<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number: 0-13649
-------
COOPER LIFE SCIENCES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2563513
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 BROADWAY, NEW YORK, NEW YORK 10038
- -------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 791-5362
----------------
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
--- ---
As of March 22, 1999, there were 2,126,265 outstanding shares of the
issuers Common Stock, $.10 par value.
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
January 31, 1999 and October 31, 1998 3
Consolidated Statements of Income
For The Three Months Ended
January 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
For The Three Months Ended
January 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 36
Signature 37
Index of Exhibits
</TABLE>
2
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,870 $ 58
Interest bearing deposits 41,043 65,200
Federal funds sold 18,750 --
--------- ---------
Total cash and cash equivalents 61,663 65,258
Investment Securities:
Available-for-sale 46,648 --
Held-to-maturity 9,642 --
--------- ---------
Total investment securities 56,290 --
Loans, net of unearned income 41,603 --
Loans held for sale 782 --
Less: allowance for loan losses (797) --
--------- ---------
Net loans 41,588 --
Accrued interest receivable 1,062 --
Premises and equipment, net 331 --
Deferred taxes 925 925
Prepaid expenses and other 1,198 647
Goodwill, net of amortization of $61 14,502 --
--------- ---------
Total assets $ 177,559 $ 66,830
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 21,422 --
Interest bearing 86,305 --
--------- ---------
Total deposits 107,727 --
Securities sold under agreements to repurchase 1,500 --
Accrued interest payable 225 --
Accrued expenses and accounts payable 1,696 1,185
Income taxes payable 474 179
--------- ---------
Total liabilities 111,622 1,364
--------- ---------
Stockholders' equity
Preferred stock - $.10 Par value: -- --
6,000,000 shares authorized - none issued
Common stock - $.10 par value
Authorized -- 6,000,000 shares
Issued -- 2,566,095 shares
Outstanding --
January 31, 1999, 2,126,265 shares
October 31, 1998, 2,126,265 shares 256 256
Additional paid-in capital 78,546 78,546
Accumulated other comprehensive income, net 40 --
Accumulated deficit (10,132) (10,563)
Less: Common stock in treasury - at cost:
January 31, 1999, 439,830 shares
October 31, 1998, 439,830 shares
(2,773) (2,773)
--------- ---------
Total stockholders' equity 65,937 65,466
--------- ---------
$ 177,559 $ 66,830
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
------------------------------
1999 1998
-------- ------
<S> <C> <C>
Interest income $ 1,296 $ 610
Interest expense 262 --
-------- --------
Net interest income 1,034 610
Provision for loan losses 5 --
-------- --------
Net interest income after
provision for loan losses 1,029 610
-------- --------
Other income:
Investment securities (losses) gains (12) 38,926
Other income 235 --
-------- --------
Total other income 223 38,926
-------- --------
Other expense:
General and administrative 277 142
Amortization of goodwill 61 --
Other 105 --
-------- --------
Total non-interest expense 443 142
-------- --------
Income before provision for taxes 809 39,394
Provision for income taxes 378 3,319
-------- --------
Net income $ 431 $ 36,075
======== ========
Net income per share:
Basic $ .20 $ 16.97
======== ========
Diluted $ .19 $ 16.01
======== ========
Weighted average number of
shares outstanding
Basic 2,126 2,126
======== ========
Diluted 2,259 2,253
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JANUARY 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 431 $ 36,075
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Loss (gain) on investment securities 12 (38,926)
(Increase) in deferred taxes -- (2,619)
Depreciation and amortization 80 --
Provision for loan losses 5 --
Changes in assets and liabilities:
(Increase) in accrued interest receivable (312) --
(Increase) decrease in prepaid expenses and other (258) 27
Increase in accounts payable, other accrued
expenses, liabilities and income taxes payable 2,218 4,104
-------- --------
Net cash provided by (used in) operating activities 2,176 (1,339)
-------- --------
Cash flows from investing activities:
Investment in The Berkshire Bank (25,164) --
Proceeds from sales of The Cooper Companies,
Inc. and Executone Information Systems, Inc.
common stock -- 44,064
Net decrease in interest bearing deposits with banks 50 --
Net decrease in federal funds sold 3,689 --
Investment securities available for sale
Purchases (4,449) --
Proceeds from sales and redemptions 2,334 --
Net increase in loans (1,868) --
Net increase in loans held for sale (654) --
Acquisition of premises and equipment (34) --
-------- --------
Net cash provided by (used in) investing activities (26,096) 44,064
-------- --------
Cash flows from financing activities:
Net increase in non interest bearing deposits 335 --
Net increase in interest bearing deposits 1,240 --
------- --------
Net cash provided by financing activities 1,575 --
------- --------
Net increase (decrease) in cash (22,345) 42,725
Cash - beginning of period 65,258 25,887
-------- --------
Cash - end of period $ 42,913 $ 68,612
======== ========
Supplemental cash flow information:
Cash used to pay interest $ 262 $ --
Cash used to pay taxes $ 73 $ 133
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
FORWARD-LOOKING STATEMENTS.
Statements in this Quarterly Report on Form 10-Q that are not based on
historical fact may be "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995. They include words like "may", "will",
"expect", "estimate", "anticipate", "continue" or similar terms and reflect the
Company's current analysis of existing trends. Actual results could differ
materially from those expressed or implied due to: major changes in business
conditions and the economy, or the development of an adverse interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments, loss of key senior
management, major disruptions in the operations of the Company's banking
facilities, new competitors or technologies, significant disruptions caused by
the failure of third parties to address the Year 2000 issue, acquisition
integration costs, dilution to earnings per share from stock issuance or
acquisitions, regulatory issues, litigation costs, and other items discussed
throughout this Quarterly Report on Form 10-Q.
Certain information customarily disclosed by financial institutions,
such as estimates of interest rate sensitivity and the adequacy of the loan loss
allowance, are inherently forward-looking statements because, by their nature,
they represent attempts to estimate what will occur in the future.
A wide variety of factors could cause the Company's actual results and
experiences to differ materially from the anticipated results or other
expectations expressed or implied in the Company's forward-looking statements.
Some of the risks and uncertainties that may affect operations, performance,
results of the Company's business, the interest rate sensitivity of its assets
and liabilities, and the adequacy of its loan loss allowance, include but are
not limited to: (i) deterioration in local, regional, national or global
economic conditions which could result, among other things, in an increase in
loan delinquencies, a decrease in property values, or a change in the housing
turnover rate; (ii) changes in market interest rates or changes in the speed at
which market interest rates change; (iii) changes in laws and regulations
affecting the financial services industry; (iv) changes in competition; and (v)
changes in consumer preferences.
For these reasons, the Company cautions readers not to place undue
reliance upon any forward-looking statements. Forward-looking statements speak
only as of the date made and the Company assumes no obligation to update or
revise any such statements upon any change in applicable circumstances.
6
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<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 1. GENERAL
Cooper Life Sciences, Inc., a Delaware corporation (the "Company"), was
not engaged in any business operations during the fiscal year ended October 31,
1998. On August 6, 1998, the Company, through its wholly-owned subsidiary,
Greater American Finance Group, Inc. ("GAFG"), made a cash tender offer for any
and all of the outstanding shares of common stock of The Berkshire Bank (the
"Berkshire Bank" or the "Bank"), a New York state-chartered commercial bank.
(See Note 2 of Notes to Consolidated Financial Statements).
The Company's and GAFG's obligation to purchase shares pursuant to the
tender offer was subject to various conditions including, among others, the
receipt of required regulatory approvals from the New York State Banking Board
and the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). The approvals were received in December 1998 and on January 4, 1999,
after the close of the Company's fiscal year ended October 31, 1998, the Company
acquired approximately 99% of the outstanding common stock of the Bank. As a
result of the acquisition, the Company and GAFG became bank holding companies
under the Bank Holding Company Act.
As bank holding companies, the Company and GAFG are subject to
extensive regulation by the Federal Reserve and the Berkshire Bank remains
subject to extensive regulation by the Federal Deposit Insurance Corporation
(the "FDIC") and the Superintendent of Banks of the State of New York.
During interim periods, the Company follows the accounting policies set
forth in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are encouraged to refer to the Company's Form 10-K for the
fiscal year ended October 31, 1998 when reviewing this Form 10-Q. Quarterly
results reported herein are not necessarily indicative of results to be expected
for other quarters.
The Company utilizes a fiscal year which ends on October 31 for
reporting purposes, whereas the Bank utilizes a fiscal year which ends on
December 31 for such purposes. The financial information presented herein
combines the Company and the Bank with the Bank's results presented to coincide
with the reporting period of the Company.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the Company's consolidated
financial position as of January 31, 1999 and October 31, 1998 and the
consolidated results of its operations for the three month periods ended January
31, 1999 and 1998, and its consolidated cash flows for the three month periods
ended January 31, 1999 and 1998.
