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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________
Commission file number 0-14294
Greater Community Bancorp (formerly Great Falls Bancorp)
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(Name of small business issuer in its charter)
NEW JERSEY 22-2545165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (201) 942-1111
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $1 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year. $20,622,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specific date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$24,247,423 as of January 31, 1997. For purposes of this calculation,
directors, executive officers and beneficial owners of more than 5% of the
registrant's outstanding voting stock are affiliates.
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date, was as follows: 1,894,297 shares of
common stock as of January 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1993 ("Securities Act"). The list of
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Information in the Corporation's Proxy Statement for its 1996 Annual Meeting
of Stockholders is incorporated by reference into Part III, Items 9 through 12,
inclusive.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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PART I
Item 1 - DESCRIPTION OF BUSINESS
THE HOLDING COMPANY
Greater Community Bancorp (the "Corporation") is organized as a business
corporation under the laws of the State of New Jersey and registered as a bank
holding company with the Board of Governors of the Federal Reserve System
("Federal Reserve") under the Federal Bank Holding Company Act of 1956, as
amended ("Holding Company Act"). The Corporation was incorporated in 1984. In
1985, it obtained a charter for Great Falls Bank ("GFB") (see "SUBSIDIARY BANKS"
below).
It was reported last year that as of the close of business on December 31, 1995
the Corporation acquired all of the outstanding stock of Bergen Commercial Bank
("BCB") (see "SUBSIDIARY BANKS" below) solely in exchange for the Corporation's
common stock. As a result of this acquisition, the Corporation became the owner
of two New Jersey-chartered banks.
During April, 1995, the Corporation had also acquired a second financial
institution, Family First Federal Savings Bank ("Family First"), of Clifton, New
Jersey. That acquisition took the form of a merger of Family First into GFB,
with GFB being the survivor of the merger.
The Corporation's only substantive business activity is the ownership and
operation of GFB and BCB (the "Bank Subsidiaries").
During the last several years, the Corporation has demonstrated continued growth
in its business. As of December 31, 1996, the Corporation's consolidated assets
were $257.0 million, as compared with consolidated assets of $253.0 million at
December 31, 1995. Net income for the year ended December 31, 1996 was
$2,337,000 ($1.11 per share), up from $2,072,000 ($1.04 per share) in 1995 and
$1,486,000 ($.89 per share) in 1994. After declaring cash dividends totaling
$.22 per share during 1995, the Corporation declared total dividends of $.29 per
share during 1996. Financial results for years prior to 1995 have been restated
to include BCB which was accounted for as a pooling of interests. The financial
results for periods prior to April 7, 1995 do not include Family First since the
acquisition of Family First was accounted for as a purchase.
Great Falls Financial Services, Inc. is a wholly-owned non-bank subsidiary of
the Corporation. Its purpose is to provide data processing and other banking
related services at cost to the Subsidiary Banks. Prior to 1997, the entity had
been inactive, however, the Corporation expects the entity to be active in 1997.
The entity's corporate name was changed to Greater Community Services, Inc.,
during the first quarter of 1997.
During 1996, in an effort to diversify its operations, the Corporation entered
into a joint venture to form a majority-owned non-bank subsidiary. In October
1996, this non-bank subsidiary was opened for business under the name of Greater
Community Financial, L.L.C., a New Jersey limited liability company (the
"Company") located in Clifton, New Jersey. The purpose of the Company is to
engage in the business of securities broker and dealer.
SUBSIDIARY BANKS
GFB received its charter from the New Jersey Department of Banking (the
"Department") in 1985 and commenced operations as a commercial bank in January,
1986 at its main office located at 55 Union Boulevard, Totowa, New Jersey. In
addition to its main office, GFB has a total of four branches, all of which are
located in Passaic County, New Jersey. GFB has operated a branch at 150 Clove
Road, Little Falls, New Jersey, since March, 1988, two branches located in
Clifton, New Jersey, acquired in the merger with Family First in April 1995 and
a branch at 100 Furler Street, Totowa, New Jersey opened in 1996.
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GFB conducts a general commercial and retail banking business encompassing a
wide range of traditional deposits and lending functions. GFB offers a broad
variety of lending services, including commercial and residential real estate
loans, short and medium term loans, revolving credit arrangements, lines of
credit, and consumer installment loans. In the depository area, GFB offers a
broad variety of deposit accounts, including consumer and commercial checking
accounts and NOW accounts. GFB also offers other customary banking services.
BCB was incorporated in New Jersey in 1987 and commenced its banking operations
in February, 1988. BCB concentrates its operations in commercial lending and
loan origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. In addition to its
main office at Two Sears Drive in Paramus, New Jersey, BCB has two branch
offices in Hasbrouck Heights and Wood-Ridge, New Jersey.
BCB also offers other customary banking services.
Each of the Subsidiary Banks has a wholly-owned investment company subsidiary
whose function is to manages its investment securities portfolio. The investment
companies were formed to separate the Subsidiary Banks' investment portfolio
functions and responsibilities from their regular banking operations and to
increase the net yields of their respective investment portfolios.
COMPETITION
The Corporation, through the Subsidiary Banks, competes with other New Jersey
commercial banks, savings banks, savings and loan associations, finance
companies, insurance companies, and credit unions. A substantial number of
offices of competing financial institutions are located within the Subsidiary
Banks' respective market areas. The past trend toward consolidation of the
banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Subsidiary Banks to compete
with large, national and regional banking institutions. Several of the
Subsidiary Banks' competitors are affiliated with major banking and financial
institutions which are substantially larger and have far greater financial
resources than the Subsidiary Banks.
Competitive factors between financial institutions can be classified into two
categories: competitive rates and competitive service. Rate competition is
intense, especially in the area of time deposits. The Subsidiary Banks compete
with larger institutions with respect to the rates of interest they offer. From
a service standpoint, the Subsidiary Banks' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Subsidiary Banks are able to provide. Such competitors also perform certain
functions for their customers, such as trust, brokerage, and international
services, which the Subsidiary Banks have chosen not to provide.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business, limit its management's
options to deploy assets and maximize income, and may significantly limit the
activities of institutions which do not meet regulatory capital or other
requirements. Areas subject to regulation and supervision by the bank regulatory
agencies include, among others: minimum capital levels; dividends; affiliate
transactions; expansion of locations; acquisitions and mergers; reserves against
deposits; deposit insurance premiums; credit underwriting standards; management
and internal controls; investments; and general safety and soundness of banks
and bank holding companies. Supervision, regulation and examination of the
Corporation and the Subsidiary Banks by the bank regulatory agencies are
intended primarily for the protection of depositors, the communities served by
the institutions or other governmental interests, rather than for holders of
stock of the Corporation or the Subsidiary Banks.
The following is a brief summary of certain statutes, rules and regulations
affecting the Corporation and the Subsidiary Banks. A number of other statutes
and regulations and governmental policies have an impact on their operations.
The Corporation is unable to predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, economic control or
new federal or state legislation may have in the future. The following
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summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to such statutes and regulations.
Bank Holding Company Regulation
The Corporation is registered as a bank holding company under the Holding
Company Act. As such, it is subject to supervision and regulation by the Federal
Reserve. The Corporation is required to file reports with the Federal Reserve
and to furnish such additional information as the Federal Reserve may require
pursuant to the Holding Company Act. The Corporation also is subject to regular
examination by the Federal Reserve and is subject to regulation by the
Department.
A policy of the Federal Reserve requires the Corporation to act as a source of
financial and managerial strength to the Subsidiary Banks, and to commit
resources to support the Subsidiary Banks. In addition, any loans by the
Corporation to the Subsidiary Banks would be subordinate in right of payment to
deposits and certain other indebtedness of the Subsidiary Banks. At December 31,
1996, the Corporation had approximately $6.5 million in financial resources in
addition to its investment in the Subsidiary Banks and non-bank subsidiaries.
The Federal Reserve has adopted guidelines regarding the capital adequacy of
bank holding companies, which require bank holding companies to maintain
specified minimum ratios of capital to total assets and capital to risk-weighted
assets.
Holding Company Activities
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The activities of the Corporation are subject to these legal and regulatory
limitations under the Holding Company Act and the related Federal Reserve
regulations. Notwithstanding the Federal Reserve's prior approval of specific
nonbanking activities, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity, or to terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that the continuation of such activity or such ownership or control constitutes
a serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company. Bank holding companies and their
subsidiaries are also prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Acquisitions of Bank Holding Companies and Banks
Under the Holding Company Act, any company must obtain approval of the Federal
Reserve prior to acquiring control of the Corporation or the Subsidiary Banks.
For purposes of the Holding Company Act, "control" is defined as ownership of
more than 25% of any class of voting securities of the Corporation or a
Subsidiary Bank, the ability to control the election of a majority of the
directors, or the exercise of a controlling influence over management or
policies of the Corporation or the Subsidiary Banks.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of any voting shares of any bank or bank holding company
if, after such acquisition, the bank holding company would directly or
indirectly own or control more than 5% of such shares; (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. Satisfactory
financial condition, particularly with regard to capital adequacy, and
satisfactory Community Reinvestment Act ("CRA") ratings generally are
prerequisites to obtaining federal regulatory approval to make acquisitions. GFB
was notified in April, 1995, and BCB was notified in November, 1995, that they
had received a "Satisfactory" CRA rating as a result of their most recent CRA
examinations. These ratings mean that GFB and BCB have satisfactory records of
ascertaining and helping to meet
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the credit needs of their entire delineated communities, including low- and
moderate-income neighborhoods, in a manner consistent with their resources. In
addition, the Corporation is subject to various requirements under New Jersey
laws concerning future acquisitions, and a company desiring to acquire the
Corporation also may be subject to such laws, depending upon the nature of the
institution to be acquired and the means by which the acquisition would be
accomplished.
The Holding Company Act prohibits the Federal Reserve from approving an
application by a bank holding company to acquire voting shares of a bank located
outside the state in which the operations of the holding company's bank
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by state law. The State of New Jersey has enacted
reciprocal interstate banking statutes that authorize banks and their holding
companies in New Jersey to be acquired by banks or their holding companies in
states which also have enacted reciprocal banking legislation, and permits New
Jersey banks and their holding companies to acquire banks in such other states.
The Holding Company Act does not place territorial restrictions on the
activities of non-bank subsidiaries of bank holding companies.
The Federal Change in Bank Control Act and the related regulations of the
Federal Reserve require any person or persons acting in concert (except for
companies required to make application under the Holding Company Act) to file a
written notice with the Federal Reserve before such person or persons may
acquire control of the Corporation or the Subsidiary Banks. The Change in Bank
Control Act defines "control" as the power, directly or indirectly, to vote 25%
or more of any voting securities or to direct the management or policies of a
bank holding company or an insured bank.
Holding Company Dividends and Stock Repurchases.
The Federal Reserve has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve has issued a policy statement on the payment of cash dividends by bank
holding companies, which expresses the Federal Reserve's view that a bank
holding company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with the company's capital
needs, asset quality, and overall financial condition.
As a bank holding company, the Corporation is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Corporation's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive, or any condition imposed by, or
written agreement with, the Federal Reserve.
Bank Regulation
As state-chartered banks which are not members of the Federal Reserve System,
the Subsidiary Banks are subject to the primary federal supervision of the
Federal Deposit Insurance Corporation ("FDIC") under the Federal Deposit
Insurance Act (the "FDIA"). Prior approval of the FDIC is required for the
Subsidiary Banks to establish or relocate a branch office or to engage in any
merger, consolidation or significant purchase or sale of assets. The Subsidiary
Banks are also subject to regulation and supervision by the Department. In
addition, the Subsidiary Banks are subject to numerous federal and state laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the establishment of branches, investments,
interest rates on loans, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the respective
Subsidiary Banks and their condition, including but not limited to capital
adequacy, reserves, loans, investments and management practices. These
examinations are for the protection of the Subsidiary Banks' depositors and the
Bank Insurance Fund ("BIF")
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and not the Subsidiary Banks' stockholder. In addition, the Subsidiary Banks are
required to furnish quarterly and annual reports to the FDIC. The FDIC's
enforcement authority includes the power to remove officers and directors and
the authority to issue orders to prevent a bank from engaging in unsafe or
unsound practices or violating laws or regulations governing its business.
The FDIC has adopted regulations regarding the capital adequacy of banks subject
to its primary supervision, which require such banks to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "--Regulatory Capital Requirements."
Statewide branching is permitted in New Jersey. Branch approvals are subject to
statutory standards relating to safety and soundness, competition, public
convenience and CRA performance.
Bank Dividends
New Jersey law permits the Subsidiary Banks to declare dividends only if, after
payment thereof, their capital would be unimpaired and their remaining surplus
would equal at least 50 percent of their capital. Under the FDIA, the Subsidiary
Banks are prohibited from declaring or paying dividends or making any other
capital distribution if, after that distribution, they would fail to meet their
regulatory capital requirements. At December 31, 1996, the Subsidiary Banks met
their regulatory capital requirements. The FDIC also has authority to prohibit
the payment of dividends by a bank when it determines such payment to be an
unsafe and unsound banking practice. The FDIC may prohibit bank holding
companies of banks which are deemed to be "significantly undercapitalized" under
the FDIA or which fail to properly submit and implement capital restoration
plans required thereby from paying dividends or making other capital
distributions without the permission of the FDIC. See "--Holding Company
Dividends and Stock Repurchases."
Restrictions Upon Intercompany Transactions
The Subsidiary Banks are subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Corporation
and other affiliates. Such restrictions prevent the Corporation and such other
affiliates from borrowing from the Subsidiary Banks unless the loans are secured
by specified collateral, and require such transactions to have terms comparable
to terms of arms-length transactions with third persons. Such secured loans and
other transactions by each of the Subsidiary Banks are generally limited in
amount as to the Corporation and as to any other affiliate to 10% of the
Subsidiary Bank's capital and surplus and as to the Corporation and all other
affiliates to an aggregate of 20% of the Subsidiary Bank's capital and surplus.
These regulations and restrictions may limit the Corporation's ability to obtain
funds from the Subsidiary Banks for its cash needs, including funds for
acquisitions and for payment of dividends, interest and operating expenses.
Real Estate Lending Guidelines
Under FDIC regulations, state banks must adopt and maintain written policies
that establish appropriate limits and standards for extensions of credit that
are secured by liens on or interests in real estate or are made for the purpose
of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits that are clear and measurable), loan
administration procedures and documentation, approval and reporting
requirements. A bank's real estate lending policy must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") that have been adopted by the federal bank regulators. The
Interagency Guidelines, among other things, call upon depository institutions to
establish internal loan-to-value limits for real estate loans that are not in
excess of the loan-to-value limits specified in the Guidelines for the various
types of real estate loans. The Interagency Guidelines state, however, that it
may be appropriate in individual cases to originate or purchase loans with
loan-to-value ratios in excess of the supervisory loan-to-value limits.
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Deposit Insurance
Since the Subsidiary Banks are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC, and the Subsidiary Banks are required to pay
semi-annual deposit insurance premium assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums, and permits the
FDIC to make special assessments on insured depository institutions in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any other
purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC implemented a
risk-based insurance premium system which became permanent on January 1, 1994.
