<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transitional Period From To
Commission File Number 0-13108
GARDEN STATE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2549534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 West County Line Road
Jackson, New Jersey 08527
(address of principal executive offices and zip code)
(908)905-2200
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class October 20, 1995
Common Stock, no par value 3,114,953
<PAGE>
GARDEN STATE BANCSHARES, INC.
INDEX
Page
Part 1: Financial Information
Item 1. - Financial Statements . . . . . . . . . . . . . . 3
Consolidated Balance Sheets at
September 30, 1995 and December 31, 1994 . . . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1995 and 1994 . . . . 4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1995 and 1994. . . . . 5
Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 1995. . 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994. . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . 8
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 10
Part 2: Other Information
Item 5 - Other Information . . . . . . . . . . . . . . . . 16
Item 6(a) - Exhibits . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
Securities and Exchange Commission Form 10Q
Part 1: Financial Information
GARDEN STATE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, December 31,
1995 1994
------------ ------------
Assets
Cash and due from banks. . . . . . . . . . . . . . $ 8,630 $ 12,002
Interest bearing deposits with banks
With maturities of three months or less. . . . 77 277
Federal funds sold . . . . . . . . . . . . . . . . 14,500 400
------- -------
Total Cash and Cash Equivalents . . . . . . . . . 23,207 12,679
Investments available for sale (Note 2). . . . . . 17,332 17,133
Investments held to maturity: (Note 3)
U.S. Treasury Securities. . . . . . . . . . . . . 28,175 28,197
Obligation of other Government agencies . . . . . 15,629 17,346
Obligations of state and
political subdivisions . . . . . . . . . . . . 6,668 5,385
Other securities. . . . . . . . . . . . . . . . . 646 630
------- -------
Total investments held to maturity . . . . . . 51,118 51,558
Loans available for sale . . . . . . . . . . . . . 8,949 5,461
Loans, net of unearned income. . . . . . . . . . . 201,589 208,097
Less: Allowance for possible loan losses. . . . . 4,110 4,217
------- -------
Loans, net . . . . . . . . . . . . . . . . . . 197,479 203,880
Bank premises and equipment, net (Note 4). . . . . 8,071 7,757
Other Real Estate Owned, net . . . . . . . . . . . 3,347 2,930
Accrued interest receivable and other assets . . . 4,401 5,000
------- -------
Total Assets . . . . . . . . . . . . . . . . . $313,904 $306,398
======= =======
Liabilities and Stockholders' Equity
Deposits:
Demand noninterest bearing. . . . . . . . . . . . $ 40,246 $ 38,859
Demand interest bearing . . . . . . . . . . . . . 64,122 58,530
Savings . . . . . . . . . . . . . . . . . . . . . 58,036 64,403
Time - under $100,000 . . . . . . . . . . . . . . 109,934 90,568
Time - $100,000 and over. . . . . . . . . . . . . 11,518 17,815
------- -------
Total Deposits . . . . . . . . . . . . . . . . 283,856 270,175
Other liabilities and borrowed funds . . . . . . . 1,422 10,536
------- -------
Total liabilities. . . . . . . . . . . . . . . 285,278 280,711
<PAGE>
Shareholders' Equity:
Common stock, no par value
Authorized 4,088,091 shares, issued and outstanding,
3,114,953 shares at September 30, 1995 and
3,028,352 shares at December 31, 1994 . . . . 12,302 12,302
Capital surplus . . . . . . . . . . . . . . . . . 9,900 9,150
Undivided profits . . . . . . . . . . . . . . . . 6,380 4,591
Fair market value adjustment of
investments available for sale . . . . . . . . 44 (356)
------- -------
Total stockholders' equity . . . . . . . . . . . . 28,626 25,687
------- -------
Total liabilities and stockholders' equity. . . . $313,904 $306,398
======= =======
3
<PAGE>
Securities and Exchange Commission Form 10Q
GARDEN STATE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 1994
Interest Income:
Interest and fees on loans. . . . . . . . . . . . $ 4,967 $ 4,271
Interest on investments securities
Taxable. . . . . . . . . . . . . . . . . . . . 919 967
Exempt from federal income tax. . . . . . . . 83 74
Interest on Federal funds sold . . . . . . . . . 169 56
Interest on cash due from banks . . . . . . . . . 1 36
------- -------
Total interest income . . . . . . . . . . . . . . 6,139 5,404
------- -------