NOTE 2. - ACQUISITION OF THE BERKSHIRE BANK
On January 4, 1999, the Company, through its wholly owned subsidiary,
Greater American Finance Group, Inc. ("GAFG"), purchased 2,396,600 shares, or
approximately 99%, of the outstanding shares of Common Stock (the "Shares") of
the Bank, a privately-owned New York State chartered commercial bank. The Shares
were acquired for a purchase price of $10.50 per share, net to the seller in
cash, upon the terms and conditions set forth in an Offer to Purchase dated
August 6, 1998, and in the related Letter of Transmittal (collectively, the
"Offer"). The total amount of funds required by GAFG to purchase the Shares was
approximately $25.2 million. Such funds were obtained by GAFG from the Company's
cash on hand. The purchase of the Shares pursuant to the Offer was subject to
7
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
receipt of the approval of the New York State Banking Board and the approval of
the Federal Reserve Board. Said approvals have been received by CLS and GAFG.
The acquisition was accounted for as a purchase and, accordingly, the results of
operations of the Berkshire Bank have been included in the consolidated
statements of income from the date of acquisition. In connection with the
acquisition, the Company acquired assets with an aggregated fair value of
$119,429,000 and assumed deposits and other liabilities of $108,760,000.
The Bank's principal business consists of gathering deposits from the
general public and investing those deposits primarily in loans, debt obligations
issued by the U.S. Government, its agencies, and business corporations, and
mortgage-backed securities. The Bank operates from two deposit-taking offices.
Its main office, in Manhattan, is located on the upper floors of a high rise
office building and does not offer a customary retail banking presence. Instead,
it provides personal, face to face banking services for professionals and other
normally high-balance depositors. In addition, in 1995, the Bank opened a branch
in Brooklyn which provides it with a customary retail banking office.
The Bank's principal loan types are residential and commercial mortgage
loans and commercial non-mortgage loans, both unsecured and secured by personal
property. The Bank's revenues come principally from interest on loans and
investment securities. The Bank's primary sources of funds are deposits and
proceeds from principal and interest payments on loans and investment
securities.
NOTE 3. - COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130 "Comprehensive
Income." SFAS No. 130 establishes new standards for reporting comprehensive
income, which includes net income as well as certain other items which result in
a change to equity during the period. Comprehensive income was $453,000 for the
three months ended January 31, 1999. There were no transactions for the three
months ended January 31, 1998 which would generate other comprehensive income.
NOTE 4. - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable, which management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are reported at their
outstanding principal, adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risks inherent in the Bank's
loan portfolio and the general economy. The allowance for loan losses is
maintained at an amount management considers adequate to cover loan losses which
are deemed probable and can be estimated. The allowance is based upon a number
of factors, including the size of the loan portfolio, asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience and the
Bank's underwriting policies. In general, it is the Bank's policy to maintain a
minimum allowance equal to 1% of outstanding loans plus outstanding commitments
and letters of credit. In addition, the Bank evaluates all loans identified as
problem loans and augments the allowance based upon the perceived risks
associated with such problem loans.
It is the Bank's policy to discontinue accruing interest on a loan when
it is 90 days past due or if management believes that continued interest
accruals are unjustified. The Bank may continue interest accruals if a loan is
more than 90 days past due if the Bank determines that the nature of the
delinquency and
8
<PAGE>
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
the collateral are such that collection of the principal and interest on the
loan in full is reasonably assured. When the accrual of interest is
discontinued, all accrued but unpaid interest is charged against current period
income. Once the accrual of interest is discontinued, the Bank records interest
as and when received until the loan is restored to accruing status. If the Bank
determines that collection of the loan in full is in reasonable doubt, then
amounts received are recorded as a reduction of principal until the loan is
returned to accruing status.
The Company accounts for its impaired loans in accordance with SFAS No.
114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No.
118, Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. This standard requires that a creditor measure impairment based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, except that as a practical expedient, a creditor may
measure impairment based on a loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. Regardless of the
measurement method, a creditor must measure impairment based on the fair value
of the collateral when the creditor determines that foreclosure is probable. As
of January 31, 1999, the Company did not have any non accrual or impaired loans.
The following table summarizes loan balances (including loans held for
sale) by category as of January 31, 1999 (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1999
----------------
% OF
AMOUNT TOTAL
------ -----
<S> <C> <C>
Commercial and professional loans $ 4,389 10.3%
Secured by real estate 34,718 81.9
Personal 1,894 4.5
Other 1,384 3.3
-------- -----
Total loans 42,385 100.0%
=====
Less:
Allowance for loan losses (797)
--------
Loans, net $ 41,588
========
</TABLE>
NOTE 5. - DEPOSITS
The Bank offers several types of deposit programs to its customers,
including statement savings accounts, NOW accounts, money market deposit
accounts, checking accounts and certificates of deposit with terms from seven
days to five years. Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. The Bank relies primarily on customer service to
attract and retain deposits; however, market interest rates and rates offered by
competing financial institutions significantly affect the Bank's ability to
attract and retain deposits. The Bank does not use brokers to obtain deposits
and has no brokered deposits.
The Bank prices its deposit offerings based upon market and competitive
conditions in its market area. The Bank seeks to price its deposit offerings to
be competitive with other institutions in its market area.
9
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<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
The following table summarizes the maturity distribution of time
deposits of $100,000 or more as of January 31, 1999 (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
1999
-----------
<S> <C>
3 months or less $ 21,115
Over 3 months but within
6 months 3,162
Over 6 months but within
12 months 2,876
Over 12 months 1,744
---------
Total $ 28,897
=========
</TABLE>
10
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<PAGE>
NOTE 6. - SECURITIES
The following table summarizes the Company's available-for-sale and
held-to-maturity securities at January 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Weighted Gross Gross
Average Unrealized Unrealized Fair
Yield Cost Gains Losses Value
------------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government
Agency Obligations
Due within one year --% $ -- $ -- $ -- $ --
Due after one year
through five years 5.69 16,003 13 (9) 16,007
Due after five years
through ten years 5.84 14,243 18 (16) 14,245
Due after ten years 5.84 14,233 13 (27) 14,219
--------- -------- --------- --------
44,479 44 (52) 44,471
Corporate Notes
Due within one year -- -- -- -- --
Due after one year
through five years 11.41 984 21 (112) 893
Due after five years
through ten years 11.13 587 19 (65) 541
Due after ten years 7.20 200 8 -- 208
--------- -------- --------- --------
1,771 48 (177) 1,642
--------- -------- --------- --------
Federal Home Loan Bank Stock 7.27 535 -- -- 535
--------- -------- --------- --------
46,785 92 (229) 46,648
========= ======== ========= ========
HELD-TO-MATURITY
U.S. Government
Agency Obligations
Due within one year 3.83% $ 6,597 $ -- $ (13) $ 6,584
Due after one year
through five years 5.72 246 -- -- 246
Due after five years
through ten years 6.63 155 -- -- 155
Due after ten years 6.08 399 3 -- 402
--------- -------- --------- --------
7,397 3 (13) 7,387
--------- -------- --------- --------
Corporate Notes
Due within one year 4.42 1,750 -- (2) 1,748
Due after one year
through five years 5.00 495 -- -- 495
Due after five years
through ten years -- -- -- -- --
Due after ten years -- -- -- -- --
--------- -------- --------- --------
2,245 -- (27) 2,243
--------- -------- --------- --------
9,642 3 (15) 9,630
========= ======== ========= ========
</TABLE>
11
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of Cooper Life Sciences, Inc. and subsidiaries (the "Company") for the quarter
ended January 31, 1999 and 1998. References to the Company herein shall be
deemed to refer to the Company and its consolidated subsidiaries unless the
context otherwise requires. References to Notes herein are references to the
"Notes to Consolidated Financial Statements" of the Company located in Item 1
herein. Historical discussion and analysis is not presented because it is not
meaningful.
The unaudited proforma combined consolidated financial information set
forth in the following tables is presented for informational purposes only and
is not necessarily indicative of the combined financial position or results of
operations that would have occurred had the acquisition of The Berkshire Bank
been consummated on October 31, 1998 or at the beginning of the periods
indicated. The Company utilizes a fiscal year which ends on October 31 for
reporting purposes, whereas the Bank utilizes a fiscal year which ends on
December 31 for such purposes. The consolidated financial information presented
herein combines the financial information of the Company as of its fiscal year
end and the Bank as of the twelve months ending September 30. For the period
January 31, 1999 and 1998, the Bank's financial information was prepared as of
and for the three months ended December 31, 1998 and 1997 and combined with
the Company's financial information as of and for the three months ended
January 31, 1999 and 1998.