Generally, under this system, banks are assessed insurance premiums according to
how much risk they are deemed to present to the BIF. As of January 1, 1996, such
premiums range from 0.00% to 0.27% of insured deposits. Banks with higher levels
of capital and involving a low degree of supervisory concern are assessed lower
premiums than banks with lower levels of capital and/or involving a higher
degree of supervisory concern. Specifically, the assessment rate for an insured
depository institution depends upon the risk classification assigned to the
institution by the FDIC based upon the institution's capital level and
supervisory evaluations. Institutions are assigned to one of three capital
groups--well-capitalized, adequately capitalized or undercapitalized--based on
the data reported to regulators for the date closest to the last day of the
seventh month preceding the semi-annual assessment period. Well-capitalized
institutions are institutions
satisfying the following capital ratio standards: (i) total risk-based capital
ratio of 10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or
greater; and (iii) Tier 1 leverage ratio of 5.0% or greater. Adequately
capitalized institutions are institutions that do not meet the standards for
well-capitalized institutions but that satisfy the following capital ratio
standards: (i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1
risk-based capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of
4.0% or greater. Undercapitalized institutions consist of institutions that do
not qualify as either "well-capitalized" or "adequately capitalized." Within
each capital group, institutions are assigned to one of three subgroups on the
basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. Prior
to July 1, 1995, the assessment rates ranged from 0.23% of deposits for
well-capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C. Both GFB and BCB were deemed
Subgroup A institutions for deposit assessment purposes during that time. For
the last six months of 1995, the assessment rates ranged from 0.04 of deposits
for well capitalized institution in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C. These rates were again lowered
effective January 1, 1996 to a range of 0.00% to 0.27% of deposits. Since July
1, 1995, the Subsidiary Banks have both been deemed well-capitalized for
insurance assessment purposes. GFB's and BCB's deposit assessment rates for the
first half of 1996 were 0.23%. Since then, their rates have been 0.00%.
During 1996, the President of the United States enacted legislation which
contains the Deposit Insurance Act of 1996 to recapitalize the Savings
Association Insurance Fund ("SAIF"). Under this legislation, the FDIC has levied
a special assessment on SAIF assessable deposits held as of March 31, 1995. In
its acquisition of Family First in 1995, the Corporation had acquired deposits
which are considered SAIF assessable deposits and were subject to this special
assessment.
In addition, the Deposit Insurance Act of 1996 authorized the Financing
Corporation ("FICO") to levy assessments on BIF-assessable deposits and
stipulated that the rate must equal one-fifth the FICO assessment rate that is
applied to deposits assessable by the Savings Association Insurance Fund
("SAIF"). The rates established for GFB and BCB for 1997 through 1999 are 0.065%
and 0.013%, respectively.
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Proposed Standards for Safety and Soundness
Under FDICIA, each federal banking agency is required to prescribe, by
regulation, non-capital safety and soundness standards for institutions under
its authority. The federal banking agencies, including the Federal Reserve and
the FDIC, have proposed standards covering internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees, benefits, and
standards for asset quality and earnings sufficiency. An institution which fails
to meet any of these standards, when they are established, would be required to
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement such
a plan may subject the institution to regulatory sanctions. The Corporation
believes that the Subsidiary Banks meet the standards which have been proposed,
which require a maximum level of classified assets to total capital and
ineligible allowance no greater than 1.0%, and earnings sufficiency, which
requires, among other things, that a bank be in compliance with its regulatory
capital standards and that it continue to comply with these capital standards if
it sustained a loss over the next four quarters equal to its net loss for the
last four quarters.
Enforcement Powers
The bank regulatory agencies have broad discretion to issue cease and desist
orders if they determine that the Corporation or its Subsidiary Banks are
engaging in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities are empowered to impose substantial civil money penalties
for violations of certain federal banking statutes and regulations, violation of
a fiduciary duty, or violation of a final or temporary cease and desist order,
among other things. Financial institutions, and directors, officers, employees,
controlling shareholders, agents, consultants, attorneys, accountants,
appraisers and others associated with a depository institution are subject to
the imposition of fines, penalties, and other enforcement actions based upon the
conduct of their relationships with the institution.
Under the FDIA, the FDIC may be appointed as a conservator or receiver for a
depository institution based upon a number of events and circumstances,
including: (i) consent by the board of directors of the institution; (ii)
cessation of the institution's status as an insured depository institution;
(iii) the institution is undercapitalized and has no reasonable prospect of
becoming adequately capitalized when required to do so, fails to submit an
acceptable capital plan or materially fails to implement an acceptable capital
plan; (iv) the institution is critically undercapitalized or otherwise has
substantially insufficient capital; (v) appointment of a conservator or receiver
by a state banking authority, such as the Department; (vii) the institution's
assets are less than its obligations to its creditors and others; (viii)
substantial dissipation in the institution's assets or earnings due to violation
of any statute or regulation or unsafe or unsound practice; (ix) a willful
violation of a cease and desist order that has become final; (x) an inability of
the institution to pay its obligations or meet its depositors' demands in the
normal course of business; or (xi) any concealment of the institution's books,
records or assets or refusal to submit to examination.
Under the FDIA, the FDIC as a conservator or receiver of a depository
institution has express authority to repudiate contracts with such institution
which it determines to be burdensome or if such repudiation will promote the
orderly administration of the institution's affairs. Certain "qualified
financial contracts", defined to include securities contracts, commodity
contracts, forward contracts, repurchase agreements, and swap agreements,
generally are excluded from the repudiation powers of the FDIC. The FDIC is also
given authority to enforce contracts made by a depository institution
notwithstanding any contractual provision providing for termination, default,
acceleration, or exercise of rights upon, or solely by reason of, insolvency or
the appointment of a conservator or receiver. Insured depository institutions
also are prohibited from entering into contracts for goods, products or services
which would adversely affect the safety and soundness of the institutions.
Regulatory Capital Requirements
The Federal Reserve and the FDIC have established guidelines with respect to the
maintenance of appropriate levels of capital by bank holding companies and
state-chartered banks that are not members of the Federal Reserve System
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("state non-member banks"), respectively. The regulations impose two sets of
capital adequacy requirements: minimum leverage rules, which require bank
holding companies and banks to maintain a specified minimum ratio of capital to
total assets, and risk-based capital rules, which require the maintenance of
specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve and the FDIC require bank holding
companies and state non-member banks, respectively, to maintain a minimum
leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization's ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of capital.
The risk-based capital rules of the Federal Reserve and the FDIC require bank
holding companies and state non-member banks to maintain minimum regulatory
capital levels based upon a weighting of their assets and off-balance sheet
obligations according to risk. The risk-based capital rules have two basic
components: a Tier 1 or core capital requirement and a Tier 2 or supplementary
capital requirement. Tier 1 capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (which must be noncumulative with
respect to banks), and minority interests in the equity accounts of consolidated
subsidiaries; less most intangible assets, primarily goodwill. Tier 2 capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier 1 and
long-term preferred stock with an original maturity of at least 20 years from
issuance; hybrid capital instruments, including perpetual debt and mandatory
convertible securities; and subordinated debt and intermediate-term preferred
stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for first mortgage loans fully secured by residential property and, under
certain circumstances, residential construction loans, both of which carry a 50%
rating. Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government agencies, which have a 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The risk-based capital regulations require all banks and bank holding companies
to maintain a minimum ratio of total capital to total risk-weighted assets of
8%, with at least 4% as core capital. For the purpose of calculating these
ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan losses which may be included as capital to 1.25% of total risk-weighted
assets.
FDICIA required the federal banking regulators to revise their risk-based
capital rules to take adequate account of interest rate risk, concentration of
credit risk, and the risks of non-traditional activities. The federal banking
regulators, including the Federal Reserve and the FDIC, have issued a proposed
rule that would add an interest rate risk component to the currently effective
risk-based capital standards. Under the proposal, bank holding companies
8
<PAGE> 11
and banks with higher exposures to interest rate risk may be required to
maintain higher levels of capital. In addition, the federal banking regulators
have proposed regulations which allow the FDIC to increase regulatory capital
requirements on a case-by-case basis based upon the factors including the level
and severity of problem and adversely classified assets and loan portfolio and
other concentrations of credit risk.
At December 31, 1996, the Corporation's total risk-based capital and leverage
capital ratios were 16.89% and 8.12%, respectively. The minimum levels
established by the regulators for these measures are 8.00% and 4.00%,
respectively.
FDICIA also required the federal banking regulators to classify insured
depository institutions by capital levels and to take various prompt corrective
actions to resolve the problems of any institution that fails to satisfy the
capital standards. The FDIC has issued final regulations establishing these
capital levels and otherwise implementing FDICIA's prompt corrective action
provisions. Under FDICIA and these regulations, all institutions, regardless of
their capital levels, are restricted from making any capital distribution or
paying any management fees that would cause the institution to fail to satisfy
the minimum levels for any of its capital requirements.
Under the FDIC's prompt corrective action regulation, a "well-capitalized" bank
is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately capitalized" bank is one that does
not qualify as "well-capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based
capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the
bank has the highest composite examination rating. A bank not meeting these
criteria will be treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which to which the bank's capital levels are below these standards. A bank that
falls within any of the three "undercapitalized" categories established by the
prompt corrective action regulation will be: (i) subject to increased monitoring
by the appropriate federal banking regulator; (ii) required to submit an
acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan. A significantly
undercapitalized institution, as well as any undercapitalized institution that
did not submit an acceptable capital restoration plan, will be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution may be
required to divest its interest in the institution. The senior executive
officers of a significantly undercapitalized institution may not receive bonuses
or increases in compensation without prior approval. A critically
undercapitalized institution is prohibited from making payments of principal or
interest on its subordinated debt, except with respect to debt as approved by
the FDIC or, until July 15, 1996, with respect to subordinated debt outstanding
on July 15, 1991 and not extended or otherwise renegotiated after July 15, 1991.
If an institution's ratio of tangible capital to total assets falls below a
level established by the appropriate federal banking regulator, which may not be
less than 2%, nor more than 65% of the minimum tangible capital level otherwise
required (the "critical capital level"), the institution will be subject to
conservatorship or receivership within 90 days unless periodic determinations
are made that forbearance from such action would better protect the deposit
insurance fund. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.
EFFECT OF GOVERNMENT MONETARY POLICIES; POSSIBLE FURTHER LEGISLATION
The earnings of the Corporation, through the Subsidiary Banks, are and will be
affected by domestic and international economic conditions and the monetary and
fiscal policies of the United States and foreign governments and their agencies.
9
<PAGE> 12
The Federal Reserve's monetary policies have had, and will probably continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The Federal Reserve has a major effect
upon the levels of bank loans, investments and deposits through its open market
operations in United States Government securities and through its regulation of,
among other things, the discount rate on borrowings of banks and the imposition
of non-earning reserve requirements against member bank deposits. It is not
possible to predict the nature and impact of future changes in monetary and
fiscal policies.
From time to time, proposals are made in the United States Congress, the New
Jersey Legislature, and various bank regulatory authorities which would alter
the powers of, and place restrictions on, different types of banking
organizations. It is impossible to predict whether any of these proposals will
be adopted and any impact of such adoption on the business of the Corporation
and/or the Subsidiary Banks.
The Subsidiary Banks are also subject to various Federal and State laws such as
usury laws and consumer protection laws.
Employees
As of December 31, 1996, the Corporation employed a total of approximately 110
employees, including 98 full-time employees. Management considers relations with
employees to be satisfactory.
Item 2 - DESCRIPTION OF PROPERTY
The Corporation does not own or lease any land, buildings or equipment. GFB
leases its main office banking facility and certain other office space at 55
Union Boulevard, Totowa, New Jersey. Such main office leased space is owned by a
general partnership of which the Corporation's chairman and vice chairman are
both partners. GFB also leases space for its four other branches in Totowa,
Little Falls and Clifton, New Jersey. BCB leases its main office as well as its
two branch offices.
In the opinion of management, all such leased properties are adequately covered
by insurance and leased at fair rentals.
For further information regarding the Subsidiary Banks' lease obligations, see
Note 13 of the Corporation's Notes to Consolidated Financial Statements for the
year ended December 31, 1996, contained in its 1996 Annual Report to
Shareholders (see Item 7A-"Financial Statements").
Item 3 - LEGAL PROCEEDINGS
The Corporation and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Corporation, which, if
determined adversely, would have a material effect on the business, financial
position or results of operations of the Corporation.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders, through the solicitation of proxies or otherwise.
10
<PAGE> 13
PART II
Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock was held by approximately 872 holders of record
on December 31, 1996, and is traded in the over-the-counter market.
The following table indicates the range of high and low closing bid prices of
the Common Stock, as reported by Ryan, Beck & Co., a principal market maker in
the Corporation's stock, and the cash dividends declared per share on the Common
Stock, in each case for the quarterly periods indicated. The price quotations
represent inter-dealer quotations without adjustment for retail markups,
markdowns or commissions, and may not represent actual transactions. The stock
prices and cash dividends have been adjusted to take into account the effect of
stock dividends paid in 1996 and 1995.
Bid Price Cash
----------------- Dividends
High Low Declared
---- --- --------
Year Ended December 31, 1995:
First Quarter $ 9.92 $ 9.71 $ .041
Second Quarter 11.57 10.33 .046
Third Quarter 11.36 11.36 .046
Fourth Quarter 17.50 15.45 .064
Year Ended December 31, 1996:
First Quarter 14.05 13.25 .064
Second Quarter 14.25 12.61 .070
Third Quarter 13.86 12.73 .070
Fourth Quarter 16.75 15.00 .080
The Corporation's ability to pay dividends on its Common Stock in the future is
subject to numerous regulatory restrictions which are potentially applicable.
(See above, Item 1--DESCRIPTION OF BUSINESS--SUPERVISION AND REGULATION--Bank
Holding Company Regulation--Holding Company Dividends and Stock Repurchases";
and "--Bank Regulation-- Bank Dividends.") However, management does not expect
any of such restrictions to become applicable so long as the Corporation and the
Subsidiary Banks continue to operate profitably.
11
<PAGE> 14
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section presents a review of the Corporation's consolidated financial
condition and results of operations. Data is presented for both the Corporation
and its subsidiaries unless otherwise noted. The review should be read in
conjunction with the consolidated financial statements, including notes thereto,
and other financial data presented elsewhere herein. The consolidated balance
sheet for the year ended December 31, 1996 and the related consolidated
statement of income, shareholders's equity and cash flow for the year ended
December 31, 1996 have been audited by Grant Thornton, LLP. The consolidated
balance sheet for the year ended December 31, 1995 and the related consolidated
statement of income, shareholders's equity and cash flow for years ended
December 31, 1995 and 1994 have been audited by Arthur Andersen LLP. The term
"Corporation" as used herein refers to Greater Community Bancorp and
subsidiaries, the term "GFB" as used herein refers to Great Falls Bank and
subsidiaries and the term "BCB" as used herein refers to Bergen Commercial Bank
and subsidiaries. All dollar figures, except for per share data, are set forth
in thousands. All per share data is adjusted to reflect stock dividends paid.
In addition to historical information, this discussion and analysis contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include , but are not
limited to, those discussed in this section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Corporation
undertakes no obligation to publicly revise or update there forward-looking
statements to reflect events and circumstances that arise after the date hereof.
BUSINESS
The Corporation is organized as a business corporation under the laws of the
State of New Jersey and registered with the Board of Governors of the Federal
Reserve System as a bank holding company. The Corporation is located in Passaic
County, New Jersey and its substantive business activity is the ownership and
operation of its banking subsidiaries, GFB and BCB (collectively, the
"Subsidiary Banks"). As of December 31, 1996, the Subsidiary Banks operated a
general banking business from eight full service offices located in northern New
Jersey. As of the same date, the Corporation's subsidiaries employed
approximately 98 persons on a full-time equivalent basis.
RECENT TRANSACTION
During 1996, in an effort to diversify its operations, the Corporation entered
into a joint venture to form a majority owned non-bank subsidiary which would
benefit the Corporation's operating results in future years. In October 1996,
the Corporation opened for business Greater Community Financial, L.L.C., a New
Jersey limited liability company (the "Company") located in Clifton, New Jersey.
The purpose of the Company is to engage in the business of securities broker and
dealer. At December 31, 1996, the Company had total assets of $313 and member
capital of $311.
BUSINESS OF CORPORATION'S SUBSIDIARIES
Bank Subsidiaries
The Subsidiary Banks offer a broad range of lending, depository and related
financial services to individual consumers, businesses and governmental units
primarily in Bergen and Passaic counties, New Jersey. Commercial lending
services provided by the Subsidiary Banks include short and medium term loans,
loans secured by real estate and non-residential properties, revolving lines of
credit and mortgage loans. Consumer banking services include various types of
deposit accounts, installment loans, mortgage loans, credit card loans and other
consumer-oriented services. Great Falls Investment Company, Inc. is a
wholly-owned subsidiary of GFB, and BCB Investment
12
<PAGE> 15
Company, Inc. is a wholly-owned subsidiary of BCB. The primary business of these
subsidiaries is to own and manage the investment portfolios of their respective
parent banks.