Interest Expense:
Demand interest bearing and savings . . . . . . . 685 772
Time . . . . . . . . . . . . . . . . . . . . . . 1,530 840
Time $100,000 and over. . . . . . . . . . . . . . 169 217
Borrowed funds. . . . . . . . . . . . . . . . . . - 5
------- -------
Total interest expense . . . . . . . . . . . . 2,384 1,834
------- -------
Net interest income. . . . . . . . . . . . . . 3,755 3,570
------- -------
Provision for possible loan losses . . . . . . . . - 50
------- -------
Net interest income after
provision for loan losses. . . . . . . . . . . 3,755 3,520
------- -------
Noninterest income:
Service charges - deposit accounts. . . . . . . . 393 310
Other charges, commissions and fees . . . . . . . 317 276
Gain on sale of loans . . . . . . . . . . . . . . 9 27
Loss on sale of securities. . . . . . . . . . . . - (8)
Other noninterest income. . . . . . . . . . . . . 14 13
------- -------
Total noninterest income . . . . . . . . . . . 733 618
------- -------
Noninterest expense:
Salaries, wages . . . . . . . . . . . . . . . . . 1,374 1,377
Employee benefits . . . . . . . . . . . . . . . . 358 303
Occupancy expense . . . . . . . . . . . . . . . . 322 298
Other real estate owned . . . . . . . . . . . . . 105 497
FDIC premium. . . . . . . . . . . . . . . . . . . (14) 196
Other . . . . . . . . . . . . . . . . . . . . . . 784 961
------- -------
Total noninterest expense. . . . . . . . . . . 2,929 3,632
------- -------
Income before income taxes . . . . . . . . . . 1,559 506
Income tax expense . . . . . . . . . . . . . . . . 504 25
------- -------
<PAGE>
Net income. . . . . . . . . . . . . . . . . . . . $ 1,055 $ 481
------- -------
Earnings per share of Common Stock
Income per share - Primary. . . . . . . . . . $ 0.34 $ 0.18
Income per share - Fully diluted. . . . . . . $ 0.34 $ 0.18
Weighted average shares outstanding
Primary. . . . . . . . . . . . . . . . . . . . 3,093,998 2,627,782
Fully diluted. . . . . . . . . . . . . . . . . 3,093,998 2,735,735
4
<PAGE>
Securities and Exchange Commission Form 10Q
GARDEN STATE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
Interest Income:
Interest and fees on loans. . . . . . . . . . . . $ 15,076 $ 11,901
Interest on investments securities
Taxable. . . . . . . . . . . . . . . . . . . . 2,767 3,039
Exempt from federal income tax. . . . . . . . 217 220
Interest on Federal funds sold . . . . . . . . . 441 88
Interest on cash due from banks . . . . . . . . . 8 105
------- -------
Total interest income . . . . . . . . . . . . . . 18,509 15,353
------- -------
Interest Expense:
Demand interest bearing and savings . . . . . . . 2,197 2,295
Time . . . . . . . . . . . . . . . . . . . . . . 4,049 2,523
Time $100,000 and over. . . . . . . . . . . . . . 902 505
Borrowed funds. . . . . . . . . . . . . . . . . . 74 11
------- -------
Total interest expense . . . . . . . . . . . . 7,222 5,334
------- -------
Net interest income. . . . . . . . . . . . . . 11,287 10,019
------- -------
Provision for possible loan losses . . . . . . . . 87 467
------- -------
Net interest income after
provision for loan losses. . . . . . . . . . . 11,200 9,552
------- -------
Noninterest income:
Service charges - deposit accounts. . . . . . . . 1,137 915
Other charges, commissions and fees . . . . . . . 927 808
Gain on sale of loans . . . . . . . . . . . . . . 131 394
Gain on sale of securities. . . . . . . . . . . . - 125
Other noninterest income. . . . . . . . . . . . . 43 34
------- -------
Total noninterest income . . . . . . . . . . . 2,238 2,276
------- -------
Noninterest expense:
Salaries, wages . . . . . . . . . . . . . . . . . 4,082 4,060
Employee benefits . . . . . . . . . . . . . . . . 1,146 969
Occupancy expense . . . . . . . . . . . . . . . . 923 908
Other real estate owned . . . . . . . . . . . . . 439 1,215
FDIC premium. . . . . . . . . . . . . . . . . . . 332 609
Other . . . . . . . . . . . . . . . . . . . . . . 2,837 2,699
------- -------
Total noninterest expense. . . . . . . . . . . 9,759 10,460
------- -------
Income before income taxes . . . . . . . . . . 3,679 1,368
<PAGE>
Income tax expense . . . . . . . . . . . . . . . . 1,183 75
------- -------
Net income. . . . . . . . . . . . . . . . . . . . $ 2,496 $ 1,293
------- -------
Earnings per share of Common Stock
Income per share - Primary. . . . . . . . . . $ 0.82 $ 0.59
Income per share - Fully diluted. . . . . . . $ 0.82 $ 0.53
Weighted average shares outstanding
Primary. . . . . . . . . . . . . . . . . . . . 3,053,662 2,204,530
