U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14294
Greater Community Bancorp
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2545165
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
(Address of principal executive offices)
(973) 942-1111
(Issuer's telephone number)
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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common stock $1.00 par value
- 2,624,621 shares at November 7, 1997.
Transition Small Business Disclosure Format (check one);
Yes No X
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheet
September 30, 1997 (unaudited) and December 31, 1996.............. 3
Condensed Consolidated Statements of Income
Three and nine months ended
September 30, 1997 and 1996 (unaudited).............................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 (unaudited)..........5
Notes to Consolidated Financial Statements (unaudited)................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................8
PART II - OTHER INFORMATION
Items 1 through 6..........................................................16
Signatures....................................................................17
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1- Financial Statements
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<S> <C> <C>
September 30, December 31,
1997 1996
ASSETS Unaudited
CASH AND DUE FROM BANKS $ 11,383 $ 11,994
FEDERAL FUNDS SOLD 14,057 6,300
-------- --------
Total cash and cash equivalents 25,440 18,294
-------- --------
DUE FROM BANKS - Interest-bearing 5,018 4,481
INVESTMENT SECURITIES-Available-for-sale 67,781 52,251
INVESTMENT SECURITIES-Held-to-maturity 36,619 37,428
-------- --------
104,400 89,679
-------- --------
LOANS,net 150,760 134,587
PREMISES AND EQUIPMENT, net 5,059 3,203
OTHER REAL ESTATE OWNED 380 1,834
ACCRUED INTEREST RECEIVABLE 2,191 1,906
INTANGIBLE AND OTHER ASSETS 4,055 2,522
-------- --------
Total assets $297,303 $256,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest-bearing 62,853 $59,588
Interest-bearing 45,679 55,882
Savings 28,378 25,918
Time 96,532 81,854
------- -------
233,442 223,242
ACCRUED INTEREST PAYABLE 1,621 1,466
OTHER LIABILITIES 2,545 1,590
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS 7,975 4,159
REDEEMABLE SUBORDINATED DEBENTURES 4,823 4,988
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE
COMPANY'S SUBORDINATED DEBT 23,000 -
------- --------
Total Liabilities 273,406 235,445
-------- --------
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, 2,104,190
and 1,891,733 shares outstanding 2,104 1,892
Additional paid-in capital 19,873 17,841
Retained earnings 393 1,209
Unrealized holding gains on
securities available-for-sale 1,527 307
Treasury stock - (188)
-------- --------
Total shareholders' equity 23,897 21,061
-------- --------
Total liabilities and
shareholders' equity $297,303 $256,506
======== ========
(See notes to Condensed Consolidated Financial statements)
</TABLE>
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $3,488 $3,218 $10,024 $9,383
Securities 1,613 1,447 4,499 4,163
Federal Funds sold and deposits with banks 195 106 530 355
------- ------- ------- -------
5,296 4,771 15,053 13,901
------- ------ ------- -------
INTEREST EXPENSE
Deposits 1,721 1,636 4,873 4,809
Short-term borrowing 101 208 423 550
Long-term borrowing 669 - 1,144 -
------ ------ ------- ------
2,491 1,844 6,440 5,359
------ ------ ------- ------
NET INTEREST INCOME 2,805 2,927 8,613 8,542
PROVISION FOR POSSIBLE LOAN LOSSES 105 110 380 290
------ ------ ------- ------
Net interest income after
provision for possible loan losses 2,700 2,817 8,233 8,252
NON-INTEREST INCOME 766 465 1,899 1,459
------ ------ ------- ------
3,466 3,282 10,132 9,711
------ ------ ------- ------
NON-INTEREST EXPENSES
Salaries and employee benefits 1,241 1,029 3,492 3,159
Occupancy and equipment 570 480 1,551 1,487
Regulatory, professional and other fees 315 243 685 656
Office expense 146 132 438 379
All other operating expenses 243 676 1,062 1,733
------ ------ ------- ------
2,515 2,560 7,228 7,414
------ ------ ------- ------
Income before income taxes and
Minority interest 951 722 2,904 2,297
------ ----- ------ -----
PROVISION FOR INCOME TAXES 347 245 1,075 816
------ ------ ------ ------
Income before minority interest 604 477 1,829 1,481
------ ------ ------ ------
MINORITY INTEREST - - 50 -
------ ------ ------- ------
NET INCOME $604 $477 $1,879 $1,481
====== ====== ======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING 2,537 2,570 2,524 2,582
====== ====== ====== ======
NET INCOME PER SHARE $0.24 $0.20 $0.73 $0.63
====== ====== ====== ======
</TABLE>
(See notes to Condensed Consolidated Financial Statements)
4
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
1997 1996
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,879 $ 1,481
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 787 810
Accretion of discount on securities, net (134) (198)
Accretion of discount on debentures 10