Non-bank Subsidiary
Great Falls Financial Services, Inc. is a wholly-owned non-bank subsidiary of
the Corporation. Its purpose is to provide data processing and other
banking-related services at cost to the Subsidiary Banks. Prior to 1997, the
entity had been inactive, however, the Corporation expects the entity to be
active in 1997. RESULTS OF OPERATIONS
The Corporation earned $2,337 or $1.11 per share in 1996 compared to $2,072 or
$1.04 per share in 1995 and $1,486 or $.89 per share in 1994. The earnings
reported are after $111, $191 and $110 of amortization expense of intangible
assets on a pre-tax basis, for the years ended December 31, 1996, 1995 and 1994,
respectively. In 1996, the Corporation's earnings improved 13% over 1995. In
1995, the Corporation's earnings, improved 39% over 1994. Net interest income
increased by $656, or 6%, in 1996 compared to 1995 and $3,115 or 40% in 1995
compared to 1994. Total other expenses showed a moderate increase of $63 in 1996
over 1995 and increase by $3,275 or 54% in 1995 over 1994. The increase in net
interest income in 1996 is attributable to the growth of the Corporation. The
increases in both net interest income and other expenses in 1995 over 1994 are
primarily attributable to the acquisition of Family First Federal Savings Bank
("Family First") and in part to the growth of the Corporation. The provision for
possible loan losses increased by $26 in 1996 compared to 1995 and increased by
$242 in 1995 compared to 1994 primarily as a result of the increase in the loan
portfolio resulting from the acquisition of Family First. The Corporation's
annual interest expense increased by $604 in 1996 compared to 1995 primarily due
to an increase in average interest-bearing liabilities. In 1995 the annual
interest expense increased by $2,916 compared to 1994 primarily due to the
acquisitions completed by the Corporation during 1995, which resulted in an
increase in average deposits.
During 1996, the Corporation's earnings, through its Subsidiary Banks, were
adversely affected by a legislative action taken by United States Government to
sign into law the Deposit Insurance Act of 1996 to recapitalize the Savings
Association Insurance Fund (SAIF). Under the act, the Federal Deposit Insurance
Corporation (FDIC) levied a special assessment on SAIF assessable deposits held
as of March 31, 1995. In its acquisition of Family First in 1995, the
Corporation had acquired deposits which are considered SAIF assessable deposits
and area subject to this special assessment. In the third quarter of 1996, the
Corporation recorded $249 before income taxes as its portion of the assessment.
Had this assessment been not recorded, the Corporation's earnings would have
been $2,469 or $1.17 per share for the year ended December 31, 1996.
AVERAGE BALANCES AND NET INTEREST INCOME
Net interest income, the primary source of the Corporation's results of
operations, is the difference between interest, dividends and fees earned on
loans and other earning assets, and interest paid on interest-bearing
liabilities. Earning assets include loans to businesses and individuals,
investment securities, interest-bearing deposits with banks and federal funds
sold in the interbank market. Interest-bearing liabilities include primarily
interest-bearing demand savings and time deposits. Net interest income is
determined by (i) the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of earning assets and interest-bearing liabilities. The
Corporation's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit flows
and general levels of non-performing assets.
The following table sets forth the Corporation's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest expense on related items, and the Corporation's average yield for the
years ended December 31, 1996, 1995 and 1994. The yields are shown on a fully
taxable basis and assume a 34% tax rate.
13
<PAGE> 16
AVERAGE BALANCE SHEET, INTEREST INCOME AND EXPENSE, AND AVERAGE INTEREST RATES
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
-------- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets:. . . .
Investment Securities......................... $ 87,604 $ 5,569 6.36% $ 74,751 $ 4,790 6.41%
Due from banks--interest-bearing............. 2,947 138 4.67% 1,271 54 4.23%
Federal funds sold........................... 7,468 365 4.89% 11,178 658 5.89%
Loans (1).................................... 135,161 12,621 9.34% 120,379 11,931 9.91%
-------- ------- ----- -------- -------- -----
Total earning assets............... 233,180 18,693 8.02% 207,579 17,433 8.40%
Less: Allowance for possible loan losses.... 2,393 -- 2,427 --
Unearned income - loans............. 317 -- 335 --
All other assets............................. 21,433 -- 17,368 --
-------- ------- -------- --------
Total assets....................... $251,903 $18,693 $222,185 $17,433
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing accounts........ $ 81,112 $ 1,799 2.22% $ 74,207 $ 1,890 2.55%
Time deposits................................ 86,277 4,605 5.34% 75,505 4,037 5.35%
Federal funds and short-term borrowings...... 6,062 312 5.15% 2,934 185 6.31%
Long-term borrowings......................... 4,982 438 8.79% 4,969 438 8.82%
-------- ------- ----- -------- -------- -----
Total interest-bearing liabilities. 178,433 7,154 4.01% 157,615 6,550 4.16%
Demand deposits................................ 50,243 -- 44,335 --
Other liabilities.............................. 3,240 -- 2,948 --
Shareholders' equity........................... 19,987 -- 17,287 --
-------- ------- -------- --------
Total liabilities and shareholders
equity............................ $251,903 $7,154 $222,185 $6,550
======== ======= ======== ========
NET INTEREST INCOME
(fully taxable basis).......................... $11,539 $10,883
======= ========
NET INTEREST MARGIN
(fully taxable basis).......................... 4.95% 5.24%
===== =====
<CAPTION>
December 31, 1994
----------------------------------
Average Interest Average
Balance Earned/Paid Yield/Rate
------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Earning Assets:. . . .
Investment Securities......................... $ 52,813 $ 2,693 4.97%
Due from banks--interest-bearing............. 3,884 158 4.07%
Federal funds sold........................... 4,991 143 4.27%
Loans (1).................................... 92,978 8,408 9.04%
-------- ------- -----
Total earning assets............... 154,666 11,402 7.37%
Less: Allowance for possible loan losses.... 1,777 --
Unearned income - loans............. 262 --
All other assets............................. 10,546 --
-------- -------
Total assets....................... $163,173 $11,402
======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing accounts........ $ 63,409 $ 1,388 2.19%
Time deposits................................ 45,458 1,755 3.86%
Federal funds and short-term borrowings...... 1,122 53 4.72%
Long-term borrowings......................... 4,958 438 8.83%
-------- ------- -----
Total interest-bearing liabilities. 114,947 3,634 3.16%
Demand deposits................................ 32,446 --
Other liabilities.............................. 1,200 --
Shareholders' equity........................... 14,580 --
-------- -------
Total liabilities and shareholders
equity............................ $163,173 $ 3,634
======== =======
NET INTEREST INCOME
(fully taxable basis).......................... $ 7,768
=======
NET INTEREST MARGIN
(fully taxable basis).......................... 5.02%
=====
</TABLE>
(1) Average balance includes non-performing loans.
14
<PAGE> 17
NET INTEREST INCOME
In 1996, interest income increased by $1,260 or 7% compared to 1995. Interest
and fee income on loans during 1996 increased by $690, or 6% over the comparable
period in 1995 as a result of an increase of 12% in average total loans. The
average yield on loans decreased to 9.34% in 1996 compared to 9.91% in 1995.
Income earned on securities increased by $779 or 16% for the same period. The
increase was primarily due to a 17% increase in average investments for the year
ended December 31, 1996 over 1995. The average yield on securities was 6.36% for
the year December 31, 1996 compared to 6.41% for the same period in the prior
year, a moderate decline due to general market conditions. Interest income on
federal funds sold and deposits with banks decreased by $209 or 29% as a result
of a decrease in average federal funds sold and deposits with banks of $2,034 or
16%.
In 1995, interest income of $17,433 represented a $6,031, or 53% increase over
$11,042 reported for 1994. Interest and fee income on loans during 1995
increased by $3,523 or 42% over 1994. This increase was due to an increase of
29% in average total loans and an increase in the average yield on loans to
9.91% in 1995 compared to 9.04% in 1994. Income earned on securities increased
by $2,097 or 78% for the same period. This increase was primarily due to a 42%
increase in average investments for the year ended December 31, 1995 over 1994.
In addition, the average yield on securities increased to 6.41% for the year
December 31, 1995 compared to 4.97% for the prior year. Interest income on
federal funds sold and deposits with banks increased from 1994 to 1995 by $411
or 137% as a result of an increase in average federal funds sold and deposits
with banks of $3,574 or 40%. All such increases are primarily attributable to
the acquisitions which occurred during 1995 and the overall growth of the
Corporation.
Interest expense for the year ended December 31, 1996 increased by $604 or 9%
from the level of interest expense for 1995. $477 of the total increase in
interest expense is related to the increase in interest expense on deposits from
1996 to 1995 and the remaining $127 is related to the increase in interest
expense on short- and long-term borrowings. The increase in total interest
expense is related to the increase in average interest-bearing liabilities of
$20,818 or 13% due to the overall growth of the Corporation.
Interest expense for the year ended December 31, 1995 increased by $2,916 or 80%
from the level of interest expense for 1994. $2,784 of the total increase in
interest expense is related to the increase in interest expense on deposits from
1995 to 1994. The increase in total interest expense is related to the increase
in average interest-bearing liabilities of $42,668 or 37% due to the
acquisitions which occurred in 1995 and the overall growth of the Corporation.
The Corporation's net interest margin, which measures net interest income as a
percentage of average earning assets, was 4.95%, 5.24% and 5.02% for the years
ended December 31, 1996, 1995 and 1994, respectively.
RATE/VOLUME ANALYSIS
The following table sets forth the changes in interest income and expenses as
they relate to changes in volume and rate for the twelve-month periods ended
December 31, 1996, 1995 and 1994. Because of numerous simultaneous balance and
rate changes during the periods indicated, it is difficult to allocate the
changes precisely between balances and rates. For purposes of this table,
changes which are not due solely to changes in balances or rates are allocated
between such categories based on the average percentage changes in average
balances and average rates.
<TABLE>
<CAPTION>
Full Year 1996 Full Year 1995
Compared to Full Year 1995 Compared to Full Year 1994
Increase (Decrease) Increase (Decrease)
--------------------- ---------------------
Volume Rate Net Volume Rate Net
------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans..................................... $1,378 $ (688) $ 690 $2,991 $ 532 $3,523
Investment securities..................... 819 (40) 779 1,347 750 2,097
Other earning assets...................... (103) (106) (209) 268 143 411
------ ------- ------ ------ ------- ------
Total earning assets.................... $2,094 $ (834) $1,260 $4,606 $ 1,425 $6,031
====== ======= ====== ====== ======= ======
Interest Paid On:
Savings & Money Market.................... $ 158 $ (249) $ (91) $ 262 $ 240 $ 502
Time Deposits............................. 575 (7) 568 1,507 775 2,282
Borrowings................................ 213 (86) 127 133 (1) 132
------ ------- ------ ------ ------- ------
Total interest-bearing Liabilities...... $ 946 $ (342) $ 604 $ 1,902 $ 1,014 $2,916
====== -====== ====== ====== ======= ======
</TABLE>
Full Year 1994
Compared to Full Year 1993
Increase (Decrease)
--------------------
Volume Rate Net
-------- ------ -----
Interest Earned On:
Loans..................................... $ 986 $ 335 $1,321
Investment securities..................... 791 169 960
Other earning assets...................... (301) 87 (214)
------- ------ -------
Total earning assets.................... $ 1,476 $ 591 $2,067
======= ====== ======
Interest Paid On:
Savings & Money Market.................... $ 108 $ (213) $(105)
Time Deposits............................. 215 71 286
Borrowings................................ 430 21 451
------- ------ ------
Total interest-bearing Liabilities...... $ 753 $ (121) $ 632
======= ====== ======
15
<PAGE> 18
OTHER INCOME
Total other income for the year ending December 31, 1996 was $1,929, a decrease
of $248 or 11% compared to 1995. The $248 net decrease was the result of
significant fluctuations within the major components of Other Income. Although
service charges on deposit accounts increased by $307, fees on merchant credit
card processing and other commissions and fees decreased by $385 and $142,
respectively. The majority of increase in service charges on deposit accounts is
attributable to the increase in deposit-related services during 1996. The
primary reason for the decrease in merchant credit card processing fees is due
to the discontinuation of such services offered by BCB. Realized gain or loss on
sale of securities available-for-sale during 1996 decreased by $158 while all
other income increased by $130 when compared to 1995.
Total other income for the year ending December 31, 1995 was $2,177, an increase
of $1,322 or 155% compared to 1994. The $1,322 net increase was the result of
significant fluctuations in the major components of Other Income. More
specifically, fee on merchant credit card processing increased by $502 and
service charges on deposits increased by $352. Realized loss or gain on sale of
investment securities available-for-sale during 1995 increased by $293 compared
to 1994. The majority of such increases are attributable to the increase in
deposit-related services during 1995.
OTHER EXPENSES
Total other expenses increased by $63 for the year ended December 31, 1996 over
1995. The $63 net increase was a result of significant fluctuations within the
components of total other expenses. More specifically, salaries and employee
benefits increased by $444 or 12%. The increase in salaries and employee
benefits is attributable to general salary increases coupled with increases in
employee benefits expense. Occupancy and equipment expense, which includes the
costs of leasing office and branch space, expenses associated with maintaining
these facilities and depreciation of fixed assets, increased by $540 or 38%
primarily due to the addition of office space and equipment.
Regulatory, professional and other fees and computer services decreased by $85
or 11% and $141 or 36%, respectively, from 1995. The primary reason for such
decreases is the reduction in expenses associated with the 1995 acquisitions.
The $432 or 70% decreases in merchant credit card expense is a result of
discontinuation of merchant processing activity by BCB. All other operating
expenses decreased by $347 or 24% due in part to management's efforts to reduce
such expenses. Included in all other operating expenses is the amortization
expense of intangible assets which declined by $80 in 1996 compared to 1995 as a
result of fully written-off intangible assets relative to the formation of GFB
in 1986. Office expenses increased moderately while other real estate operating
expense decreased moderately in 1996 when compared to 1995.
FDIC insurance assessment totaled $340 for the year ended December 31, 1996, an
increase of $78 over 1995. The increase is a direct result of a legislation
inacted to recapitalize the SAIF. The FDIC levied a special assessment to SAIF
assessable deposits held as of March 31, 1995. In its acquisition of Family
First in 1995, the Corporation had acquired deposits which are considered SAIF
assessable deposits and were subject to this special assessment. In the third
quarter of 1996, the Corporation recorded $249 as its portion of this
assessment. Had this assessment not been made, the FDIC insurance assessment
would have decreased for 1996 compared to 1995. The legislation is expected to
reduce the future annual deposit insurance costs for SAIF deposits. The
Corporation anticipates that such reductions, which are to become effective in
1997, will equal the $249 charge in approximately 3 years.
Total other expenses increased by $3,275 or 54% for the year ended December 31,
1995 over 1994. Of this increase, $955 was attributable to increases in salaries
and benefits. The increase in salaries and employee benefits is attributable to
the acquisition of Family First, hiring of additional employees and general
increases in employee benefits. Occupancy and equipment expense, which includes
the costs of leasing office and branch space, expenses associated with
maintaining these facilities and depreciation of fixed assets, increased by $499
primarily due to the addition of office space and equipment.
Regulatory, professional and other fees, computer services and office expenses
during 1995 increased by $170, $138 and $123, respectively, compared to 1994.
Other real estate expenses and merchant credit card expenses increased by $259
and $562, respectively, compared to 1994. Such increases were primarily due to
the acquisitions in 1995
16
<PAGE> 19
and in part due to the Corporation's overall growth. FDIC insurance assessment
for 1995 decreased by $98 due to a decline in FDIC assessment rate when compared
to 1994.