Fully diluted. . . . . . . . . . . . . . . . . 3,053,662 2,429,076
5
<PAGE>
Securities and Exchange Commission Form 10Q
GARDEN STATE BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Common Capital Retained Investment
Stock Surplus Earnings Valuation Total
------ ------- -------- --------- ------
BALANCE, JANUARY 1, 1995 . . $ 12,302 $ 9,150 $ 4,591 $ (356) $ 25,687
Net Income . . . . . . . . . - - 2,496 - 2,496
Proceeds from Issuance
of Stock . . . . . . . . - 750 - - 750
Dividends. . . . . . . . . . - - (707) - (707)
Fair Market Value
Adjustment of Investments
Available for Sale. . . . - - - 400 400
------ ------ ----- ----- -------
BALANCE, SEPTEMBER 30, 1995. $ 12,302 $ 9,900 $ 6,380 $ 44 $ 28,626
====== ====== ===== ===== =======
6
<PAGE>
Securities and Exchange Commission Form 10Q
GARDEN STATE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the nine months ended September 30, 1995 1994
Cash flows from operating activities:
Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 2,496 $ 1,293
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization. . . . . . . . . . . . 622 708
Provision for loan losses. . . . . . . . . . . . . . 87 467
Provision for other real estate owned . . . . . . . 81 580
Accretion of discount on investment securities . . . (15) (81)
Amortization of premium on investment securities . . 141 191
Gain on sale of investments available for sale . . . - (125)
Loss on call of investment held to maturity. . . . . 1 -
Gain on sale of loans. . . . . . . . . . . . . . . . (131) (394)
Gain on sale of other real estate owned. . . . . . . (66) (7)
Sale of loans available for sale . . . . . . . . . . 5,313 13,955
Increase in income tax receivable . . . . . . . . . - (140)
Increase in income tax payable . . . . . . . . . . . 162 -
Deferred tax benefit . . . . . . . . . . . . . . . . 267 118
Decrease in deferred loan fees . . . . . . . . . . . (130) (89)
Decrease (increase) in interest receivable . . . . . 168 (27)
Increase in interest payable . . . . . . . . . . . . 228 24
Decrease (increase) in purchase mortgage
servicing rights . . . . . . . . . . . . . . . . . 47 (442)
(Increase) decrease in other assets. . . . . . . . . (149) 82
Increase (decrease) in other liabilities . . . . . . 144 (82)
------ ------
Total adjustments. . . . . . . . . . . . . . . . . . 6,770 14,738
------ ------
Net cash provided by operating activities. . . . . . . . 9,266 16,031
------ ------
Cash flows from investment activities:
Proceeds from sale of investments available for sale . . - 19,018
Proceeds from maturities of investments
available for sale. . . . . . . . . . . . . . . . . 430 5,392
Proceeds from maturities of investments
held to maturity. . . . . . . . . . . . . . . . . . 4,413 8,403
Purchase of investment securities held
to maturity . . . . . . . . . . . . . . . . . . . . (4,062) (11,677)
Purchase of investment securities available for sale . . - (13,182)
Net increase in loans. . . . . . . . . . . . . . . . . . (4,888) (26,856)
Recoveries of loans previously charged off . . . . . . . 274 274
Proceeds from sale of other real estate owned. . . . . . 1,955 2,365
Property and equipment expenditures. . . . . . . . . . . (936) (220)
------ ------
Net cash applied to investing activities. . . . . . . . (2,814) (16,483)
------ ------
Cash flows from financing activities:
Net increase (decrease) in demand deposits
and savings accounts. . . . . . . . . . . . . . . . 612 (2,755)
<PAGE>
Net increase (decrease) in time deposits . . . . . . . . 13,069 (1,789)
Repayments of short-term borrowings. . . . . . . . . . . (9,648) -
Dividends paid . . . . . . . . . . . . . . . . . . . . . (707) -
Proceeds from issuance of common stock . . . . . . . . . 750 3,316
------ ------
Net cash provided by (applied to)
financing activities. . . . . . . . . . . . . . . . 4,076 (1,228)
------ ------
Net increase cash and cash equivalents . . . . . . . . . 10,528 (1,680)
Cash and cash equivalents at beginning of year . . . . . 12,679 19,066
------ ------
Cash and cash equivalents at end of period . . . . . . . $ 23,207 $ 17,386
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 6,994 $ 5,310
Income taxes . . . . . . . . . . . . . . . . . . . . $ 754 $ 97
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING FINANCING ACTIVITIES:
During the nine months ended September 30, 1995 and 1994, the Bank
transferred assets of approximately $2,434,000 and $3,267,000 respectively, to
other real estate owned from the loan portfolio.