Gain on sale of securities, net (114) (4)
Gain on sale of other real estate owned (88) -
Provision for possible loan losses 380 290
(Increase) decrease in accrued interest receivable (285) 34
Increase in other assets (1,534) (214)
Increase (decrease) accrued expenses and other liabilities 1,111 (542)
------- -------
Net cash provided by operating activities 2,012 1,657
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities -
Purchases (33,609) (11,174)
Sales 9,039 6,665
Maturities 10,508 -
Held-to-maturity securities -
Purchases (3,606) (13,771)
Maturities 4,415 10,598
Net increase in interest-bearing deposits with banks (537) (191)
Net increase in loans (16,563) (7,604)
Purchase of premises and equipment (2,562) (590)
Proceeds from sale of other real estate owned 1,542 -
--------- -------
Net cash used in investing activities (31,373) (16,067)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposit accounts 10,200 (2,147)
Increase in repurchase agreements 3,816 4,520
Redeemable subordinated debentures (165) -
Proceeds from sale of preferred securities 23,000 -
Dividends paid (530) (394)
Proceeds from exercise of stock options 82 29
Purchase of treasury stock - 120
Other, net 104 5
--------- -------
Net cash provided by financing activities 36,507 2,133
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,146 (12,277)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,294 29,046
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $25,440 $16,769
========= ========
</TABLE>
(See notes to Condensed Consolidated Financial Statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5
<PAGE>
In the opinion of management, these unaudited financial statements contain
all disclosures which are necessary to present fairly the Corporation's
consolidated financial position at September 30, 1997 and the consolidated
results of operations and cash flows for three and nine months ended September
30, 1997 and 1996. The financial statements include all adjustments (consisting
only of normal recurring adjustments) which in the opinion of management are
necessary in order to present fairly the financial position and results of
operations for the interim periods. Certain information and footnote disclosures
normally included in financial statements under generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. These financial statements should be
read in conjunction with the annual financial statements and notes thereto
included in Form 10-KSB for the fiscal year ended December 31, 1996.
DIVIDEND
During September 1997, the Corporation's Board of Directors declared a cash
dividend of 10 cents ($.10) per share, payable on October 31, 1997 to
shareholders of record October 15, 1997. The financial information in this
report has been adjusted to reflect the cash dividend as of September 30, 1997.
EARNINGS PER SHARE COMPUTATION
The Corporation's reported earnings per share of $0.24 and $0.20 per share for
the three-month periods ended September 30, 1997 and 1996, respectively, and the
reported earnings per share of $0.73 and $0.63 per share for the nine-month
periods ended on such date, all take into consideration the dilutive effects of
the Corporation's outstanding common stock equivalents, namely stock options and
mandatory stock purchase contracts.
The dilution results from the calculation of adjustments to both the number of
weighted average shares outstanding and the Corporation's net income for the
three- and nine-month periods ended September 30, 1997 and 1996.
The Financial Accounting Standard Board ("FASB") has issued a Statement of
Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share ("EPS"),
which is effective for financial statements issued after December 31, 1997. Once
effective, the new standard will eliminate primary and fully diluted EPS and
instead will require presentation of basic and diluted EPS in conjunction with
the disclosure of the methodology used in computing such EPS. Basic EPS excludes
dilution and is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding during the period. Diluted EPS
takes into consideration the potential dilution that could occur if securities
or other contracts to issue common stock were exercised and converted into
common stock. The effect upon the Corporation of adopting this new standard has
not been determined.
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
In April 1997, the Corporation formed a wholly-owned non-banking subsidiary GCB
Capital Trust (the "Trust"). The Trust was created under the Business Trust Act
of Delaware for the sole purpose of issuing and selling Preferred Securities and
Common Securities and using proceeds from the sale of the
6
<PAGE>
Preferred Securities and Common Securities to acquire Junior Subordinated
Debentures (the "Debentures") issued by the Corporation. Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust and payments under
the Junior Subordinated Debentures will be the sole revenue of the Trust. All of
the Common Securities are owned by the Corporation.
