the maximum amount available for transfer from the Banks to the
Company in the form of loans approximated 10% of capital and
surplus.
18. EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Numerator, net income $ 9,329,000 $6,883,000 $4,311,000
Denominator:
Denominator for basic earnings per
share, weighted average shares 8,584,093 7,799,346 7,927,858
Effect of dilutive securities, stock
options 99,294 33,593 15,840
Denominator for diluted earnings
per share, weighted average
shares and assumed conversions 8,683,387 7,832,939 7,943,698
Basic earnings per common share $ 1.09 $ 0.88 $ 0.54
Diluted earnings per common share $ 1.07 $ 0.88 $ 0.54
</TABLE>
<PAGE F-25>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Company
could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured
as of their respective year ends, and have not been reevaluated
or updated for purposes of these supplemental consolidated
financial statements subsequent to those respective dates. As
such, the estimated fair values of these financial instruments
subsequent to the respective reporting dates may be different
than the amounts reported at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a fair
value calculation is only provided for a limited portion of the
Company's assets. Due to a wide range of valuation techniques
and the degree of subjectivity used in making the estimates,
comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and
assumptions were used to estimate the fair values of the
Company's financial instruments at December 31, 1997 and 1996:
Cash, federal funds sold and interest-bearing deposits with
banks:
The carrying amounts reported in the balance sheet for
cash and short-term instruments approximate those
assets' fair values.
Securities:
Fair values for securities are based on quoted market
prices, where available. If quoted market prices are
not available, fair values are based on quoted market
prices of comparable securities.
Loans receivable:
For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values
are based on carrying values. The fair values for
fixed rate loans are estimated using discounted cash
flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of
similar credit quality.
Mortgage loans held for sale:
The fair values of the Company's mortgages held for
sale are based on quoted market prices of similar loans
sold.
Due from mortgage investors:
The carrying amounts of due from mortgage investors
approximate their fair values. <PAGE F-26>
Accrued interest receivable:
The carrying amounts of accrued interest receivable
approximate their fair value.
Deposit liabilities:
The fair value of demand deposits, savings accounts and
certain money market accounts is the amount payable on
demand at the reporting date. The carrying amounts for
variable-rate fixed-term money market accounts and
certificates of deposits approximate their fair values
at the reporting date. The fair value of fixed-rate
certificates of deposit are estimated using a
discounted cash flow calculation that applies interest
rates currently being offered for deposits of similar
remaining maturities.
Accrued interest payable:
The carrying amounts of accrued interest payable
approximate their fair value.
Other borrowed funds:
The carrying amounts of short-term borrowings
approximate their fair values.
Long-term debt:
The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
Off-balance sheet instruments:
The fair values of the Company's commitments to extend
credit and outstanding letters of credit are estimated
using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of
the agreements and the counterparties' credit standing.
The estimated fair value of the Company's financial
instruments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 24,918 $ 24,918 $ 18,428 $ 18,428
Interest-bearing deposits with banks 200 200 21,427 21,427
Federal funds sold 470 470 1,290 1,290
Securities 280,020 280,875 203,236 203,575
Loans receivable, net 477,838 482,271 397,790 400,674
Mortgage loans held for sale - - 609 609
Due from mortgage investors 5,425 5,425 3,478 3,478
Accrued interest receivable 5,825 5,825 4,217 4,217
<PAGE F-27>
Financial Liabilities:
Deposits 626,808 628,322 518,567 518,240
Accrued interest payable 2,347 2,347 1,899 1,899
Other borrowed funds 30,260 30,260 29,670 29,670
Long-term debt 54,450 54,305 51,450 51,250
Off-Balance Sheet Financial Instruments:
Commitments to extend credit - - - -
Outstanding letters of credit - - - -
</TABLE>
PAGE F-28
<PAGE>
20. PARENT COMPANY ONLY FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1997 1996
(In Thousands)
ASSETS
Cash $ 7,484 $ 3,126