7
<PAGE>
Securities and Exchange Commission Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements as
presented for the nine months ended September 30,1995 and 1994 are unaudited
and in the opinion of Garden State BancShares, Inc. (the "COMPANY") reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for the unaudited periods. The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and are not necessarily
indicative of results for the year. "THE BANK", as referred to hereinafter,
refers to Garden State Bank, the Company's sole subsidiary.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate market value (carrying value) of
securities available for sale are summarized as follows:
September 30, 1995
----------------------
Amortized Market
Cost Value
--------- --------
U.S. Treasury. . . . . . . . . . . . . . . . $ 3,000 $ 2,993
Obligations of other Government agencies . . 14,183 14,272
Other Securities . . . . . . . . . . . . . . 74 67
------ ------
$ 17,257 $ 17,332
====== ======
December 31, 1994
-----------------------
Amortized Market
Cost Value
---------- ---------
U.S. Treasury. . . . . . . . . . . . . . . . $ 3,000 $ 2,913
Obligations of other Government agencies . . 14,617 14,106
Other Securities . . . . . . . . . . . . . . 109 114
------ ------
$ 17,726 $ 17,133
====== ======
3. INVESTMENT SECURITIES
The amortized cost (carrying value) and approximate market value of
investment securities are summarized as follows:
<PAGE>
September 30, 1995
----------------------
Amortized Market
Cost Value
---------- --------
U.S. Treasury. . . . . . . . . . . . . . . . $ 28,175 $ 28,101
Obligations of other Government agencies . . 15,629 15,492
Obligations of State &
Political Subdivisions . . . . . . . . . 6,668 6,778
Other Securities . . . . . . . . . . . . . . 646 639
------ ------
$ 51,118 $ 51,010
====== ======
December 30, 1994
----------------------
Amortized Market
Cost Value
---------- --------
U.S. Treasury. . . . . . . . . . . . . . . . $ 28,197 $ 26,366
Obligations of other Government agencies . . 17,346 16,314
Obligations of State &
Political Subdivisions. . . . . . . . . 5,385 5,425
Other Securities . . . . . . . . . . . . . . 630 627
------ ------
$ 51,558 $ 48,732
====== ======
8
<PAGE>
Securities and Exchange Commission Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
4. PREMISES AND EQUIPMENT
The Bank operates from its Corporate Headquarters located in Jackson, New
Jersey. It also maintains nine branches, one is in Jackson, adjacent to the
corporate headquarters, two are in Lakewood Township, two in Dover Township,
and one each in Brick Township, Whiting, Wall Township and Seaside Heights.
The Bank owns its headquarters facility and its Brick Township and Route 70
Lakewood branch offices. The remaining branches are leased. The Bank also
owns a parcel of undeveloped land in Jackson Township, which it periodically
evaluates as a site for a potential future branch office.
5. CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1995 the Company adopted Statement of Financial
Account Standards ("SFAS")114, "Accounting by Creditors for Impairment of a
Loan" and SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS 114 and SFAS 118 address the accounting
treatment of certain impaired loans. A loan is considered impaired when,
based upon current information and events, it is probable that a creditor will
be unable to collect amounts due. SFAS 114 and SFAS 118 do not apply to large
groups of smaller-balance homogeneous loans that are collectively evaluated
for impairment, loans that are measured at fair value or at the lower of cost
or fair value, leases or debt securities. Prior to January 1, 1995, the
Company's "impaired" loans were described as, and included in, "nonaccruing"
loans.
In response to the above, the Company has amended its accounting policy
regarding the recognition of interest income to read as follows:
"The accrual of income on loans is generally discontinued and all
interest income previously accrued and unpaid is deducted from income when a
loan becomes more than ninety days delinquent, or when certain factors
indicate reasonable doubt as to the timely collectibility of all amounts due.
Generally, loans on which the accrual of income has been discontinued are
designated as nonaccruing loans, and includes all loans classified as
"impaired" loans.
Generally, nonaccruing loans are returned to an accrual status only when
none of the principal or interest is due and unpaid and the full
collectibility of the outstanding loan balance is reasonably assured. Cash
receipts on nonaccruing loans are generally applied to the principal balance
until the remaining balance is considered fully collectible.
All financial information and schedules have been reclassified to conform
with SFAS No. 114 guidelines. Accordingly, insubstance foreclosure loans and
the associated allowance have been reclassified from Other Real Estate Owned
to the loan portfolio. Likewise, the provision for possible Other Real Estate
Owned losses associated with insubstance foreclosure loans has been
reclassified from Other Real Estate Owned expense to the provision for loan
losses. Based upon these new accounting standards as of September 30, 1995
the Company had impaired loans of $3,733,000.
9
<PAGE>
Securities and Exchange Commission Form 10-Q
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Month Period
The company reported net income of $1,055,000 for the three months ended
September 30, 1995 an increase of $574,000 or 119.33% as compared to net
income of $481,000 for the same period in 1994. The primary factors
contributing to the improved performance in 1995 were an increase in net
interest income of $185,000 as well as a $115,000 increase in noninterest
income, a $50,000 decrease in the provision for possible loan losses and a
$703,000 decrease in noninterest expense. These factors were partially offset
by an increase in income tax expense of $479,000.