The Corporation's obligations under the Debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Corporation of
the Trust's obligations under the Preferred Securities. Although the Debentures
will be treated as debt of the Corporation, they currently qualify for tier 1
capital treatment. The Securities have no maturity date and are callable by the
Corporation on or about June 1, 2002, or earlier in the event the deduction of
related interest for federal income taxes is prohibited, treatment as tier 1
capital is no longer permitted or certain other contingencies arise. The
Preferred Securities must be redeemed upon maturity of the Debentures in year
2027.
On May 21, 1997, the Corporation through the Trust sold 920,000 Preferred
Securities at a liquidation amount of $25 per Preferred Security for an
aggregate amount of $23,000,000. It has a distribution rate of 10% per annum
payable at the end of each calendar quarter.
GCB REALTY, L.L.C.
In July 1997, in an effort to diversify its operations, the Corporation formed a
majority owned non-bank subsidiary, GCB Realty, L.L.C., a New Jersey limited
liability company (the "Company") located in Totowa, New Jersey. With the
formation of the Company, the Corporation expects to benefit its operating
results in future years.
The purposes of the Company are to engage in acquiring, owning and managing real
estate properties. In July 1997, the Company consummated the purchase of a
property for $1.8 million in Bergen County. One of the tenent is Bergen
Commercial Bank, one of the banking subsidiaries of the Corporation. There are
four tenants lease space in the building. Annual rentals are estimated to be
$336,000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) has issued SFAS
No. 130, "Reporting Comprehensive Income", which is effective for years
beginning after December 15, 1997. This new standard requires entities
presenting a complete set of financial statements to include details of
comprehensive income. Comprehensive income consists of net income or loss for
the current period and income , expenses, gains, and losses that bypass the
income statement and are reported directly in a separate component of equity.
Also, in June 1997, FASB issued SFAS No. 131, Disclosure about segments of an
Enterprise and Related Information, which is effective for all periods beginning
after December 15, 1997. SFAS 131 requires that public business enterprise
report certain information about operating segements in complete sets of
financial statements of the enterprise and in condensed financial statements of
interim periods issued to shareholders. It also requires that public business
enterprise report certain onformationabout their products and services, the
geographic areas in which they operate, and their major customers.
7
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis of the Corporation's consolidated
financial condition as of September 30, 1997 and the results of operations for
the three- and nine-month periods ended September 30, 1997 and 1996 should be
read in conjunction with the consolidated financial statements, including notes
thereto, included in the Corporation's latest annual report on Form 10-KSB for
the fiscal year ended December 31, 1996, and the other information herein. The
consolidated statement of condition as of September 30, 1997 and the statements
of operations and cash flows for the three and nine months ended September 30,
1997 and 1996 are unaudited but include, in the opinion of the management, all
adjustments considered necessary for a fair presentation of such data. The term
"Corporation" as used herein refers to Greater Community Bancorp and
subsidiaries, the term "Subsidiary Banks" as used herein refers to Great Falls
Bank and Bergen Commercial Bank and the term "Trust" as used herein refers to
GCB Capital Trust. Data is presented for both the Corporation and the
Subsidiaries unless otherwise noted.
A. Financial Condition: September 30, 1997 and December 31, 1996
As of September 30, 1997, the Corporation's total assets were $297.3 million, an
increase of $40.8 million or 16% compared to the amount reported at December 31,
1996. This increase resulted primarily from the net proceeds of the
Corporation's issuance, during the second quarter of 1997, of $23 million in
Junior Subordinated Debentures (the "Debentures") in connection with the Trust's
offering of Preferred Securities, coupled with an increase in net loans of $16.2
million. Cash and due from banks decreased by $600,000 or 5% whereas federal
funds sold increased by $7.8 million or 123%. The increase in federal funds sold
was a direct result of proceeds from the issuance of the Preferred Securities.
Investment Securities
Investment Securities totaled $104.4 million at September 30, 1997, an increase
of $14.7 million or 16% compared to the amount reported at December 31, 1996.
The principal increase in investment securities is result of the proceeds from
the sale of Preferred Securities by the Trust. Management reviews the investment
portfolio continually to achieve maximum yields without having to sacrifice the
high quality of the investments. Of the total investments, 30% are in U.S.