All other operating expenses for 1995 increased by $667 when compared to 1994.
The majority of such increase is directly related to the acquisition of Family
First. Included in all other expenses is amortization expense totaling $191 and
$110 for the years 1995 and 1994, respectively. The final amortization of the
intangible assets related to the 1986 acquisition was $110 in 1995. In December,
1993, the Corporation incurred costs of $106 relative to the sale of debentures
and equity contracts. These costs are being amortized over 4 years commencing in
1994 at an annual expense of $26. In addition, the acquisition of Family First
early in the second quarter of 1995 resulted in an increase in the amortization
expense of $70 in 1995. The Corporation expects amortized expenses relating to
the acquisition of Family First to be $108 per year for the next six years.
INCOME TAXES
The Corporation recorded income tax provisions of $1,312, $1,174 and $840 for
the years ended December 31, 1996, 1995 and 1994, respectively. The increases in
income tax provision are attributable to increased earnings for those three
years.
FINANCIAL CONDITION
At December 31, 1996, the Corporation's total assets were $256,506, an increase
of $3,461 or 1.3%, over the amount reported at December 31, 1995. Federal funds
sold decreased by $11,275. Substantially all of such decrease was offset by
increases in both investment securities and gross loans of $5,693 and $5,668,
respectively. Interest bearing due from banks increased by $3,333 primarily due
to additional investing in such assets when compared to the amount reported at
December 31, 1995. Cash and non-interest bearing due from banks increased by
$523.
INVESTMENT SECURITIES
Investment securities totalled $89,679 at December 31, 1996, an increase of
$5,693 or 6.8% over the amount reported at December 31, 1995. The increase is
primarily due to management's effort to increase investment income. The
following table present the composition of the securities portfolio along with
the book and market values of those components at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------
1996 1995
------------------------------------ -------------------------------------
Available-for-sale Amortized Cost Fair Market Value Amortized Cost Fair Market Value
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. Government agencies.. $36,673 $36,861 $36,812 $37,805
State & political subdivisions......................... 1,006 1,006 -- --
Other debt and equity securities....................... 6,192 6,407 2,524 2,507
Mortgage-backed securities............................. 7,879 7,977 7,577 7,523
-------- -------- --------- ---------
Total available-for-sale.......................... $51,750 $52,251 $46,913 $47,835
------- ------- ------- -------
Held-to-maturity
U.S. Treasury securities and U.S. Government
agencies .............................................. $18,996 $18,602 $32,774 $32,679
State and political subdivisions....................... 393 390 613 615
Mortgage-backed securities............................. 18,039 17,978 2,764 2,767
------- ------- --------- ---------
Total held-to-maturity............................ $37,428 $36,970 $36,151 $36,061
------- ------- ------- -------
Total securities.................................. $89,178 $89,221 $83,064 $83,896
======= ======= ======= =======
</TABLE>
During 1996, the Corporation realized net gains of $51. The gains were realized
through the sale of $5,472 of securities from its available-for-sale portfolio.
Included in shareholders' equity at December 31, 1996, is an unrealized holding
net gain on available-for-sale securities, net of income taxes, in the amount of
$307. The Corporation has no securities held for trading purposes.
17
<PAGE> 20
The following table provides information concerning the available-for-sale and
held-to-maturity portions of the Corporation's investment securities portfolio
at December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------------------
Due within One Year Due One to Five Years Due Five to Ten Years Due Ten Years and Over
------------------- --------------------- --------------------- ----------------------
Fair Fair Fair Fair
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury & Government securities $10,596 $10,652 $24,362 $24,488 $1,394 $1,404 $ 321 $ 317
State and political subdivisions.. 1,006 1,006 - - - - - -
Other debt and equity securities.. 6,192 6,407 - - - - - -
Mortgage-backed securities........ 368 373 5,543 5,612 1,902 1,924 66 68
------- ------- ------- ------- ------ ------ ------ ------
Total available-for-sale....... 18,162 18,437 29,905 30,100 3,296 3,328 387 385
Held-to-maturity:
U.S. Treasury & Government securities 3,197 3,198 13,620 13,545 1,179 1,220 1,000 640
State and political subdivisions.. - - 202 202 191 188 - -
Mortgage-backed securities........ - - 9,479 9,470 5,147 5,112 3,413 3,396
-------- -------- ------- ------- ------ ------ ------ ------
Total held-to-maturity......... 3,197 3,198 23,301 23,217 6,517 6,520 4,413 4,036
------- ------- ------- ------- ------ ------ ------ ------
Total securities............ $21,359 $21,635 $53,206 $53,317 $9,813 $9,848 $4,800 $4,421
======= ======= ======= ======= ====== ====== ====== ======
</TABLE>
December 31, 1996
--------------------------
Total
-----------------------
Fair
Amortized Market
Cost Value
--------- -------
Available-for-sale:
U.S. Treasury & Government securities $36,673 $36,861
State and political subdivisions.. 1,006 1,006
Other debt and equity securities.. 6,192 6,407
Mortgage-backed securities........ 7,879 7,977
------- -------
Total available-for-sale....... 51,750 52,251
Held-to-maturity:
U.S. Treasury & Government securities 18,996 18,602
State and political subdivisions.. 393 390
Mortgage-backed securities........ 18,039 17,978
------- -------
Total held-to-maturity......... 37,428 36,970
------- -------
Total securities............ $89,178 $89,221
======= =======
MATURITY SCHEDULE - SECURITIES
The following table shows the average yields, book values and fair market value
of the Corporation's investment securities by maturity for the years ended
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Available-for-sale Average Amortized Fair Average Amortized Fair
Yield Cost Market Value Yield Cost Market Value
------- --------- ------------ ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Due 0-1 Years............................... 6.29% $11,602 $11,656 6.10% $16,531 $16,716
Due 1-5 Years............................... 6.94% 24,360 24,487 6.32% 23,750 24,529
Due 5-10 Years.............................. 7.72% 1,393 1,403 6.32% 4,209 4,184
Due 10 Years and Over. . . 9.09% 324 321 n/a - -
Mortgage backed and equity securities....... n/a 14,071 14,384 n/a 2,423 2,406
------- -------- ------- -------
Total available-for-sale................ $51,750 $52,251 $46,913 $47,835
======= ======= ======= =======
Held-to-maturity
Due 0-1 Years............................... 5.34% $ 3,198 $ 3,198 4.99% $12,472 $12,562
Due 1-5 Years............................... 5.94% 13,822 13,748 5.49% 19,404 19,481
Due 5-10 Years.............................. 6.54% 1,369 1,407 5.39% 4,275 4,018
Due 10 Years and Over. . 5.94% 1,000 640 n/a - -
Mortgage backed securities.................. 6.27% 18,039 17,977 n/a - -
------- ------- ------- -------
Total held-to-maturity.................... $37,428 $36,970 36,151 36,061
------- ------- ------- -------
Total investment securities............... $89,178 $89,221 $83,064 $83,896
======= ======= ======= =======
</TABLE>
LOAN PORTFOLIO
The Corporation's gross loan portfolio at December 31, 1996 totaled $137,410, an
increase of $5,668 or 4.3% compared to the amount reported at December 31, 1995.
Such increase was primarily due to the increased loan demand. The following
table summarizes the components of the loan portfolio as of December 31, 1996,
and 1995 and 1994.
18
<PAGE> 21
<TABLE>
<CAPTION>
December 31
---------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Loans secured by one to four family residential properties.....$ 43,100 $ 43,328 $26,925
Loans secured by nonresidential properties..................... 58,106 51,133 41,891
Loans to individuals........................................... 9,997 8,661 6,688
Loans to depository institutions............................... - 4,600 600
Commercial loans............................................... 14,106 14,823 10,320
Construction loans............................................. 5,534 4,292 4,754
Other loans.................................................... 6,567 4,905 5,486
-------- -------- -------
Total Gross Loans.........................................$137,410 $131,742 $96,664
======== ======== =======
</TABLE>
The following tables set forth the contractual maturity and interest rate
sensitivity of components of the loan portfolio at December 31, 1996 and 1995.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Within 1 - 5 Over 5
Loans with predetermined interest rates: 1 year Years Years Total
------- -------- ------- -------
<S> <C> <C> <C> <C>
Commercial...................................... $ 7,360 $ 13,578 $ 1,028 $ 21,966
Real estate construction........................ 1,343 -- -- 1,343
Real estate mortgage............................ 7,919 35,879 7,949 51,747
Consumer........................................ 1,855 5,811 2,234 9,900
------- -------- ------- --------
18,477 55,268 11,211 84,956
Loans with floating interest rates:
Commercial...................................... 29,876 -- -- 29,876
Lease financing................................. 3,785 -- -- 3,785
Real estate mortgage............................ 12,648 3,508 -- 16,156
Consumer........................................ 2,637 -- -- 2,637
------- -------- ------- --------
48,946 3,508 -- 52,454
------- -------- ------- --------
Total Loans.......................... $67,423 $ 58,776 $11,211 $137,410
======= ======== ======= ========
December 31, 1995
-------------------------------------------------------
Within 1 - 5 Over 5
Loans with predetermined interest rates: 1 year Years Years Total
------- -------- ------- -------
Commercial...................................... $13,707 $ 20,299 $ 2,174 $ 36,180
Real estate construction........................ 4,000 - -- 4,000
Real estate mortgage............................ 2,038 19,180 7,016 28,234
Consumer........................................ 4,414 2,716 722 7,852
------- -------- ------- --------
24,159 42,195 9,912 76,266
Loans with floating interest rates:
Commercial...................................... 29,850 -- -- 29,850
Loans to depository institutions................ 600 -- -- 600
Real estate construction........................ 3,848 -- -- 3,848
Lease financing................................. -- 902 -- --
Real estate mortgages........................... 13,243 -- -- 14,145
Consumer........................................ 7,033 -- -- 7,033
------- -------- ------- --------
54,574 902 -- 55,476
------- -------- ------- --------
Total Loans........................ $78,733 $ 43,097 $ 9,912 $131,742
======= ======== ======= ========
</TABLE>
At the dates indicated in the foregoing loan tables, no loans were concentrated
within a single industry or group of related industries and the Corporation had
no foreign loans.
ASSET QUALITY
Various degrees of risk are associated with substantially all investing
activities. The lending function, however, carries the greatest risk of loss.
The Corporation seeks to manage credit risk through diversification of the loan
portfolio and the application of policies and procedures designed to foster
sound underwriting and credit monitoring practices. The senior lending officer
of BCB and GFB are charged with monitoring asset quality, establishing credit
policies and procedures and seeking consistent application of these procedures.
Non-performing assets include loans past due, nonaccrual, renegotiated and other
real estate. Since lending is concentrated within the local market area,
non-performing loans were also made primarily to customers operating in the
area. The degree of risk inherent in all lending activities is influenced
heavily by general economic conditions in the immediate market area. Among the
19
<PAGE> 22
factors which tend to affect portfolio risks are changes in local or regional
real estate values, income levels and energy prices. These factors, coupled with
high unemployment levels and tax rates, as well as governmental actions and
weakened market conditions which reduce the demand for credit among qualified
borrowers, are also important determinants of the risk inherent in lending.
Although economic conditions in the Corporation's market area have shown signs
of improvement over the past year, they continue to remain unstable. Real estate
values in the area are giving indication of leveling off, and in some cases have
shown an upward movement. Management is continuing to respond to the changing
market conditions and to meet the needs of borrowers, while maintaining the
integrity of the loan portfolio.
Past Due, Non-accruing and Renegotiated Loans. It is the Corporation's policy to
review monthly all loans which are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are either doubtful of collection or are involved in a protracted
collection process. The current year's uncollected interest is reversed on such
non-accrual loans. Management has also restructured the terms of certain loans
to accommodate changes in the financial condition of borrowers. A typical
concession would be a reduction in the currently payable interest rate to one
which is lower than the current market rate for new debt with similar risks;
interest foregone would be deferred until maturity. The following table
summarizes the composition of the Corporation's non-performing assets and
related asset quality ratios as of the dates indicated.
At December 31
--------------------------
1996 1995 1994
------- ------- -----
Non-accruing loans................................ $1,033 $1,422 $1,499
Renegotiated loans................................ - 517 526
------ ------ ------
Total non-performing loans................... 1,033 1,939 2,025
Loans past due 90 days and accruing............... 876 1,125 10
Other real estate................................. 1,834 2,070 1,184
------ ------ ------
Total non-performing assets.................. $3,743 $5,134 $3,219
====== ====== ======
Non-performing loans to total gross loans......... .75% 1.47% 2.09%
Non-performing assets to total gross loans........ 2.72% 3.90% 3.33%
Non-performing assets to total assets............. 1.46% 2.03% 1.91%
Allowance for loan losses to non-performing loans. 245.88% 120.27% 90.07%
The $1,391 or 27% decrease in non-performing assets at December 31, 1996
compared to December 31, 1995 is primarily the result of an improved loan
portfolio coupled with the management's effort to collect on the loans and make
them current. If the non-accruing loans in 1996 had continued to pay interest,
interest income during 1996 would have increased by $286. If non-accruing loans
in 1995 had continued to pay interest, interest income during 1995 would have
increased by $135.
Potential Problem Loans. As part of the loan review process, management
routinely identifies performing loans where there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and thus allocates
specific reserves against them. At December 31, 1996, such loans totaled $6,495
with an allowance of $1,035 specifically allocated to them. Due to strong
collateral coverage, management believes the future risk of loan losses from
such loans to be slight.
Foreign Loans. The Corporation has no foreign loans or any other foreign
exposure.
Loan Concentration. The Subsidiary Banks grant various commercial and consumer
loans, primarily within the State of New Jersey. Although the Subsidiary Banks
have diversified loan portfolios, a substantial portion of the ability of their
borrowers to honor their loan payment obligations in a timely fashion is
dependent on the success of the real estate industry.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At December 31, 1996, the allowance for possible loan losses was $2,540 as
compared to $2,332 at December 31, 1995. The allowance for possible loan losses
is increased periodically through charges to earnings in the form of a provision
for possible loan losses. Loans that are deemed uncollectible are charged
against the allowance and any recoveries of such loans are credited to it. It is
management's belief that, although charge-offs may occur in the future, there
are adequate reserves allotted. The level of the allowance is based on the
ongoing evaluation by
20
<PAGE> 23
management of the respective Subsidiary Banks of potential
losses in the loan portfolio. Such evaluation includes consideration of the
current financial status and credit standing of borrowers, prior loss
experiences, results of periodic regulatory examinations, comments and
recommendations of the Corporation's independent accountants, and management's
judgment as to prevailing and anticipated real estate values and other economic
conditions in the Subsidiary Banks market areas. Since future events that may
affect these financial conditions are unpredictable, there is uncertainty as to
the final outcome of the Subsidiary Banks' loans and non-performing assets.
The following table represents transactions affecting the allowance for possible
loan losses for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Balance--beginning of year............................................... $2,332 $1,824 $1,771
Charge-offs:
Commercial, financial and agricultural................................. (21) (589) (164)
Real estate - mortgage................................................. (281) (364) (57)
Installment loans to individuals....................................... (63) (82) (43)
------ ------ ------
(365) (1,035) (264)
------ ------ ------
Recoveries:
Commercial, financial and agricultural................................. 124 87 100
Real Estate - mortgage................................................. 9 -- --
Installment loans to individuals....................................... 9 3 45
------ ------ ------
142 90 145
------ ------ ------
Net charge-offs.......................................................... (223) (945) (119)
Provision for possible loan losses....................................... 440 414 172
Adjustment (allowance for loan losses acquired from Family First)........ (9) 1,039 --
------ ------ ------
Balance--end of year..................................................... $2,540 $2,332 $1,824
====== ====== ======
Ratio of net charge-offs during the period to average loans outstanding
during the period..................................................... .16% .79% .13%
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table sets forth the allocation of the allowance for loan losses
by loan category amounts, the percent of loans in each category to total loans
in the allowance, and the percent of loans in each category to total loans, at
each of the dates indicated.
