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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, 1997
[ ] 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
(Name of small business issuer in its charter)
NEW JERSEY 22-2545165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 UNION BOULEVARD, TOTOWA, NEW JERSEY 07512
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (973) 942-1111
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NASDAQ
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, PAR VALUE $1 PER SHARE
(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
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 registrants' 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. $23,253,000 .
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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.)
$37,151,942 as of January 31, 1998. 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: 2,643,150 shares
of common stock as of January 31, 1998.
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).
Certain information in the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders to be held on April 21, 1998 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 "Company") is a New Jersey business
corporation. It is 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
Company was incorporated in 1984.
The Company's only substantive business activity is the ownership and
operation of Great Falls Bank ("GFB") and Bergen Commercial Bank ("BCB") (the
"Bank Subsidiaries"), which the Company acquired in 1985 and 1995, respectively.
(See "BANK SUBSIDIARIES" below.)
During the last several years, the Company has demonstrated continued growth
in its business. As of December 31, 1997, the Company's consolidated assets were
$322.0 million, as compared with consolidated assets of $256.5 million at
December 31, 1996. Net income for the year ended December 31, 1997 was $2.6
million ($1.20 per share-basic and $1.13 per share-diluted), up from $2.3
million ($1.13 per share-basic and $1.07 per share-diluted) in 1996. The Company
declared total cash dividends of $.35 per share and $.26 per share during 1997
and 1996, respectively.
NONBANK SUBSIDIARIES
During 1997, in a continuing effort to expand and diversify its operations
and benefit the operating results in future years, the Company formed two
nonbank subsidiaries.
(i) In April 1997, GCB Capital Trust (the "Trust"), a wholly-owned nonbank
subsidiary, was formed. 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 Preferred Securities
and Common Securities to acquire Junior Subordinated Debentures (the
"Debentures") issued by the Company. Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust and the payments under the
Junior Subordinated Debentures will be the sole revenue of the Trust. All of the
Common Securities are owned by the Company.
The Company's obligation under the Debentures and related documents, taken
together, constitutes a full and unconditional guarantee by the Company of the
Trust's obligations under Preferred Securities. Although the Debentures will be
treated as debt of the Company, they currently qualify for Tier I capital
treatment. The Preferred Securities have no maturity date and are callable by
the Company on or about June 1, 2002, or earlier in the event the deduction of
related interest for federal income tax is prohibited, treatment as Tier I
capital is no longer permitted or certain other contingencies arise. The
Debentures mature in 2027 at which time the Preferred Securities must be
redeemed.
In May 1997, the Company through the Trust sold 920,000 Preferred Securities
at a liquidation amount of $25 per Preferred Security for an aggregate amount of
$23.0 million. It has a distribution rate of 10% per annum payable at the end of
each calendar quarter.
(ii) In July 1997, GCB Realty, L.L.C., ("Realty") a New Jersey limited
liability company located in Totowa, New Jersey, was formed. The purposes of
Realty are to acquire and manage real estate properties. In July 1997, Realty
consummated the purchase of a property for $1.8 million in Bergen County, New
Jersey. BCB is one of the tenants. Four tenants lease space in the building.
Annual rentals are estimated at $336,000. Also in December 1997, Realty
consummated the purchase of another property for $425,000 in Bergen County, New
Jersey. BCB is expected to lease space in this property for a possible branch
office in 1998. Annual rentals are estimated at $42,000.
In addition to the above, Greater Community Services, Inc. (formerly known
as Great Falls Financial Services, Inc.), is a wholly-owned nonbank subsidiary
of the Company. The entity was activated in March 1997. Currently, it provides
accounting/bookkeeping, data processing and management information systems, loan
operations and various other banking-related services at cost to the Bank
Subsidiaries.
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During 1996, the Company entered into a joint venture to form a
majority-owned nonbank subsidiary. In October 1996, this nonbank subsidiary was
opened for business under the name of Greater Community Financial, L.L.C., a New
Jersey limited liability company located in Clifton, New Jersey. The purpose of
Greater Community Financial, L.L.C. is to engage in the business of securities
broker and dealer.
BANK SUBSIDIARIES
GFB received its charter from the New Jersey Department of Banking (the
"Department") in 1985 and commenced operations as a commercial bank in 1986. Its
main office is located at 55 Union Boulevard, Totowa, New Jersey. GFB has five
additional branches, all of which are also located in Passaic County, New
Jersey. A branch in Little Falls has operated since March 1988. Two branches
located in Clifton were acquired by merger in April 1995. The fourth branch,
located at 100 Furler Street, Totowa was opened in 1996. A fifth de novo branch
was opened in Clifton in 1997.
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 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 four additional
branch offices, one in Hasbrouck Heights and one in Wood-Ridge. During 1997, BCB
formed two de novo branches, one in Wallington and one in Hackensack. BCB also
offers other customary banking services.
Each of the Bank Subsidiaries has a wholly-owned investment company
subsidiary whose function is to manage its investment securities portfolio. The
investment companies were formed to separate the Bank Subsidiaries' investment
portfolio functions and responsibilities from their regular banking operations
and to increase the net yields of their respective investment portfolios.
COMPETITION
The Company, through the Bank Subsidiaries, 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 Bank
Subsidiaries' 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 Bank Subsidiaries to
compete with large, national and regional banking institutions. Several of the
Bank Subsidiaries' competitors are affiliated with major banking and financial
institutions which are substantially larger and have far greater financial
resources than the Bank Subsidiaries.
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 Bank Subsidiaries compete
with larger institutions with respect to the interest rates they offer. From a
service standpoint, the Bank Subsidiaries' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Bank Subsidiaries. Such competitors also perform certain functions for their
customers such as trust, and international services, which the Bank Subsidiaries
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;
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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 Company and the Bank Subsidiaries
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 Company.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank Subsidiaries. A number of other statutes and
regulations and governmental policies have an impact on their operations. The
Company 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 summary does
not purport to be complete and is qualified in its entirety by reference to such
statutes and regulations.
Bank Holding Company Regulation
The Company is registered as a bank holding company under the Holding
Company Act. As such, it is subject to regular examination, supervision and
regulation by the Federal Reserve. The Company 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 Company also is
subject to regulation by the Department.
A policy of the Federal Reserve requires the Company to act as a source of
financial and managerial strength to the Bank Subsidiaries and to commit
resources to support them. In addition, any loans by the Company to the Bank
Subsidiaries would be subordinate in right of payment to deposits and certain
other indebtedness of the Bank Subsidiaries. At December 31, 1997, the Company
had approximately $28.2 million in financial resources in addition to its
investment in the Bank Subsidiaries and nonbank subsidiaries. The Federal
Reserve has adopted guidelines regarding the capital adequacy of bank holding
companies which require them 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
nonbank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The Company's activities are subject to these legal and regulatory limitations
under the Holding Company Act and 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 Company or the Bank
Subsidiaries. For purposes of the Holding Company Act, "control" is defined as
ownership of more than 25% of any class of voting securities of the Company 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 Company or the Bank Subsidiaries.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal Reserve before (1) 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
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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 the credit
needs of their entire delineated communities, including low and moderate income
neighborhoods, in a manner consistent with their resources. In addition, the
Company is subject to various requirements under New Jersey laws concerning
future acquisitions, and a company desiring to acquire the Company 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 nonbank 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 Company or the Bank Subsidiaries. The Change in Bank
Control Act defines "control" as the power, directly or indirectly, to vote 25%
or more of any class of voting securities or to direct the management or
policies of a bank holding company or an insured bank. Federal Reserve
regulations provide that an acquisition of voting securities of a bank holding
company which results in a person or group which is acting in concert owning,
controlling or holding power to vote 10% or more of any class of the voting
securities of the bank holding company will be presumed to constitute the
acquisition of control if the bank holding company has registered securities
under the Securities Exchange Act of 1934 or if no other person will own,
control, or hold the power to vote a greater percentage of that class of voting
securities immediately after the transaction.
Holding Company Dividends and Stock Repurchases
The Federal Reserve has the power to prohibit bank holding companies from
paying dividends if their actions are deemed to constitute unsafe or unsound
practices. The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. The policy statement 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 Company 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
Company'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 Bank Subsidiaries 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 Bank
Subsidiaries to establish or relocate a branch office or to engage in any
merger, consolidation or significant purchase or sale of assets. The Bank
Subsidiaries are also subject to regulation and supervision by the Department.
In addition, the Bank Subsidiaries 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 Bank Subsidiaries and their condition, including capital adequacy,
reserves, loans, investments and management practices. These examinations are
for the protection of the Bank Subsidiaries' depositors and the Bank Insurance
Fund ("BIF") and not the Company. The Bank Subsidiaries are also required to
furnish quarterly and annual reports to the FDIC. The FDIC's enforcement
authority includes the power to remove
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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. Such regulations require those 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 Bank Subsidiaries to declare dividends only if,
after payment of the dividends, their capital would be unimpaired and their
remaining surplus would equal at least 50% of their capital. Under the FDIA, the
Bank Subsidiaries 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, 1997, the Bank
Subsidiaries 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 by the FDIA from paying dividends or making
other capital distributions without the FDIC's permission. See "Holding Company
Dividends and Stock Repurchases."
Restrictions Upon Intercompany Transactions
The Bank Subsidiaries are subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Company and
other affiliates. Such restrictions prevent the Company and its affiliates from
borrowing from the Bank Subsidiaries 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 transactions by each of the
Bank Subsidiaries are generally limited in amount as to the Company and as to
any other affiliate to 10% of the Subsidiary Bank's capital and surplus. As to
the Company and all other affiliates, such transactions are limited to an
aggregate of 20% of the Subsidiary Bank's capital and surplus. These regulations
and restrictions may limit the Company's ability to obtain funds from the Bank
Subsidiaries 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
establishing appropriate limits and standards for extensions of credit that are
secured by liens on or interests in real estate or that 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 Interagency 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.
Deposit Insurance
Since the Bank Subsidiaries 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. The Bank Subsidiaries are also required to
pay semiannual deposit insurance premiums 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. FDICIA permits the
FDIC to make special assessments on insured depository institutions in amounts
determined by the FDIC to be necessary to give it
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adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources or for any other purpose the FDIC deems necessary. Under a
risk-based insurance premium system which became permanent in 1994, banks are
assessed insurance premiums according to how much risk they are deemed to
present to the BIF. As of January 1, 1997, 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 semiannual
assessment period. Well-capitalized institutions are institutions satisfying the
following capital ratio standards: (i) total risk-based capital ratios of 10.0%
or greater; (ii) Tier I risk-based capital ratios of 6.0% or greater, and (iii)
Tier I leverage ratios 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 ratios of 8.0% or greater; (ii) Tier I risk-based capital
ratios of 4.0% or greater, and (iii) Tier I leverage ratios 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.
Effective January 1, 1997 the assessment rates ranged from 0.00% to 0.27% of
deposits. Since July 1, 1995, the Bank Subsidiaries 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%.
The Deposit Insurance Funds Act of 1996 recapitalized the Savings
Association Insurance Fund ("SAIF"). Under this legislation, the FDIC levied a
special assessment on SAIF assessable deposits held as of March 31, 1995. The
Company had acquired SAIF assessable deposits in 1995 which 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 SAIF. The rates established for GFB and
BCB for 1997 through 1999 are 0.065% and 0.013%, respectively.
Standards for Safety and Soundness
Under FDICIA, each federal banking agency is required to prescribe, by
regulation, noncapital safety and soundness standards for institutions under its
authority. The federal banking agencies, including the Federal Reserve and the
FDIC, have adopted the Interagency Guidelines Establishing Standards for Safety
and Soundness which cover 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 Company believes that the Bank
Subsidiaries meet all of the standards which have been adopted.
Enforcement Powers
The bank regulatory agencies have broad discretion to issue cease and desist
orders if they determine that the Company or its Bank Subsidiaries are engaging
in "unsafe or unsound banking practices." In addition, the federal bank
regulatory authorities may 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 orders,
among other things. Financial institutions and a broad range of persons
associated with them are subject to the imposition of fines, penalties, and
other enforcement actions based upon the conduct of their relationships with the
institutions.