Government obligations, 17% in U.S. Government agency obligations, 30% in
mortgage-backed securities and the balance in municipal and other securities.
At September 30, 1997, based on the fair market value of its available-for- sale
portfolio, the Corporation recorded the difference between the unamortized cost
and the fair market value as an unrealized gain in the amount of $1.5 million,
net of taxes, as a component of shareholders' equity. This was an increase of
$1.2 million from the $307,000 amount recorded at December 31, 1996.
8
<PAGE>
Loan Portfolio
The Corporation's loan portfolio net of allowance for possible loan losses at
September 30, 1997 totaled $150.7 million, an increase of $16.1 million or 12%
compared to the amount reported at December 31, 1996. The increase in loans is
primarily due to increased loan demand in both Passaic and Bergen counties.
Other Real Estate Owned
As of September 30, 1997, other real estate totaled $380,000, a decrease of $1,5
million or 79% when compared to the amount reported at December 31, 1996. The
decrease is primarily due to the sale of four properties owned where the
Corporation recognized gains from sale of $88,000.
Deposits
Total deposits at September 30, 1997 were $233.4 million, an increase of $10.2
million or 5% relative to the amount reported at December 31, 1996. Within the
components of total deposits, non-interest demand deposits increased by $3.2
million or 5% where as the interest-bearing demand deposits decreased by $10.2
million or 18%. The decrease in interest-bearing demand deposits was more than
offset by increases in savings deposits and time deposits of $2.4 million or 9%
and $14.9 million or 18%, respectively. Of the total deposits, time deposit
accounts for 41%, savings deposits accounts for 12% and the balance of 47%
acoount for non-interest and interest- bearing demand deposits.
Liquidity
The Corporation maintains a liquidity position which it considers adequate to
provide funds to meet loan demand or the possible outflow of deposits. It
actively manages its liquidity position under the direction of the Subsidiary
Banks' Asset and Liability Management Committees. At September 30, 1997, sources
of liquidity include $25.4 million in cash and cash equivalents, and $67.8
million in securities available-for-sale.
On May 21, 1997, the Corporation through the Trust sold 920,000 shares of
Preferred Securities at a liquidation amount of $25 per Preferred Security for
an aggregate amount of $23 million. It has a distribution rate of 10% per annum
payable at the end of each calendar quarter.
The proceeds received by the Corporation from the Trust will be used for general
corporate purposes which may include branch acquisitions of other financial
institutions. In addition, a portion of the proceeds may be contributed through
investments in or advances to the Subsidiary Banks.
Capital Adequacy and Regulatory Matters
The Corporation is subject to regulation by the Board of Governors of the
Federal Reserve System (Federal Reserve Board). The Subsidiary Banks are
subject to regulation by both the Federal Deposit Insurance Corporation
(FDIC) and the New Jersey Department of Banking (Department). Such
9
<PAGE>
regulators have promulgated regulations which require the Corporation and the
Subsidiary Banks to maintain certain capital ratios. At September 30, 1997, the
Corporation and its Subsidiary Banks are "well capitalized", as defined by
appropriate regulatory authority.
The following table sets forth selected regulatory capital ratios for the
Corporation and the Subsidiary Banks:
<TABLE>
At September 30, 1997
Greater Bergen "Well Capitalized"
Community Great Falls Commercial (Under FDIC
Bancorp Bank Bank Regulations)
<S> <C> <C> <C> <C>
Tier I leverage ratio 10.11% 7.08% 9.20% 5%
Tier I risk-based capital ratio 15.82% 11.49% 13.50% 6%
Tier I and Tier II risk-based
capital ratio 27.60% 12.75% 14.75% 10%
At December 31, 1996
Tier I leverage ratio 8.12% 6.78% 9.32% 5%
Tier I eisk-based capital ratio 12.90% 11.95% 12.96% 6%
Tier I and Tier II risk-based
capital ratio 16.89% 13.21% 14.17% 10%
</TABLE>
Asset Quality
The Corporation seeks to manage credit risk through diversification of its loan
portfolio and the application of policies and procedures designed to foster
sound underwriting and credit monitoring policies. The senior lending officer is
charged with monitoring asset quality, establishing credit policies and
procedures and seeking consistent applications of the loan review procedures.