<TABLE>
<CAPTION>
At December 31
------------------------------------------------------------------------
1996 1995
---------------------------------- ---------------------------------
% of Loans % of Loans
% of to Total % of to Total
Balance at end of period allocable to: Amount Allowance Loans Amount Allowance Loans
------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial ........................... $ 859 34 53 $1,256 54 53
Real estate--construction ............ -- -- 4 -- -- 3
Real estate--mortgage ................ 670 26 31 662 28 33
Installment loans to individuals ..... 206 8 12 296 13 11
Unallocated reserves ................. 805 32 -- 118 5 --
------ --- --- ------ --- ---
Total allowance for possible loan
losses ............................. $2,540 100 100 $2,332 100 100
====== === === ====== === ===
</TABLE>
At December 31
----------------------------------
1994
----------------------------------
% of Loans
% of to Total
Balance at end of period allocable to: Amount Allowance Loans
------- ---------- ---------
Commercial ........................... $ 876 48 54
Real estate--construction ............ -- -- 5
Real estate--mortgage ................ 457 25 27
Installment loans to individuals ..... 215 12 14
Unallocated reserves ................. 276 15 --
------ --- ---
Total allowance for possible loan
losses ............................. $1,824 100 100
====== === ===
OTHER REAL ESTATE
As of December 31, 1996, other real estate totaled $1,834, a decrease of $236 or
11% compared to December 31, 1995, primarily due to the reclassification of
foreclosed properties. The $1,834 includes collateral acquired through
foreclosure of loans, stated at the lower of the loan value or fair market value
less estimated costs to sell. Management is actively seeking repayment through
sale of the underlying collateral.
21
<PAGE> 24
DEPOSITS
Total deposits at December 31, 1996 were $223,242, a moderate increase over the
amount reported at December 31, 1995.
The following table summarizes the average yield/rate of the components of
average deposit liabilities as of December 31, 1996,1995 and 1994.
<TABLE>
<CAPTION>
At December 31
---------------------------------------------------------------------------------
Average Average Average
1996 Yield/Rate 1995 Yield/Rate 1994 Yield/Rate
-------- ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand ..................... $ 50,243 -- $ 44,335 -- $ 32,446 --
Savings and interest-bearing 81,112 2.22% 74,207 2.55% 63,409 2.19%
Time ....................... 86,277 5.34% 75,505 5.35% 46,548 3.86%
-------- -------- --------
$217,632 $194,047 $142,403
======== ======== ========
</TABLE>
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity at December 31, 1996 and 1995.
At December 31
--------------------
1996 1995
------ -----
Three months or less............................. $15,057 $16,633
Over three months through twelve months.......... 8,974 7,977
Over twelve months............................... 1,153 1,486
------- -------
$25,184 $26,096
======= =======
SUBORDINATED DEBENTURES AND EQUITY CONTRACTS
In December 1993, the Corporation raised $5 million by issuing Redeemable
Subordinated Debentures ("Debentures") (unsecured debt obligation of the
Corporation) due November 1, 1998 at an interest rate of 8.5% payable quarterly.
In addition, the Corporation issued Cancellable Mandatory Stock Purchase
Contracts ("Equity Contracts") to purchase $5 million of the Corporation's
common stock at a predetermined price of $9.77 (as adjusted for stock dividends)
per share to be exercised no later than November 1, 1997. 511,770 shares of the
Corporation's common stock were reserved for future issuance pursuant to the
outstanding Equity Contracts.
INTEREST RATE SENSITIVITY
The following table summarizes, as of December 31, 1996, the repricing of
earning assets and interest-bearing liabilities in accordance with their
contractual terms in given time periods.
<TABLE>
<CAPTION>
Due between Due between
Due within 91 Days and One Year and Due after Non-Interest
90 Days One Year Five Years Five Years Bearing Total
---------- ----------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities ......................... $ 12,869 $ 19,215 $ 54,498 $ 3,097 $ -- $ 89,679
Federal funds sold and deposits with banks .... 6,300 3,000 1,481 -- -- 10,781
Total loans ................................... 51,850 20,275 56,812 5,295 3,178 137,410
Non-earning assets ............................ -- -- -- -- 18,636 18,636
--------- -------- -------- ------- -------- --------
Total Assets ................................ $ 71,019 $ 42,490 $112,791 $ 8,392 $ 21,814 $256,506
========= ======== ======== ======= ======== ========
Liabilities and Shareholders' Equity
Deposits ...................................... $ 99,777 $ 43,968 $ 19,907 $ 2 $ 59,588 $223,242
Other liabilities ............................. 4,159 -- 4,988 -- 3,056 12,203
Shareholders' equity .......................... -- -- -- -- 21,061 21,061
--------- -------- -------- ------- -------- --------
Total Liabilities and Shareholders' Equity .. $ 103,936 $ 43,968 $ 24,895 $ 2 $ 83,705 $256,506
========= ======== ======== ======= ======== ========
Interest rate sensitivity gap ................... (32,917) (1,478) 87,896 8,390 (61,891)
Interest rate sensitivity gap as a percentage
of total assets (12.84%) (.58%) 34.27% 3.27% (24.12%)
Cumulative interest rate sensitivity gap ........ (32,917) (34,395) 53,501 61,891
Cumulative interest rate sensitivity gap
as a percentage of total assets ............... (12.84%) (13.41%) 20.85% 24.12%
</TABLE>
22
<PAGE> 25
Certain shortcomings are inherent in the method of analysis presented in the
preceding table. While gap analysis is a general indicator of the potential
effect that changing interest rates may have on net interest income, the gap
itself does not present a complete picture of interest rate sensitivity. For
one, changes in general interest rates do not affect all categories of assets
and liabilities equally or simultaneously. Secondly, certain assets and
liabilities in the similar maturities or repricing intervals may react
differently to changes in interest rates. For instance, interest rates on loans
tied to prime rate may be affected immediately in a particular time interval
whereas interest rates payable on the deposits in the same interval may lag
behind. Finally, management has made certain assumptions in constructing the gap
table which may be true of the peer group as well. One of the most significant
assumptions is the classification of certain business loans, home equity lines
of credit and credit card loans into the due within 90 days interval based on
the contractual maturity or repricing opportunity. Similarly, money market,
savings and NOW account deposits, which have no contractual maturity, are placed
into the due within 90 days interval. Management can influence the actual
repricing of these deposits independent of the gap assumption.
The Corporation's requirements for an acceptable gap position under the
guidelines appearing in its asset/liability management policy are 10% to (25)%
at both six-month and one-year intervals. At December 31, 1996, the cumulative
gap at the 91-day to one-year interval was (13.41)%, which was within the
requirements of the asset/liability management policy. Despite the negative gap
profile for such interval shown in the above table at December 31, 1996, the
increasing interest rate environment which occurred during early 1996 was
favorable to the Corporation's earnings because the Corporation's earning assets
repriced more quickly than its interest-bearing liabilities, a factor which
outweighed the negative gap position for such interval during 1996.
The Corporation primarily uses various simulation techniques to project future
net interest income, balance sheet mix and the spread relationship between
market rates and bank products under different interest rate scenarios. In
reviewing the simulation results at December 31, 1996, in a reinvest strategy,
interest rate increases or decreases of 300 basis points over a 12-month period
would not have a significant impact on either the Corporation's net interest
income or its liquidity.
LIQUIDITY
The Corporation actively manages its liquidity under the direction of the Bank's
Asset/Liability Management Committee. During the last two years the Corporation
has been highly liquid and its liquid funds are more than sufficient to meet
future loan demand or the possible outflow of deposits in addition to being able
to adapt to changing interest rate conditions. Management expects that this high
liquidity trend will continue until such time as overall economic conditions
improve and loan demand rises.
Sources of liquidity at December 31, 1996 totaled $112,454 or 44% of total
assets, consisting of investment securities of $89,679 and $22,775 in cash and
cash equivalents and interest-bearing due from banks. By comparison, total
liquidity sources were $114,180 or 45% of total assets at December 31, 1995,
consisting of investment securities in the amount of $83,986 and cash and cash
equivalents and interest-bearing due from banks in the amount of $30,194.
CAPITAL RESOURCES
The Corporation's primary regulator, the Federal Reserve Board (which regulates
bank holding companies), has issued guidelines classifying and defining bank
holding company capital into the following components: (1) Tier I Capital, which
includes tangible shareholders' equity for common stock and certain qualifying
perpetual preferred stock, and (2) Tier II Capital, which includes a portion of
the allowance for possible loan losses, certain qualifying long-term debt and
preferred stock that does not qualify as Tier I Capital. The risk-based capital
guidelines require financial institutions to maintain specific defined credit
risk factors (risk-adjusted assets). As of December 31, 1996, the Tier I and the
combined Tier I and Tier II capital ratios required by the Federal Reserve Board
were 6% and 10%, respectively.
In addition to the risk-based guidelines discussed above, the Federal Reserve
Board requires that a bank holding company which meets that regulator's highest
performance and operating standards maintain a minimum leverage ratio (Tier 1
capital as a percentage of tangible assets) of 5%. For those bank holding
companies anticipating significant growth, the minimum leverage ratio will be
increased. Minimum leverage ratios for each entity will be evaluated through the
ongoing regulatory examination process. Regulations have also been issued by the
Subsidiary Banks'
23
<PAGE> 26
primary regulator, the FDIC, establishing similar risk-based and leverage
capital ratios which apply to each bank as a separate entity.
The following table present the risk-based capital ratios for GFB, BCB and the
Corporation, respectively, as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Well
Greater Community Capitalized
Great Falls Bank Bergen Commercial Bank Bancorp (Under FDIC
December 31 December 31 December 31 requirements)
-------------------- ---------------------- ------------------- -------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Tier I and Tier II .......... 13.21% 14.71% 14.17% 13.68% 16.89% 16.77% 10.00%
Tier I Core Capital Ratio ... 6.83% 6.79% 9.04% 12.66% 7.97% 7.27% 6.00%
Tier I Leverage Ratio ....... 6.78% 7.90% 9.32% 9.11% 8.12% 8.28% 5.00%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The Corporation's consolidated financial statements and notes thereto presented
in this annual report have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Corporation's operations.
Unlike most industrial companies, nearly all of the Corporation's assets and
liabilities are monetary in nature. As a result, interest rates have a greater
impact on the Corporation'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 prices of goods and services.
24
<PAGE> 27
Item 7A - FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS - Non-interest-bearing ..................................................... $ 11,994 $ 11,471
FEDERAL FUNDS SOLD ................................................................................. 6,300 17,575
--------- ---------
Total cash and cash equivalents ................................................ 18,294 29,046
DUE FROM BANKS - Interest-bearing .................................................................. 4,481 1,148
--------- ---------
INVESTMENT SECURITIES - Available-for-sale ......................................................... 52,251 47,835
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$36,970 and $36,061 in 1996 and 1995, respectively) ............................................ 37,428 36,151
--------- ---------
89,679 83,986
LOANS .............................................................................................. 137,410 131,742
Allowance for possible loan losses ............................................................... (2,540) (2,332)
Unearned income .................................................................................. (283) (303)
--------- ---------
Net loans ...................................................................... 134,587 129,107
PREMISES AND EQUIPMENT, net ........................................................................ 3,203 3,082
OTHER REAL ESTATE .................................................................................. 1,834 2,070
ACCRUED INTEREST RECEIVABLE ........................................................................ 1,906 1,977
INTANGIBLE AND OTHER ASSETS ........................................................................ 2,522 2,629
--------- ---------
TOTAL ASSETS ................................................................... $ 256,506 $ 253,045
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest-bearing ............................................................................ $ 59,588 $ 46,332
Interest-bearing ................................................................................ 55,882 59,141
Savings ......................................................................................... 25,918 26,030
Time (includes deposits $100 and over of $25,184 in 1996 and $26,096 in 1995) ................... 81,854 91,263
--------- ---------
Total deposits ................................................................. 223,242 222,766
ACCRUED INTEREST PAYABLE ........................................................................... 1,466 1,626
OTHER LIABILITIES .................................................................................. 1,590 1,326
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ..................................................... 4,159 2,756
REDEEMABLE SUBORDINATED DEBENTURES ................................................................. 4,988 4,976
--------- ---------
Total liabilities .............................................................. 235,445 233,450
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, without par value: 1,000,000 shares authorized, none outstanding ................ -- --
Common Stock, par value $1 per share: 10,000,000 shares authorized, 1,891,733 and 1,709,451 shares
outstanding in 1996 and 1995, respectively ................................................... 1,892 1,709
Additional paid-in capital ....................................................................... 17,841 15,231
Retained earnings ................................................................................ 1,209 2,102
Net unrealized holding gains on investment securities available-for-sale ......................... 307 553
Treasury Stock (12,596 shares at cost) ........................................................... (188) --
--------- ---------
Total shareholders' equity ............................................................ 21,061 19,595
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................................... $ 256,506 $ 253,045
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
<PAGE> 28
GREATER COMMUNITY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For
the Years Ended December 31, 1996, 1995 and 1994 (in thousands, except per share
data)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees ............................ $12,621 $11,931 $ 8,408
Investment securities ............................ 5,569 4,790 2,693
Federal funds sold and deposits with banks ....... 503 712 301
------- ------- --------
Total interest income ............ 18,693 17,433 11,402
------- ------- --------
INTEREST EXPENSE:
Deposits ........................................ 6,404 5,927 3,143
Sort-term borrowings ............................ 312 185 53
Long-term borrowings ............................ 438 438 438
------- ------- --------
Total interest expense ........... 7,154 6,550 3,634
------- ------- --------
NET INTEREST INCOME .................................. 11,539 10,883 7,768
PROVISION FOR POSSIBLE LOAN LOSSES ................... 440 414 172
------- ------- --------
Net interest income after provision for losses 11,099 10,469 7,596
------- ------- --------
OTHER INCOME
Service charges on deposit accounts ............. 1,174 867 515
Credit card fee income .......................... 182 567 65
Other commission and fees ....................... 48 190 136
Gain (loss) on sale of securities ............... 51 209 (84)
All other income ................................ 474 344 223
------- ------- --------
Total other income ............... 1,929 2,177 855
OTHER EXPENSES:
Salaries and employee benefits .................. 4,144 3,700 2,745
Occupancy and equipment ......................... 1,958 1,418 919
Regulatory, professional and other fees ......... 696 781 611
FDIC insurance assessment ....................... 340 262 360
Computer services ............................... 249 390 252
Office expenses ................................. 510 494 371
Other real estate operating and loan expenses ... 304 314 55
Merchant credit card expenses ................... 184 616 54
All other operating expenses .................... 1,078 1,425 758
------- ------- --------
Total other expenses ............. 9,463 9,400 6,125
------- ------- --------
Income before income taxes
and minority interest ............. 3,565 3,246 2,326
PROVISION FOR INCOME TAXES ........................... 1,312 1,174 840
------- ------- --------
Income before minority interest ................ 2,253 2,072 1,486
------- ------- --------
MINORITY INTEREST .................................... 84 -- --
------- ------- --------
NET INCOME ........................................... 2,337 2,072 1,486
======= ======= ========
Weighted average shares outstanding ............... 2,111 2,065 1,664
======= ======= ========
Net Income per share .............................. $ 1.11 $ 1.04 $ 0.89
======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
<PAGE> 29
GREATER COMMUNITY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net
Unrealized
Common Holding
-------------------- Gain(Loss)
Additional on Securities Total
Paid-in Retained Available- Treasury Shareholders'
Shares Par Value Capital Earnings -for-Sale Stock Equity
------ --------- ---------- ------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1994 ................... 1,359 $1,359 $11,354 $ 1,443 $ -- $-- $ 14,156
Net Income - 1994 ......................... -- -- -- 1,486 -- -- 1,486
10% stock dividend ........................ 72 72 766 (841) -- -- (3)
Cash dividend ............................. -- -- -- (245) -- -- (245)
Exercise of stock options ................. 12 12 89 -- -- -- 101
Change in net unrealized holding loss on
securities available-for-sale ........... -- -- -- -- (534) -- (534)
----- ------ ------- ------- ------- ----- --------
BALANCE, December 31, 1994 .................. 1,443 1,443 12,209 1,843 (534) -- 14,961
Net Income - 1995 ......................... -- -- -- 2,072 -- -- 2,072
Stock issued in connection with acquisition
of Family First Federal Savings Bank .. 157 157 1,645 -- -- -- 1,802
10% stock dividend ........................ 100 100 1,293 (1,398) -- -- (5)
Exercise of stock options ................. 9 9 84 -- -- -- 93
Cash dividend ............................. -- -- -- (415) -- -- (415)
Change in net unrealized holding gains on
securities available-for-sale ........ -- -- -- -- 1,087 -- 1,087
----- ------ ------- ------- ------- ----- --------
BALANCE, December 31, 1995 .................. 1,709 1,709 15,231 2,102 553 -- 19,595
Net Income - 1996 ......................... -- -- -- 2,337 -- -- 2,337
10% stock dividend ........................ 171 171 2,520 (2,697) -- -- (6)
Exercise of stock options ................. 12 12 90 -- -- -- 102
Cash dividend ............................. -- -- -- (533) -- -- (533)
Change in unrealized holding loss on
securities available-for-sale ........ -- -- -- -- (246) -- (246)
Purchase of treasury stock ................ -- -- -- -- -- (188) (188)
----- ------ ------- ------- ------- ----- --------
BALANCE, December 31, 1996 .................. 1,892 $1,892 $17,841 $ 1.209 $ 307 ($188) $ 21,061
===== ====== ======= ======= ======= ===== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE> 30
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 2,337 $ 2,072 $ 1,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......................................... 1,056 626 449
Accretion of discount on securities, net ............................... (241) (69) (19)
Accretion of discount on debentures .................................... 12 13 13
Realization of discount on securities sold ............................. 3 21 22
Loss (gain) on sale of securities, net ................................. (51) (209) 84
Provision for possible loan losses ..................................... 440 375 172
Deferred income tax provision (benefit) ................................ (267) 135 (65)
(Increase) decrease in accrued interest receivable ..................... 71 (481) (533)
(Increase) decrease in other assets .................................... 107 (1,998) (170)
Increase (decrease) in accrued interest and other liabilities .......... 104 1,560 466
-------- -------- --------
Net cash provided by operating activities ............ 3,571 2,045 1,905
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities -
Purchases ............................................................ (18,962) (18,670) (24,694)
Sales ................................................................ 5,472 16,619 13,061
Maturities ........................................................... 9,004 2,550 --
Held-to-maturity securities -
Purchases ............................................................ (23,089) (10,225) (13,367)
Maturities ........................................................... 21,812 1,415 8,569
Net decrease in interest-bearing deposits with banks .................... (3,333) 1,220 5,710
Net increase in loans .................................................. (5,920) (4,668) (10,062)
Capital expenditures ................................................... (824) (1,994) (779)
Decrease in other real estate .......................................... 236 280 453
-------- -------- --------
Net cash used in investing activities ................. (15,604) (13,473) (21,109)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts ....................................... 476 28,668 14,437
Increase in securities sold under agreement to repurchase .............. 1,403 57 1,950
Dividends paid ......................................................... (533) (415) (245)
Proceeds from exercise of stock options ................................ 102 93 101
Purchases of treasury stock ............................................ (188) -- --
Cash acquired from purchase business combination ....................... -- 4,045 --
Other, net ............................................................. 21 (26) (3)
-------- -------- --------
Net cash provided by financing activities .......... 1,281 32,422 16,240
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (10,752) 20,994 (2,964)
CASH AND CASH EQUIVALENTS, beginning of year .............................. 29,046 8,052 11,016
CASH AND CASH EQUIVALENTS, end of year .................................... $ 18,294 $ 29,046 $ 8,052
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
28
<PAGE> 31
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Greater Community Bancorp (the "Corporation"), through its subsidiary banks,
Great Falls Bank (GFB) and Bergen Commercial Bank (BCB) (collectively the
"Banks"), offers a broad range of lending, depository and related financial
services to individual consumers, business and governmental units primarily
through eight full service offices located in Bergen and Passaic counties, New
Jersey. Great Falls Investment Company, Inc. is a wholly-owned subsidiary of
GFB, and BCB Investment Company, Inc. is a wholly-owned subsidiary of BCB. The
primary business of these subsidiaries is to own and manage the investment
portfolios of their respective parent Banks. In 1996, the Corporation changed
its name to Greater Community Bancorp from Great Falls Bancorp.