Net income per share for the three months ended September 30,1995 was
$0.34 compared to $0.18 for the same period in 1994.
Interest income increased $735,000 or 13.60% for the third quarter of
1995 compared to the same period in 1994. The improvement was primarily due
to an increase of $696,000 or 16.30% in interest and fees on loans as well as
an increase of $78,000 or 84.78% in interest on Short Term Investments,
including Federal Funds Sold and Interest Bearing Deposits with Banks.
Average performing loan balances increased $22,645,000 during the third
quarter of 1995 compared to the same period in 1994 and the yield increased 55
basis points. In addition, average balances for short term investments,
including Federal Funds Sold and Interest Bearing Deposits with banks,
increased $3,533,000 and the yield increased 128 basis points. Although
average balances for investments for the third quarter of 1995 as compared to
the same period in 1994 decreased $3,680,000, the yield increased 19 basis
points. The yield on earning assets increased to 8.29% for the third quarter
of 1995 from 7.78% for the same period in 1994.
During the third quarter of 1995 as compared to the third quarter of
1994, interest expense increased $550,000 or 29.99%. Interest on CD's under
$100,000 increased $690,000 or 82.14% as a result of both a $21,117,000
increase in average balances as well as an increase in yield of 172 basis
points. This increase was offset by a $135,000 decrease in interest expense
associated with other savings and time accounts. The yield on interest
bearing liabilities for the third quarter increased from 3.06% at September
30, 1994 to 3.84% at September 30, 1995.
Net interest income for the third quarter of 1995 as compared to the
same period in 1994 increased $185,000 or 5.18%. The Company's net interest
margin (FTE) decreased from 5.22% to 5.15% for the three month period ending
September 30,1995 compared to the same period a year ago.
The provision for possible loan losses represents charges to current
operations. These charges allow management to maintain an allowance for
possible loan losses it considers adequate to cover the risk of losses
associated with its loan portfolio. Management reviews the allowance on a
monthly basis and monitors deteriorating loans on a continual basis. During
<PAGE>
the three months ended September 30,1995 management did not authorize any
charges to the provision for possible loan losses, compared to the
authorization of $50,000 for the same period last year.
For the three month period ending September 30,1995, there was no
provision made for possible loan losses and therefore the only change in the
allowance for possible loan losses, other than the transfer of $46,000 in
specific reserves to the allowance for Other Real Estate losses, was net
charge-offs of $26,000 which resulted in an allowance for possible loan losses
of $4,110,000 at September 30,1995 compared to $4,217,000 at December 31,1994.
Noninterest income increased $115,000 for the three months ended
September 30,1995 compared to the same period a year ago. The increase was
substantially a result of a rise of $83,000 and $41,000 in service charges on
deposit accounts and other charges, commissions and fees, respectively. The
increase was partially offset by a decrease of $18,000 for gain on sale of
loans. During the three months ended September 30,1995, the principal balance
of loans sold was $1,114,000 compared to $2,916,000 for the same period last
year.
10
<PAGE>
Securities and Exchange Commission Form 10-Q
Management's Discussion Continued,
Noninterest expense decreased $703,000 during the third quarter of 1995
as compared to the same period in 1994. Other real estate owned expense
decreased $392,000 or 78.87%, FDIC insurance premium decreased $210,000 or
107.14% and other expense decreased $177,000 or 18.42%. These factors were
partially offset by an increase in employee benefits of $55,000 or 18.15%
and in occupancy expense of $24,000 or 8.05%. The increase in employee
benefits expense was primarily due to a $16,000 increase in ESOP and 401K
accruals, a $28,000 increase in management incentive accruals and a $15,000
increase in medical and dental plan expenses. The increase in occupancy
expense was due to higher net rental and real estate tax expenses, as well as
higher depreciation and utilities expense offset by a slight decrease in
building maintenance expense. The decrease in other real estate owned expense
was the result of a lower provision as well as lower operating expenses. The
decrease in the FDIC insurance premium expense was due to a reduction in the
current assessment rate, in addition to a first quarter 1995 refund of $42,000
relating to the reduction in the assessment rate recognized in the third
quarter of 1995. The decrease in other expense was primarily due to a
$104,000 decrease in professional and other fees, a $44,000 decrease in
advertising expense and a $49,000 decrease in equipment expense partially
offset by a $30,000 increase in business development and travel expense.
Income tax expense increased $479,000 for the three month period ended
September 30,1995 compared to the same period a year ago. There was no
federal income tax expense during this period in 1994 due to the realization
of the net operating loss carryforward from 1993.
11
<PAGE>
Securities and Exchange Commission Form 10-Q
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Nine Month Period
The Company reported net income of $2,496,000 for the nine months ended
September 30,1995, an increase of $1,203,000, or 93.04%, as compared to net
income of $1,293,000 for the same period in 1994. The primary factors
contributing to the improved performance in 1995 were an increase in net
interest income of $1,268,000 as well as a $380,000 decrease in the provision
for possible loan losses and a $701,000 decrease in noninterest expense.