The Corporation's lending is concentrated in its local market area. Its
non-performing loans primarily were made to the Corporation's customers who
operated in northeastern New Jersey. The degree of risk inherent in all of the
Corporation's lending activities is influenced heavily by general economic
conditions in the immediate market area. Among the factors which tend to
increase or decrease portfolio risk are changes in local or regional real estate
values, income levels and energy prices. These factors, coupled with levels of
unemployment, tax rates, governmental actions and market conditions affecting
the demand for credit among qualified borrowers, are also important determinants
of the risk inherent in the Corporation's lending.
General economic conditions in the State of New Jersey have improved over the
past year. General interest rates have stabilized and real estate values and
employment levels are fairly stable and in some cases have shown an upward
movement.
The components of non-performing assets are delinquent loans, nonperforming
assets and renegotiated loans. Each component is discussed in greater detail
below. Non-performing assets consist of nonaccrual loans, accruing loans past
due 90 days or more delinquent, and ORE. It is the Corporation's
10
<PAGE>
policy to place a loan on nonaccrual status when, in the opinion of management,
the ultimate collectibility of the principal or interest on the loan becomes
doubtful. As a general rule, a commercial loan or real estate loan more than 90
days past due with respect to principal or interest is classified as a
nonaccrual loan. Installment loans generally are not placed on nonaccrual status
but, instead, are charged off at 90 days past due, except where the loans are
secured and foreclosure proceedings have commenced.
Loans are considered renegotiated if, for economic or legal reasons, a
concession has been granted to the borrower related to the borrower's financial
difficulties that the creditor would not otherwise consider. The Corporation has
renegotiated certain loans in instances where a determination was made that
greater economic value will be realized under new terms than through
foreclosure, liquidation, or other disposition. ORE includes both loan
collateral that has been formally repossessed and collateral that is in the
Corporation's possession and under its control without legal transfer of title.
At the time of classification as ORE, loans are reduced to the fair value of the
collateral (if less than the loan receivable) by charge-offs against the
allowance for possible loan losses. ORE is carried on the books at the lower of
cost or fair value, less estimated costs to sell.
The following table sets forth the composition of the Corporation's
nonperforming assets and related asset quality ratios as of the dates indicated.
All of such assets were domestic assets since the Corporation had no foreign
loans.
<TABLE>
September 30, December 31,
1997 1996
<S> <C>
Non-accruing loans $2,147 $1,033
Renegotiated loans 530 726
------ ------
Total non-performing loans $2,677 $1,759
------ ------
Loans past due 90 days and accruing $1,528 876
Other real estate 380 1,834
------ -------
Total non-performing assets $4,585 $4,469
====== ======
Asset Quality Ratios
Non-performing loans to total gross loans 1.74% 1.28%
Non-performing assets to total gross loans 2.99% 3.25%
Non-performing assets to total assets 1.72% 1.74%
Allowance for possible loan losses to
non-performing loans 99.68% 144.40%
Allowance for possible loan losses to gross
loans 1.74% 1.85%
</TABLE>
Of the net increase in non-accruing loans of $652,000 for the nine months ended
September 30, 1997 when compared to December 31, 1996, $566,000 is the addition
of one loan which is guaranteed by Small Business Administration for up to 75%
of its value and is further collateralized by a first mortgage. During the nine
months ended September 30, 1997, gross interest income of $62,000 would have
been recorded on loans accounted for on a non-accrual basis if the loans had
been current throughout the period. No
11
<PAGE>
interest was included on such loans during such period. The Corporation had no
restructured loans during this period. Impaired loans totalled $1.7 million and
$711,000 at Septemebre 30, 1997 and December 31, 1996, 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
agreement. The allowance for credit loss associated with impaired loans was
$237,000 and $316,000 at September 30, 1997 and December 31, 1996, respectively.
This allowance for credit loss is included in the allowance for possible loan
losses on the Corporation's consolidated balance sheet.
The average recorded investment in impaired loans was $1.6 million and $1.1
million at September 30, 1997 and December 31, 1996, respectively. Interest
payments received on impaired loans are recorded as interest income unless
collection of the remaining recorded investment is doubtful in which event
payments received are recorded as reductions of principal. The income recognized
on impaired loans at September 30, 1997 and December 31, 1997 was $27,000 and
$0, respectively.