12
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<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES - PROFORMA SELECTED
CONSOLIDATED FINANCIAL DATA
The following sets forth a comparison of selected financial data which
reflects the balances and results of operations on an unaudited proforma
consolidated basis as if the acquisition of The Berkshire Bank had become
effective on October 31, 1998, 1997 and 1996, in the case of balance sheet
information presented, and at the beginning of the periods indicated, in the
case of operations information presented. Period end amounts have been utilized
to calculate performance ratios (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
JANUARY 31, OCTOBER 31,
------------------------ ----------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income $ 2,251 $ 2,086 $ 9,392 $ 6,076 $ 4,617
Interest expense 824 871 3,642 3,836 4,292
--------- --------- --------- -------- ---------
Net interest income 1,427 1,215 5,750 2,240 325
Provision for possible loan losses 15 15 60 60 455
--------- --------- --------- -------- ---------
Net interest income after provision for possible loan losses 1,412 1,200 5,690 2,180 (130)
Other income (loss) 208 39,013 39,311 17,336 (1,023)
Other expenses 972 1,011 4,474 4,214 4,195
--------- --------- --------- -------- ---------
Income (loss) before income taxes and extraordinary items 648 39,202 40,527 15,302 (5,348)
Income taxes 305 3,316 3,258 145 14
--------- --------- --------- -------- ---------
Income (loss) before extraordinary items 343 35,886 37,269 15,157 (5,362)
Extraordinary items -- -- 150 -- --
--------- --------- --------- -------- ---------
Net income (loss) $ 343 $ 35,886 $ 37,119 $ 15,157 $ (5,362)
========= ========= ========= ======== =========
PER SHARE DATA:
Weighted average common shares outstanding- basic 2,126 2,126 2,126 2,147 2,149
Weighted average common shares outstanding- diluted 2,259 2,253 2,258 2,244 2,149
Net income per common share- basic $ .16 $ 16.85 $ 17.46 $ 7.06 $ (2.50)
Net income per common share- diluted $ .15 $ 15.93 $ 16.44 $ 6.75 $ (2.43)
Dividends paid per common share -- -- $ .72 -- --
Balance Sheet Summary:
Investment securities $ 54,156 $ 40,902 $ 50,785 $ 75,696 $ 70,000
Cash and cash equivalents 64,800 66,410 47,472 18,816 8,800
Loans, net 39,071 36,338 38,994 36,992 24,380
Allowance for loan losses (791) (741) (803) (723) (824)
Total assets 176,175 175,668 155,388 152,961 118,953
Deposits 106,152 103,495 86,232 89,469 61,581
Stockholder's equity $ 65,849 $ 65,277 $ 64,958 $ 60,176 $ 30,064
PERFORMANCE RATIOS:
Return on average assets .75% 81.71% 23.89% 9.91% (4.51)%
Return on average equity 2.08 219.90 57.14 25.19 (17.84)
Average equity to average assets 37.38 37.16 41.80 39.34 25.27
Net Interest Margin 3.77 3.34 3.95 2.34 .45
</TABLE>
13
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO
THE THREE MONTHS ENDED JANUARY 31, 1998.
GENERAL
On January 4, 1999, the Company, through its wholly owned subsidiary,
Greater American Finance Group, Inc. ("GAFG"), acquired approximately 99% of the
outstanding shares of the common stock of The Berkshire Bank (the "Berkshire
Bank" or the "Bank") for $25.2 million (see Note 2). At the date of the
acquisition, the Bank had total assets of $119.4 million. The acquisition was
accounted for as a purchase and, accordingly, the results of operations of the
Bank have been included in the consolidated statements of income from the date
of acquisition.
Prior to the acquisition of the Bank, the Company was not engaged in
any business operations. Therefore, the comparison of the results of operations
for the three months ended January 31, 1999 to the three months ended January
31, 1998 (a period when the Company was not engaged in any business operations)
is not meaningful.
NET INCOME
The Company's net income for the three months ended January 31, 1999,
including the results of operations of the Bank from January 4, 1999, the date
of the acquisition, was $431,000, or $.19 per diluted share. For the three
months ended January 31, 1998, the Company's net income was $36,075,000, or
$16.01 per diluted share, including the pre tax gain of $38,926,000, or $17.00
per diluted share, from the sale of investment securities.
NET INTEREST INCOME
The largest source of operating revenue for the Company is net interest
income. Net interest income represents the difference between total interest
income earned on earning assets and total interest expense paid on
interest-bearing liabilities. The amount of interest income is dependent upon
many factors including the amount of interest-earning assets that the Bank can
maintain based upon its funding sources; (ii) the relative amounts of
interest-earning assets versus interest-bearing liabilities; and (iii) the
difference between the yields earned on those assets and the rates paid on those
liabilities. Non-performing loans adversely affect net interest income because
they must still be funded by interest-bearing liabilities, but they do not
provide interest income. Furthermore, when the Bank designates an asset as
non-performing, all interest which has been accrued but not actually received is
deducted from current period income, further reducing net interest income.
Net interest income amounted to $1,034,000 and $610,000 for the three
months ended January 31, 1999 and 1998, respectively. The increase in net
interest income of $424,000 was due to the higher level of funds invested.
14
<PAGE>
<PAGE>
The following table sets forth, for the periods indicated, information
regarding the Company's (i) total dollar amount of interest and dividend income
from interest-earning assets and the resultant average yields; (ii) total dollar
amount of interest expense on interest bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v)
interest margin; and (vi) ratio of average interest-earning assets to average
interest earning liabilities (in thousands):
<TABLE>
<CAPTION>
PROFORMA
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
-----------------------------------------------------------------------------------------
1999 1998
---------------------------------------- -----------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $ 40,412 $ 813 8.04% $ 37,457 $ 826 8.82%
Investment securities 48,620 695 5.72 38,525 564 5.86
Other (2)(5) 62,179 743 4.78 69,583 696 4.00
-------- ------- ----- -------- ------- -------
Total interest-earning assets 151,211 2,251 5.95 145,565 2,086 5.73
----- -------
Noninterest-earning assets 19,253 18,510
-------- --------
Total Assets $170,464 $164,075
======== ========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits 48,481 387 3.19 54,483 545 4.00
Time deposits 33,169 414 4.99 24,439 326 5.33
Fed Funds Purchased and other
borrowings 1,500 23 6.13
-------- ------- ----- -------- ------- -------
Total interest-bearing
liabilities 83,150 824 3.96 78,922 871 4.41
------- ------- -------
Demand deposits 18,790 14,984
Noninterest-bearing liabilities 2,930 6,451
Stockholders' equity (5) 65,594 63,718
-------- --------
Total liabilities and
stockholders' equity $170,464 $164,075
======== ========
Net interest income $ 1,427 $ 1,215
======= =======
Interest-rate spread (3) 1.99% 1.32%
===== =======
Net interest margin (4) 3.77% 3.34%
===== =======
Ratio of average interest-earning
assets to average interest
bearing liabilities 1.82% 1.84%
======== ========
</TABLE>
- ----------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest bearing
liabilities.
(4) Net interest margin is net interest income as a percentage of average
interest-earning assets.
(5) Average balances for Cooper Life Sciences have been calculated on a
monthly basis.
15
<PAGE>
<PAGE>
The following table sets forth, for the periods indicated, information
regarding the Company's (i) total dollar amount of interest and dividend income
from interest-earning assets and the resultant average yields; (ii) total dollar
amount of interest expense on interest bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v)
interest margin; and (vi) ratio of average interest-earning assets to average
interest earning liabilities (in thousands):
<TABLE>
<CAPTION>
Proforma
(Unaudited)
Twelve Months Ended October 31,
------------------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- -----------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $ 39,085 $ 3,325 8.51% $ 31,081 $ 2,771 8.92%
Investment securities 45,569 2,713 5.95 76,095 2,284 3.00
Other (2)(5) 61,051 3,354 5.49 19,352 1,021 5.27
------------ -------------- ------------ ------------ ------------- -----------
Total interest-earning assets 145,705 9,392 6.45 126,528 6,076 4.80
------------ -----------
Noninterest-earning assets 18,222 16,556
------------ ------------
Total Assets $163,927 $143,084
============ ============
INTEREST-BEARING LIABILITIES:
Interest bearing deposits 58,273 2,320 3.98 39,234 1,442 3.67
Time deposits 25,203 1,299 5.15 31,926 1,663 5.21
Fed Funds Purchased and other
borrowings 382 23 6.02 8,151 731 8.97
------------ -------------- ------------ ------------ ------------- -----------
Total interest-bearing
liabilities 83,858 3,642 4.34 79,311 3,836 4.84
-------------- ------------- -----------
Demand deposits 13,144 8,721
Noninterest-bearing liabilities 2,623 972
Stockholders' equity (5) 64,302 54,080
------------ ------------
Total liabilities and
stockholders' equity $163,927 $143,084
============ ============
Net interest income $ 5,750 $ 2,240
============== =============
Interest-rate spread (3) 2.11% (.84)%
============ ===========
Net interest margin (4) 3.95% 2.34%
============ ===========
Ratio of average interest-earning
assets to average interest
bearing liabilities 1.74% 1.59%
============ ============
</TABLE>
- ----------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest bearing
liabilities.