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
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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; (vi) the institution's assets are
less than its obligations to its creditors and others; (vii) substantial
dissipation in the institution's assets or earnings due to violation of any
statute or regulation or unsafe or unsound practice; (viii) a willful violation
of a cease and desist order that has become final; (ix) an inability of the
institution to pay its obligations or meet its depositors' demands in the normal
course of business; or (x) 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 ("state
nonmember 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 nonmember banks, respectively, to maintain a minimum
leverage ratio of "Tier I capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of one (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 I
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 nonmember 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: Tier I or core capital requirement and a Tier II or supplementary
capital requirements. Tier I 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 II capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify for Tier I 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 U. S. Treasury or U. S.
Government agencies, which have a
7
<PAGE> 10
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 nontraditional 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 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, 1997, the Company's total risk-based capital and leverage
capital ratios were 26.19% and 12.71%, respectively. The minimum levels
established by the regulators for these measures are 8% and 4%, 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 I 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 I risk-based
capital ratio of 4%, and a leverage ratio of either 4% or 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 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. 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
8
<PAGE> 11
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 Company's earnings 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.
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 nonearning 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 Company and/or
the Bank Subsidiaries.
The Bank Subsidiaries are also subject to various Federal and State laws
such as usury laws and consumer protection laws.
EMPLOYEES
As of December 31, 1997, the Company employed a total of approximately 121
employees, including 91 full-time employees. Management considers relations with
employees to be satisfactory.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company through its wholly-owned nonbank subsidiary, Realty, owns
property in Bergen County, New Jersey. In addition to this, the Company 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 Company's chairman and vice chairman
are both partners. GFB also leases space for its five other branches in Totowa,
Little Falls and Clifton, New Jersey.
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
from Realty. BCB also leases space for three other branches in Hackensack,
Wallington and Wood-Ridge, New Jersey. BCB owns the space for its branch located
in Hasbrouck Heights, New Jersey.
In the opinion of management, all such leased properties are adequately
covered by insurance and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease obligations,
see Note 13 of the Company's Notes to Consolidated Financial Statements for the
year ended December 31, 1997, contained in Item 7A - "Financial Statements."
9
<PAGE> 12
ITEM 3 - LEGAL PROCEEDINGS
The Company 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 Company, which, if
determined adversely, would have a material effect on the business, financial
position or results of operations of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1997 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was held by approximately 1,036 holders of record
on December 31, 1997, and is traded on the NASDAQ under the symbol GFLS.
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 Company'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 1997 and 1996.
<TABLE>
<CAPTION>
Bid Price Cash
----------------------- Dividends
Declared
High Low --------------
---- ---
<S> <C> <C> <C>
Year Ended December 31, 1996:
First Quarter $12.77 $12.05 $.058
Second Quarter 12.95 11.46 .064
Third Quarter 12.60 11.57 .064
Fourth Quarter 15.23 13.64 .073
Year Ended December 31, 1997
First Quarter $14.87 $13.85 $.073
Second Quarter 15.70 14.47 .080
Third Quarter 19.50 17.00 .100
Fourth Quarter 20.00 18.50 .100
</TABLE>
The Company'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 Company and the
Bank Subsidiaries continue to operate profitably.
10
<PAGE> 13
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section presents a review of the Company's consolidated financial
condition and results of operations. Data is presented for both the Company and
its subsidiaries unless otherwise noted.
In addition to historical information, this discussion and analysis contain
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. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date of this report. The Company undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after such date.
RESULTS OF OPERATIONS: FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company earned $2.6 million or $1.20 per share-basic and $1.13 per
share-diluted in 1997 compared to $2.3 million or $1.13 per share-basic and
$1.07 per share-diluted in 1996. In 1997, the Company's earnings improved 11%
over 1996. Net interest income increased by $61,000, or 0.5%, in 1997 compared
to 1996. The increase in net interest income in 1997 is attributable to the
growth of the Company. Total other expenses showed an increase of $312,000 in
1997 over 1996. The provision for possible loan losses increased to $45,000, or
10%, in 1997 as a result of an increased loan portfolio.
The Company's annual interest expense increased by $1.8 million in 1997
compared to 1996. The majority of this increase is related to the increase in
interest expense associated with Preferred Securities coupled with an increase
in average interest-bearing deposits.
During 1996, the Company's earnings were adversely affected by the Deposit
Insurance Funds Act of 1996 to recapitalize the SAIF. Under that act, the FDIC
levied a special assessment on SAIF assessable deposits held as of March 31,
1995. GFB had acquired SAIF assessable deposits in 1995 which were subject to
this special assessment. In the third quarter of 1996, the Company recorded
$249,000 before income taxes as its portion of the assessment.
AVERAGE BALANCES AND NET INTEREST INCOME
Net interest income, the primary source of the Company'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 the difference between the yields earned on earning assets and
rates paid on interest-bearing liabilities ("interest rate spread") and the
relative amounts of earning assets and interest-bearing liabilities. The
Company'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.
The following table sets forth the Company's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest expense on related items, and the Company's average yield for the years
ended December 31, 1997, 1996 and 1995. The yields are shown on a fully taxable
basis and assume a 34% tax rate.
11
<PAGE> 14
AVERAGE BALANCE SHEET, INTEREST INCOME AND EXPENSE, AND AVERAGE INTEREST RATES
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
------------------------------------- ---------------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
------- ----------- ---------- ------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Investment securities....................... $102,021 $ 6,241 6.12% $ 87,604 $ 5,569 6.36%
Due from banks - interest-bearing........... 5,052 267 5.29% 2,947 138 4.67%
Federal funds sold.......................... 7,676 415 5.41% 7,468 365 4.89%
Loans (1)................................... 149,024 13,625 9.14% 135,161 12,621 9.34%
-------- -------- -------- -------
Total earning assets.................... 263,773 20,548 7.79% 233,180 18,693 8.02%
Less: Allowance for possible loan losses.... 2,644 - - 2,393 -
Unearned income - loans................. 341 - - 317 -
All other assets............................ 22,229 - - 21,433 -
-------- -------- -------- -------
Total assets............................ $283,017 $ 20,548 $251,903 $18,693
======== ======== ======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing accounts..... $ 76,466 $ 1,689 2.21% $ 81,112 $ 1,799 2.22%
Time deposits............................. 92,435 5,128 5.55% 86,277 4,605 5.34%
Federal funds and short-term borrowings... 7,507 366 4.88% 6,062 312 5.15%
Long-term borrowings...................... 18,721 1,765 9.43% 4,982 438 8.79%
-------- -------- -------- -------
Total interest-bearing liabilities 195,129 8,948 4.59% 178,433 7,154 4.01%
Non interest-bearing deposits............... 60,481 - 50,243 -
Other liabilities........................... 3,382 - 3,240 -
Shareholders' equity........................ 24,025 - 19,987 -
-------- -------- -------- -------
Total liabilities and
shareholders' equity................ $283,017 $ 8,948 $251,903 $ 7,154
======== -------- ======== -------
NET INTEREST INCOME
(fully taxable basis)................... $ 11,600 $11,539
======== =======
NET INTEREST MARGIN
(fully taxable basis)................... 4.40% 4.95%
==== =====
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
December 31, 1995
-------------------------------------------
Average Interest Average
Balance Earned/Paid Yield/Rate
------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
ASSETS
Earning Assets:
Investment securities....................... $ 74,751 $ 4,790 6.41%
Due from banks - interest-bearing........... 1,271 54 4.23%
Federal funds sold.......................... 11,178 658 5.89%
Loans (1)................................... 120,379 11,931 9.91%
--------- --------
Total earning assets.................... 207,579 17,433 8.40%
Less: Allowance for possible loan losses.... 2,427 -
Unearned income - loans................. 335 -
All other assets............................ 17,368 -
--------- --------
Total assets............................ $ 222,185 $ 17,433
========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing accounts..... $ 74,207 $ 1,890 2.55%
Time deposits............................. 75,505 4,037 5.35%
Federal funds and short-term borrowings... 2,934 185 6.31%
Long-term borrowings...................... 4,969 438 8.82%
--------- --------
Total interest-bearing liabilities 157,615 6,550 4.16%
Non interest-bearing deposits............... 44,335 -
Other liabilities........................... 2,948 -
Shareholders' equity........................ 17,287 -
--------- --------
Total liabilities and
shareholders' equity................ $ 222,185 $ 6,550
========= --------
NET INTEREST INCOME
(fully taxable basis)................... $ 10,883
========
NET INTEREST MARGIN
(fully taxable basis)................... 5.24%
=====
</TABLE>
(1) Average balance includes nonperforming loans.
12
<PAGE> 15
NET INTEREST INCOME
In 1997, interest income increased by $1.9 million or 10% compared to 1996.
Interest and fee income on loans during 1997 increased by $1.0 million or 8%
over the comparable period in 1996 as a result of an increase of 10% in average
total loans. The average yield on loans decreased to 9.14% in 1997 compared to
9.34% in 1996. Income earned on securities during 1997 increased by $672,000, or
12% compared to the same period in 1996. The increase was primarily due to a 16%
increase in average investments for the year ended December 31, 1997 over 1996.
The average yield on securities was 6.12% for the year ended December 31, 1997
compared to 6.36% for the same period in the prior year, the decline was due to
general market conditions. Interest income on federal funds sold and deposits
with banks during 1997 increased by $179,000 or 36% compared to the same period
in the prior year as a result of a $2.3 million, or 22%, increase in average
federal funds sold and deposits with banks.
Interest expense for the year ended December 31, 1997, increased by $1.8
million or 25% from the level of interest expense for 1996. $413,000 of the
total increase in interest expense was related to the increase in interest
expense on deposits, $54,000 was related to the increase in interest expense on
short-term borrowings, and the remaining $1.3 million was related to the
increase in interest expense on long-term borrowings. The increase in total
interest expense was related to the increase in average interest-bearing
liabilities of $17 million or 9% primarily due to a $23 million increase in the
10% Preferred Securities in the early part of 1997, offset to some extent by the
decrease in 8.5% Subordinated Debentures effective November 1, 1997.
The Company's net interest margin, which measures net interest income as a
percentage of average earning assets, was 4.40% and 4.95% for the years ended
December 31, 1997 and 1996, respectively. The decrease in the net interest
margin was related to some extent to an increase in average yield on long-term
borrowing coupled with a slight decline in average yield on earning assets
compared to 1996.
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 years ended December 31,
1997 and 1996. 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 1997 Full Year 1996
Compared to Full Year 1996 Compared to Full Year 1995
Increase (Decrease) Increase (Decrease)
-------------------------------- --------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans ............................... $ 1,271 $(267) $ 1,004 $ 1,378 $(688) $ 690
Investment securities ............... 884 (212) 672 819 (40) 779
Other earning assets ................ 122 57 179 (103) (106) (209)
------- ----- ------- ------- ----- -------
Total earning assets .............. $ 2,277 $(422) $ 1,855 $ 2,094 $(834) $ 1,260
======= ===== ======= ======= ===== =======
INTEREST PAID ON:
Savings & money markets ............. $ (101) $ (9) $ (110) $ 158 $(249) $ (91)
Time deposits ....................... 344 179 523 575 (7) 568
Borrowings .......................... 1,234 147 1,381 213 (86) 127
------- ----- ------- ------- ----- -------
Total interest-bearing liabilities $ 1,477 $ 317 $ 1,794 $ 946 $(342) $ 604
======= ===== ======= ======= ===== =======
</TABLE>
13
<PAGE> 16
PROVISION FOR POSSIBLE LOAN LOSSES
The Company recorded a provision for possible loan losses of $485,000 in
1997 compared with $440,000 in 1996. Management of each bank subsidiary
regularly performs an analysis to identify the inherent risk of loss in its loan
portfolio. This analysis includes evaluation of concentrations of credit, past
loss experience, current economic conditions, amount and composition of the loan
portfolio (including loans being specifically monitored by management),
estimated fair value of underlying collateral, loan commitments outstanding,
delinquencies, and other factors.
The Bank Subsidiaries will continue to monitor their allowance for possible
loan losses and make future adjustments to the allowance through the provision
for possible loan losses as economic conditions dictate. Although the Bank
Subsidiaries maintain their allowance for possible loan losses at a level that
they consider to be adequate to provide for the inherent risk of loss in their
loan portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for possible loan losses will
not be required in future periods. In addition, the Bank Subsidiaries'
determination as to the amount of their allowance for possible loan losses is
subject to review by the FDIC and the Department, as part of their examination
process, which may result in the establishment of an additional allowance based
upon the judgment of the FDIC or the Department, after a review of the
information available at the time of their examination.