These factors were partially offset by a decrease in noninterest income of
$38,000, and an increase in income tax expense of $1,108,000.
Income per share, fully diluted, for the nine months ended September
30,1995 was $0.82 compared to $0.53 for the same period last year.
Interest income increased $3,156,000 or 20.56% for the nine months of
1995 compared to the same period in 1994. The improvement was due primarily
to an increase of $3,175,000 or 26.68% in interest and fees on loans, due in
part to an increase of $28,603,000 or 15.59% in average performing loans from
$183,520,000 at September 30,1994 to $212,123,000 at September 30,1995. Loan
fees decreased $73,000 or 11.25% from $649,000 for the nine months of 1994 to
$576,000 for the same period in 1995. Interest on Short Term Investments,
including Federal Funds Sold and Interest Bearing Deposits, increased $256,000
or 132.64% from $193,000 at September 30,1994 to $449,000 at September
30,1995. The increase was the result of a 47.87% increase in average balances
as well as an increase of 212 basis points in the rate of return. Interest on
investment securities decreased $275,000 from $3,259,000 at September 30,1994
to $2,984,000 for the same period in 1995. The decrease was the result of an
8.87% decline in average balances, offset by a slight increase in the rate of
return. The yield on earning assets increased to 8.42% at September 30, 1995
compared to 7.48% at September 30,1994.
Interest expense increased $1,888,000 or 35.40% from $5,334,000 for the
nine months of 1994 to $7,222,000 for the same period in 1995. Interest
expense for demand deposits increased $157,000 or 16.76%, the result of a
$5,998,000 increase in average balances and a 12 basis point increase in rate.
Interest expense for CD's under $100,000 increased $1,526,000 or 60.48% due to
both a $10,079,000 increase in average balances and a 159 basis point increase
in rate. Interest expense for CD's $100,000 and over increased $397,000 or
78.61% as a result of a $3,746,000 increase in average balances coupled with a
185 basis point increase in rate. Interest expense for other borrowed funds
increased $63,000. Average balances increased $1,143,000 and the interest
rate increased by 270 basis points. The yield on interest bearing liabilities
increased 88 basis points from 2.99% at September 30,1994 to 3.87% at
September 30,1995.
Net interest income for the nine months of 1995 as compared to the same
period in 1994 increased $1,268,000 or 12.66%. The Company's net interest
margin (FTE) increased from 4.95% at September 30, 1994 to 5.20% at September
30, 1995.
<PAGE>
The provision for possible loan losses represents charges to current
operations. The charges to current operations allow management to maintain an
allowance for possible loan losses it considers adequate to cover the risk of
losses associated with its loan portfolio. Management reviews the allowance
on a monthly basis, and monitors deteriorating loans on a continual basis.
During the nine months of 1995 management authorized charges to the provision
for loan losses of $87,000, compared to $467,000 during the nine months of
1994.
The provision for possible loan losses for the nine months ended
September 30,1995 of $87,000, net charge-offs of $149,000 and a transfer of
$46,000 of specific reserves to other real estate reserves, resulted in an
allowance for possible loan losses of $4,110,000 at September 30,1995 as
compared to $4,217,000 at December 31,1994. The allowance for possible loan
losses at September 30,1995 represented 104.45% of nonperforming loans at such
date. The allowance for possible loan losses plus the allowance for OREO
losses represented 57.68% of total nonperforming assets at September 30,1995.
The allowance for possible loan losses of $4,217,000 represented 82.98% of
nonperforming loans at December 31,1994, while the allowance for possible loan
losses and allowance for OREO losses represented 54.41% of total
nonperforming assets at such date.
12
<PAGE>
Securities and Exchange Commission Form 10-Q
Management's Discussion Continued,
Noninterest income decreased $38,000 or 1.67%, during the nine months of
1995 compared to the nine months of 1994. The decrease was attributable to a
decline of $125,000 in gain on sale of securities and $263,000 in gain on sale
of loans. These reductions in noninterest income were partially offset by an
increase of $222,000 for service charges on deposit accounts and $119,000 for
other charges, commissions, and fees. During the nine months of 1995, the
principal balance of loans sold was $5,182,000 as compared to $13,561,000 for
the same period in 1994. There were no sales of investment securities during
the nine months of 1995, whereas $18,893,000 of securities were sold during
the same period in 1994.