(4) Net interest margin is net interest income as a percentage of average
interest-earning assets.
(5) Average balances for Cooper Life Sciences have been calculated on a
monthly basis.
16
<PAGE>
<PAGE>
The following table sets forth, for the periods indicated, information
regarding the Company's (i) total dollar amount of interest and dividend income
from interest-earning assets and the resultant average yields; (ii) total dollar
amount of interest expense on interest bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v)
interest margin; and (vi) ratio of average interest-earning assets to average
interest earning liabilities (in thousands):
<TABLE>
<CAPTION>
PROFORMA
(UNAUDITED)
TWELVE MONTHS ENDED OCTOBER 31,
-----------------------------------
1996
-----------------------------------
INTEREST AVERAGE
AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE
------- --------- ----
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $ 24,199 $ 2,018 8.34%
Investment securities 69,350 2,083 3.00
Other (2)(5) 9,682 516 5.33
------------ -------------- ------------
Total interest-earning assets 103,231 4,617 4.47
------------
Noninterest-earning assets 15,647
------------
Total Assets $118,878
============
INTEREST-BEARING LIABILITIES:
Interest bearing deposits 30,609 1,109 3.62
Time deposits 23,073 1,158 5.02
Fed Funds Purchased and other borrowings 27,315 2,025 7.41
------------ -------------- ------------
Total interest-bearing
liabilities 81,015 4,292 5.30
-------------- ------------
Demand deposits 5,572
Noninterest-bearing liabilities 1,681
Stockholders' equity (5) 30,610
------------
Total liabilities and
stockholders' equity $118,878
============
Net interest income $ 325
==============
Interest-rate spread (3) (.83)%
============
Net interest margin (4) .45%
============
Ratio of average interest-earning
assets to average interest
bearing liabilities 1.27%
============
</TABLE>
- ----------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest bearing
liabilities.
(4) Net interest margin is net interest income as a percentage of average
interest-earning assets.
(5) Average balances for Cooper Life Sciences have been calculated on a
monthly basis.
17
<PAGE>
<PAGE>
INTEREST RATE RISK
Fluctuations in market interest rates can have a material effect on the
Bank's net interest income because the yields earned on loans and investments
may not adjust to market rates of interest with the same frequency, or with the
same speed, as the rates paid by the Bank on its deposits.
Most of the Bank's deposits are either interest-bearing demand
deposits or short term certificates of deposit and other interest-bearing
deposits with interest rates that fluctuate as market rates change. Management
of the Bank seeks to reduce the risk of interest rate fluctuations by
concentrating on loans and securities investments with either short terms to
maturity or with adjustable rates or other features that cause yields to adjust
based upon interest rate fluctuations. In addition, to cushion itself against
the potential adverse effects of a substantial and sustained increase in market
interest rates, the Bank has purchased off balance sheet interest rate cap
contracts which generally provide that the Bank will be entitled to receive
payments from the other party to the contract if interest rates exceed specified
levels. These contracts are entered into with major financial institutions.
The Company seeks to maximize its net interest margin within an
acceptable level of interest rate risk. Interest rate risk can be defined as the
amount of the forecasted net interest income that may be gained or lost due to
favorable or unfavorable movements in interest rates. Interest rate risk, or
sensitivity, arises when the maturity or repricing characteristics of assets
differ significantly from the maturity or repricing characteristics of
liabilities.
18
<PAGE>
<PAGE>
In the banking industry, a traditional measure of interest rate
sensitivity is known as "gap" analysis, which measures the cumulative
differences between the amounts of assets and liabilities maturing or repricing
at various time intervals. The following table sets forth the Company's proforma
interest rate repricing gaps for selected maturity periods at January 31, 1999:
<TABLE>
<CAPTION>
PROFORMA INTEREST SENSITIVITY GAP AT JANUARY 31, 1999
------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
3 MONTHS 3 THROUGH 1 THROUGH OVER
OR LESS 12 MONTHS 3 YEARS 3 YEARS TOTAL
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 22,000 $ -- $ -- $ -- $ 22,000
---------------- --------------- --------------- ---------------- ----------------
Interest bearing deposits in banks 41,093 -- -- -- 41,093
---------------- --------------- --------------- ---------------- ----------------
Loans (1)(2)
Adjustable rate loans 10,847 6,355 3,878 2,504 23,584
Fixed rate loans 295 622 727 14,606 16,250
Other loans 28 -- -- -- 28
---------------- --------------- --------------- ---------------- ----------------
Total loans 11,170 6,977 4,605 17,110 39,862
Investments (3)(4) 9,864 1,810 3,361 39,121 54,156
---------------- --------------- --------------- ---------------- ----------------
Total rate-sensitive assets 84,127 8,787 7,966 56,231 157,111
---------------- --------------- --------------- ---------------- ----------------
Deposits accounts (5)
Savings and NOW 6,351 -- 4,533 -- 10,884
Money market 26,447 -- 15,437 -- 41,884
Time deposits 24,923 5,552 285 1,536 32,296
---------------- --------------- --------------- ---------------- ----------------
Total deposit accounts 57,721 5,552 20,255 1,536 85,064
Other borrowings -- -- -- 1,500 1,500
---------------- --------------- --------------- ---------------- ----------------
Total rate sensitive liabilities 57,721 5,552 20,255 3,036 86,564
---------------- --------------- --------------- ---------------- ----------------
Gap (repricing differences) $ 26,406 $ 3,235 $ (12,289) $ 52,660 $ 70,547
================ =============== =============== ================ ================
Cumulative Gap 26,406 29,641 17,352 70,547
================ =============== =============== ================
Cumulative Gap to Total
Rate Sensitive Assets 16.81% 18.87% 11.04% 44.90%
================ =============== =============== ================
</TABLE>
- ----------------------
(1) Adjustable-rate loans are included in the period in which the interest
rates are next scheduled to adjust rather than in the period in which the
loans mature. Fixed-rate loans are scheduled according to their maturity
dates.
(2) Includes nonaccrual loans.
(3) Investments are scheduled according to their respective repricing (variable
rate loans) and maturity (fixed rate securities) dates.
(4) Investments are stated at book value.
(5) NOW accounts and savings accounts are regarded as readily accessible
withdrawal accounts. The balances in such accounts have been allocated
amongst maturity/repricing periods based upon The Berkshire Bank's
historical experience. All other time accounts are scheduled according to
their respective maturity dates.
19
<PAGE>
<PAGE>
Changes in net interest income may also be analyzed by segregating the
volume and rate components of interest income and interest expense. The
following tables set forth certain information regarding changes in interest
income and interest expense of the Company for the years indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (changes in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume) (in thousands):
<TABLE>
<CAPTION>
PROFORMA
THREE MONTHS ENDED JANUARY 31,
1998 VERSUS 1997
INCREASE (DECREASE) DUE TO
--------------------------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (73) $ 66 $ (6) $ (13)
Investment securities (13) 147 (3) 131
Other 135 (74) (14) 47
----------------- ----------------- ----------------- -----------------
Total 49 139 (23) 165
----------------- ----------------- ----------------- -----------------
Interest-bearing
liabilities:
Deposit accounts:
Interest bearing deposits (110) (60) 12 (158)
Time deposits (20) 115 (7) 88
Other borrowings -- -- 23 23
----------------- ----------------- ----------------- -----------------
Total deposit accounts (130) 55 28 (47)
----------------- ----------------- ----------------- -----------------
Net change in net interest
income before provision
for loan losses $ 179 $ 84 $ (51) $ 212
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
PROFORMA
TWELVE MONTHS ENDED OCTOBER 31,
1998 VERSUS 1997
INCREASE (DECREASE) DUE TO
--------------------------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (127) $ 714 $ (33) $ 554
Securities (19) 452 (4) 429
Other 43 2,198 92 2,333
------------------ ----------------- ----------------- -----------------
Total (103) 3,364 55 3,316
------------------ ----------------- ----------------- -----------------
Interest-bearing
liabilities:
Deposit accounts:
Interest bearing deposits 121 698 59 878
Time deposits (18) (350) 4 (364)
Other borrowings (240) (697) 229 (708)
------------------ ----------------- ----------------- -----------------
Total deposit accounts (137) (349) 292 (194)
------------------ ----------------- ----------------- -----------------
Net change in net interest
income before provision
for loan losses $ 34 $ 3,713 $ (237) $ 3,510
================== ================= ================= =================
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROFORMA
TWELVE MONTHS ENDED OCTOBER 31,
1997 VERSUS 1996
INCREASE (DECREASE) DUE TO
-------------------------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 140 $ 574 $ 39 $ 753
Securities 65 131 5 201
Other (5) 515 (5) 505
----------------- ----------------- --------------- -----------------
Total 200 1,220 39 1,459
----------------- ----------------- --------------- -----------------
Interest-bearing
liabilities:
Deposit accounts:
Interest bearing deposits 16 312 5 333
Time deposits 44 444 17 505
Other borrowings 426 (1,421) (299) (1,294)
----------------- ----------------- --------------- -----------------
Total deposit accounts 486 (665) (277) (456)
----------------- ----------------- --------------- -----------------
Net change in net interest
income before provision
for loan losses $ (286) $ 1,885 $ 316 $ 1,915
================= ================= =============== =================
</TABLE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risks inherent in the Bank's
loan portfolio and the general economy. The allowance for loan losses is
maintained at an amount management considers adequate to cover loan losses which
are deemed probable and can be estimated. The allowance is based upon a number
of factors, including the size of the loan portfolio, asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience and the
Bank's underwriting policies. In general, it is the Bank's policy to maintain a
minimum allowance equal to 1% of outstanding loans plus outstanding commitments
and letters of credit. In addition, the Bank evaluates all loans identified as
problem loans and augments the allowance based upon the perceived risks
associated with such problem loans.