OTHER INCOME
Total other income for the year ended December 31, 1997 was $2.7 million, an
increase of $776,000 or 40% compared to 1996. The $776,000 net increase was the
result of significant fluctuations within the major components of other income.
Of the net increase, service charges on deposit accounts increased by $307,000,
other commission and fees increased by $579,000, and realized gain on sale of
securities available-for-sale increased by $165,000, offsetting decreases of
$182,000 and $93,000 in fees on merchant credit card processing and all other
income, respectively. The majority of the increase in service charges on deposit
accounts is attributable to the increase in deposit-related services during
1997. The decrease in merchant credit card processing fees is due to the
discontinuation of such services by BCB in 1996.
OTHER EXPENSES
Total other expenses increased by $312,000 for the year ended December 31,
1997 over 1996. The $312,000 net increase was a result of fluctuations within
the components of other expenses. More specifically, salaries and employee
benefits increased by $597,000 or 14% as a result of an increase in number of
employees and general salary increases coupled with 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 $181,000 or 9% primarily due to
the addition of office space and equipment.
Regulatory, professional and other fees, and office expenses increased by
$38,000 or 5% and $60,000 or 12%, respectively. Such increases are primarily due
to the general growth of the Company. Other real estate operating expense
decreased by $244,000 or 80% due to sale of the majority of the ORE properties.
Computer services expenses decreased by $82,000 or 33%. The primary reason for
such a decrease is management's effort to reduce expenses associated with the
previous acquisitions. The $184,000 or 100% decrease in merchant credit card
expense is a result of the discontinuation in 1996 of merchant credit card
processing activity by BCB. All other operating expenses increased by $50,000 or
4% primarily due to the growth of the bank subsidiaries.
FDIC insurance assessment totaled $52,000 for the year ended December 31,
1997, a decrease of $288,000 or 85% compared to 1996. The decrease is a direct
result of a lower insurance premium for well-capitalized institutions. In 1996,
the FDIC levied a special assessment on SAIF assessable deposits held as of
March 31, 1995. The Company had acquired SAIF assessable deposits in 1995 which
were subject to this special assessment. In the third quarter of 1996, the
Company recorded $249,000 for this special assessment. The legislation is
expected to reduce the future annual deposit insurance costs for SAIF deposits.
The Company anticipates that such reductions, which first became effective in
1997, will equal the $249,000 charge over 1997-1999, inclusive.
14
<PAGE> 17
INCOME TAXES
The Company recorded income tax provisions of $1.5 million and $1.3 million
for the years ended December 31, 1997 and 1996, respectively. The increase in
income tax provision is attributable to increased earnings for 1997 over 1996.
FINANCIAL CONDITION
At December 31, 1997, the Company's total assets were $322.0 million, an
increase of $65.5 million or 26% over the amount reported at December 31, 1996.
Federal funds sold increased by $3.8 million. Investment securities and gross
loans increased by $37.1 million and $23.8 million, respectively. Substantially
all of the increases in both investment securities and gross loans were a direct
result of the proceeds from the sale of Preferred Securities and an increase in
total deposits. Cash and non interest-bearing due from banks increased by
$741,000 while interest-bearing due from banks decreased by $2.1 million when
compared to the amounts reported at December 31, 1996. The decrease in
interest-bearing due from banks is primarily related to the maturities of same.
INVESTMENT SECURITIES
Investment securities at December 31, 1997 constituted an increase of $37.1
million or 41% over the amount reported at December 31, 1996. The following
table presents the composition of the securities portfolio along with the book
and market values of those components at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
(In Thousands)
Fair Fair Fair
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury and U.S.
Government securities ......... $ 33,590 $ 33,884 $36,673 $36,861 $36,812 $37,805
State & political subdivisions . 558 558 1,006 1,006 -- --
Other debt and equity securities 13,410 16,244 6,192 6,407 2,524 2,507
Mortgage-backed securities ..... 40,599 40,565 7,879 7,977 7,577 7,523
-------- -------- ------- ------- ------- -------
Total available-for-sale .... $ 88,157 $ 91,251 $51,750 $52,251 $46,913 $47,835
-------- -------- ------- ------- ------- -------
HELD-TO-MATURITY
U.S. Treasury and U.S.
Government agencies securities $ 14,822 $ 14,519 $18,996 $18,602 $32,774 $32,679
State and political subdivisions 1,390 1,391 393 390 613 615
Mortgage-backed securities ..... 19,313 19,302 18,039 17,978 2,764 2,767
-------- -------- ------- ------- ------- -------
Total held-to-maturity ...... $ 35,525 $ 35,212 $37,428 $36,970 $36,151 $36,061
-------- -------- ------- ------- ------- -------
Total investment securities $123,682 $126,463 $89,178 $89,221 $83,064 $83,896
======== ======== ======= ======= ======= =======
</TABLE>
During 1997, the Company realized net gains of $216,000 through the sale of
$11.0 million of securities from its available-for-sale portfolio. Included in
shareholders' equity at December 31, 1997 is a net unrealized holding gain on
available-for-sale securities, net of income taxes, in the amount of $1.9
million, an increase of $1.6 million or 508% over the end of 1996. The Company
has no securities held for trading purposes.
15
<PAGE> 18
MATURITY SCHEDULE - INVESTMENT SECURITIES
The following table provides information concerning the available-for-sale and
held-to-maturity portions of the Company's investment securities portfolio at
December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------------------------
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
------ ------- ------ ------- ------ ------- ------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury and U.S. Government
agencies securities .......... $19,654 $19,722 $13,600 $13,774 $ 336 $ 388 $ -- $ --
State and political subdivisions 558 558 -- -- -- -- -- --
Other debt and equity securities 13,410 16,244 -- -- -- -- -- --
Mortgage-backed securities ...... 1,805 1,818 18,007 18,053 6,443 6,426 14,344 14,268
------- ------- ------- ------- ------ ------ ------- -------
Total available-for-sale .... $35,427 $38,342 $31,607 $31,827 $6,779 $6,814 $14,344 $14,268
HELD-TO-MATURITY
U.S. Treasury and U.S. Government
agencies securities .......... $ 8,244 $ 8,248 $ 5,578 $ 5,588 $1,000 $ 683 $ -- $ --
State and political subdivisions 1,174 1,174 216 217 -- -- -- --
Mortgage-backed securities ...... 117 117 13,661 13,553 1,694 1,696 3,841 3,936
------- ------- ------- ------- ------ ------ ------- -------
Total held-to-maturity ...... $ 9,535 $ 9,539 $19,455 $19,358 $2,694 $2,379 $ 3,841 $ 3,833
------- ------- ------- ------- ------ ------ ------- -------
Total investment securities . $44,961 $47,881 $51,062 $51,185 $9,473 $9,193 $18,185 $18,101
======= ======= ======= ======= ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------
Total
-------------------
Fair
Amortized Market
Cost Value
------ ------
(In Thousands)
<S> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury and U.S. Government
agencies securities .......... $ 33,590 $ 33,884
State and political subdivisions 558 558
Other debt and equity securities 13,410 16,244
Mortgage-backed securities ...... 40,599 40,565
-------- --------
Total available-for-sale .... $ 88,157 $ 91,251
HELD-TO-MATURITY
U.S. Treasury and U.S. Government
agencies securities .......... $ 14,822 $ 14,519
State and political subdivisions 1,390 1,391
Mortgage-backed securities ...... 19,313 19,302
-------- --------
Total held-to-maturity ...... $ 35,525 $ 35,212
-------- --------
Total investment securities . $123,682 $126,463
======== ========
</TABLE>
16
<PAGE> 19
The following table shows the average yields, book values and fair market
values of the Company's investment securities by maturity.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------
Average Amortized Fair Market
Yield Cost Value
------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
AVAILABLE-FOR-SALE
Due 0-1 Years .................. 6.21% $ 20,212 $ 20,280
Due 1-5 Years .................. 6.56% 13,600 13,774
Due 5-10 Years ................. 8.75% 336 388
Mortgage-backed securities ..... 6.70% 40,599 40,565
Other debt and equity securities n/a 13,410 16,244
-------- --------
Total available-for-sale .... $ 88,157 $ 91,251
-------- --------
HELD-TO-MATURITY
Due 0-1 Years .................. 5.24% $ 9,418 $ 9,422
Due 1-5 Years .................. 5.85% 5,794 5,805
Due 5-10 Years ................. 2.83% 1,000 683
Mortgage-backed securities ..... 6.36% 19,313 19,302
-------- --------
Total held-to-maturity ....... $ 35,525 $ 35,212
-------- --------
Total investment securities .. $123,682 $126,463
======== ========
</TABLE>
LOAN PORTFOLIO
The Company's gross loan portfolio at December 31, 1997 totaled $161.2
million, an increase of $23.8 million or 17% compared to the amount reported at
December 31, 1996. This increase was primarily due to increased loan demand. The
Company's gross loan portfolio increased $5.7 million to $137.4 million at
December 31, 1996 compared to the amount reported at December 31, 1995.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1996 1995 1994 1993
----- ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans secured by one- to - four-family residential properties ........ $ 45,700 $ 43,100 $ 43,328 $26,925 $26,638
Loans secured by nonresidential properties ........................... 81,064 58,106 51,133 41,891 29,332
Loans to individuals ................................................. 10,549 9,997 8,661 6,688 5,939
Loans to depository institutions ..................................... -- -- 4,600 600 --
Commercial loans ..................................................... 16,847 14,106 14,823 10,320 16,136
Construction loans ................................................... 5,784 5,534 4,292 4,754 2,496
Other loans .......................................................... 1,305 6,567 4,905 5,486 3,281
-------- -------- -------- ------- -------
Total gross loans ............................................... $161,249 $137,410 $131,742 $96,664 $83,822
======== ======== ======== ======= =======
</TABLE>
17
<PAGE> 20
The following tables set forth the contractual maturity and interest rate
sensitivity of components of the loan portfolio at December 31, 1997 and 1996.
Demand loans, having no stated schedule of repayment and no stated maturity, and
overdrafts are reported as due within one year.
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
LOANS WITH PREDETERMINED INTEREST RATES: (In Thousands)
Loans secured by one-to-four family residential properties $ 902 $17,720 $ 8,716 $ 27,338
Loans secured by nonresidential properties ............... 11,040 39,613 4,711 55,364
Loans to individuals ..................................... 999 6,934 212 8,145
Commercial loans ......................................... 1,233 2,583 -- 3,816
Construction loans ....................................... 1,345 -- -- 1,345
Other loans .............................................. 357 730 218 1,305
------- ------- -------- --------
Total gross loans ................................... $15,876 $67,580 $ 13,857 $ 97,313
LOANS WITH FLOATING INTEREST RATES:
Loans secured by one-to-four-family residential properties 7,782 2,721 7,859 18,362
Loans secured by nonresidential properties ............... 9,035 6,776 9,889 25,700
Loans to individuals ..................................... 1,219 1,185 -- 2,404
Commercial loans ......................................... 7,077 5,684 270 13,031
Construction loans ....................................... 3,055 1,384 -- 4,439
------- ------- -------- --------
Total gross loans ................................... 28,168 17,750 18,018 63,936
------- ------- -------- --------
$44,044 $85,330 $ 31,875 $161,249
======= ======= ======== ========
</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
Company 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 senior lending officers of BCB and GFB are charged with monitoring asset
quality, establishing credit policies and procedures and seeking consistent
application of these procedures. Nonperforming assets include past due,
nonaccrual and renegotiated and other real estate loans. Since lending is
concentrated within the local market area, nonperforming 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 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.
PAST DUE, NONACCRUING AND RENEGOTIATED LOANS. It is the Company'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
nonaccrual 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.