Noninterest expense decreased $701,000 comparing the nine months of 1995
to the same period in 1994. Other real estate owned expense decreased
$776,000 or 63.87% and FDIC premium decreased $277,000 or 45.48% comparing the
nine months of 1995 to the same period in 1994. These factors were partially
offset by an increase in salaries and employee benefits of $199,000 or 3.96%
and other expense of $138,000 or 5.11%. The increase in salaries and benefits
expense was primarily due to an $84,000 increase in management incentives, a
$52,000 increase in medical and dental expenses and a $57,000 increase in
accruals for ESOP and 401K expenses. The increase of $138,000 in other
expense was due primarily to a payment of $175,000 made in connection with an
employee separation settlement, as well as a $28,000 increase in telephone
expense, a $61,000 increase in business development and travel expense, a
$28,000 increase in shareholder expense, and a $23,000 increase in stationary
and supplies expense. These increases were partially offset by a decrease of
$33,000 for legal fees and a $142,000 decrease in furniture and equipment
expense.
Income tax expense increased $1,108,000 for the nine months ended
September 30,1995 as compared to the same period in 1994. There was no
federal income tax expense in the nine months of 1994 due to the realization
of the net operating loss carryforward from 1993.
Financial Condition
- -------------------
During the nine months of 1995, total assets increased $7,506,000 or
2.45% from $306,398,000 at December 31,1994 to $313,904,000 at September
30,1995. Total cash and cash equivalents increased by $10,528,000 or 83.03%.
The held to maturity securities portfolio decreased $440,000 due to maturities
and paydowns. The increase in the available for sale securities portfolio of
$199,000 or 1.16% was due to a $667,000 SFAS No. 115 mark to market adjustment
offset by paydowns of mortgage backed securities. Loans available for sale
increased $3,488,000 or 63.87%. Loans (net) decreased $6,401,000 or 3.14% and
accrued interest receivable and other assets decreased $599,000 or 11.98%.
Increases of $417,000 or 14.23% for other real estate owned (net) and $314,000
or 4.05% for bank premises and equipment partially offset the aforementioned
decreases.
<PAGE>
Total deposits increased $13,681,000 or 5.06% from $270,175,000 at
December 31,1994 to $283,856,000 at September 30,1995. While Interest Bearing
Demand increased $5,592,000 or 9.55%, Noninterest Bearing Demand increased
$1,387,000 or 3.57% and Time under $100,000 increased $19,366,000 or 21.38%,
Time $100,000 and over decreased $6,297,000 or 35.35% and Savings decreased
$6,367,000 or 9.89% .
Other liabilities decreased $9,114,000 or 86.50% from December 31, 1994
to September 30, 1995. The decrease was due to a $9,648,000 decrease in
securities sold under agreement to repurchase which was partially offset by an
increase of $228,000 for accrued interest payable and an increase of $255,000
for accrued expenses.
13
<PAGE>
Securities and Exchange Commission Form 10-Q
Management's Discussion Continued
Asset Quality
- -------------
Nonperforming loans decreased $1,147,000, or 22.57% from $5,082,000 at
December 31,1994 to $3,935,000 at September 30, 1995, and nonperforming assets
decreased $828,000 or 9.95% from $8,324,000 at December 31,1994 to $7,496,000
at September 30,1995. The table below presents on a quarterly basis loans
accounted for on a nonaccrual basis, loans which are contractually past due 90
days or more and nonperforming assets.
Three month period ending:
--------------------------------------
(In thousands)
09/95 06/95 03/95 12/94
----- ----- ----- -----
Nonaccruing loans. . . . . . . . . $ 3,733 $ 5,265 $ 5,573 $ 4,869
Accruing loans 90 days past due. . 202 803 86 213
----- ----- ----- -----
Total Nonperforming loans. . . . . 3,935 6,068 5,659 5,082
Other Real Estate Owned. . . . . . 3,561 2,526 2,940 3,242
----- ----- ----- -----
Total Nonperforming Assets . . . . 7,496 8,594 8,599 8,324
Accruing TDR . . . . . . . . . . . 1,503 1,544 1,503 1,126
----- ----- ----- -----
Total Risk Elements. . . . . . . . $ 8,999 $ 10,138 $ 10,102 $ 9,450
===== ====== ====== =====
Percentage of nonperforming
loans to total loans:. . . . 1.87% 2.78% 2.57% 2.38%
Percentage of nonperforming assets
to total loans and other
real estate owned:. . . . . . 3.50% 3.89% 3.86% 3.84%
Percentage of nonperforming
assets to total assets: . . . 2.39% 2.73% 2.72% 2.72%
Percentage of allowance for possible
loan losses to:
Total Loans . . . . . . . . . 1.95% 1.92% 2.01% 1.97%
Nonperforming Loans . . . . . 104.45% 68.90% 78.30% 82.98%
Percentage of allowance for possible
loan and OREO losses to:
Nonperforming Assets. . . . . 57.68% 51.65% 54.65% 54.41%
Liquidity
The Company actively manages its liquidity position under policies and
procedures intended to insure that the Company will maintain adequate levels
of available funds. Liquidity is measured by the Company's ability to raise
<PAGE>
cash at a reasonable cost or with a minimum of loss. Liquidity planning is
necessary so that the Company will be capable of funding all obligations to
its customers at all times, from meeting their immediate cash withdrawal
requirements to fulfilling their short-term credit needs. The Company's asset
liquidity consists of cash and due from banks, money market investments,
investment securities that mature within one year and loans that mature or
reprice in one year or less. Cash and due from banks decreased $3,372,000 or
28.10% and money market investments decreased $200,000 or 72.20% from
December 31, 1994 to September 30, 1995. As of September 30, 1995 investment
securities in the amount of $12,035,000 mature within one year and loans in
the amount of $134,307,000 either mature or reprice within one year.