Management believes it uses a reasonable and prudent methodology to
project potential future losses in the loan portfolio, and hence assess the
adequacy of the allowance for loan losses. However, any such assessment is
speculative and future adjustments may be necessary if economic conditions or
the Bank's actual experience differ substantially from the assumptions upon
which the evaluation of the allowance was based. Furthermore, state and federal
regulators, in reviewing the Bank's loan portfolio as part of a future
regulatory examination, may request the Bank to increase its allowance for loan
losses, thereby negatively affecting the Bank's financial condition and earnings
at that time. Moreover, future additions to the allowance may be necessary based
on changes in economic and real estate market conditions, new information
regarding existing loans, identification of additional problem loans and other
factors, both within and outside of management's control.
OTHER INCOME
Other income consists primarily of service fee income and the realized
gains (or losses) on investment securities. Other income in the 1999 period
includes a one time gain of $125,000 from the settlement of matters not related
to the Company's present business.
21
<PAGE>
<PAGE>
OTHER EXPENSE
The major categories of other expense include salaries and employee
benefits, occupancy and equipment expenses, legal and professional fees and
other operating expenses associated with the day-to-day operations of the
Company. The amortization of intangible assets of $61,000 in 1999 is a result of
the goodwill recorded in the acquisition of the Bank.
LOAN PORTFOLIO
Loan Portfolio Composition. The Bank's loans consist primarily of
mortgage loans secured by residential and non-residential properties as well as
commercial loans which are either unsecured or secured by personal property
collateral. Most of the Bank's loans are either made to individuals or
personally guaranteed by the principals of the business to which the loan is
made. At January 31, 1999, the Bank had total loans of $42.3 million and an
allowance for loan losses of approximately $800,000. From time to time, the Bank
may originate residential mortgage loans and then sell them on the secondary
market, normally recognizing fee income in connection with the sale.
Interest rates on loans are affected by the demand for loans, the
supply of money available for lending, credit risks, the rates offered by
competitors and other conditions. These factors are in turn affected by, among
other things, economic conditions, monetary policies of the federal government,
and legislative tax policies.
In order to manage interest rate risk, the Bank focuses its efforts on
loans with interest rates that adjust based upon changes in the prime rate or
changes in United States Treasury or similar indices. Generally, credit risks on
adjustable-rate loans are somewhat greater than on fixed-rate loans primarily
because, as interest rates rise, so do borrowers' payments, increasing the
potential for default. The Bank seeks to impose appropriate loan underwriting
standards in order to protect against these and other credit related risks
associated with its lending operations.
In addition to analyzing the income and assets of its borrowers when
underwriting a loan, the Bank obtains independent appraisals on all material
real estate in which the Bank takes a mortgage. The Bank generally obtains title
insurance in order to protect against title defects on mortgaged property.
Commercial Mortgage Loans. The Bank originates commercial mortgage
loans secured by office buildings, retail establishments, multi-family
residential real estate and other types of commercial property. Substantially
all of the properties are located in the New York City metropolitan area.
The Bank makes commercial mortgage loans with loan to value ratios not
to exceed 75% and with terms to maturity that do not exceed 15 years. Loans
secured by commercial properties generally involve a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on such loans
are often dependent on successful operation or management of the properties,
repayment may be subject, to a greater extent, to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks through its
underwriting policies. The Bank evaluates the qualifications and financial
condition of the borrower, including credit history, profitability and
expertise, as well as the value and condition of the underlying property. The
factors considered by the Bank include net operating income; the debt coverage
ratio (the ratio of cash net income to debt service); and the loan to value
ratio. When evaluating the borrower, the Bank considers the financial resources
and income level of the borrower, the borrower's experience in owning or
managing similar property and the Bank's lending experience with the borrower.
The Bank's policy requires borrowers to present evidence of the ability to repay
the loan without having to resort to the sale of the mortgaged property. The
Bank also seeks to focus its commercial mortgage loans on loans to companies
with operating businesses, rather than passive real estate investors.
22
<PAGE>
<PAGE>
Commercial Loans. The Bank makes commercial loans to businesses for
inventory financing, working capital, machinery and equipment purchases,
expansion, and other business purposes. These loans generally have higher yields
than mortgages loans, with maturities of one year, after which the borrower's
financial condition and the terms of the loan are re-evaluated.
Commercial loans tend to present greater risks than mortgage loans
because the collateral, if any, tends to be rapidly depreciable, difficult to
sell at full value and is often easier to conceal. In order to limit these
risks, the Bank evaluates these loans based upon the borrower's ability to repay
the loan from ongoing operations. The Bank considers the business history of the
borrower and perceived stability of the business as important factors when
considering applications for such loans. Occasionally, the borrower provides
commercial or residential real estate collateral for such loans, in which case
the value of the collateral may be a significant factor in the loan approval
process.
Origination of Loans. Loan originations can be attributed to
depositors, retail customers, telephone inquiries, advertising, the efforts of
the Bank's loan officers, and referrals from other borrowers and real estate
brokers and builders. The Bank originates loans primarily through its own
efforts. Occasionally, the Bank may obtain loan opportunities as a result of
referrals from loan brokers.
Prior to the Company's acquisition of the Bank in January 1999, the
Bank's total capital was approximately $10 million, and thus it was generally
not permitted to make loans to one borrower in excess of approximately $1.5
million, with an additional approximately $1.0 million being permitted if
secured by readily marketable collateral. The Bank was also not permitted to
make any single mortgage loan in an amount in excess of approximately $1.5
million. At January 31, 1999, the Bank was in compliance with these standards.
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. The Bank reviews past due loans on a case by case
basis, taking the action it deems appropriate in order to collect the amount
owed. Litigation may be necessary if other procedures are not successful.
Judicial resolution of a past due loan can be delayed if the borrower files a
bankruptcy petition because collection action cannot be continued unless the
Bank first obtains relief from the automatic stay provided by the Bankruptcy
Code.
If the Bank acquires mortgaged property at foreclosure sale or accepts
a voluntary deed in lieu of foreclosure, the acquired property is then
classified as real estate owned. When real estate is acquired in full or partial
satisfaction of a loan, it is recorded at the lower of the principal balance of
the loan or fair value less costs of sale. Any shortfall between that amount and
the carrying value of the loan is then charged to the allowance for loan losses.
Subsequent changes in the value of the property are charged to the expense of
real estate operations. The Bank is permitted to finance sales of real estate
owned by "loans to facilitate," which may involve a lower down payment or a
longer repayment term or other more favorable features than generally would be
granted under the Bank's underwriting guidelines. At January 31, 1999 the Bank
had no "loans to facilitate."
If a non-mortgage loan becomes delinquent and satisfactory arrangements
for payment cannot be made, the Bank seeks to realize upon any personal property
collateral to the extent feasible and collect any remaining amount owed from the
borrower through legal proceedings, if necessary.
It is the Bank's policy to discontinue accruing interest on a loan when
it is 90 days past due or if management believes that continued interest
accruals are unjustified. The Bank may continue interest accruals if a loan is
more than 90 days past due if the Bank determines that the nature of the
delinquency and the collateral are such that collection of the principal and
interest on the loan in full is reasonably assured. When the accrual of interest
is discontinued, all accrued but unpaid interest is charged against current
period income. Once the
23
<PAGE>
<PAGE>
accrual of interest is discontinued, the Bank records interest as and when
received until the loan is restored to accruing status. If the Bank determines
that collection of the loan in full is in reasonable doubt, then amounts
received are recorded as a reduction of principal until the loan is returned to
accruing status.