18
<PAGE> 21
The following table summarizes the composition of the Company's
nonperforming assets and related asset quality ratios as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans................................... $1,741 $1,033 $1,422 $1,499 $2,138
Renegotiated loans.................................. 521 726 517 526 669
------- ------ ------- ------- ----------
Total nonperforming loans........................ 2,262 1,759 1,939 2,025 2,807
Loans past due 90 days and accruing................. 135 876 1,125 10 1
Other real estate................................... 373 1,834 2,070 1,184 1,451
------- ------- ------- ------- -------
Total nonperforming assets....................... $2,770 $4,469 $5,134 $3,219 $4,259
====== ====== ====== ====== ======
Nonperforming loans to total gross loans............ 1.40% 1.28% 1.47% 2.09% 3.35%
Nonperforming assets to total gross loans and other
real estate owned............................... 1.71% 3.21% 3.84% 3.29% 5.08%
Nonperforming assets to total assets................ .86% 1.74% 2.03% 1.91% 2.83%
Allowance for loan losses to nonperforming loans... 120.73% 144.40% 120.27% 90.07% 63.09%
</TABLE>
Nonperforming loans increased by $503,000 at December 31, 1997 compared to
December 31, 1996. The increase is primarily due to the reclassification of
certain loans from accruing to nonaccruing loans. If the nonaccruing loans in
1997 had continued to pay interest, interest income during 1997 would have
increased by $291,000. If nonaccruing loans in 1996 had continued to pay
interest, interest income during 1996 would have increased by $286,000.
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, 1997, such loans totaled $5.7
million with an allowance of $269,000 specifically allocated to them.
FOREIGN LOANS. The Company has no foreign loans or any other foreign exposure.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At December 31, 1997, the allowance for possible loan losses was $2.7
million as compared to $2.5 million at December 31, 1996. 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 management of the respective
Bank Subsidiaries 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 Company's independent accountants, and
management's judgment as to prevailing and anticipated real estate values and
other economic conditions in the Bank Subsidiaries' market areas. Since future
events that may affect these financial conditions are unpredictable, there is
uncertainty as to the final outcome of the Bank Subsidiaries' loans and
nonperforming assets.
19
<PAGE> 22
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance - beginning of period..................... $2,540 $2,332 $1,824 $1,771 $2,001
Charge-offs:
Commercial...................................... (356) (21) (589) (164) (694)
Real estate - mortgages......................... - (281) (364) (57) (140)
Installment loans to individuals................ (9) (63) (82) (43) (38)
Credit cards and related plans.................. (42) - - - -
-------- ---------- ----------- ---------- ----------
(407) (365) (1,035) (264) (872)
------- -------- -------- -------- --------
Recoveries:
Commercial...................................... 104 124 87 100 152
Real estate - mortgages......................... 7 9 - - 10
Installment loans to individuals................ 1 9 3 45 2
Credit cards and related plans.................. 1 - - - -
--------- ---------- --------- ---------- ---------
113 142 90 145 164
-------- -------- -------- -------- -------
Net charge-offs................................... (294) (223) (945) (119) (708)
Provision for possible loan losses................ 485 440 414 172 478
Adjustment (allowance for loan losses acquired
from Family First).............................. - (9) 1,039 - -
--------- --------- ------- ---------- --------
Balance - end of period........................... $2,731 $2,540 $2,332 $1,824 $1,771
====== ======= ======= ======= ======
Ratio of net charge-offs during the period to
average loans outstanding during the period..... .20% .16% .79% .13% .80%
</TABLE>
20
<PAGE> 23
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,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- ---------------------------------- ---------------------------------
% of % of % of
Loans Loans Loans
to to to
% of Total % of Total % of Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-------- --------- ------- -------- ---------- ------- ------- ---------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT END OF PERIOD
ALLOCABLE TO:
Commercial.................. $1,077 39% 60% $ 859 34% 53% $1,256 54% 53%
Real estate - construction.. 47 2 4 - - 4 - - 3
Real estate - mortgages..... 898 33 29 670 26 31 662 28 33
Installment loans to
individuals............... 280 10 7 206 8 12 296 13 11
Unallocated reserves........ 429 16 - 805 32 - 118 5 -
------- ------ -------- ------- ------ ------- ------- ------ ------
Total allowance for
possible loan losses.... $2,731 100% 100% $2,540 100% 100% $2,332 100% 100%
====== ===== ==== ====== ==== ==== ====== ==== ====
<CAPTION>
At December 31,
----------------------------------------------------------------------
1994 1993
---------------------------------- ----------------------------------
% of % of
Loans Loans
to to
% of Total % of Total
Amount Allowance Loans Amount Allowance Loans
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT END OF PERIOD
ALLOCABLE TO:
Commercial.................. $ 876 48% 54% $ 903 50% 54%
Real estate - construction.. - - 5 - - 3
Real estate - mortgages..... 457 25 27 437 25 32
Installment loans to
individuals............... 215 12 14 190 11 11
Unallocated reserves........ 276 15 - 241 14 -
------- ------ ------ ------- ----- -------
Total allowance for
possible loan losses.... $1,824 100% 100% $1,771 100% 100%
====== ==== ==== ====== ==== ====
</TABLE>
21
<PAGE> 24
OTHER REAL ESTATE
As of December 31, 1997, other real estate totaled $373,000, a decrease of
$1.5 million or 80% compared to December 31, 1996. The decrease was primarily
due to the sale of foreclosed properties. The $373,000 includes collateral
acquired through foreclosure of loans, stated at the lower of the loan value or
fair market value less estimated cost to sell. Management is actively seeking
repayment through sale of the underlying collateral.
DEPOSITS
As of December 31, 1997, total deposits were $257.6 million, an increase of
$34.3 million or 15% over total deposits at December 31, 1996. The following
table summarizes the average yield/rate of the components of average deposit
liabilities for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
Average Average Average
1997 Yield/Rate 1996 Yield/Rate 1995 Yield/Rate
-------- ---------- ---------- ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non interest-bearing deposits.... $ 60,481 - $ 50,243 - $ 44,335 -
Savings and interest-bearing..... 76,466 2.21% 81,112 2.22% 74,207 2.55%
Time............................. 92,435 5.55% 86,277 5.34% 75,505 5.35%
--------- --------- ---------
$229,382 $217,632 $194,047
======== ======== ========
</TABLE>
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
<TABLE>
<CAPTION>
At December 31, 1997
--------------------
(In Thousands)
<S> <C>
Three months or less................................................................... $13,706
Over three months through twelve months................................................ 10,894
Over twelve months..................................................................... 1,504
---------
$26,104
</TABLE>
SUBORDINATED DEBENTURES AND CANCELLABLE MANDATORY STOCK PURCHASE CONTRACTS
In December 1993, the Company received gross proceeds of $5 million by
issuing Redeemable Subordinated Debentures ("Debentures") (unsecured debt
obligation of the Company) due November 1, 1998, at an interest rate of 8.5%
payable quarterly. Concurrently, the Company issued Cancellable Mandatory Stock
Purchase Contracts ("Equity Contracts") to purchase $5 million of the Company's
common stock at a predetermined price of $8.88 (as adjusted for stock dividends)
per share to be exercised no later than November 1, 1997. During November 1997
all of the outstanding Equity Contracts which had not previously been exercised
were mandatorily exercised at the adjusted price of $8.88 per share. The Company
issued 561,337 shares of common stock in connection with these November
exercises. All of the Equity Contracts were exercised by the surrender of
Debentures having a face amount equal to the amount of the Equity Contracts.
Also in November 1997, the Company issued subordinated debentures in the
principal amount of $803,000.
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
On May 21, 1997, the Company, through the Trust, sold 920,000 Preferred
Securities at a price of $25 per Preferred Security, for a total of $23.0
million. The Preferred Securities have a distribution rate of 10% payable at the
end of each calendar quarter. The Trust Preferred Securities are treated as
Junior Subordinated Debentures on the Company's books and such currently qualify
for Tier I capital treatment. The Preferred Securities do not have a maturity
date and are callable by the Company on or about June 1, 2002, or earlier if
certain contingencies arise. The Debentures mature in the year 2027, at which
time the Preferred Securities must be redeemed.
22
<PAGE> 25
INTEREST RATE SENSITIVITY
Banks are concerned with the extent to which they are able to match
maturities of interest-earning assets and interest-bearing liabilities. Such
matching is facilitated by examining the extent to which such assets and
liabilities are interest rate-sensitive and by monitoring an institution's
interest rate-sensitivity gap. An asset or liability is considered to be
interest rate-sensitive if it will mature or reprice within a specific time
period. The interest rate-sensitivity gap is defined as the excess of
interest-earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. The
Bank Subsidiaries monitor their gap on a monthly basis, primarily their
six-month and one-year maturities, and work to maintain their gap within a range
of 10% to (25)%.
The Company had a positive position with respect to its exposure to interest
rate risk at December 31, 1997. The Asset/Liability Management Committees of the
Bank Subsidiaries' respective Boards of Directors meet quarterly to discuss
their interest rate risks. The Company uses simulation models to measure the
impact of potential changes in interest rates on the net interest income,
balance sheet mix and the spread relationship between market rates and bank
products. As described below, sudden changes in interest rates should not have a
material impact to the Bank Subsidiaries' results of operations. Should the Bank
Subsidiaries experience a positive or negative mismatch in excess of the
approved range, they have a number of remedial options. They have the ability to
reposition their investment portfolio to include securities with more
advantageous repricing and/or maturity characteristics. They can attract
variable or fixed-rate loan products as appropriate. They can also price deposit
products to attract deposits with maturity characteristics that can lower their
exposure to interest rate risk.
The following table summarizes, as of December 31, 1997, the repricing of
earning assets and interest-bearing liabilities in accordance with their
contractual terms in given time periods.
<TABLE>
<CAPTION>
Due within Four to One to Two to Over
Three Twelve Two Five Five Fair
Months Months Years Years Years Total Value
----------- ------- ------ -------- --------- --------- ---------
(Dollars in Thousands)
RATE-SENSITIVE ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C>
Investment securities.................$ $20,441 $13,546 $26,160 $ 55,470 $11,159 $126,776 $126,463
Rate 6.60% 6.35% 6.15% 6.63% 5.46% 6.39% -
Federal funds sold and deposit with bank $ 11,182 1,290 - - - 12,472 12,472
Rate 5.54% 6.60% - - - 5.63% -
Total loans..........................$ 54,103 7,152 13,913 71,282 14,406 160,856 161,807
Rate 9.59% 5.88% 8.61% 8.63% 7.01% 8.82% -
------- ------- ------- -------- ------- --------- -------------
Total rate-sensitive assets........ $85,726 $21,988 $40,073 $126,752 $25,565 $300,104 $300,742
======= ======= ======= ======== ======= ======== ========
RATE-SENSITIVE LIABILITIES:
Interest-bearing demand deposits.......$ $13,859 $ - $ 4,044 $ 22,505 $ 4,602 $ 45,010 $ 45,010
Rate 2.04% - 2.49% 1.72% 1.52% 1.87% -
Savings deposits......................$ 8,265 - - 4,151 15,087 27,503 27,503
Rate 2.26% - - 2.22% 1.41% 1.79% -
Time deposits.........................$ 27,781 25,944 52,224 6,572 - 112,521 112,739
Rate 5.26% 5.68% 5.83% 5.67% - 5.65% -
Other borrowings.....................$ 6,338 803 - - 23,000 30,141 30,141
Rate 5.23% 8.50% - - 10.00% 8.96% -
------- ------- -------- ----------- ------ --------- -------------
Total rate-sensitive liabilities... $56,243 $26,747 $56,268 $ 33,228 $42,689 $215,175 $215,393
------- ------- ------- -------- ------- -------- --------
Interest rate-sensitivity gap........... 29,483 (4,759) (16,195) 93,524 (17,124) 84,929
Interest rate-sensitivity gap as a percentage
of total rate-sensitive assets......... 9.82% (1.59%) (5.40%) 31.10% (5.69%)
Cumulative interest rate-sensitivity gap 29,483 24,724 8,529 102,053 84,929
====== ====== ===== ======= ======
Cumulative interest rate-sensitivity gap as a
percentage of total rate-sensitive assets 9.82% 8.22% 2.84% 33.93% 28.24%
</TABLE>
LIQUIDITY
The Company actively manages its liquidity under the direction of the
Asset/Liability Management Committees of the Bank Subsidiaries. During the last
two years the Company 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.
23
<PAGE> 26
Sources of liquidity at December 31, 1997 totaled $152.0 million or 47% of
total assets, consisting of investment securities of $126.8 million and $25.2
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity sources were $112.5 million or 44% of total assets
at December 31, 1996, consisting of investment securities in the amount of $89.7
million and cash and cash equivalents and interest-bearing due from banks in the
amount of $22.8 million.
CAPITAL RESOURCES
The Company's primary regulator, the Federal Reserve (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 II capital. The risk-based capital
guidelines require financial institutions to maintain specific defined credit
risk factors (risk-adjusted assets). As of December 31, 1997, the minimum Tier I
and the combined Tier I and Tier II capital ratios required by the Federal
Reserve Board for capital adequacy purposes were 4% and 8%, respectively.