Investment in bank subsidiaries 77,867 53,823
Securities available for sale 4,542 3,276
Other assets 356 326
$90,249 $60,551
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 1,529 $ 766
Stockholders' equity 88,720 59,785
$90,249 $60,551
STATEMENTS OF INCOME
Years Ended December 31,
1997 1996 1995
(In Thousands)
Dividends from bank subsidiaries $ 2,275 $ 3,550 $ 2,566
Interest and dividend income 318 36 37
Net realized gains on securities
available for sale 180 - -
Other expenses (140) (77) (75)
Income before income taxes
(benefit) and equity in
undistributed net income
of bank subsidiaries 2,633 3,509 2,528
Income taxes (benefit) 103 (23) (19)
Income before equity in
undistributed net income
of bank subsidiaries 2,530 3,532 2,547
Equity in undistributed net income
of bank subsidiaries 6,799 3,351 1,764
Net income $ 9,329 $ 6,883 $ 4,311
PAGE F-29
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,329 $ 6,883 $ 4,311
Undistributed net income of bank subsidiaries (6,799) (3,351) (1,764)
Net realized gains on sales of securities (180) - -
(Increase) decrease in other assets (9) (240) 47
Increase (decrease) in liabilities 416 427 (56)
Net cash provided by operating activities 2,757 3,719 2,538
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (856) (184) (40)
Sales of securities available for sale 247 - -
Net cash used in investing activities (609) (184) (40)
CASH FLOWS FROM FINANCING ACTIVITIES
Pre-merger stock transactions of pooled entities (36) (666) (1,014)
Additional investment in bank subsidiaries (15,500) - (2,000)
Net proceeds from stock offering of pooled
entity 20,869 - 0
Cash dividends (3,123) (2,456) (2,078)
Net cash provided by (used in) financing
activities 2,210 (3,122) (5,092)
Net increase (decrease) in cash 4,358 413 (2,594)
Cash:
Beginning 3,126 2,713 5,307
Ending $ 7,484 $ 3,126 $ 2,713
</TABLE>
21. SUBSEQUENT EVENT
On January 28, 1998, Heritage sold its 19.9% investment in a
closely-held community bank for $ 3,364,000 resulting in a pre-
tax gain of $ 1,682,000. At December 31, 1997, this investment
was carried in the supplemental consolidated financial statements
at its cost of $ 1,682,000 since it did not have a readily
determinable fair value as defined by FASB Statement No. 115.
PAGE F-30
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1997
(In Thousands,
Except Per Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,200 $ 24,918
Interest-bearing deposits with banks 59 200
Federal funds sold 470 470
Securities available for sale 218,483 209,106
Securities held to maturity, fair value March 31,
1998 $74,896; December 31, 1997 $71,769 74,461 70,914
Loans receivable, net of allowance for loan losses
March 31, 1998 $5,817; December 31, 1997 $5,738 505,326 477,838
Due from mortgage investors 7,256 5,425
Premises and equipment, net 14,520 11,511
Accrued interest receivable 5,687 5,825
Prepaid expenses and other assets 6,877 7,656
Total assets $857,339 $813,863
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 82,843 $ 73,985
Demand, interest bearing 215,631 193,358
Savings 92,350 98,490
Time deposits 271,004 260,975
Total deposits 661,828 626,808
Accrued interest payable and other liabilities 16,457 13,625
Other borrowed funds 32,997 30,260
Long-term debt 54,450 54,450
Total liabilities 765,732 725,143
Stockholders' equity:
Preferred stock, authorized and unissued
5,000,000 shares - -
Common stock, par value $1.00 per share;
authorized 50,000,000 shares; issued and
outstanding March 31, 1998 9,662,479 shares;
December 31, 1997 9,639,808 shares 9,662 9,640
Surplus 50,293 49,985
Retained earnings 29,489 26,721
Net unrealized appreciation on securities
available for sale, net of taxes 2,163 2,374
Total stockholders' equity 91,607 88,720
Total liabilities and stockholders'
equity $857,339 $813,863
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE F-31>
PAGE F-32
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
(In Thousands,
Except Per Share Data)
<S> <C> <C>
Interest income:
Loans receivable, including fees $ 10,612 $ 8,807
Interest and dividends on securities:
Taxable 3,589 2,531
Tax-exempt 796 707
Other 11 168
Total interest income 15,008 12,213
Interest expense:
Deposits 6,014 4,734
Other borrowed funds 482 342
Long-term debt 751 669
Total interest expense 7,247 5,745
Net interest income 7,761 6,468
Provision for loan losses 235 286
Net interest income after provision
for loan losses 7,526 6,182
Other income:
Income from fiduciary activities 224 293
Customer service fees 414 361
Mortgage banking activities 362 146
Net realized gains on sales of securities 1,682 128
Other 222 86
Total other income 2,904 1,014
Other expenses:
Salaries and wages 2,284 1,801