The following tables set forth information concerning the Bank's loan
portfolio by type of loan at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
PROFORMA
JANUARY 31,
--------------------------------------------------------------------
1999 1998
-------------------------------- -----------------------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
---------------- -------------- -------------------- -------------
<S> <C> <C> <C> <C>
Commercial and
professional loans $ 3,483 8.7 % $ 6,033 16.3 %
Secured by real 33,623 84.4 27,689 74.7
estate
Personal 1,494 3.7 2,054 5.5
Other 1,262 3.2 1,303 3.5
---------------- -------------- -------------------- -------------
Total loans 39,862 100.0 % 37,079 100.0 %
============== =============
Less:
Allowance for loan
losses 791 741
---------------- --------------------
Loans, net $ 39,071 $ 36,338
================ ====================
</TABLE>
<TABLE>
<CAPTION>
PROFORMA
OCTOBER 31,
-------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- -------------------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------------- -------------- ----------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
professional loans $ 3,548 8.9 % $ 7,011 18.6 % $ 5,646 22.4 %
Secured by real 33,015 82.9 27,164 72.0 16,152 64.1
estate
Personal 1,970 5.0 2,275 6.0 2,447 9.7
Other 1,264 3.2 1,265 3.4 959 3.8
---------------- -------------- ----------------- ------------- ----------------- ------------
Total loans 39,797 100.0 % 37,715 100.0 % 25,204 100.0 %
============== ============= ============
Less:
Allowance for loan
losses 803 723 824
---------------- ----------------- -----------------
Loans, net $ 38,994 $ 36,992 $ 24,380
================ ================= =================
</TABLE>
24
<PAGE>
<PAGE>
IMPAIRED LOAN BALANCE NON ACCRUAL LOANS AND LOANS GREATER THAN 90 DAYS STILL
ACCRUING
The following table sets forth certain information regarding nonaccrual loans,
including the ratio of such loans to total assets as of the dates indicated, and
certain other related information. The Bank had no foreclosed real estate during
these periods (dollars in thousands).
<TABLE>
<CAPTION>
Proforma
January 31, January 31,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Nonaccrual loans:
Secured by real estate $ -- $ 237
---------------------- ----------------------
Total nonaccrual loans -- 237
---------------------- ----------------------
Total nonperforming loans $ -- $ 237
====================== ======================
Total nonperforming loans to total assets -- % .64 %
====================== ======================
</TABLE>
<TABLE>
<CAPTION>
Proforma
October 31,
----------------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial and Other Loans $ -- $ -- $ 114
Secured by real estate 30 237 555
--------------------- ---------------------- ----------------------
Total nonaccrual loans 30 237 669
--------------------- ---------------------- ----------------------
Total nonperforming loans $ 30 $ 237 $ 669
===================== ====================== ======================
Total nonperforming loans to total assets .08 % .63 % 2.65 %
===================== ====================== ======================
</TABLE>
25
<PAGE>
<PAGE>
The following tables present information regarding the Bank's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
PROFORMA
JANUARY 31,
-------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------- --------------------------------------------------
ALLOWANCE ALLOWANCE
FOR LOAN PERCENT OF PERCENT OF FOR LOAN PERCENT OF PERCENT OF
LOSSES ALLOWANCE TOTAL LOANS LOSSES ALLOWANCE TOTAL LOANS
------------------ -------------- --------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
professional loans $ -- -- % -- % $ -- -- % -- %
Secured by real estate 30 3.8 0.1 115 15.5 0.3
Personal and other 2 0.2 -- 5 0.7 --
General allowance (1) 759 96.0 1.9 621 83.8 1.7
------------------ -------------- --------------- ---------------- ------------------ -------------
Total allowance
for loan losses $ 791 100.0 % 2.0 % $ 741 100.0 % 2.0 %
================== ============== =============== ================ ================== =============
</TABLE>
- --------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROFORMA
OCTOBER 31, 1998
-----------------------------------------------------------
ALLOWANCE
FOR LOAN PERCENT OF PERCENT OF
LOSSES ALLOWANCE TOTAL LOANS
------------------ ------------------ -------------------
<S> <C> <C> <C>
Commercial and
professional loans $ -- -- % -- %
Secured by real estate 64 8.0 0.2
Personal and other 2 0.2 --
General allowance (1) 737 91.8 1.8
------------------ ------------------ -------------------
Total allowance
for loan losses $ 803 100.0 % 2.0 %
================== ================== ===================
</TABLE>
- --------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
<TABLE>
<CAPTION>
PROFORMA
OCTOBER 31, 1997
-----------------------------------------------------------
ALLOWANCE
FOR LOAN PERCENT OF PERCENT OF
LOSSES ALLOWANCE TOTAL LOANS
------------------ ------------------ -------------------
<S> <C> <C> <C>
Commercial and
professional loans $ -- -- % -- %
Secured by real estate 119 16.5 0.3
Personal and other 6 0.8 --
General allowance (1) 598 82.7 1.6
------------------ ------------------ -------------------
Total allowance
for loan losses $ 723 100.0 % 1.9 %
================== ================== ===================
</TABLE>
- --------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
<TABLE>
<CAPTION>
PROFORMA
OCTOBER 31, 1996
-----------------------------------------------------------
ALLOWANCE
FOR LOAN PERCENT OF PERCENT OF
LOSSES ALLOWANCE TOTAL LOANS
------------------ ------------------ -------------------
<S> <C> <C> <C>
Commercial and
professional loans $ 6 0.7 % -- %
Secured by real estate 322 39.0 1.3
Personal and other 57 6.9 0.2
General allowance (1) 439 53.4 1.8
------------------ ------------------ -------------------
Total allowance
for loan losses $ 824 100.0 % 3.3 %
================== ================== ===================
</TABLE>
- --------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
27
<PAGE>
<PAGE>
The following table sets forth proforma information regarding the
aggregate maturities of the Bank's loans in the specified categories and the
amount of such loans which have fixed and variable rates at January 31, 1999
(dollars in thousands):
<TABLE>
<CAPTION>
WITHIN 1 TO AFTER
1 YEAR 5 YEARS 5 YEARS TOTAL
-------- --------- --------- ------
<S> <C> <C> <C> <C>
Real estate construction-
fixed rate $ -- $ -- $ -- $ --
Commercial-fixed rate 150 46 -- 196
-------- -------- -------- --------
Total fixed rate 150 46 -- 196
-------- -------- -------- --------
Real estate construction-
adjustable rate -- -- -- --
Commercial-adjustable rate 1,119 1,897 271 3,287
-------- -------- -------- --------
Total adjustable rate 1,119 1,897 271 3,287
-------- -------- -------- --------
Total $ 1,269 $ 1,943 $ 271 $ 3,483
======== ======== ======== ========
</TABLE>
The following table sets forth information with respect to activity in
the Bank's allowance for loan losses during the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
PROFORMA
THREE MONTHS ENDED JANUARY 31,
1999 1998
---- ----
<S> <C> <C>
Average loans outstanding.................... $ 40,412 $ 37,457
===================== ======================
Allowance at beginning of period.......... 803 723
Charge-offs:
Real Estate Loans......................... 31 --
--------------------- ----------------------
Total loans charged-off.............. 31 --
--------------------- ----------------------
Recoveries:
Commercial and Other Loans........... 4 3
--------------------- ----------------------
Total loans recovered................. 4 3
--------------------- ----------------------
Net (charge-offs)
recoveries..................... 27 (3)
Provision for loan losses charged to
operating expenses................... 15 15
--------------------- ----------------------
Allowance at end of period............. 791 741
===================== ======================
Ratio of net recoveries (charge-offs) to
average loans outstanding............. .07 % (.01) %
===================== ======================
Allowance as a percent of total loans.. 1.98 % 2.00 %
===================== ======================
Total loans at end of period............. $ 39,862 $ 37,079
===================== ======================
</TABLE>
28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Proforma
Twelve Months Ending October 31,
-------------------------------------------------------------------------------
1998 1997 1996
--------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Average loans outstanding.................... $ 39,085 $ 31,081 $ 24,199
===================== ===================== =====================
Allowance at beginning of period.......... 723 824 893
Charge-offs:
Commercial and Other Loans........... -- -- 314
Real Estate Loans......................... -- 196 232
--------------------- --------------------- ---------------------
Total loans charged-off.............. -- 196 546
--------------------- --------------------- ---------------------
Recoveries:
Commercial and Other Loans........... 20 28 22
Real Estate Loans......................... -- 7 _
Total loans recovered................. 20 35 22
--------------------- --------------------- ---------------------
Net (charge-offs) (20) 161 524
recoveries.....................
--------------------- --------------------- ---------------------
Provision for loan losses charged to
operating expenses................... 60 60 455
--------------------- --------------------- ---------------------
Allowance at end of period............. 803 723 824
===================== ===================== =====================
Ratio of net recoveries (charge-offs) to
average loans outstanding............ (.15) % .19 % 2.17 %
===================== ===================== =====================
Allowance as a percent of total
loans................................ 2.02 % 1.92 % 3.27 %
===================== ===================== =====================
Total loans at end of period............. $ 39,797 $ 37,715 $ 25,204
===================== ===================== =====================
</TABLE>
29
<PAGE>
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Bank, which is approved by the
Board of Directors, is designed primarily to provide satisfactory yields while
maintaining adequate liquidity, a balance of high quality, diversified
investments, and minimal risk. The Bank does not invest in equity securities.