In addition to the risk-based capital guidelines discussed above, the
Federal Reserve requires that a bank holding company which meets that
regulator's highest performance and operating standards maintain a minimum
leverage ratio (Tier I capital as a percentage of tangible assets) of 3%. Those
bank holding companies anticipating significant growth are expected to maintain
a leverage ratio above the minimum ratio. Minimum leverage ratios for each
entity will be evaluated through the ongoing regulatory examination process.
Regulations have also been issued by the Bank Subsidiaries' primary regulator,
the FDIC, establishing similar risk-based and leverage capital ratios which
apply to each bank as a separate entity.
The following table presents the risk-based and leverage capital ratios for
the Company, GFB and BCB, respectively, as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
---------------------- ---------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total capital (to risk-weighted assets)
Greater Community Bancorp....... $52,433 26.19% $16,015 8.00% $ - -
Great Falls Bank................ 14,954 12.60% 9,492 8.00% 11,865 10.00%
Bergen Commercial Bank.......... 8,517 14.21% 4,794 8.00% 5,993 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 35,908 17.94% 8,008 4.00% - -
Great Falls Bank................ 13,465 11.35% 4,746 4.00% 7,119 6.00%
Bergen Commercial Bank.......... 7,767 12.96% 2,397 4.00% 3,596 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp....... 35,908 12.71% 11,302 4.00% - -
Great Falls Bank................ 13,465 7.04% 4,746 4.00% 5,932 5.00%
Bergen Commercial Bank.......... 7,767 8.51% 3,651 4.00% 4,564 5.00%
AS OF DECEMBER 31, 1996
Total capital (to risk-weighted assets)
Greater Community Bancorp....... 27,146 17.29% 12,557 8.00% - -
Great Falls Bank................ 12,947 13.12% 7,894 8.00% 9,867 10.00%
Bergen Commercial Bank.......... 7,754 14.17% 4,376 8.00% 5,470 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp....... 20,189 12.86% 6,279 4.00% - -
Great Falls Bank................ 11,706 11.86% 3,947 4.00% 5,920 6.00%
Bergen Commercial Bank.......... 7,089 12.96% 2,188 4.00% 3,501 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp....... 20,189 8.01% 10,076 4.00% - -
Great Falls Bank................ 11,707 6.83% 6,880 4.00% 8,600 5.00%
Bergen Commercial Bank.......... 7,089 9.32% 3,044 4.00% 3,805 5.00%
</TABLE>
24
<PAGE> 27
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements and notes thereto presented
elsewhere herein 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 Company's operations.
Unlike most industrial companies, nearly all of the Company's assets and
liabilities are monetary in nature. As a result, interest rates have a greater
impact on the Company'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.
IMPACT OF RECENT ACCOUNTING STANDARDS
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," which eliminates primary and
fully diluted earnings per share and requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common shareholders by the
weighted-average common shares outstanding during the period. Diluted earnings
per share take into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. Prior periods' earnings per share calculations have been
restated to reflect the adoption of SFAS No. 128.
In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which is effective for years beginning after December 15,
1997. SFAS No. 130 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. The adoption of SFAS No. 130 is not expected to
have a material effect on the presentation of the Company's financial position
or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for all periods
beginning after December 15, 1997. SFAS No. 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprises and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Management is
currently evaluating the disclosure effect of SFAS No. 131 on its financial
statements.
YEAR 2000
The Company formally initiated an ongoing project in early 1997 to ensure
that its financial condition, results of operations or liquidity will not be
adversely affected by year 2000 computer software failures. A year 2000 project
team, with representatives from all areas of the Company, has been formed. An
inventory of all systems and products that could be affected by the year 2000
date change has been developed, verified and categorized as to its importance to
the Company. While the Company believes it is taking all appropriate steps to
assure year 2000 compliance, it is dependent on vendor compliance to some
extent. The Company is requiring its systems and software vendors to represent
that the services and products provided are, or will be, year 2000 compliant and
has planned a program of testing compliance. Management does not expect the
costs of bringing the Company's systems into year 2000 compliance to have a
material adverse effect on the Company's financial condition, results of
operations, or liquidity.
25
<PAGE> 28
ITEM 7A - FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS - Non interest-bearing........................................... $ 12,735 $ 11,994
FEDERAL FUNDS SOLD....................................................................... 10,110 6,300
--------- ----------
Total cash and cash equivalents................................................. 22,845 18,294
DUE FROM BANKS - Interest-bearing........................................................ 2,362 4,481
INVESTMENT SECURITIES - Available-for-sale............................................... 91,251 52,251
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$35,212 and $36,970 at December 31, 1997 and 1996, respectively)..................... 35,525 37,428
--------- ---------
126,776 89,679
LOANS.................................................................................... 161,249 137,410
Allowance for possible loan losses..................................................... (2,731) (2,540)
Unearned income........................................................................ (393) (283)
----------- ----------
Net loans....................................................................... 158,125 134,587
PREMISES AND EQUIPMENT, net.............................................................. 5,439 3,203
OTHER REAL ESTATE........................................................................ 373 1,834
ACCRUED INTEREST RECEIVABLE.............................................................. 2,149 1,906
INTANGIBLE AND OTHER ASSETS.............................................................. 3,916 2,522
---------- ----------
TOTAL ASSETS............................................................................. $321,985 $256,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing.................................................................. $ 72,521 $ 59,588
Interest-bearing...................................................................... 45,010 55,882
Savings............................................................................... 27,503 25,918
Time (includes deposits' $100 and over of $26,104 and $25,184
at December 31, 1997 and 1996, respectively)...................................... 112,521 81,854
-------- ---------
Total deposits.................................................................. 257,555 223,242
ACCRUED INTEREST PAYABLE................................................................. 2,053 1,466
OTHER LIABILITIES........................................................................ 2,975 1,590
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE........................................... 6,338 4,159
REDEEMABLE SUBORDINATED DEBENTURES....................................................... 803 4,988
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT.................................................................... 23,000 -
--------- ------------
Total liabilities............................................................... 292,724 235,445
-------- --------
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, 2,647,016 and
1,891,733 shares outstanding at December 31, 1997 and 1996, respectively............ 2,647 1,892
Additional paid-in capital............................................................. 25,138 17,841
Retained earnings (Accumulated deficit)................................................ (391) 1,209
Net unrealized holding gains on investment securities available-for-sale............... 1,867 307
Treasury stock (-0- and 12,596 at December 31, 1997 and 1996, respectively, at cost).. - (188)
-------------- -----------
Total shareholders' equity...................................................... 29,261 21,061
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................... $321,985 $256,506
========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements.
26
</TABLE>
<PAGE> 29
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees................................................................. $13,625 $12,621
Investment securities................................................................. 6,241 5,569
Federal funds sold and deposits with banks............................................ 682 503
--------- ---------
Total interest income............................................................ 20,548 18,693
INTEREST EXPENSE:
Deposits.............................................................................. 6,817 6,404
Short-term borrowings................................................................. 366 312
Long-term borrowings.................................................................. 1,765 438
-------- ---------
Total interest expense........................................................... 8,948 7,154
-------- --------
NET INTEREST INCOME....................................................................... 11,600 11,539
PROVISION FOR POSSIBLE LOAN LOSSES ....................................................... 485 440
--------- ---------
Net interest income after provision for losses................................... 11,115 11,099
OTHER INCOME
Service charges on deposit accounts................................................... 1,481 1,174
Credit card fee income................................................................ - 182
Other commission and fees............................................................. 627 48
Gain on sale of securities............................................................ 216 51
All other income...................................................................... 381 474
--------- ---------
Total other income............................................................... 2,705 1,929
OTHER EXPENSES:
Salaries and employee benefits....................................................... 4,741 4,144
Occupancy and equipment.............................................................. 2,139 1,958
Regulatory, professional and other fees.............................................. 734 696
FDIC insurance assessment............................................................ 52 340
Computer services.................................................................... 167 249
Office expenses...................................................................... 570 510
Other real estate operating expenses................................................. 60 304
All other operating expenses......................................................... 1,312 1,262
-------- --------
Total other expenses............................................................. 9,775 9,463
-------- --------
Income before income taxes and minority interest...................................... 4,045 3,565
PROVISION FOR INCOME TAXES ............................................................... 1,495 1,312
-------- --------
Income before minority interest....................................................... 2,550 2,253
MINORITY INTEREST......................................................................... 50 84
---------- ----------
NET INCOME................................................................................ $2,600 $ 2,337
====== =======
Net income per share - basic.............................................................. $ 1.20 $ 1.13
======= =======
Net income per share - diluted ........................................................... $ 1.13 $ 1.07
======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
27
</TABLE>
<PAGE> 30
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Unrealized
Gain
Additional on Securities Total
Common Paid-in Retained Available- Treasury Shareholders'
Stock Capital Earnings for-Sale Stock Equity
----- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996.................. $1,709 $15,231 $ 2,102 $ 553 $ - $19,595
Net income - 1996....................... - - 2,337 - - 2,337
10% stock dividend...................... 171 2,520 (2,697) - - (6)
Exercise of stock options............... 12 90 - - - 102
Cash dividends.......................... - - (533) - - (533)
Change in net unrealized holding loss
on securities available-for-sale... - - - (246) - (246)
Purchase of treasury stock.............. - - - - (188) (188)
------------ ------------ ----------- ----------- ----- ---------
BALANCE, December 31, 1996................ $1,892 $17,841 $ 1,209 $ 307 $(188) $21,061
Net income - 1997 ..................... - - 2,600 - - 2,600
10% stock dividend...................... 189 3,211 (3,400) - - -
Exercise of stock options............... 50 400 - - - 450
Exercise of equity contracts............ 560 4,433 - - - 4,993
Cash dividends.......................... - - (800) - - (800)
Change in net unrealized holding gain
on securities available-for-sale.. - - - 1,560 - 1,560
Purchase of treasury stock.............. - - - - (156) (156)
Retirement of treasury stock ........... (44) (747) - - 344 (447)
--------- ---------- ----------- ----------- ------- ----------
BALANCE, December 31, 1997 $2,647 $25,138 $ (391) $1,867 $ - $29,261
======= ======== ========= ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
28
</TABLE>
<PAGE> 31
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 2,600 $ 2,337
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 1,056 1,056
Accretion of discount on securities, net.............................................. (127) (241)
Accretion of discount on debentures................................................... 11 12
Realization of discount on securities sold............................................ (88) 3
Gain on sale of securities, net....................................................... ( 216) (51)
Provision for possible loan losses.................................................... 485 440
Deferred income tax provision (benefit)............................................... (233) (267)
Decrease (increase) in accrued interest receivable.................................... (243) 71
Decrease (increase) in other assets................................................... (1,394) 107
Increase in accrued interest and other liabilities.................................... 1,972 104
---------- ----------
Net cash provided by operating activities................................... 3,823 3,571
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities -
Purchases........................................................................... (62,411) (18,962)
Sales............................................................................... 10,986 5,472
Maturities.......................................................................... 14,339 9,004
Held-to-maturity securities -
Purchases........................................................................... (9,177) (23,089)
Maturities.......................................................................... 11,079 21,812
Net decrease (increase) in interest-bearing deposits with banks........................ 2,119 (3,333)
Net increase in loans.................................................................. (23,728) (5,920)
Capital expenditures................................................................... (3,184) (824)
Decrease in other real estate.......................................................... 1,549 236
Net cash used in investing activities....................................... (58,428) (15,604)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts.................................................... 34,313 476
Increase in securities sold under agreement to repurchase........................... 2,179 1,403
Proceeds from issuance of subordinated debt......................................... 23,000 -
Proceeds from exercise of equity contracts......................................... 165 -
Dividends paid...................................................................... (800) (533)
Proceeds from exercise of stock options............................................. 450 102
Purchases of treasury stock......................................................... (156) (188)
Other, net.......................................................................... 5 21
------------ ----------
Net cash provided by financing activities................................... 59,156 1,281
--------- --------
Net increase (decrease) in cash and cash equivalents........................ 4,551 (10,752)
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 18,294 29,046
--------- --------
CASH AND CASH EQUIVALENTS, end of period.................................................. $22,845 $18,294
======== =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
29
</TABLE>
<PAGE> 32
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company, through its subsidiary banks, Great Falls Bank (GFB) and Bergen
Commercial Bank (BCB) (collectively the "Bank Subsidiaries"), offers a broad
range of lending, depository and related financial services to individual
consumers, business and governmental units primarily through eleven 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 Company changed its name to Greater Community Bancorp
from Great Falls Bancorp to reflect the expanded embraced range of businesses
under its umbrella.