Analysis of the Allowance For Possible Loan Losses
The allowance for possible loan losses is determined by management based upon
its evaluation of the known, as well as the inherent, risks within the
Corporation's loan portfolio, and is maintained at a level considered adequate
to provide for potential loan losses. The allowance for possible loan losses is
increased by provisions charged to expense and recoveries of prior charge-offs,
and is reduced by charge-offs. In establishing the allowance for possible loan
losses, management considers, among other factors, previous loss experience, the
performance of individual loans in relation to contract terms, the size of
particular loans, the risk characteristics of the loan portfolio generally, the
current status and credit standing of borrowers, management's judgment as to
prevailing and anticipated real estate values, other economic conditions in the
Corporation's market, and other factors affecting credit quality. Management
believes the allowance for possible loan losses at September 30, 1997 of $2.7
million or 99.68% of nonperforming loans, was adequate.
The Corporation's management continues to actively monitor the Corporation's
asset quality and to charge off loans against the allowance for possible loan
losses as it deems appropriate. Although management believes it uses the best
information available to make determinations with respect to the allowance for
possible loan losses, future adjustments may be necessary if economic conditions
differ substantially from the assumptions used in making the initial
determinations.
12
<PAGE>
The following table represents transactions affecting the allowance for possible
loan losses during the nine-month period ended September 30, 1997 and 1996 (in
thousands).
<TABLE>
1997 1996
<S> <C> <C>
Balance at beginning, September 30 $2,540 $2,332
Charge-offs:
Commercial, financial and agricultural 306 88
Real estate--mortgage - 214
Installment loans to individuals 5 13
Credit cards and related plans 33 -
------ -----
344 315
Recoveries:
Commercial, financial and agricultural 85 90
Real estate--mortgage 4 16
Installment loans to individuals 1 9
Credit cards and related plans 1 -
------ ------
91 115
------ ------
Net charge-offs 253 200
------ ------
Provision charged to operations
during the nine-month period 380 290
------ ------
Balance at end of period $2,667 $2,422
====== =======
Ratio of net charge-offs during the
nine-month period to average loans
outstanding during that period 0.17% 0.15%
</TABLE>
Allocation of the Allowance for Possible Loan Losses
The following table sets forth the allocation of the allowance for possible 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 September 30, 1997 (in thousands, except percentages).
<TABLE>
Percent of
Loans in each
Percent of category to
Amount Allowance total loans
<S> <C> <C> <C>
Commercial, financial
and agricultural $1,188 45% 56%
Real estate- construction 32 1% 3%
Real estate- mortgage 747 28% 34%
Installment loans to individuals 282 11% 7%
Unallocated 418 16% n.a.
------- ----- ----
Total $2,667 100% 100%
------ ==== ====
</TABLE>
Management has determined from continued evaluation of the various elements of
the loan portfolio, previous charge-off experience, collateral evaluation and
borrowers' credit histories, that different risks are associated with each loan
category. Accordingly, management has assigned general reserve percentages
within each loan category, in addition to specific reserves
13
<PAGE>
allocated to individual loans within each category.
B. Results of Operations: Three and Nine Months ended September 30, 1997
and 1996
General. The Corporation's results of operations are dependent primarily on its
net interest and dividend income, which is the difference between interest
earned on its loans and investments and the interest paid on interest-bearing
liabilities. The Corporation's net income is also affected by the generation of
noninterest income, which primarily consists of service fees on deposit accounts
and other income. Net interest income is determined by (I) the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-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 nonperforming assets. In addition, net income is affected
by the level of operating expenses and establishment of loan loss reserves and
ORE reserves.
The operations of the Corporation and the entire banking industry are
significantly affected by prevailing economic conditions, competition and the
monetary and fiscal policies of governmental agencies. Lending activities are
influenced by the demand for and supply of real estate, competition among
lenders, the level of interest rates and the availability of funds. Deposit
flows and costs of funds are influenced by prevailing market rates of interest,
primarily on competing investments, account maturities and the levels of
personal income and savings in the market area.
Three and Nine Months Ended September 30, 1997. The Corporation earned net
income of $604,000 or $0.24 per share and $1.9 million or $0.73 per share, for
the three- and nine-month periods ended September 30, 1997, compared to $477,000
or $0.20 per share and $1.5 million or $0.63 per share, for the same periods in
1996.