The largest component of the Bank's securities investments, representing more
than 50% of total securities investments, are debt securities issued by the
Federal Home Loan Mortgage Corporation (Freddy Mac), the Federal National
Mortgage Association (Fanny Mae) or the Government National Mortgage Association
(Ginny Mae). The remainder of the Bank's debt securities investments are
primarily short term debt securities issued by the United States or its
agencies. The Bank maintains a small portfolio of less than $2 million of
high-yield corporate debt securities. Recognizing the higher credit risks of
these securities, the Bank underwrites these securities in a manner similar to
its loan underwriting procedures.
As required by the Statement of Financial Accounting Standard No. 115
("SFAS No. 115"), securities are classified into three categories: trading,
held-to-maturity and available-for-sale. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of income.
Securities that the Bank has the positive intent and ability to hold to maturity
are classified as held-to-maturity and reported at amortized cost. All other
securities are classified as available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses included, on an
after-tax basis, as a separate component of net worth. The Bank does not have a
trading securities portfolio and has no current plans to maintain such a
portfolio in the future. The Bank generally classifies all newly purchased debts
securities as available for sale in order to maintain the flexibility to sell
those securities if the needs arises. The Bank has a limited portfolio of
securities classified as held to maturity, represented principally by securities
purchased a number of years ago.
FEDERAL HOME LOAN BANK STOCK. The Bank owns stock of the Federal Home
Loan Bank of New York (the "FHLBNY") which is necessary for it to be a member of
the FHLBNY. Membership requires the purchase of stock equal to 1% of the Bank's
residential mortgage loans. If the Bank borrows from the FHLBNY, the Bank must
own stock at least equal to 5% of its borrowings.
The following table sets forth the cost and estimated fair value of
available-for-sale and held-to-maturity securities as of the dates indicated (in
thousands):
<TABLE>
<CAPTION>
Cost Fair Value
----------------------------- ----------------------
<S> <C> <C>
Proforma
January 31, 1999
Available-For-Sale
US Government Agencies $ 42,306 $ 42,270
Corporate Notes 1,817 1,677
Federal Home Loan Bank Stock 535 535
----------------------------- ----------------------
Total $ 44,658 $ 44,482
============================= ======================
Held-To-Maturity
US Government Agencies $ 7,429 $ 7,416
Corporate Notes 2,245 2,242
----------------------------- ----------------------
Total $ 9,674 $ 9,658
============================= ======================
</TABLE>
30
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Cost Fair Value
----------------------------- ----------------------
<S> <C> <C>
Proforma
October 31, 1998
Available-For-Sale
US Government Agencies $ 33,586 $ 33,687
Corporate Notes 1,893 1,815
Federal Home Loan Bank Stock 535 535
----------------------------- ----------------------
Total $ 36,014 $ 36,037
============================= ======================
Held-To-Maturity
US Government Agencies $ 12,504 $ 12,468
Corporate Notes 2,244 2,242
----------------------------- ----------------------
Total $ 14,748 $ 14,710
============================= ======================
Proforma
October 31, 1997
Available-For-Sale
Marketable Securities $ 4,007 $ 38,067
US Government Agencies 15,542 15,445
Corporate Notes 2,276 2,320
Federal Home Loan Bank Stock 535 535
----------------------------- ----------------------
Total $ 22,360 $ 56,367
============================= ======================
Held-To-Maturity
US Government Agencies $ 17,088 $ 16,985
Corporate Notes 2,241 2,247
----------------------------- ----------------------
Total $ 19,329 $ 19,232
============================= ======================
</TABLE>
CAPITAL REQUIREMENTS. The Federal Reserve requires that the Company, as
a bank holding company, must maintain certain minimum ratios of capital to
assets. The Federal Reserve's regulations divide capital into types. Primary
capital includes common equity, surplus, undivided profits, perpetual preferred
stock, mandatory convertible instruments, the allowance for loan and lease
losses, contingency and other capital reserves, and minority interests in equity
accounts of consolidated subsidiaries. Secondary capital includes limited-life
preferred stock, subordinated notes and debentures and certain unsecured long
term debt.
The Federal Reserve requires that bank holding companies maintain a
ratio of primary capital to total assets of 5.5% and a level of total capital
(primary plus secondary capital) equal to 6% of total assets. In calculating
capital ratios, the allowance for loan losses, which is a component of primary
capital, is added back in determining total assets. Certain capital components,
such as debt and perpetual preferred stock, are includable as capital only if
they satisfy certain definitional tests.
The Company must also meet a risk-based capital standard. Capital, for
the risk-based capital requirement, is divided into Tier 1 capital and
Supplementary capital, determined as discussed below in connection with the FDIC
capital requirements imposed on the Bank. The Federal Reserve requires that the
Bank maintain a ratio of total capital (defined as Tier 1 plus Supplementary
capital) to risk-weighted assets of at least 8%, of which at least 4% must be
Tier 1 capital. Risk weighted assets are also determined in a manner comparable
to the determination of risk-weighted assets under FDIC regulations as discussed
below.
31
<PAGE>
<PAGE>
At January 31, 1999, the Company satisfies all applicable Federal
Reserve minimum capital requirements.
The FDIC requires that the Berkshire Bank maintain certain minimum
ratios of capital to assets. The FDIC's regulations divide capital into two
tiers. The first tier ("Tier I") includes common equity, retained earnings,
certain non-cumulative perpetual preferred stock (excluding auction rate issues)
and minority interests in equity accounts of consolidated subsidiaries, minus
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited- life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions.
The FDIC requires that the highest rated banks maintain a Tier 1
leverage ratio (Tier 1 capital to adjusted total assets) of at least 3.0%. All
other banks subject to FDIC capital requirements must maintain a Tier 1 leverage
ratio of 4.0% to 5.0% or more. As of January 31, 1999, the Bank's Tier I
leverage capital ratio was 9.5%.
The Bank must also meet a risk-based capital standard. The risk-based
standard, requires the Bank to maintain total capital (defined as Tier 1 and
Supplementary capital) to risk-weighted assets of at least 8% of which at least
4% must be Tier 1 capital. In determining the amount of risk-weighted assets,
all assets, plus certain off-balance sheet assets, are multiplied by a risk-
weight of 0% to 100%, based on the risks the FDIC believes are inherent in the
type of asset. As of January 31, 1999, the Bank maintained a 21.0% Tier I risk-
based capital ratio and a 22.2% total risk-based capital ratio.
REGULATORY RESTRICTIONS AND CAPITAL ADEQUACY
Quantitative measures established by regulation to ensure capital
adequacy require the Company and The Berkshire Bank to maintain minimum amounts
and ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier I capital (as defined) to average
assets (as defined). As of January 31, 1999, the most recent notification from
the FDIC categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain certain Total risk-based, Tier I risk-based, and Tier I leverage
ratios. There are no conditions or events since the notification that management
believes have changed the Bank's category.