In October 1996, the Corporation formed Greater Community Financial, L.L.C. (the
"Company"), a New Jersey limited liability company located in Clifton, New
Jersey. The Company is a registered broker-dealer. At December 31, 1996, the
Company had assets of $313 and member capital of $311.
The Banks compete with other banking and financial institutions in their primary
market communities, including financial institutions with resources
substantially greater than their own. Commercial banks, savings banks, savings
and loan associations, credit unions, and money market funds actively compete
for deposits and for types of loans. Such institutions, as well as consumer
finance and insurance companies, may be considered competitors of the Banks with
respect to one or more of the services they render.
The Corporation and the Banks are subject to regulations of certain state and
federal agencies and, accordingly, they are periodically examined by those
regulatory authorities. As a consequence of the extensive regulation of
commercial banking activities, the Banks' business is particularly susceptible
to being affected by state and federal legislation and regulations.
Basis of financial presentation
The accounting and reporting policies of the Corporation and its subsidiaries
conform with generally accepted accounting principles and predominant practices
within the banking industry. All significant intercompany accounts and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These estimates and assumptions also affect reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Financial instruments
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial
Instruments," which requires all entities to disclose the estimated fair value
of their assets and liabilities considered to be financial instruments.
Financial instruments requiring disclosure consist primarily of investment
securities, loans and deposits.
29
<PAGE> 32
INVESTMENT SECURITIES
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on January 1, 1994. Investment securities which the
Corporation has the ability and intent to hold to maturity are classified as
held-to-maturity and are stated at cost, adjusted for premium amortization and
discount accretion. Securities which are held for indefinite periods of time
which management intends to use as part of its asset/liability strategy, or that
may be sold in response to changes in interest rates, changes in prepayment
risk, increased capital requirements or other similar factors, are classified as
available-for-sale and are carried at fair market value. Net unrealized gains
and losses for such securities, net of income tax effect, are charged/credited
directly to shareholders' equity. The Corporation does not engage in securities
trading. Securities transactions are accounted for on a trade date basis. Gains
or losses on disposition of investment securities are based on the net proceeds
and the adjusted carrying amount of the securities sold using the specific
identification method.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are stated at the amount of unpaid principal and are net of unearned
discount, unearned loan fees, and an allowance for loan losses. The allowance
for loan losses is established through a provision for possible loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance for possible loan losses is maintained at a level considered by
management to be adequate to provide for potential loan losses inherent in the
loan portfolio at the reporting date. The level of the allowance is based on
management's evaluation of potential losses in the loan portfolio after
consideration of prevailing and anticipated economic conditions, including
estimates and appraisals, among other items, known or anticipated at each
reporting date. Credit reviews of the loan portfolio, designed to identify
potential charges to the allowance, are made on a periodic basis during the year
by management.
Interest income on loans is credited to operations based upon the principal
amount outstanding. The net amounts of loan origination fees, direct loan
origination costs and loan commitment fees are deferred and recognized over the
lives of the related loans as adjustments of yield. When management believes
there is sufficient doubt as to the ultimate collectibility of interest on any
loan, the accrual of applicable interest is discontinued. A loan is generally
classified as non-accrual when principal and interest has consistently been in
default for a period of 90 days or more or because of a deterioration in the
financial condition of the borrower, and payment in full of principal or
interest is not expected. Loans past due 90 days or more and still accruing
interest are loans that are generally well-secured and expected to be restored
to a current status in the near future.
The Corporation adopted 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," on January 1, 1995. This standard
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rates,
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. The Corporation had previously
measured the allowance for credit losses using methods similar to those
prescribed in this standard. As a result, no additional allowance for loan
losses was required on January 1, 1995 when SFAS No. 114, as amended by SFAS No.
118 was adopted.
On January 1, 1996, the Corporation adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights," which requires that a mortgage banking enterprise
recognize as a separate asset rights to service mortgage loans for others,
however those servicing rights are acquired. In circumstances where mortgage
loans are originated, separate asset rights to service mortgage loans are only
recorded when the enterprise intends to sell such loans. The adoption of SFAS
No. 122 did not have a material impact on the Corporation's consolidated
financial position or results of operations.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, which provides accounting guidance on transfers of financial assets,
servicing of financial assets and extinguishment of liabilities. This statement
is effective for transfers of financial assets, servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. Adoption
30
<PAGE> 33
of this new statement is not expected to have a material impact on the
Corporation's consolidated financial position or results of operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the term of the lease or estimated useful life, whichever is
shorter.
On January 1, 1996, the Corporation adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which provides guidance on when to recognize and how to measure impairment
losses of long-lived assets and certain identifiable intangibles and how to
value long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
material effect on the Corporation's consolidated financial position or results
of operations.
OTHER REAL ESTATE
Other real estate owned, representing property acquired through foreclosure, is
carried at the lower of the principal balance of the secured loan or the fair
value less estimated disposal costs, of the acquired property.
INTANGIBLE ASSETS
Intangible assets represent the excess of the cost over the fair value of net
assets of acquired businesses. Intangible assets at December 31, 1996 and 1995,
approximately $566 and $676, respectively and are being charged to operations on
a straight line basis over a seven-year period which coincides with the average
life of the assets acquired. The amortization charged to income was $111, $191
and $110 for the years ended December 31, 1996, 1995 and 1994, respectively.
MORTGAGES HELD FOR SALE
Mortgages held for sale are recorded at cost which approximate market. Gains or
losses on such sales are recognized at the time of sale in an amount equal to
the present value of the difference between the effective interest rate to the
Banks and the net yield to the investor, excluding normal future loan servicing
fees, over the estimated remaining lives of the loans sold, adjusted for
prepayments. Included in loans in the accompanying consolidated financial
statements are $0 and $228 of loans held for sale at December 31, 1996 and 1995,
respectively.
FEDERAL INCOME TAXES
The Corporation accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The principal types of accounts resulting
in differences between assets and liabilities for financial statement and tax
return purposes are the allowance for possible losses on loans, interest on
non-accrual loans and acquired net operating loss carryforwards. The Corporation
and its subsidiaries file a consolidated Federal income tax return.
DIVIDEND RESTRICTIONS
New Jersey state law permits the payment of dividends from subsidiary banks to
the Corporation to the extent that there is no impairment of the capital
accounts and they will have a surplus of not less than 50% of their capital
stock, or, if not, payment of the dividend will not reduce their surplus. As of
December 31, 1996 and 1995, GFB had $6,470 and $5,880 and BCB had $1,565 and
$1,387 of funds available for the payment of dividends to their parent company,
respectively.
31
<PAGE> 34
STATEMENTS OF CASH FLOWS
Cash and cash equivalents are defined as cash on hand, non-interest-bearing
amounts due from banks and Federal funds sold. Generally, Federal funds are sold
for a one-day period. Cash paid for income taxes was $991 in 1996, $1,032 in
1995 and $744 in 1994. Cash paid for interest was $7,334 in 1996, $5,616 in 1995
and $3,332 in 1994.
Advertising Costs
The Corporation expenses advertising costs as incurred. Advertising expenses for
the years ended December 31, 1996, 1995, and 1994 were approximately $143, $106,
and $188, respectively.
Stock Options
The Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
on January 1, 1996, which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are required to
make pro forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied. The
Corporation's stock option plans are accounted for under APB Opinion No. 25.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and common equivalent shares outstanding during each year. All weighted average
actual share or per share information in the financial statements has been
adjusted retroactively for the effect of stock dividends. The effect of
outstanding dilutive options and equity contracts was considered in the
computation.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform to the classifications used in 1996.
32
<PAGE> 35
NOTE 2 ACQUISITIONS
On December 31, 1995, the Corporation acquired BCB by an exchange of stock. Each
share of BCB common stock outstanding was exchanged for 1.7 shares of the
Corporation's common stock, resulting in the issuance of 692,228 shares. The
acquisition was accounted for as a pooling of interest basis and all prior
periods have been restated to reflect the combination as follows:
1995 1994
---- ----
Net interest income ............................... $ 7,110 $4,554
BCB ............................................... 3,773 3,214
------- ------
$10,883 $7,768
======= ======
Net Income ........................................ $ 1,533 $ 966
BCB ............................................... 539 520
------- ------
$ 2,072 $1,486
======= ======
On April 7, 1995, the Corporation completed the acquisition of Family First
Federal Savings Bank ("Family First") of Clifton, New Jersey. Under the terms of
the agreement, the Corporation issued 172,310 shares of its common stock at a
cost of $1,802 in exchange for the common stock of Family First. The merger was
accounted for using the purchase method of accounting. The purchase price
exceeded the fair market value of net assets acquired by approximately $734,
which is reflected as goodwill, included in intangible and other assets in the
accompanying consolidated balance sheet. The unamortized balance at December 31,
1996 and 1995 was $566 and $675, respectively.
The pro forma results of operations, assuming Family First had been acquired as
of January 1, 1994, are as follows:
1995 1994
---- ----
Net interest income ........ $11,372 $9,905
Net income ................. 2,079 1,102
NOTE 3 SECURITIES
The amortized cost, unrealized gains and losses, and estimated market value of
the Corporation's investment securities available-for-sale and held-to-maturity
are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------------------
1996 1995
--------------------------------------------- ----------------------------------------------
Gross Gross Fair Gross Gross Fair
Available-for-sale Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gain Losses Value Cost Gain Losses Value
--------- ---------- ---------- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
U.S. Government agencies... $36,673 $ 213 $ (25) $36,861 $36,812 $1,001 $ ( 8) $37,805
State & political subdivisions..... 1,006 - - 1,006 - - - -
Other debt and equity securities... 6,192 215 - 6,407 2,524 - (17) 2,507
Mortgage-backed securities ........ 7,879 98 - 7,977 7,577 19 (72) 7,523
-------- -------- ---------- ------- --------- --------- ------- -------
$51,750 $ 526 $ (25) $52,251 $46,913 $1,020 $ (98) $47,835
------- ------ ====== ======= ------- ====== ====== =======
Held-to-maturity
U.S. Treasury securities and
U.S. Government agencies .... $18,996 $ 135 $ (529) $18,602 $32,774 $ 325 $ (420) $32,679
State and political subdivisions... 393 - (3) 390 613 2 - 615
Mortgage-backed securities ...... 18,039 19 (80) 17,978 2,764 7 (4) 2,767
-------- --------- -------- ------- -------- -------- ---------- -------
$37,428 $ (154) $ 612 $36,970 $36,151 $ 334 $ (424) $36,061
======= ======= ======== ======= ======= ===== ======= =======
</TABLE>
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on SFAS No. 115, the FASB allowed a one-time reassessment
of the classifications of all securities currently held. Any reclassifications
would be accounted for at fair value in accordance with SFAS No. 115 and any
reclassifications from the held-to-maturity portfolio that resulted from this
one-time reassessment would not call into question the intent of the Corporation
to hold other debt securities to maturity in the future. The Corporation used
the opportunity under this one-time reassessment to reclassify $6,192 in U.S.
Treasury securities from held-to-maturity to available-for-sale. In connection
with this reclassification, gross unrealized gains of $30 and gross unrealized
losses of $12 were recorded on available-for-sale securities.