Deposits are the most important source of funds for the Bank. Deposits
increased $13,681,000 or 5.06% from December 31, 1994 to September 30, 1995.
The deposit base encountered substantial increases in certificates of deposit
under $100,000, interest bearing demand and noninterest bearing demand of
$19,366,000 or 21.38%, $5,592,000 or 9.55% and $1,387,000 or 3.57%,
respectively. These increases were partially offset by a $6,367,000 or 9.89%,
decrease in savings deposits and a $6,297,000 or 35.35% decrease in
certificates of deposit $100,000 and over.
14
<PAGE>
Securities and Exchange Commission Form 10-Q
Management's Discussion Continued,
The Company had no material commitments for capital expenditures as of
September 30, 1995.
Capital
The table below presents selected ratios for the quarter ended September
30, 1995:
Regulatory
Bank Company Minimum
------ ------- ----------
Risk Based Capital
Tier I . . . . . . . . . 14.69% 15.11% 4.00%
Total. . . . . . . . . . 15.94% 16.36% 8.00%
Leverage . . . . . . . . 8.77% 9.02% 6.00%
15
<PAGE>
Securities and Exchange Commission Form 10-Q
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
The Company is listed on the NASDAQ Small-Cap Market under the symbol GRDN and
is also listed on the Boston Stock Exchange under the symbol GSB. Ryan Beck &
Co., Janney Montgomery Scott, Inc., Sandler, O'Neill & Partners, and Herzog,
Heine, Geguld, Inc. serve as market makers for the stock.
On June 13, 1995, Garden State BancShares entered into an agreement and plan
of merger with The Summit Bancorporation ("Summit"), a $5.5 billion bank
holding company headquartered in Chatham, New Jersey, that provides for the
acquisition of Garden State BancShares by Summit. Upon consummation of the
acquisition, each outstanding share of Garden State BancShares stock will be
exchanged for 1.08 shares of Summit Bancorp's common stock. Also, Garden
State has the option, and is expected, to declare common dividends until the
deal closes, in an amount equal to what Garden State shareholders would have
received if the merger had occurred on June 13,1995. The merger is subject to
approval by Garden State shareholders and by the appropriate state and federal
banking authorities.
On September 11, 1995, Summit announced that it had entered into a merger
agreement dated September 10, 1995 with UJB Financial Corp. ("UJB"), pursuant
to which Summit is to be acquired by UJB in a stock-for-stock, tax-free merger
and each share of Summit Common Stock is to be exchanged for 0.9 shares of UJB
Common Stock, subject to adjustment. The Summit - UJB merger is subject to
certain conditions, including approval of the shareholders of both UJB and
Summit, and applicable regulatory approvals. Because of the need to provide
shareholders of Garden State with information about the newly announced Summit
- - UJB transaction and its effect on Garden State stockholders (in addition to
information about the Summit - Garden State transaction),the meeting of Garden
State shareholders to vote on the Summit - Garden State merger will be delayed
from the date initially contemplated by the parties, and the Summit - Garden
State merger is now expected to close at the end of 1995 or early in the first
quarter of 1996.
ITEM 6(A) - EXHIBITS
(a)(3) Exhibits
Lists of Exhibits
(3)(a) Certificate of Incorporation of the Company (Incorporated by
reference to GSB's Registration Statement on Form S-14, filed September 5,
1984 (Exhibit II).
(b) Amendment to Certificate of Incorporation of the Company
(Incorporated by reference to GSB's Form 10-K for the year ended December 31,
1990 (Exhibit 3.b)).
(c) By-laws of the Company (Incorporated by reference to GSB's
Registration Statement on Form S-14, filed September 5, 1984 (Exhibit 3
Part II).
16
<PAGE>
Securities and Exchange Commission Form 10Q.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf, by the
undersigned thereunto duly authorized.
Garden State BancShares, Inc.
DATE: 10/20/95 /S/ THEODORE D. BESSLER
Theodore D. Bessler
President and Chief
Executive Officer
DATE: 10/20/95 /S/ ROBERT T. ENGLISH
Robert T. English
Sr. Vice President and
Chief Financial Officer
17
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,630
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<INVESTMENTS-HELD-FOR-SALE> 17,332
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<DEPOSITS> 283,856
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<EXPENSE-OTHER> 9,759
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