In April 1997, GCB Capital Trust (the "Trust"), a wholly-owned nonbank
subsidiary was formed. 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 Preferred Securities
and Common Securities to acquire Junior Subordinated Debentures issued by the
Company. Accordingly, the Junior Subordinated Debentures will be the sole assets
of the Trust and the payments under the Junior Subordinated Debentures will be
the sole revenue of the Trust. All of the Common Securities are owned by the
Company.
In July 1997, GCB Realty, L.L.C., ("Realty") a New Jersey limited liability
company located in Totowa, New Jersey, was formed. The purposes of Realty are to
engage in acquiring and managing real estate properties. In July 1997, Realty
consummated the purchase of a property for $1.8 million in Bergen County, New
Jersey. BCB is one of the tenants. Four tenants lease space in the building.
Greater Community Services, Inc. (formerly known as Great Falls Financial
Services, Inc.) is a wholly-owned nonbank subsidiary of the Company. The entity
was reactivated in 1997. Currently, it provides accounting/bookkeeping, data
processing and management information systems, loan operations and various other
banking-related services at cost to the Bank Subsidiaries.
In October 1996, the Company formed Greater Community Financial, L.L.C.
("Greater Community Financial"), a New Jersey limited liability company located
in Clifton, New Jersey. Greater Community Financial is a registered
broker-dealer. At December 31, 1997 and 1996, Greater Community Financial had
assets of $407,000 and $313,000 and member capital of $396,000 and $311,000,
respectively.
The Bank Subsidiaries 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 with
respect to one or more of the services they render.
The Company and the Bank Subsidiaries 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 Bank Subsidiaries' businesses are
particularly susceptible to being affected by state and federal legislation and
regulations.
BASIS OF FINANCIAL PRESENTATION
The accounting and reporting policies of the Company 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
30
<PAGE> 33
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.
In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which is effective for years beginning after December 15,
1997. SFAS No. 130 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. The adoption of SFAS No. 130 is not expected to
have a material effect on the presentation of the Company's financial position
or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for all periods
beginning after December 15, 1997. SFAS No. 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprises and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Management is
currently evaluating the disclosure effect of SFAS No. 131 on its financial
statements.
FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of
Financial Instruments." SFAS No.107 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.
INVESTMENT SECURITIES
The Company accounts for its investment securities in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Investment securities which the Company 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
Company 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 that management has the intent or the ability to hold for the
foreseeable future or until maturity or payoff 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 nonaccrual when principal and interest have 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.
31
<PAGE> 34
The Company follows SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures." This standard requires that
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 Company had previously measured the
allowance for credit losses using methods similar to those prescribed in this
standard.
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 extinguishments of liabilities. This statement
is effective for transfers of financial assets, servicing of financial assets
and extinguishments of liabilities occurred after December 31, 1996. Adoption of
this statement did not have a material impact on the Company'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 Company 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 Company'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 AND OTHER ASSETS
Intangible assets represent the excess of the cost over the fair value of
net assets of acquired businesses. Intangible assets at December 31, 1997 and
1996, were approximately $458,000 and $566,000, 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 $108,000 and $111,000 for the years ended December 31, 1997 and
1996, respectively.
Financing costs related to the issuance of the Debentures are being
amortized over the life of the instruments and are included in other assets.
MORTGAGES HELD FOR SALE
Mortgages held for sale are recorded at cost which approximates 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 Bank Subsidiaries 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. There were no loans held for sale at December
31, 1997 and 1996.
FEDERAL INCOME TAXES
The Company 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
nonaccrual loans and acquired net operating loss carryforwards. The Company and
its subsidiaries file a consolidated Federal income tax return.
32
<PAGE> 35
DIVIDEND RESTRICTIONS
New Jersey state law permits the payment of dividends from a bank subsidiary
to its parent company provided there is no impairment of the subsidiary's
capital accounts and provided the subsidiary bank maintains a surplus of not
less than 50% of its capital stock, or if payment of the dividend will not
reduce the subsidiary's surplus. As of December 31, 1997 and 1996, GFB had $5.9
million and $6.5 million and BCB had $3.4 million and $1.6 million of funds
available for the payment of dividends to the Company, respectively.
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 $1.5 million and $1.0
million for the years ended December 31, 1997 and 1996, respectively. Cash paid
for interest was $8.4 million and $7.3 million for the years ended December 31,
1997 and 1996, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses for
the years ended December 31, 1997 and 1996 were approximately $201,000 and
$143,000, respectively.
STOCK OPTIONS
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
on January 1, 1996. The standard contains a fair value-based method for valuing
stock-based compensation that entities may use, and 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
Company's stock option plans are accounted for under APB Opinion No. 25.
NET INCOME PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," which eliminates primary and
fully diluted earnings per share and requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common shareholders by the
weighted-average common shares outstanding during the period. Diluted earnings
per share take into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. Earnings per share calculations for 1996 have been restated
to reflect the adoption of SFAS No. 128.
All weighted average actual shares or per share information in the financial
statements has been adjusted retroactively for the effect of stock dividends.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial statements to
conform to the classifications used in 1997.
33
<PAGE> 36
NOTE 2 INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and estimated fair market value
of the Company's investment securities available-for-sale and held-to-maturity
are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1997
------------------------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
---------------- ----------------- ----------------- -------------
AVAILABLE-FOR-SALE (In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies securities.. $33,590 $ 294 $ - $33,884
State and political
subdivisions.................... 558 - - 558
Other debt and equity
securities...................... 13,410 2,844 10 16,244
Mortgage-backed securities:
FHLMC ....................... 33,298 47 117 33,228
FNMA......................... 7,301 43 7 7,337
--------- -------- ------- ---------
40,599 90 124 40,565
-------- -------- ----- --------
$88,157 $3,228 $134 $91,251
======= ====== ==== =======
HELD-TO-MATURITY
U.S. Treasury and U.S.
Government agencies securities.. $14,822 $ 93 $396 $14,519
State and political
subdivisions.................... 1,390 1 - 1,391
Mortgage-backed securities:
FHLMC ....................... 10,242 38 19 10,261
FNMA......................... 9,071 6 37 9,041
--------- -------- ----- ---------
19,313 44 56 19,302
-------- -------- ----- --------
$35,525 $ 138 $452 $35,212
======= ====== ==== =======
For the Years Ended December 31,
-----------------------------------------------------------------
1996
-----------------------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gain Losses Value
--------------- ----------------- ----------------- ------------
AVAILABLE-FOR-SALE (In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies securities.. $36,673 $213 $ 25 $36,861
State and political
subdivisions.................... 1,006 - - 1,006
Other debt and equity
securities...................... 6,192 215 - 6,407
Mortgage-backed securities:
FHLMC ....................... 3,076 39 - 3,115
FNMA......................... 4,803 59 - 4,862
-------- ------ ------- --------
7,879 98 - 7,977
-------- ------ ------- --------
$51,750 $526 $ 25 $52,251
======= ==== ===== =======
HELD-TO-MATURITY
U.S. Treasury and U.S.
Government agencies securities.. $18,996 $135 $529 $18,602
State and political
subdivisions.................... 393 - 3 390
Mortgage-backed securities:
FHLMC ....................... 12,210 16 21 12,205
FNMA......................... 5,829 3 59 5,773
--------- ------ ----- ---------
18,039 19 80 17,978
-------- ----- ----- --------
$37,428 $154 $612 $36,970
======= ==== ==== =======
34
</TABLE>
<PAGE> 37
The amortized cost and estimated market value of securities at December 31,
1997, 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.
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------
Amortized Fair Market
Cost Value
---- -----
(In Thousands)
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less................................. $20,212 $20,280
Due after one year through five years................... 13,600 13,774
Due after five years through ten years.................. 336 388
Mortgage-backed securities.............................. 40,599 40,565
Other debt and equity securities ....................... 13,410 16,244
-------- --------
$88,157 $91,251
======= =======
HELD-TO-MATURITY
Due in one year or less................................. $ 9,418 $ 9,422
Due after one year through five years................... 5,794 5,805
Due after five years through ten years.................. 1,000 683
Mortgage-backed securities.............................. 19,313 19,302
-------- --------
$35,525 $35,212
======= =======
</TABLE>
Proceeds from sales of available-for-sale securities for the years ended
December 31, 1997 and 1996 were $11.0 million and $5.5 million, respectively.
Gross gains of $216,000 and $51,000 were realized on these sales for the years
ended December 31, 1997 and 1996, respectively. Gross losses were not
significant for the years ended December 31, 1997 and 1996.
Securities with a carrying value of $17.5 million and $13.7 million at
December 31, 1997 and 1996, respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes required by law.
NOTE 3 LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Loans secured by one- to four-family residential properties....... $ 45,700 $ 43,100
Loans secured by nonresidential properties........................ 81,064 58,106
Loans to individuals.............................................. 10,549 9,997
Commercial loans.................................................. 16,847 14,106
Construction loans................................................ 5,784 5,534
Other loans....................................................... 1,305 6,567
-------- --------
$161,249 $137,410
======== ========
</TABLE>
35
<PAGE> 38
The following table presents information related to loans which are on a
nonaccrual 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.
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Nonaccrual loans............................................................. $1,741 $1,033
Renegotiated loans........................................................... 521 726
-------- -------
Total nonperforming loans.................................................. $2,262 $1,759
====== ======
Loans 90 days or more past due and still accruing............................ $ 135 $ 876
======= =======
Gross interest income which would have been recorded under original terms.... $ 291 $ 286
======= =======
</TABLE>
The balance of impaired loans was $1.3 million and $711,000 at December 31,
1997 and 1996, respectively. The Bank Subsidiaries 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 $156,000 and $316,000 at December
31, 1997 and 1996, respectively. The average recorded investment in impaired
loans was $1.0 million and $1.1 million at December 31, 1997 and 1996,
respectively. The income recognized on impaired loans for the years ended
December 31, 1997 and 1996, were $19,000 and $0, respectively. The Bank
Subsidiaries' policy for interest income recognition on impaired loans is to
recognize income on restructured loans under the accrual method. The Bank
Subsidiaries recognize income on nonaccrual loans under the cash basis when both
the loans are current and the collateral on the loans is sufficient to cover the
outstanding obligation to the Bank Subsidiaries. If these factors do not exist,
the Bank Subsidiaries will not recognize income.
The Bank Subsidiaries extended credit 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, 1997, loans outstanding to these related parties
amounted to $3.8 million. An analysis of activity in loans to related parties at
December 31, 1997, resulted in new loans of $2.4 million and repayments of $1.5
million. All such loans are current as to principal and interest payments at
December 31, 1997.
NOTE 4 ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Balance at beginning of year...................................... $2,540 $2,332
Acquired businesses............................................... - (9)
Provision charged to operations................................... 485 440
Charge-offs....................................................... (407) (365)
Recoveries........................................................ 113 142
-------- --------
Balance at end of year............................................ $2,731 $2,540
======= ======
</TABLE>
36
<PAGE> 39
NOTE 5 PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
Estimated ---------------------------
Useful Lives 1997 1996
------------ ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Land............................................. - $ 617 $ 124
Buildings and improvements....................... 5 to 20 years 2,468 481
Furniture, fixtures and equipment................ 3 to 10 years 3,897 3,327
Leasehold improvements........................... 3 to 40 years 2,130 1,982
------- -------
9,112 5,914
Less accumulated depreciation and amortization... 3,673 2,711
------ -------
$5,439 $3,203
====== ======
</TABLE>
NOTE 6 DEPOSITS
At December 31, 1997, the schedule of maturities of Certificates of Deposit
is as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1998............................................................. $105,947
1999............................................................. 4,343
2000............................................................. 1,207
2001............................................................. 510
2002 ............................................................ 514
-----------
$112,521
===========
</TABLE>
NOTE 7 DEBT
FEDERAL HOME LOAN BANK ADVANCES
The Company has a line of credit for $15.9 million 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, 1997 and 1996 there were no outstanding
balances.