33
<PAGE> 36
The amortized cost and estimated market value of securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because issuers and borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
December 31, 1996
------------------------
Amortized Fair Market
Available-for-sale Cost Value
--------- -----------
Due in one year or less .............. $11,602 $11,656
Due after one year through five years 24,360 24,487
Due after five years through ten years 1,393 1,403
Due after ten years .................. 324 321
Mortgage-backed and equity securities 14,071 14,384
------- -------
$51,750 $52,251
======= =======
Held-to-maturity
Due in one year or less .............. $ 3,198 $ 3,198
Due after one year through five years 13,822 13,748
Due after five years through ten years 1,369 1,407
Due after ten years .................. 1,000 640
Mortgage-backed securities ........... 18,039 17,977
------- -------
$37,428 $36,970
======= =======
Proceeds from sales of available-for-sale securities during 1996, 1995 and 1994
were $5,472, and $16,619, and $13,061, respectively. Gross gains of $51 and $209
were realized on these sales for the years ended December 31, 1996 and 1995,
respectively. Gross losses of $84 were realized on these sales for the year
ended December 31, 1994.
Securities with a carrying value of $13,690 and $17,649 at December 31, 1996 and
1995, respectively, were pledged to secure public deposits and repurchase
agreements and for other purposes required by law.
NOTE 4 LOANS
Major classifications of Loans are as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Loans secured by one to four family residential properties $ 43,100 $ 43,328
Loans secured by nonresidential properties ................ 58,106 51,133
Loans to individuals ...................................... 9,997 8,661
Loans to depository institutions .......................... -- 4,600
Commercial loans .......................................... 14,106 14,823
Construction loans ........................................ 5,534 4,292
Other loans ............................................... 6,567 4,905
-------- --------
$137,410 $131,742
======== ========
</TABLE>
The following table presents information related to loans which are on a
non-accrual basis, loans which have been renegotiated to provide a reduction or
deferral of interest or principal for reasons related to the debtor's financial
difficulties and loans contractually past due ninety days or more as to interest
or principal payments.
Year Ended December 31
----------------------
1996 1995
---- ----
Nonaccrual loans ................................ $1,033 $1,422
Renegotiated loans .............................. -- 517
------ ------
Total non-performing loans .................. $1,033 $1,939
====== ======
Loans 90 days or more past due and still accruing $ 876 $1,125
====== ======
Gross interest income which would have
been recorded under original terms ............ $ 286 $ 135
====== ======
34
<PAGE> 37
The balance of impaired loans was $711 and $1,549 at December 31, 1996 and 1995,
respectively. The Banks have identified a loan as impaired when it is probable
that interest and principal will not be collected according to the contractual
terms of the loan agreements. The allowance for credit loss associated with
impaired loans was $316 and $588 at December 31, 1996 and 1995, respectively.
The average recorded investment in impaired loans was $1,130 and $1,523 at
December 31, 1996 and 1995, respectively. The income recognized on impaired
loans during the years ended December 31, 1996 and 1995 was $0 and $59,
respectively. The Banks' policy for interest income recognition on impaired
loans is to recognize income on restructured loans under the accrual method. The
Banks recognize income on non-accrual loans under the cash basis when the loans
are both current and the collateral on the loan is sufficient to cover the
outstanding obligation to the Banks. If these factors do not exist the Banks,
will not recognize income.
The Banks extended credit in the ordinary course of business to various
directors, executive officers and their associates. These extensions are made in
the ordinary course of business and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1996, loans outstanding to these
related parties amounted to $6,639. An analysis of activity in loans to related
parties at December 31, 1996 resulted in new loans of $3,171 and repayments of
$1,539.
All such loans are current as to principal and interest payments at December 31,
1996.
NOTE 5 ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year .. $ 2,332 $ 1,824 $ 1,771
Acquired businesses ........... (9) 1,039 --
Provision charged to operations 440 414 172
Charge-offs ................... (365) (1,035) (264)
Recoveries .................... 142 90 145
------- ------- -------
Balance at end of year ........ $ 2,540 $ 2,332 $ 1,824
======= ======= =======
NOTE 6 PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
-----------
Estimated
Useful Lives 1996 1995
------------ ----- ----
<S> <C> <C> <C>
Land .......................................... $ 124 $ 124
Buildings and improvements .................... 5 to 20 years 481 1,489
Furniture, fixtures and equipment ............. 3 to 10 years 3,327 2,937
Leasehold improvements ........................ 3 to 40 years 1,982 403
------ ------
5,914 4,953
Less accumulated depreciation and amortization 2,711 1,871
------ ------
$3,203 $3,082
====== ======
</TABLE>
35
<PAGE> 38
NOTE 7 DEPOSITS
At December 31, 1996, the schedule of maturities of Certificates of Deposit is
as follows:
1997 ............. $72,666
1998 ............. 5,582
1999 ............. 2,230
2000 ............. 988
2001 and thereafter 388
-------
$81,854
=======
NOTE 8 DEBT
Federal Home Loan Bank Advances
The Corporation has a line of credit for $15,923 with the Federal Home Loan Bank
(FHLB) which is collateralized by FHLB stock. Borrowings under this arrangement
have an interest rate that fluctuates based on market conditions and customer
demand. As of December 31, 1996 and 1995, there were no outstanding balances.
Redeemable Subordinated Debentures And Cancellable Mandatory Stock Purchase
Contracts
The Corporation issued $5 million of 8.5% Redeemable Subordinated Debentures
("Debentures") due November 1, 1998, interest payable quarterly. In addition to
the Debentures, the Corporation issued Cancellable Mandatory Stock Purchase
Contracts ("Equity Contracts") requiring the purchase of $5 million in common
stock at a price of $9.77 (as adjusted for stock dividends) per share no later
than November 1, 1997 and permitting the purchase of common stock in that amount
prior to that date. The purchase price under the Equity Contracts can be paid by
the surrender of the Debentures with a principal amount equal to the amount of
the common stock to be purchased. The Debentures are redeemable and the Equity
Contracts are cancellable at the election of the Corporation upon 60 days
written notice. At December 31, 1996, 511,770 shares of common stock were
reserved for future issuance pursuant to the outstanding Equity Contracts.
NOTE 9 INCOME TAXES
The provision for income taxes was as follows:
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
Federal
Current ....................... $ 1,452 $ 872 $ 796
Deferred ...................... (267) 135 (65)
State ............................ 127 167 109
------- ------ -----
$ 1,312 $1,174 $ 840
======= ====== =====
The reconciliation of the tax computed at the statutory federal rate was as
follows:
Year Ended December 31
-----------------------------
1996 1995 1994
---- ---- ----
Tax at statutory rate ..................... $ 1,241 $ 1,104 $ 791
Increase (reduction) in tax resulting from:
Tax-exempt income ...................... (22) (24) (8)
Amortization of intangible assets ...... 37 51 24
State income tax, net of federal benefit .. 84 110 72
Acquisition expenses ................... -- 58 --
Utilization of capital loss carryforward -- (99) --
Other ..................................... (28) (26) (39)
------- ------- -----
Provision for income taxes ........... $ 1,312 $ 1,174 $ 840
======= ======= =====
36
<PAGE> 39
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Allowance for possible losses on loans and other real estate ........... $ 604 $ 407
Interest income on non-accrual loans .................................... 237 181
Depreciation and amortization ........................................... 76 (10)
Acquired net operating loss carryforward ................................ 272 374
Difference between book and tax basis of assets acquired ............... 370 346
Unrealized holding gain loss on investment securities available-for-sale (194) (194)
Other ................................................................... (97) (103)
Total net deferred tax asset (included in other assets) .......... $ 1,268 $ 1,001
</TABLE>
At December 31, 1996, the Corporation had a net operating loss carryforward for
federal income tax purposes of approximately $1 million. This net operating loss
carryforward originated from pre-acquisition losses at Family First. Subject to
certain yearly limitations, the Corporation can utilize the pre-acquisition net
operating loss carryforward to offset future consolidated taxable income. The
net operating loss carryforwards, if unused, would expire in the years 2008 to
2010.
NOTE 10 SHAREHOLDERS' EQUITY
On July 31, 1996, the Corporation paid a 10% stock dividend on its common stock
to shareholders of record on July 15, 1996.
In April 1996, the Corporation amended its articles of incorporation whereby the
number of authorized shares of its common stock was increased from 4,000,000
shares to 10,000,000 shares.
On July 31, 1995, the Corporation paid a 10% stock dividend on its common stock
to shareholders of record on July 15, 1995.
On July 31, 1994, the Corporation paid a 10% stock dividend on its common stock
to shareholders of record on July 15, 1994.
NOTE 11 STOCK OPTIONS
The Corporation adopted a non-statutory stock option plan in 1988 (the "1988
Plan") that also allows for the granting to employees of options to acquire up
to a maximum of 111,304 shares (after adjustments for stock dividends) of the
Corporation's common stock. The exercise price of any options granted under the
1988 Plan will not be less than 100% of the fair market value per share of the
Corporation's common stock on the date such options are granted. Options granted
may have terms of not more than 10 years from the respective dates of grant and
outstanding options are exercisable over various periods following the
respective dates of grant.
The Corporation adopted a non-statutory stock option plan in 1993 (the "1993
Plan") authorizing the granting of options to purchase shares of the
Corporation's common stock to individuals who were then directors of GFB. All
options authorized by the 1993 Plan were granted during 1993 and no further
options are available for grant under that plan. At December 31, 1996, options
to purchase a total of 3,663 shares were outstanding and expired on December 31,
1996.
The Corporation adopted a non-statutory stock option plan in 1994 (the "1995
Plan") allowing for the Corporation's Board of Directors to grant, to the
individuals who were directors of GFB at that time, options to purchase a total
of 32,670 shares of the Corporation's common stock. At December 31, 1996,
options to purchase a total of 30,250 shares were outstanding and will expire if
not exercised by December 31, 1997.
The Corporation adopted two additional stock option plans in 1996. The 1996
Employee Stock Option Plan (the "1996 Employee Plan") provides for the granting
of incentive stock options, nonqualified stock options and stock appreciation
rights to employees of the Corporation and its subsidiaries. Effective with the
approval of the 1996 Employee Plan, the 1988 Plan was terminated. A total of
220,000 shares are authorized to be granted under the 1996 Employee Plan. During
1996, options
37
<PAGE> 40
to acquire 112,200 shares were granted under this plan. The 1996 Stock Option
Plan for Non-employee Directors (the "1996 Directors Plan") provides for the
granting of nonqualified stock options to non-employee directors of the
corporation's bank subsidiaries. A total of 104,500 shares are authorized to be
granted under the 1996 Directors Plan. During 1996, options to acquire 104,500
shares were granted under this plan.
Had compensation cost for the plan been determined based on the fair value of
the options at the grant dates consistent with the method of (SFAS 123), the
Corporation's net income and earnings per share would have been reduced to the
pro forma amounts indicated below.
1996 1995
---- ----
Net income ........................... As reported $2,337 $2,072
Pro forma $2,300 $2,068
Primary earnings per share ........... As reported $1.11 $1.04
Pro forma $1.09 $1.04
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
before 1995.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
2.2 % for both years; expected volatility of 35% and 34%; risk-free interest
rates of 6.35% and 7.89% percent; and expected lives of 10 years for both years.
A Summary of the status of the Corporation's option plans as of December 31,
1996, 1995, and 1994 and the changes during the years ending on those dates is
represented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- -------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price Shares
------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of year ....... 97,071 $ 8.95 77,878 $ 8.39 75,237
Granted .............................. 216,700 16.90 32,670 10.33 24,079
Exercised ............................ (10,632) 8.86 (12,355) 8.76 (15,717)
Terminated ........................... (924) 10.33 (1,122) 7.06 (5,721)
------- ------ ------ ------ ------
Outstanding, end of year ............. 302,215 $13.71 97,071 $ 8.95 77,878
======= ====== ====== ====== ======
Options exercisable at year-end ...... 32,954 36,866
====== ======
Weighted average fair value of options
granted during the year .......... $ 7.53 $ 5.18
====== ======
</TABLE>
The following information applies to options outstanding at December 31, 1996:
Number outstanding ........................ 302,215
Range of exercise prices .................. $6.83 - $17.125
Weighted average exercise price ........... $13.71
Weighted average remaining contractual life 8.63 years
NOTE 12 EMPLOYEE BENEFIT PLAN
The Corporation has a 401(k) savings plan covering substantially all employees.
Under the plan, the Corporation matches 50% of employee contributions for all
participants with less than five years employment, not to exceed 2% of their
salary, and 75% of employee contributions for all participants with five or more
years of employment, not to exceed 3% of their salary. Contributions made by the
Corporation were approximately $139, $142 and $91 for the years ended December
31, 1996, 1995, and 1994, respectively.
38
<PAGE> 41
NOTE 13 COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Corporation and its subsidiaries lease banking facilities and other office
space under operating leases which expire at various dates through 2007,
containing certain renewal options. Rent expenses charged to operations
approximated $621, $530 and $195, for 1996, 1995 and 1994, respectively.
Included in these amounts is $146 per year which is paid to a general
partnership that includes two directors of the Corporation.
As of December 31, 1996, future minimum annual rental payments under these
leases are as follows:
1997 ................................................. $ 578
1998 ................................................. 579
1999 ................................................. 579
2000 ................................................. 560
2001 ................................................. 571
Thereafter ............................................ 2,539
------
Total ............................................ $5,406
======
LITIGATION
The Corporation and its subsidiaries may, in the ordinary course of business,
become a party to litigation involving collection matters, contract claims and
other legal proceedings relating to the conduct of their business. In
management's judgment, the consolidated financial position of the Corporation
will not be affected materially by the final outcome of any present legal
proceedings or other contingent liabilities and commitments.
NOTE 14 - FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Banks are parties to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers and
to reduce their own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Such financial instruments are recorded in the financial statements when they
become payable. Those instruments involve, to varying degrees, elements of
credit and interest rate risks in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Banks have in particular
classes of financial instruments.
The Banks' exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments.
Unless noted otherwise, the Banks do not require collateral or other security to
support financial instruments with credit risk. The approximate contract amounts
are as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit ................................... $11,415 $22,652
Standby letters of credit and financial guarantees written .... 1,144 1,908
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case
39
<PAGE> 42
basis. The amount of collateral obtained, if deemed necessary by the Banks upon
extension of credit, is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Banks hold
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary. The extent of collateral held for those commitments at
December 31, 1996 varies up to 100%.
The Banks grant various commercial and consumer loans, primarily within the
State of New Jersey. Although the Banks have diversified loan portfolios, a
substantial portion of the ability of their borrowers to honor their loan
payment obligations in a timely fashion is dependent on the success of the real
estate industry. The distribution of commitments to extend credit approximates
the distribution of loans outstanding. Commercial and standby letters of credit
were granted primarily to commercial borrowers.
NOTE 15 FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the
Corporation, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in SFAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is the Corporation's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sales activities, except
for certain loans. Therefore, the Corporation had to use significant estimations
and present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.
Estimated fair values have been determined by the Corporation using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used, the estimated fair
values, and recorded book balances at December 31, 1996 and 1995 are outlined
below.
For cash and due from banks, the recorded book values of $18,294 and $29,046 at
December 31, 1996 and 1995, respectively, approximate fair values. For
interest-bearing deposits with banks, the recorded book values of $4,481 and
$1,148 at December 31, 1996 and 1995, respectively, approximate fair values. The
estimated fair values of investment securities are based on quoted market
prices, if available. Estimated fair values are based on quoted market prices of
comparable instruments if quoted market prices are not available.
The net loan portfolio at December 31, 1996 and 1995 has been valued using a
present value discounted cash flow where market prices were not available. The
discount rate used in these calculations is the estimated current market rate
adjusted for credit risk. The carrying value of accrued interest approximates
fair value.
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<S> <C> <C> <C> <C>
Investment securities available-for-sale $ 52,251 $ 52,251 $ 47,835 $ 47,835
Investment securities held-to-maturity . 37,428 36,970 36,151 36,061
Loans .................................. 137,127 137,257 132,440 132,563
</TABLE>
The estimated fair values of demand deposits (i.e., interest (NOW) and
non-interest bearing demand accounts, savings and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts of variable
rate accounts and certificates of deposit approximate their fair values at the
reporting date. The carrying amount of accrued interest payable approximates its
fair value.