Interest income increased by $525,000 and $1.2 million for the three- and
nine-month periods ended September 30, 1997 over the corresponding period in
1996. The increase is primarily due to increases in average income- yielding
assets. Other income increased by $301,000 and $440,000 for the three- and
nine-month periods ended September 30, 1997 over the comparable periods in 1996.
The majority of such increase is directly related to increase in fee income from
service charges on deposits coupled with gain on sale of other real estate
owned.
Total interest expense increased by $647,000 and $1.1 million for the three- and
nine-month periods ended September 30, 1997 over the corresponding periods in
the prior year. The majority of such increases are attributable to the increases
in interest expense related to the Debentures. Total other expenses decreased by
$45,000 and $186,000 for the three- and nine-month periods ended September 30,
1997 compared to the same periods in the prior year primarily as a result of
management's efforts to consolidate various operational functions of the
Subsidiary Banks. Of the total decrease for the nine-month period, $671,000 was
attributable to decreases in all other expenses which was offset by increases in
salaries and employee benefits of $333,000, occupancy and equipment of $64,000
and office expenses of $59,000.
14
<PAGE>
The majority of these aforementioned increases are related to the general growth
of the Subsidiary Banks.
The provision for possible loan losses for the nine-month period ended September
30, 1997 was $380,000. This represents increases of $90,000 compared to the same
period in the prior year. Management increased the provisions primarily as a
result of the increased loan portfolio.
Some Specific Factors Affecting Future Results of Operations
Although future movement of interest rates cannot be predicted with certainty,
the interest rate sensitivity of the Corporation's assets and liabilities are
such that a decline in interest rates during the next few months would have a
favorable impact on the Corporation's results of operations. However, because
overall future performance is dependent on many other factors, past performance
is not necessarily an indication of future results and there can be no guarantee
regarding future overall results of operations.
REDEEMABLE SUBORDINATED DEBENTURES
Effective November 1, 1997, the Corporation issued approximately 543,130 shares
of its common stock pursuant to the mandatory exercise of the remaining
outstanding Equity Contracts issued in December, 1993. The exercise price was
$8.88 per share. As a result, at Novemeber 7, 1997 the Corporation had
$2,624,621 outstanding shares of common stock.
Of the $4.8 million in principal amount of the Corporation's subordinated 8.5%
debentures due November 1, 1998 outstanding on September 30, 1997, $4.0 million
were surrendered to the Corporation after September 30, 1997 as consideration
for the exercise of Equity Contracts and purchase of common stock. As a result
only $809,000 principal amount of the 8.5% debentures remained outstanding as of
November 7, 1997. The Corporation has the right to redeem these remaining
subordinated 8.5% debentures without penalty or premium prior to maturity.
As a result of the surrender of the subordinated 8.5% debentures, the
Corporation's quarterly interest expense on such debentures has been reduced
from approximately $106,000 to $17,000. As a result of the issuance of the
additional shares of common stock, the quarterly dividend payment will increase
by approximately $54,000 based upon on the most recent quarterly dividend
distribution rate of $.10 per share.
15
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Corporation and its subsidiaries are parties in the ordinary course of
business to litigation involving collection matters, contract claims and
other miscellaneous causes of action arising from its business. In
response to a suit by one of the Subsidiary Banks against a loan customer
for collection of a defaulted loan, the loan customer recently asserted a
counterclaim against the Subsidiary Bank. The counterclaim seeks
rescission of an amendment to a bank office lease between the customer,
as the Subsidiary Bank's landlord, and the Subsidiary Bank, as tenant.
The amendment, among other things, terminated the customer's right to
compel the Subsidiary Bank's purchase of the leased property at a price in
excess of its present market value. The counterclaim alleges fraud by the
Subsidiary Bank in connection with the amendment. The Corporation intends
to contest the counterclaim vigorously and believes that it has no material
financial exposure. Except for such suit, management does not consider
that any such proceedings depart from usual routine litigation and in
its judgement, neither the Corporation's consolidated financial
position nor its results of operations will be affected materially
by any present proceedings.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None.
Item 5 - Other information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended September 30, 1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREATER COMMUNITY BANCORP
(Registrant)
Date: November 12, 1997 By:
Naqi A. Naqvi, Treasurer & CFO
(Duly Authorized Officer and
Principal Financial Officer)
17
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