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S SUBORDINATED DEBT
In May 1997, the Company issued $23 million of 10.00% of junior subordinated
debentures to GCB Capital Trust, a Delaware Business Trust, in which the Company
owns all of the common equity. The trust issued $23 million of Preferred
Securities to investors, secured by the junior subordinated debentures and
guarantee of the Company. The junior subordinated debentures mature in the year
2027. Although the junior subordinated debentures will be treated as debt of the
Company, they currently qualify for Tier I capital investments, subject to the
25% limitation under risk-based capital guidelines of the Federal Reserve. The
portion of the Trust Preferred Securities that exceeds this limitation qualifies
as Tier II capital of the Company.
SUBORDINATED DEBENTURES AND CANCELLABLE MANDATORY STOCK PURCHASE CONTRACTS
The Company issued $5.0 million of 8.5% Redeemable Subordinated Debentures
("Debentures") due November 1, 1998, interest payable quarterly. In addition to
the Debentures, the Company issued Cancellable Mandatory Stock Purchase
Contracts ("Equity Contracts") requiring the purchase of $5.0 million in common
stock at a price of $8.88 (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 could
be paid by the surrender of the Debentures with a principal amount equal to the
37
<PAGE> 40
amount of the common stock to be purchased. During November 1997, all of the
outstanding stock purchase contracts which had not previously been exercised
were mandatorily exercised at the adjusted price of $8.88 per share. The Company
issued 561,337 shares of common stock in connection with these November
exercises. Subordinated debentures in the principal amount of $803,000 were
outstanding at December 31, 1997.
NOTE 8 INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Federal
Current................................................................. $1,512 $1,452
Deferred................................................................ (233) (267)
State...................................................................... 216 127
------ -------
$1,495 $1,312
====== ======
</TABLE>
The reconciliation of the tax computed at the statutory federal rate was as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Tax at statutory rate...................................................... $1,392 $1,241
Increase (reduction) in tax resulting from:
Tax-exempt income......................................................... (46) (22)
Amortization of intangible assets......................................... 36 37
State income tax, net of federal benefit.................................. 142 84
Other...................................................................... (29) (28)
------ -------
Provision for income taxes.......................... ..................... $1,495 $1,312
====== =======
</TABLE>
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Allowance for possible losses on loans and other real estate.............. $ 720 $ 604
Interest income on nonaccrual loans....................................... 303 237
Depreciation and amortization............................................. 202 76
Acquired net operating loss carryforward.................................. 231 272
Difference between book and tax basis of assets acquired.................. 351 370
Unrealized holding gain on investment securities available-for-sale....... (1,227) (194)
Other..................................................................... (112) (97)
-------- ------
Total net deferred tax asset (included in other assets)............... $ 468 $1,268
======== ======
</TABLE>
At December 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $700,000. This net operating loss
carryforward originated from pre-acquisition losses at Family First. Subject to
certain yearly limitations, the Company 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.
38
<PAGE> 41
NOTE 9 SHAREHOLDERS' EQUITY
On July 31, 1997 and July 31, 1996, the Company paid 10% stock dividends on
its common stock to shareholders of record on July 15, 1997 and July 15, 1996,
respectively.
In April 1996, the Company amended its articles of incorporation to increase
the number of authorized shares of common stock from 4,000,000 shares to
10,000,000 shares.
NOTE 10 EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS No.
128, "Earnings Per Share," is as follows:
<TABLE>
<CAPTION>
For Year Ended December 31, 1997
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
(In Thousands, except for per share data)
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders...... $2,600 $2,173 $1.20
EFFECT OF DILUTIVE SECURITIES
Options.......................................... - 78 (.04)
Equity Contracts................................. 208 231 (.03)
------- ------ --------
DILUTED EPS
Net income available to common stockholders
plus assumed conversions....................... $2,808 $2,482 $1.13
====== ====== =====
</TABLE>
Options to purchase 4,500 shares of common stock at $19.38 were outstanding
during 1997. They were not included in the computation of diluted EPS because
the option exercise price was greater than the average market price of the
common shares.
<TABLE>
<CAPTION>
For Year Ended December 31, 1996
--------------------------------
(In Thousands, except for per share data)
<S> <C> <C> <C>
BASIC EPS
Net Income available to common stockholders...... $2,337 $2,067 $1.13
EFFECT OF DILUTIVE SECURITIES
Options.......................................... - 91 (.05)
Equity Contracts................................. 255 271 (.01)
-------- ------- -------
DILUTED EPS
Net Income available to common stockholders
plus assumed conversions...................... $2,592 $2,429 $1.07
====== ====== =====
</TABLE>
NOTE 11 STOCK OPTIONS
The Company adopted a nonstatutory stock option plan in 1988 (the "1988
Plan") allowing for the granting to employees of options to acquire up to a
maximum of 111,304 shares of the Company's common stock. Effective with the
approval of the 1996 Employee Plan no further shares will be granted under the
1988 Plan. At December 31, 1997, options to purchase 44,698 shares were
outstanding and expire on December 31, 1998.
The Company adopted a nonstatutory stock option plan in 1993 (the "1993
Plan") authorizing the granting of options to purchase shares of the Company'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 grants under that plan. During 1996, all outstanding options were
exercised under the 1993 Plan.
39
<PAGE> 42
The Company adopted a nonstatutory stock option plan in 1994 (the "1995
Plan") allowing for the Company's Board of Directors to grant, to the
individuals who were directors of GFB at that time, options to purchase a total
of 35,937 shares of the Company's common stock. During 1997, all outstanding
options were exercised under the 1995 Plan.
The Company 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 Company and its subsidiaries. Effective with the
approval of the 1996 Employee Plan, no additional shares will be granted under
the 1988 Plan. A total of 242,000 shares is authorized to be granted under the
1996 Employee Plan. During 1997 and 1996, options to acquire 9,450 and 123,420
shares were granted under this plan. At December 31, 1997, options to purchase a
total of 127,700 shares were outstanding under the 1996 Employee Plan. The 1996
Stock Option Plan for Nonemployee Directors (the "1996 Directors Plan") provides
for the granting of nonqualified stock options to nonemployee directors of the
Bank Subsidiaries. A total of 114,950 shares is authorized to be granted under
the 1996 Directors Plan. During 1996, options to acquire 114,950 shares were
granted under this plan. At December 31, 1997, options to purchase a total of
114,377 shares were outstanding under the 1996 Directors Plan.
Had compensation cost for the above stock option plans been determined based
on the fair value of the options at the grant dates consistent with the method
of SFAS No. 123, the Company's net income and diluted earnings per share would
have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1997 1996
---- ----
(In Thousands, except per share data)
<S> <C> <C>
Net income....................................... As reported $2,600 $2,337
Pro forma $2,511 $2,300
Net income per share - basic..................... As reported $1.20 $1.13
Pro forma $1.16 $1.11
Net income per share - diluted................... As reported $1.13 $ 1.07
Pro forma $1.09 $ 1.05
</TABLE>
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 1997 and 1996, respectively: dividend yield of
2.2% for both years; expected volatility of 27% and 35%; risk-free interest
rates of 6.43% and 6.35% percent; and expected lives of 10 years for both years.
A summary of the status of the Company's stock option plans as of December
31, 1997 and 1996 and the change during the years ending on those dates is
represented below.
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding, beginning of year......... 332,436 $12.46 106,778 $ 8.14
Granted................................ 9,450 17.32 238,370 14.13
Exercised.............................. (50,527) 9.02 (11,695) 8.05
Terminated............................. (4,584) 14.08 (1,017) 9.39
--------- ------ -------- --------
Outstanding, end of year............... 286,775 $13.21 332,436 $12.46
======== ====== ======== =======
Options exercisable at year-end........ 18,038 36,249
======== ========
Weighted average fair value of
options granted during the year..... $ 7.19 $ 7.53
====== ======
</TABLE>
40
<PAGE> 43
The following table summarizes information about nonqualified options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ------------------------------------
Number Weighed Number
Outstanding at Average Weighted- Outstanding at Weighted-
Range of Exercise December 31, Remaining Average December 31, Average
Prices 1997 Contractual Life Exercise Price 1997 Exercise Price
------ ---------------- ----------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.21 - 7.68 26,675 1 year $ 6.64 10,141 $ 6.61
$ 9.39 - 13.95 229,200 7.45 years $13.59 7,897 $13.95
$15.45 - 19.38 30,900 8 years $16.11 - -
</TABLE>
NOTE 12 EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all employees.
Under the plan, the Company 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
Company were approximately $183,000 and $139,000 for the years ended December
31, 1997 and 1996, respectively.
NOTE 13 COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company 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 $681,000 and $621,000 for the years ended December 31, 1997 and
1996, respectively. Included in these amounts is $146,000 per year which is paid
to a general partnership that includes two directors of the Company.
As of December 31, 1997, future minimum annual rental payments under these
leases are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 695,000
1999............................................................. 671,000
2000............................................................. 540,000
2001............................................................. 269,000
2002............................................................. 64,000
----------
Total.......................................................$2,239,000
==========
</TABLE>
LITIGATION
The Company 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 Company 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 Bank Subsidiaries 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
41
<PAGE> 44
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 Bank Subsidiaries have in particular classes of financial
instruments.
The Bank Subsidiaries' exposure to credit loss in the event of
nonperformance 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 Bank Subsidiaries use the same credit
policies in making commitments and conditional obligations as they do for
on-balance-sheet instruments.
Unless noted otherwise, the Bank Subsidiaries 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,
------------------------
1997 1996
------ ------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk (In Thousands)
Commitments to extend credit................................. $30,221 $22,100
Standby letters of credit and financial guarantees written.. 1,468 1,144
</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 Bank Subsidiaries evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank Subsidiaries upon extension of credit,
is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Bank
Subsidiaries 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 Bank Subsidiaries 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, 1997 varies up to 100%.
The Bank Subsidiaries grant various commercial and consumer loans, primarily
within the State of New Jersey. Although the Bank Subsidiaries 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 Company,
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 Company'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 Company 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 Company 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, 1997 and 1996 are outlined
below.
42
<PAGE> 45
For cash and due from banks, the recorded book values of $22.8 million and
$18.3 million at December 31, 1997 and 1996, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values of
$2.4 million and $4.5 million at December 31, 1997 and 1996, 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, 1997 and 1996, 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.
The following table describes the carrying amounts and estimated fair values
of investment securities and loans at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale. $ 91,251 $ 91,251 $ 52,251 $ 52,251
Investment securities held-to-maturity.. 35,535 35,212 37,428 36,970
Loans.................................... 160,856 161,807 137,127 137,257
</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.
The following table describes the carrying amounts and estimated fair values
of time deposits and securities sold under agreements to repurchase at December
31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Time deposits.................................. $112,521 $112,739 $81,854 $82,540
Securities sold under agreements to repurchase. 6,338 6,338 4,159 4,159
</TABLE>
The fair values of the 8.5% redeemable subordinated debentures totaling
$803,000 and $5 million are estimated to approximate their recorded book
balances at December 31, 1997 and 1996, respectively. The fair value of the
guaranteed preferred beneficial interest in the Company's subordinated debt
totaling $23.0 million at December 31, 1997 approximates fair market value.
There was no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which totaled approximately
$31.7 million and $23.2 million at December 31, 1997 and 1996, 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 Company and the Bank Subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies including the
Federal Reserve. 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 Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company
43
<PAGE> 46
and the Bank Subsidiaries 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 judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank Subsidiaries and the Company to maintain minimum amounts and
ratios of total and Tier I capital to risk weighted assets. As of December 31,
1997, management believes that the Company and the Bank Subsidiaries meet all
capital adequacy requirements to which they are subject.