Employee benefits 546 434
Occupancy 426 377
Equipment depreciation and maintenance 342 325
Other 1,644 1,764
Total other expenses 5,242 4,701
Income before income taxes 5,188 2,495
Income taxes 1,473 650
Net income $ 3,715 $ 1,845
Basic earnings per share $ 0.39 $ 0.24
Diluted earnings per share $ 0.38 $ 0.23
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE F-33>
PAGE F-34
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
Appreciation
Number of (Depreciation)
Shares of On Securities Compre-
Common Common Retained Available for hensive
Stock Stock Surplus Earnings Sale Total Income
(In Thousands, Except Share Data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 9,639,808 $9,640 $49,985 $26,721 $2,374 $88,720
Net income - - - 3,715 - 3,715 $3,715
Pre-merger stock transactions of
pooled entities 22,671 22 308 - - 330 -
Net change in unrealized
appreciation of securities
available for sale - - - - (211) (211) (211)
Comprehensive income $3,504
Cash dividends declared - - - (947) - (947)
Balance, March 31, 1998 9,662,479 $9,662 $50,293 $29,489 $2,163 $91,607
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-35
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 1997
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,715 $ 1,845
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan and foreclosed real estate losses 258 326
Provision for depreciation and amortization 309 292
Net realized gain on sales of securities (1,682) (128)
Provision for deferred income taxes (119) (94)
Gain on sale of foreclosed real estate (9) -
Proceeds from sale of mortgage loans 21,903 7,987
Net (gain) loss on sale of mortgage loans (23) 10
Mortgage loans originated for sale (21,877) (7,838)
Net accretion (amortization) of securities premiums and discounts 253 1
(Increase) decrease in:
Due from mortgage investors (1,831) 1,168
Accrued interest receivable 138 (447)
Prepaid expenses and other assets 1,069 (3,682)
Increase in accrued interest payable and other liabilities 1,302 452
Net cash provided by (used in) operating activities 3,406 (108)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 3,364 4,370
Proceeds from maturities and calls of and principal repayments on
securities available for sale 11,583 5,790
Proceeds from maturities and calls of securities held to maturity 4,250 1,790
Purchases of securities available for sale (15,992) (20,306)
Purchases of securities held to maturity (13,184) (4,994)
Decrease in interest-bearing deposits with banks 141 20,556
Net decrease in federal funds sold - 250
Loans made to customers, net of principal collected (28,143) (18,188)
Proceeds from sales of foreclosed real estate 313 262
Purchases of premises and equipment (3,315) (1,246)
Net cash used in investing activities (40,983) (11,716)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 24,991 15,127
Net increase in time deposits 10,029 7,091
Net proceeds from other borrowed funds 2,737 (3,625)
Proceeds from long-term debt - 30,000
Principal payments on long-term debt - (35,000)
Pre-merger stock transactions of pooled entities 327 (264)
Cash dividends paid (1,225) (696)
Net cash provided by financing activities 36,859 12,633
Increase (decrease) in cash and due from banks (718) 809
Cash and due from banks:
January 1 24,918 18,428
March 31 $24,200 $19,237
======= =======
PAGE F-36
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(In Thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 7,344 $ 5,704
Income taxes $ 1,110 $ -
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
PAGE F-37
<PAGE>
MAIN STREET BANCORP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The supplemental consolidated financial statements give
retroactive effect to the pooling of interests merger of BCB
Financial Services Corporation and Heritage Bancorp, Inc. as more
fully described below. As a result, the supplemental
consolidated balance sheets as of March 31, 1998 and December 31,
1997, and the related supplemental consolidated statements of
income, stockholders' equity and cash flows for each of the three
months ended March 31, 1998 and 1997, are presented as if the
combining companies had been consolidated for all periods
presented. As required by generally accepted accounting
principles, the supplemental consolidated financial statements
will become the historical consolidated financial statements upon
issuance of the supplemental consolidated financial statements
for the period that includes the date of the acquisition. The
supplemental consolidated statements of stockholders' equity
reflect the accounts of the Company as if the common stock had
been issued during all periods presented.