32
<PAGE>
<PAGE>
The following table sets forth the actual and required regulatory
capital amounts and ratios of the Berkshire Bank as of January 31, 1999 and 1998
and October 31, 1998, 1997 and 1996 (dollars in thousands):
THE BERKSHIRE BANK
Proforma
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
JANUARY 31, 1999
Total Capital (to Risk-Weighted Assets) $11,493 22.2% $ 4,139 >=8.0% $ 5,174 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 10,845 21.0% 2,070 >=4.0% 3,104 >=6.0%
Tier I Capital (to Average Assets) 10,845 9.5% 4,557 >=4.0% 5,696 >=5.0%
JANUARY 31, 1998
Total Capital (to Risk-Weighted Assets) 9,572 20.2% 3,791 >=8.0% 4,739 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 8,977 18.9% 1,900 >=4.0% 2,850 >=6.0%
Tier I Capital (to Average Assets) 8,977 8.7% 4,127 >=4.0% 5,159 >=5.0%
OCTOBER 31, 1998
Total Capital (to Risk-Weighted Assets) 10,573 22.2% 3,817 >=8.0% 4,771 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 9,974 20.9% 1,909 >=4.0% 2,863 >=6.0%
Tier I Capital (to Average Assets) 9,974 9.1% 4,397 >=4.0% 5,497 >=5.0%
OCTOBER 31, 1997
Total Capital (to Risk-Weighted Assets) 9,180 19.8% 3,714 >=8.0% 4,642 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 8,598 18.5% 1,857 >=4.0% 2,785 >=6.0%
Tier I Capital (to Average Assets) 8,598 8.8% 3,899 >=4.0% 4,874 >=5.0%
October 31, 1996
Total Capital (to Risk-Weighted Assets) 8,427 27.6% 2,445 >=8.0% 3,056 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 8,040 26.3% 1,222 >=4.0% 1,834 >=6.0%
Tier I Capital (to Average Assets) 8,040 11.4% 2,811 >=4.0% 3,514 >=5.0%
</TABLE>
33
<PAGE>
<PAGE>
The following table sets forth the actual and required regulatory
capital amounts and ratios of the Company as of January 31, 1999 and 1998 and
October 31, 1998, 1997 and 1996 (dollars in thousands):
THE COMPANY
PROFORMA
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
JANUARY 31, 1999
Total Capital (to Risk-Weighted Assets) $52,043 99.3% $4,139 >=8.0% $5.174 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 51,395 100.6% 2,070 >=4.0% 3,104 >=6.0%
Tier I Capital (to Average Assets) 51,395 33.0% 6,236 >=4.0% 7,795 >=5.0%
JANUARY 31, 1998
Total Capital (to Risk-Weighted Assets) 51,538 109.0% 3,783 >=8.0% 4,729 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 50,943 107.7% 1,891 >=4.0% 2,837 >=6.0%
Tier I Capital (to Average Assets) 50,943 34.1% 5,981 >=4.0% 7,476 >=5.0%
OCTOBER 31, 1998
Total Capital (to Risk-Weighted Assets) 51,563 108.5% 3,801 >=8.0% 4,751 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 50,964 107.3% 1,900 >=4.0% 2,851 >=6.0%
Tier I Capital (to Average Assets) 50,964 34.1% 5,975 >=4.0% 7,468 >=5.0%
OCTOBER 31, 1997
Total Capital (to Risk-Weighted Assets) 15,450 18.3% 6,747 >=8.0% 8,435 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 14.868 17.6% 3,371 >=4.0% 5,061 >=6.0%
Tier I Capital (to Average Assets) 14,868 11.6% 5,141 >=4.0% 6,426 >=5.0%
OCTOBER 31, 1996
Total Capital (to Risk-Weighted Assets) 13,334 20.9% 5,096 >=8.0% 6,370 >=10.0%
Tier I Capital (to Risk-Weighted Assets) 12,947 20.3% 2,548 >=4.0% 3,822 >=6.0%
Tier I Capital (to Average Assets) 12.947 12.4% 4,173 >=4.0% 5,216 >=5.0%
</TABLE>
34
<PAGE>
<PAGE>
LIQUIDITY
Liquidity management in banking involves the ability to generate funds
to support asset growth and meet the cash flow requirements of customers and
other obligations. The Berkshire Bank's primary source of funds has
traditionally been deposits. In addition, the Bank derives funds from loan and
security repayments and prepayments and revenues from operations. The Bank has
borrowing facilities available to it through the Federal Home Loan Bank of New
York (the "FHLBNY") for use in the event of unanticipated funding needs which
cannot be satisfied from other sources. The Bank has also engaged, to a limited
extent, in borrowings with the FHLBNY on a longer term basis when the Bank is
able to match the term of a borrowing with the term of a loan and lock in a
satisfactory spread, subject to credit and prepayment risks.
For the parent company, Cooper Life Sciences, Inc., liquidity means
having cash available to, among other things, fund operating expenses, support
asset growth at the Bank, acquire new business operations, and pay shareholder
dividends. At January 31, 1999 the Company had approximately $40.0 million of
cash and is not dependent upon the receipt of dividends from the Bank to fund
its obligations.
CAPITAL
The capital ratios of the Company and the Berkshire Bank are presently
in excess of the requirements necessary to meet the "well capitalized" capital
category established by bank regulators (see "Regulatory Restrictions and
Capital Adequacy" above. Management believes that the Company's cash on hand and
internally generated funds will be sufficient to meet its needs and that the
Company has sufficient financing options available to fund commitments that may
arise in the future. At January 31, 1999, the Company had no commitments for
material capital expenditures.
IMPACT OF INFLATION AND CHANGING PRICES
The Bank prepares its financial reports according to Generally Accepted
Accounting Principles, which generally require the measurement of financial
condition and operating results in terms of historical dollar amounts without
considering the changes in the relative purchasing power of money over time due
to inflation. Unlike industrial companies, nearly all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services. However, interest rates
generally increase during periods when the rate of inflation is increasing and
decrease during periods of decreasing inflation. Periods of high inflation are
ordinarily accompanied by high interest rates. Changes in the rate of inflation
could also result in changing market interest rates, which could adversely
affect the Bank as discussed above under the caption "Interest Rate Risk."
IMPACT OF THE YEAR 2000
The Company has reviewed its financial and other systems and estimates
that the total cost of the Year 2000 preparedness program will not be material.
The Company will modify and/or replace those systems which may be impacted by
the arrival of the year 2000.
The Bank has an ongoing program to ensure that its operational and
financial systems will not be adversely affected by year 2000 software failures.
The Bank has purchased, installed and converted to new hardware and banking
software, and has successfully completed a series of tests to ensure Year 2000
compliance. The cost of such conversion and other Year 2000 preparations is
estimated to be approximately $200,000. The Bank has developed a contingency
plan which should allow it to continue operations while unforeseen software
problems are corrected. The contingency plan calls for the creation of complete
system backups of critical data on critical dates, the creation of duplicate
35
<PAGE>
<PAGE>
account balances and transaction files, and the downloading of account balances
and transaction files to personal computer spreadsheets. In the event that any
software problems are encountered during processing, either at century roll over
or leap year, the Bank expects that it will be able to manage its operations by
using the files noted above, along with manual reports. Given the size of the
Bank, the number of accounts, and the number of daily transactions, management
believes that the Bank could continue operations while such software problems
are corrected.
While the Bank believes it is taking all appropriate steps to assure
year 2000 compliance, it is dependent on vendor compliance to some extent. The
Bank is requiring its systems and software vendors to represent that the
services and products provided are, or will be, year 2000 compliant. The Bank
estimates that the cost to redevelop, replace or repair its technology will not
have a material impact on its financial results.
In addition to possible expenses related to the Bank's systems and
those of its service providers, the Bank could incur losses if Year 2000
problems affect any of the Bank's depositors or borrowers. Such problems could
include, among other things, delayed loan payments. Due to the diversity of the
loan portfolio and the fact that the Bank's market area is not dependent on one
employer or industry, the Bank does not expect any such Year 2000 related
difficulties that may affect its depositors and borrowers to significantly
affect net earnings or cash flow.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K
The Company filed a current report on Form 8-K dated January 7, 1999
which sets forth information in connection with the Acquisition of The Berkshire
Bank and Pro Forma Financial Information.
The Company filed a current report on Form 8-K/A, Amendment No. 1 to
Form 8-K, dated January 13, 1999 which sets forth information under Item 2.
Acquisition of The Berkshire Bank and Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits in connection with said Acquisition.
36
<PAGE>
<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 thereunto duly authorized.
COOPER LIFE SCIENCES, INC.
--------------------------
(REGISTRANT)
Date: March 22, 1999 By: /s/ Steven Rosenberg
-------------- --------------------------
STEVEN ROSENBERG
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
37
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
27 Financial Data Schedules 39
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The greater-than or equal-to signs shall be expressed as..................... >=
38
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COOPER
LIFE SCIENCES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,870
<INT-BEARING-DEPOSITS> 41,043
<FED-FUNDS-SOLD> 18,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,648
<INVESTMENTS-CARRYING> 56,290
<INVESTMENTS-MARKET> 56,278
<LOANS> 42,385
<ALLOWANCE> 797
<TOTAL-ASSETS> 177,559
<DEPOSITS> 107,727
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,395
<LONG-TERM> 1,500
<COMMON> 256
0
0
<OTHER-SE> 65,681
<TOTAL-LIABILITIES-AND-EQUITY> 177,559
<INTEREST-LOAN> 287
<INTEREST-INVEST> 260
<INTEREST-OTHER> 749
<INTEREST-TOTAL> 1,296
<INTEREST-DEPOSIT> 254
<INTEREST-EXPENSE> 8
<INTEREST-INCOME-NET> 1,034
<LOAN-LOSSES> 5
<SECURITIES-GAINS> (12)
<EXPENSE-OTHER> 443
<INCOME-PRETAX> 809
<INCOME-PRE-EXTRAORDINARY> 809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 431
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
<YIELD-ACTUAL> 2.74
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 792
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 797
<ALLOWANCE-DOMESTIC> 797
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 765
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COOPER
LIFE SCIENCES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 58
<INT-BEARING-DEPOSITS> 65,200
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 70,661
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,195
<LONG-TERM> 0
<COMMON> 256
0
0
<OTHER-SE> 65,210
<TOTAL-LIABILITIES-AND-EQUITY> 65,446
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 610
<INTEREST-TOTAL> 610
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 610
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 38,926
<EXPENSE-OTHER> 142
<INCOME-PRETAX> 39,394
<INCOME-PRE-EXTRAORDINARY> 39,394
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,075
<EPS-PRIMARY> 16.97
<EPS-DILUTED> 16.01
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