40
<PAGE> 43
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair value
<S> <C> <C> <C> <C>
Time deposits ................................. $81,854 $82,540 $91,263 $91,648
Securities sold under agreements to repurchase 4,159 4,159 2,756 2,759
</TABLE>
The fair values of the redeemable subordinated debentures totaling $4,988 and
$4,976 are estimated to approximate their recorded book balances at December 31,
1996 and 1995, respectively.
There was no material difference between the notional amount and the estimated
fair value of off-balance-sheet items which totaled approximately $12,559 and
$24,560 at December 31, 1996 and 1995, respectively, and primarily comprise
unfunded loan commitments which are generally priced at market at the time of
funding.
NOTE 16 REGULATORY MATTERS AND CAPITAL REQUIREMENTS
The Corporation and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies including The Federal
Reserve Board. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a material effect on the Corporation's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Banks must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regular
accounting practices. The capital amounts and classifications are also subject
to qualitative judgements by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation s to ensure capital adequacy
require the Banks and the Corporation to maintain minimum amounts and ratios of
total and Tier I capital to risk weighted assets. As of December 31, 1996,
management believes that the Corporation and the Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the Corporation and the Banks met all regulatory
requirements for classification as "well-capitalized" institutions. To be
categorized as well capitalized, the Corporation and Banks must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as se
t forth in the table. There are no conditions or events which have
occurred that management believes have changed the institution's category.
As of December 31, 1996 and 1995, the Banks and the Corporation had the
following capital ratios:
<TABLE>
<CAPTION>
Bergen Greater Well Capitalized
Great Falls Bank Commercial Bank Community Bancorp (FDIC
---------------- --------------- ----------------- requirements)
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Tier I and Tier II............................. 13.21% 14.71% 14.17% 13.68% 16.89% 16.77% 10.00%
Tier I Core Capital Ratio...................... 6.83% 6.79% 9.04% 12.66% 7.97% 7.27% 6.00%
Tier I Leverage Ratio.......................... 6.78% 7.90% 9.32% 9.11% 8.12% 8.28% 5.00%
</TABLE>
41
<PAGE> 44
NOTE 17 CONDENSED FINANCIAL
INFORMATION - PARENT COMPANY ONLY
The condensed financial information of Greater Community Bancorp is as follows:
CONDENSED BALANCE SHEET
December 31
-------------------
1996 1995
---- ----
ASSETS:
Cash and due from banks - non-interest-bearing ...... $ 627 $ 632
Investment securities available-for-sale ............ 5,766 4,800
Accrued interest receivable ......................... 29 63
Investment in subsidiaries .......................... 19,844 19,168
Other assets ........................................ 92 178
------- -------
Total assets ............................... $26,358 $24,841
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Redeemable subordinated debentures .................. $ 4,988 $ 4,976
Other liabilities ................................... 309 270
Shareholders' equity ................................ 21,061 19,595
------- -------
Total liabilities and shareholders' equity . $26,358 $24,841
======= =======
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Equity in undistributed income of Subsidiary Banks $ 712 $2,069 $1,646
Dividends from Subsidiary Banks ................... 1,858 -- --
Interest income ................................... 234 342 244
Non-interest income ............................... (9) 291 --
------- ------ ------
2,795 2,702 1,890
Other expenses .................................... 656 735 528
------- ------ ------
Income before income taxes ................... 2,139 1,967 1,362
Income tax benefit ................................ 198 105 124
------- ------ ------
Net income ................................. $ 2,337 $2,072 $1,486
======= ====== ======
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 2,337 $ 2,072 $ 1,486
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Discount accretion ..................................................... 25 22 22
(Gain) loss on sale of investment securities available-for-sale ........ (9) (291) 13
(Increase) decrease in other assets ................................... 87 169 (252)
(Increase) decrease in accrued interest payable ........................ 34 3 (56)
(Decrease) increase in other liabilities ............................... 39 156 (27)
Equity in undistributed income of subsidiaries ......................... (712) (2,069) (1,646)
------- ------- -------
Net cash provided by (used in) operating activities ....... 1,081 62 (460)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities, available-for-sale ....... 2,193 509 680
Proceeds from maturities of investment securities, available-for-sale .. (3,301) -- (4,345)
------- ------- -------
Net cash used in investing activities ....................... (1,108) 509 (3,665)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ................................ 102 93 87
Dividends paid ......................................................... (533) (269) (134)
Purchase of treasury stock ............................................. (188) -- --
Other, net ............................................................. (79) (30) (30)
------- ------- -------
Net cash provided by financing activities .......... (698) (206) (70)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (5) 365 (4,195)
CASH AND CASH EQUIVALENTS, beginning of year .............................. 632 267 4,462
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year .................................... $ 627 $ 632 $ 267
======= ======= =======
</TABLE>
42
<PAGE> 45
NOTE 18 - QUARTERLY
FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Corporation
which, in the opinion of management, reflects all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
Corporation's results of operations.
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
<S> <C> <C> <C> <C>
1996
- ----
Interest income ..................... $4,789 $4,771 $4,610 $4,523
Interest expense .................... 1,794 1,844 1,748 1,768
Net interest income ................. 2,995 2,927 2,862 2,755
Provision for credit losses ......... 150 110 90 90
Other operating income .............. 470 465 248 746
Other operating expenses ............ 2,049 2,560 2,204 2,650
Income before income taxes .......... 1,267 722 816 760
Net income .......................... 856 477 522 482
Per share data
- --------------
Average common shares outstanding ... 2,337 1,880 1,882 1,926
Net income per common share - primary .35 .23 .28 .25
1995
- ----
Interest income ..................... $4,895 $4,739 $4,497 $3,302
Interest expense .................... 1,931 1,735 1,738 1,146
Net interest income ................. 2,964 3,004 2,759 2,156
Provision for credit losses ......... 119 134 96 65
Other operating income .............. 1,034 264 597 282
Other operating expenses ............ 3,010 2,296 2,334 1,760
Income before income taxes .......... 869 838 926 61 3
Net income .......................... 733 317 633 389
Per share data
- --------------
Average common shares outstanding ... 2,065 2,054 2,038 1,679
Net income per common share - primary .25 .25 .31 .23
</TABLE>
43
<PAGE> 46
Report Of Independent
Certified Public Accountants
To the Board of Directors
and Shareholders of
Greater Community Bancorp
We have audited the accompanying consolidated balance sheet of Greater Community
Bancorp (formally Great Falls Bancorp) and Subsidiaries as of December 31, 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We also audited the
adjustments to share and earnings per share data due to the 10% stock dividend
declared in 1996 as discussed in Note 10 and the restatement of the stock
option information in 1995, as discussed in Note 11. In our opinion such
adjustments are appropriate and have been properly applied.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Greater Community Bancorp
and Subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 15, 1997
44
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Greater Community Bancorp:
We have audited the accompanying consolidated balance sheet of Greater Community
Bancorp (a New Jersey corporation) (formerly Great Falls Bancorp) and subsidiary
as of December 31, 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Greater Community Bancorp and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for debt and
equity securities.
ARTHUR ANDERSEN LLP.
Roseland, New Jersey
January 16, 1996
45
<PAGE> 48
Item 7B - SUPPLEMENTARY DATA
No supplementary data is included in this report as it is inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
Item 8- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
46
<PAGE> 49
PART III
Item 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Directors and Executive Officers: Information required by Item 401 of
Reg. S-B is contained on pages 2-5 of the registrant's definitive
Proxy Statement for its 1996 Annual Meeting of Stockholders furnished
to the Commission pursuant to Regulation 14A.
B. Other Significant Employees: Not applicable.
C. Family Relationships: John L. Soldoveri, Chairman and Chief Executive
Officer of the Corporation and Chairman of GFB, is the uncle of
Anthony M. Bruno, Jr., Vice Chairman and Executive Vice President of
the Corporation and Chairman of BCB. C. Mark Campbell, a director of
the Corporation and President of BCB, is Mr. Bruno's brother-in-law.
D. Involvement in Certain Legal Proceedings: Not applicable.
E. Compliance with Section 16(a) of the Exchange Act: Information
required by Item 405 of Reg. S-B is contained on page 11 of the
registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
Item 10 - EXECUTIVE COMPENSATION
Information required by Item 402 of Reg. S-B is contained on pages 5-8 of
the registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Security Ownership of Certain Beneficial Owners: Information required
by Item 403(a) of Reg. S-B is contained on pages 2, 9 and 10 of the
registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
B. Security Ownership of Management: Information required by Item 403(b)
of Reg. S-B is contained on pages 9 and 10 of the registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders
to be furnished Commission pursuant to Regulation 14A.
C. Changes in Control: Not applicable. The registrant knows of no
contractual arrangements which may, at a future date, result in a
change of control of the registrant.
47
<PAGE> 50
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Reg. S-B is contained on page 9 of the
registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders furnished to the Commission pursuant to Regulation 14A.
Item 13 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: The Exhibits listed below are filed with this report.
Exhibit No. Description
----------- -----------
11 Statement re computation of per share earnings
21 Subsidiaries of Registrant
23.1 Consent of Grant Thornton, LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
B. Reports on Form 8-K: The registrant did not file any reports on Form
8-K with the Securities and Exchange Commission during the last
48
<PAGE> 51
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Statement re computation of per share earnings
21 Subsidiaries of Registrant
23.1 Consent of Grant Thornton, LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
Statement re Computation of Per Share Earnings
The Corporation's reported earnings of $1.11 per share for the year ended
December 31, 1996 takes into account the dilutive effect of the Corporation's
outstanding common stock equivalents, namely, stock options and mandatory stock
purchase contracts ("Equity Contracts").
The dilution results from the calculation of adjustments to both the number
of weighted shares outstanding and the Corporation's net income for 1996.
Weighted average shares outstanding were computed using the Modified Treasury
Stock Method. The average market price of $16.17 per share for the Corporation's
common stock during 1996 exceeded the exercise prices of outstanding stock
options and Equity Contracts. Stock options totaling of 95,292 shares are
exercisable at prices ranging from $6.83 to $10.68 per share were included in
the application of the modified treasury method. The Equity Contracts require
the purchase of $5 million of common stock on or before November 1, 1997, and
contemplate the issuance of 511,770 shares of common stock at a price of $9.77
per share (number of shares and price have been adjusted as a result of stock
dividends).
Under the modified treasury stock method, the assumed aggregate proceeds
from exercise are applied in two steps. First, the funds are applied to
repurchase common shares at the average market price during the period but not
to exceed 20 percent of the outstanding shares. Second, the remaining funds were
applied to reduce the Corporation's outstanding 8.5% subordinated debentures due
November 1, 1998 ("Debentures"). Interest income (net of tax effect) was also
calculated, utilizing an assumed 6.0% rate payable on the debentures, and added
to the Corporation's 1996 net income.
Net income as so increased was divided by the increased number of weighted
shares outstanding to arrive at the reported earnings per share of $1.11.
The Corporation's reported earnings of $1.04 per share for the year ended
December 31, 1995 also takes into account the dilutive effect of the
Corporation's outstanding common stock equivalents, namely, stock options and
mandatory stock purchase contracts ("Equity Contracts").
The dilution results from the calculation of adjustments to both the number
of weighted shares outstanding and the Corporation's net income for 1995.
Weighted average shares outstanding were also computed using the Modified
Treasury Stock Method. The average market price of $12.88 per share for the
Corporation's common stock during 1995 exceeded the exercise prices of
outstanding stock options and Equity Contracts. Stock options to purchase a
total of 98,110 shares are exercisable at prices ranging from $5.37 to $11.75
per share. The equity contracts require the purchase of $5 million of common
stock on or before November 1, 1997, and contemplate the issuance of 511,770
shares of common stock at a price of $9.77 per share (number of shares and price
have been adjusted as a result of 1995 and 1996 stock dividends).
Under the modified treasury stock method, the assumed aggregate proceeds
from exercise are applied in two steps. First, the funds are applied to
repurchase common shares at the average market price during the period but not
to exceed 20 percent of the outstanding shares. Second, the remaining funds were
applied to reduce the Corporation's outstanding 8.5% subordinated debentures due
November 1, 1998 ("Debentures"). Interest forgone (net of tax effect) was also
calculated, utilizing an assumed 8.5% rate payable on the debentures, and added
to the Corporation's 1995 net income.
Net income as so increased was divided by the increased number of weighted
shares outstanding to arrive at the reported earnings per share of $1.04.
Earnings per share for 1994 was not affected by outstanding Equity Contracts
and stock options because the effect upon earnings per share of considering
those common stock equivalents would be immaterial or anti-dilutive for those
years.
50
<PAGE> 1
Greater Community Bancorp
EXHIBIT 21
TO
1996 ANNUAL REPORT ON FORM 10-KSB
Subsidiaries of the Corporation
Greater Community Bancorp (the "Corporation") has two directly-owned operating
bank subsidiaries, Great Falls Bank and Bergen Commercial Bank (the "Subsidiary
Banks"), both of which are New Jersey commercial banking corporations. The
Corporation owns 100% of the outstanding shares of the Subsidiary Banks. Each of
the Subsidiary Banks in turn has one wholly-owned subsidiary, Great Falls
Investment Company, Inc. and BCB Investment Company, Inc. (the "Investment
Companies"), respectively, both of which are New Jersey business corporations.
The Corporation also owns 100% of the outstanding shares of a directly-owned
nonbanking subsidiary, Great Falls Financial Services, Inc., a New Jersey
business corporation, which is currently inactive. During the first quarter of
1997, that subsidiary's corporate name was changed to Greater Community
Services, Inc.
These relationships are indicated in the following chart.
================================================================================
Greater Community Bancorp
(registrant)
(the "Corporation")
================================================================================
| | |
| | |
======================== ==================== ============================
Great Falls Great Falls Bank Bergen Commercial Bank
Financial Services, Inc. ("GFB") ("BCB")
======================== ==================== ============================
| |
| |
==================== ============================
Great Falls Investment BCB Investment
Company, Inc. Company, Inc.
==================== ============================
51
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 15, 1997, accompanying the
consolidated financial statements incorporated by reference or included in the
1996 Annual Report of Greater Community Bancorp (formerly Great Falls Bancorp)
on Form 10-KSB for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Greater Community Bancorp on Form S-3 (File No. 333-14491, effective October 18,
1996) and Forms S-8 (File No. 333-16151, File No. 333-161153, and File No.
333-16149 effective November 14, 1996).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 26, 1997
52
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Greater Community Bancorp:
As independent public accountants, we hereby consent to the incorporation of our
report dated January 16, 1996 included in this Form 10-KSB, into the Company's
previously filed Registration Statement No. 33-24988.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 26, 1997
53
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,994
<INT-BEARING-DEPOSITS> 4,481
<FED-FUNDS-SOLD> 6,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,251
<INVESTMENTS-CARRYING> 37,428
<INVESTMENTS-MARKET> 36,970
<LOANS> 137,127
<ALLOWANCE> (2,540)
<TOTAL-ASSETS> 256,506
<DEPOSITS> 223,242
<SHORT-TERM> 4,159
<LIABILITIES-OTHER> 3,056
<LONG-TERM> 4,988
0
0
<COMMON> 1,892
<OTHER-SE> 19,169
<TOTAL-LIABILITIES-AND-EQUITY> 256,506
<INTEREST-LOAN> 12,621
<INTEREST-INVEST> 5,569
<INTEREST-OTHER> 503
<INTEREST-TOTAL> 18,693
<INTEREST-DEPOSIT> 6,404
<INTEREST-EXPENSE> 7,154
<INTEREST-INCOME-NET> 11,539
<LOAN-LOSSES> 440
<SECURITIES-GAINS> 51
<EXPENSE-OTHER> 9,463
<INCOME-PRETAX> 3,565
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,337
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.95
<LOANS-NON> 1,033
<LOANS-PAST> 876
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,332
<CHARGE-OFFS> 365
<RECOVERIES> 142
<ALLOWANCE-CLOSE> 2,540
<ALLOWANCE-DOMESTIC> 2,540
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 805
</TABLE>