On May 1, 1998, the Company was formed upon the completion
of a merger between BCB Financial Services Corporation (BCB) and
Heritage Bancorp, Inc. (Heritage). The merger was accounted for
as a pooling of interests by the Company. A summary of
consolidated operating results and financial condition of BCB and
Heritage for the three months ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
BCB Heritage Combined
<S> <C> <C> <C>
Net loans $267,422 $237,904 $505,326
Deposits 400,719 261,109 661,828
Stockholders' equity 44,869 46,738 91,607
Total assets 483,332 374,007 857,339
Net interest income 3,663 4,098 7,761
Net income 1,122 2,593 3,715
</TABLE>
As a result of the merger, each of the 3,471,062 outstanding
shares of BCB common stock as of December 31, 1997 was converted
into 1.3335 shares of the Company's common stock and each of the
4,772,521 outstanding shares of Heritage common stock as of
December 31, 1997 was converted into 1.05 shares of the Company's
common stock, with cash being paid for fractional share
interests.
The unaudited supplemental consolidated financial statements
include the accounts of Main Street Bancorp, Inc. and its wholly-
owned subsidiaries, Berks County Bank and Heritage National Bank.
<PAGE F-38> All significant intercompany accounts and
transactions have been eliminated.
The accompanying unaudited supplemental consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for
fair presentation have been included. Operating results of the
three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1998.
2. EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
<S> <C> <C>
Numerator, net income $3,715,000 $1,845,000
Denominator:
Denominator for basic earnings per share, weighted
average shares 9,646,010 7,783,267
Effect of dilutive securities, stock options 143,026 83,174
Denominator for diluted earnings per share,
weighted average shares and assumed
conversions 9,789,036 7,866,441
Basic earnings per common share $ 0.39 $ 0.24
Diluted earnings per common share $ 0.38 $ 0.23
</TABLE>
3. OTHER EXPENSES
The following represents the most significant categories of
other expenses for the three months ended March 31:
<PAGE F-39>
<TABLE>
<CAPTION>
1998 1997
(In Thousands)
<S> <C> <C>
Advertising $ 272 $ 211
Data processing and MAC fees 273 226
F.D.I.C. insurance premiums 44 14
Office supplies and expenses 276 268
Professional fees 197 311
Taxes, other than income 143 127
Foreclosed real estate 25 114
All other expenses 414 493
$1,644 $1,764
</TABLE>
4. COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income", in June 1997. The
Company adopted the provisions of the new standard in the first
quarter of 1998.
The only comprehensive income item that the Company
presently has is unrealized appreciation (depreciation) on
securities available for sale. The federal income taxes allocated
to the unrealized gains (losses) are as follows:
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1998 1997
(In Thousands)
<S> <C> <C>
Unrealized holding gains (losses) arising during the period:
Before tax amount $(320) $(1,631)
Tax benefit 109 555
Net of tax amount (211) (1,076)
Less reclassification adjustment for gains (losses) included in net income:
Before tax amount - 128
Tax benefit - (43)
Net of tax amount - 85
Net unrealized losses:
Before tax amount (320) (1,759)
Tax benefit 109 598
Net of tax amount $(211) $ 1,161)
</TABLE> <PAGE F-40>