As of December 31, 1997, the Company and the Bank Subsidiaries had the
capital ratios indicated on the following table, and met all regulatory
requirements for classification as "well-capitalized" institutions. To be
categorized as well capitalized, the Company and Bank Subsidiaries must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the following table. There are no conditions or events which have
occurred that management believes have changed the category of the Company or
either of the Bank Subsidiaries.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total capital (to risk-weighted assets)
Greater Community Bancorp...... $52,433 26.19% $16,015 8.00% $ - -
Great Falls Bank............... 14,954 12.60% 9,492 8.00% 11,865 10.00%
Bergen Commercial Bank......... 8,517 14.21% 4,794 8.00% 5,993 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp...... 35,908 17.94% 8,008 4.00% - -
Great Falls Bank............... 13,465 11.35% 4,746 4.00% 7,119 6.00%
Bergen Commercial Bank......... 7,767 12.96% 2,397 4.00% 3,596 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp...... 35,908 12.71% 11,302 4.00% - -
Great Falls Bank............... 13,465 7.04% 4,746 4.00% 5,932 5.00%
Bergen Commercial Bank......... 7,767 8.51% 3,651 4.00% 4,564 5.00%
AS OF DECEMBER 31, 1996
Total capital (to risk-weighted assets)
Greater Community Bancorp...... 27,146 17.29% 12,557 8.00% - -
Great Falls Bank............... 12,947 13.12% 7,894 8.00% 9,867 10.00%
Bergen Commercial Bank......... 7,754 14.17% 4,376 8.00% 5,470 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp...... 20,189 12.86% 6,279 4.00% - -
Great Falls Bank............... 11,706 11.86% 3,947 4.00% 5,920 6.00%
Bergen Commercial Bank......... 7,089 12.96% 2,188 4.00% 3,501 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp...... 20,189 8.01% 10,076 4.00% - -
Great Falls Bank............... 11,707 6.83% 6,880 4.00% 8,600 5.00%
Bergen Commercial Bank......... 7,089 9.32% 3,044 4.00% 3,805 5.00%
</TABLE>
44
<PAGE> 47
NOTE 17 CONDENSED FINANCIAL
INFORMATION - PARENT COMPANY ONLY
The condensed financial information of Greater Community Bancorp is as
follows:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
--------- ----------
ASSETS: (In Thousands)
<S> <C> <C>
Cash and Federal Funds sold..................................................... $ 3,258 $ 627
Investment securities available-for-sale......................................... 24,925 5,766
Accrued interest receivable...................................................... 177 29
Investment in subsidiaries....................................................... 25,189 19,844
Other assets..................................................................... 1,684 92
--------- ----------
Total assets................................................................ $55,233 $26,358
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Redeemable subordinated debentures............................................... $ 803 $ 4,988
Guaranteed preferred beneficial interest in the Company's subordinated debt...... 23,711 -
Other liabilities................................................................ 1,458 309
Shareholders' equity............................................................. 29,261 21,061
-------- --------
Total liabilities and shareholders' equity.................................. $55,233 $26,358
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996
--------- ----------
ASSETS: (In Thousands)
<S> <C> <C>
Equity in undistributed income of Bank Subsidiaries............................. $ 2,093 $ 712
Dividends from Bank Subsidiaries................................................. 958 1,858
Interest income.................................................................. 1,008 234
Non interest income.............................................................. 154 (9)
--------- ----------
4,213 2,795
Expenses
Interest on subordinated debt.................................................... 1,765 -
Other expenses................................................................... 253 656
--------- --------
Income before income taxes.................................................. 2,195 2,139
Income tax benefit............................................................... 405 198
--------- --------
Net income.................................................................. $ 2,600 $ 2,337
======= =======
</TABLE>
45
<PAGE> 48
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
--------- ----------
ASSETS: (In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 2,600 $ 2,337
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Discount accretion.............................................................. - 25
(Gain) loss on sale of investment securities available-for-sale................. (154) (9)
(Increase) decrease in other assets............................................ (1,740) 87
Decrease in other liabilities................................................... 1,149 73
Equity in undistributed income of subsidiaries................................. (2,093) (712)
---------- ---------
Net cash provided by (used in) operating activities..................... (238) 1,801
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale........................... (23,951) -
Proceeds from sales of investment securities, available-for-sale................ 4,891 2,193
Proceeds from maturities of investment securities, available-for-sale........... - (3,301)
Payments for investments in and advances to subsidiaries........................ (775) -
----------- -----------
Net cash used in investing activities.................................... (19,835) (1,108)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of subordinated debt......................................... 23,000 -
Proceeds from exercise of stock options......................................... 450 102
Proceeds from exercise of equity contracts...................................... 165 -
Dividends paid.................................................................. (800) (533)
Purchase of treasury stock...................................................... (156) (188)
Other, net...................................................................... 45 (79)
----------- ----------
Net cash provided by financing activities................................ 22,704 (698)
--------- ---------
Net increase (decrease) in cash and cash equivalents..................... 2,631 (5)
CASH AND CASH EQUIVALENTS, beginning of year......................................... 627 632
----------- ---------
CASH AND CASH EQUIVALENTS, end of year............................................... $ 3,258 $ 627
========= ========
</TABLE>
46
<PAGE> 49
NOTE 18 QUARTERLY
FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Company
which, in the opinion of management, reflects all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
Company's results of operations.
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
(In Thousands, except for per share data)
<S> <C> <C> <C> <C>
1997
Interest income................................. $ 5,494 $5,296 $4,994 $4,764
Interest expense................................ 2,508 2,491 2,143 1,806
Net interest income............................. 2,986 2,805 2,851 2,958
Provision for credit losses..................... 105 105 160 115
Other operating income.......................... 806 766 684 449
Other operating expenses........................ 2,546 2,515 2,391 2,323
Income before income taxes...................... 1,141 951 984 969
Net income...................................... 771 604 626 599
Per share data
Average common shares outstanding - basic....... 2,173 2,078 2,072 2,066
Average common shares outstanding - diluted..... 2,251 2,448 2,459 2,438
Net income per common share - basic............. .30 .29 .29 .32
Net income per common share - diluted........... .29 .27 .27 .30
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 - basic....... 2,069 2,069 2,069 2,067
Average common shares outstanding - diluted..... 2,429 2,380 2,343 2,394
Net income per common share - basic............. .41 .23 .26 .23
Net income per common share - diluted........... .37 .22 .25 .23
</TABLE>
47
<PAGE> 50
Report Of Independent
Certified Public Accountants
To the Board of Directors
and Shareholders of
Greater Community Bancorp
We have audited the accompanying consolidated balance sheets of Greater
Community Bancorp and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the two years in the period ended December 31, 1997. 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Greater Community Bancorp and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their consolidated cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 21, 1998
48
<PAGE> 51
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.
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 1998 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 Company and Chairman of GFB, is the uncle of Anthony M.
Bruno, Jr., Vice Chairman of the Company and Chairman of BCB. C. Mark
Campbell, a director and Executive Vice President of the Company 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 1998 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 1998 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 1998 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 1998 Annual Meeting of Stockholders
to be furnished to the 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.
49
<PAGE> 52
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 1998 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
- ----------- -----------
3 Restated Bylaws adopted 12-16-97
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
27.8 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
quarter of the fiscal year ended December 31, 1997.
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREATER COMMUNITY BANCORP
Date: March 13, 1998 BY: /s/ John L. Soldoveri
John L. Soldoveri
Principal Executive Officer and
Chairman of the Board of
Directors
Date: March 13, 1998 BY: /s/ Naqi A. Naqvi
Naqi A. Naqvi
Treasurer, Principal Financial
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C>
Date: March 13, 1998 BY: /s/ George E. Irwin
-------------------------------------------
George E. Irwin, President, Chief Operating
Officer and Director
Date: March 13, 1998 BY: /s/ Anthony M. Bruno, Jr.
-------------------------------------------
Anthony M. Bruno, Jr., Vice Chairman and
Director
Date: March 13, 1998 BY: /s/ Charles J. Volpe
-------------------------------------------
Charles J. Volpe, Director
Date: March 13, 1998 BY: /s/ C. Mark Campbell
-------------------------------------------
C. Mark Campbell, Executive Vice President
and Director
Date: March 13, 1998 BY: /s/ Joseph A. Lobosco
-------------------------------------------
Joseph A. Lobosco, Director
Date: March 13, 1998 BY: /s/ John L. Soldoveri
--------------------------------------------
John L. Soldoveri, Principal Executive Officer
and Chairman of the Board
</TABLE>
51
<PAGE> 54
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3 Restated Bylaws adopted 12-16-97
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
27.5 Financial Data Schedule
27.6 Financial Data Schedule
27.7 Financial Data Schedule
27.8 Financial Data Schedule
<PAGE> 1
EXHIBIT 3
BYLAWS OF
GREATER COMMUNITY BANCORP
As Amended and Restated
Effective December 16, 1997
ARTICLE I
OFFICES
1. Registered Office and Agent. The Corporation shall maintain a
Registered Office as required by the New Jersey Business Corporation Act, as
amended from time to time (the "Act"), at a location in the State of New Jersey
designated by the Board of Directors from time to time. In the absence of a
contrary designation by the Board of Directors, or in the event of the
resignation of the Corporation's designated Registered Agent leaving a vacancy
which is not filled by the Board of Directors, the Corporation's Registered
Office shall be located at its Principal Office.
The Corporation shall maintain a Registered Agent who shall have a
business office at the Corporation's Registered Office. The Registered Agent
shall be designated by the Board of Directors from time to time to serve at its
pleasure. In the absence of a contrary designation by the Board of Directors, or
in the event of the resignation of the Corporation's designated Registered Agent
leaving a vacancy which is not filled by the Board of Directors, the
Corporation's Registered Agent shall be the Treasurer of the Corporation.
2. Principal Place of Business. The principal place of business of the
Corporation is 55 Union Boulevard, Totowa, New Jersey 07512.
3. Other Places of Business. Branch or subordinate places of business
or offices may be established at any time by the Board at any place or places
where the Corporation is qualified to do business.
ARTICLE II
SHAREHOLDERS
1. Annual Meeting. The annual meeting of Shareholders shall be held
upon not less than ten (10) nor more than sixty (60) days written notice of the
time, place and purposes of the meeting at 4:00 p.m. on the third Tuesday of the
month of April of each year at the principal place of business of the
corporation or such other time and place as shall be specified in the notice of
meeting, in order to elect directors and transact such other business as shall
come before the meeting. If that date is a legal holiday, the meeting shall be
held at the same hour on the next succeeding business day.
2. Special Meeting. A special meeting of the Shareholders may be called
for any purpose by a majority of the Board. A special meeting shall be held at
the principal business office of the Corporation or at such other place as shall
be specified in the notice of meeting. Special meetings shall be called upon
written notice of the time, place, and purposes of the meeting given not less
than ten (10) nor more than sixty (60) days prior to the date of the meeting.
3. Quorum. The presence at a meeting in person or by proxy of the
holders of shares entitled to cast a majority of the votes shall constitute a
quorum, except where a greater number is required by law.
ARTICLE III
BOARD OF DIRECTORS
1. Number and Term of Office. The Board shall consist of not less than
five (5) nor more than fifteen (15) members as set from time to time by the
Board of Directors. The number of Directors commencing on the date of adoption
of these Bylaws is seven (7). Such Directors shall serve until the next annual
meeting of Shareholders, to be held in 1986, and the election and qualification
of their successors. Effective commencing with the 1986 annual meeting of
Shareholders, the Directors shall be divided into three (3) classes, each class
to consist, as nearly as may be, of one-third (1/3) of the number of Directors
then constituting the whole Board. The term of office of the first class elected
at the 1986 annual meeting of Shareholders shall expire at the 1987 annual
meeting of Shareholders. The term of office of the second class elected at the
1986 annual meeting of Shareholders shall expire one (1) year thereafter. The
term of office of the third class elected at the 1986 annual meeting of the
Shareholders shall expire two (2) years thereafter. At each succeeding annual
election, the Directors elected shall be chosen for a full term of three (3)
years to succeed those whose terms expire. Consistent with the
1
<PAGE> 2
foregoing, the number and terms of office of Directors to be elected at any
particular annual meeting of Shareholders of the Corporation shall be fixed by
the Board of Directors at a meeting of the Board held not more than one hundred
twenty (120) days prior to the annual meeting of Shareholders. In addition,
between annual meetings of Shareholders the Board of Directors shall have
authority to increase the number of Directors by not more than two (2) members,
and to fill the vacancies created by such increase, in which event the terms of
the Directors filling such vacancies shall be fixed in such manner as to result
in each class consisting, as nearly as may be, of one-third (1/3) of the
Directors then constituting the whole Board as so increased. Each Director
elected by the Shareholders shall hold office until the expiration of the term
for which such Director is elected and until such Director's successor shall
have been elected and qualified. (See Section 6 of Article III of these Bylaws
regarding the office of a Director elected by the Board of Directors.)
2. Regular Meetings. A regular meeting of the Board shall be held
without notice on the fourth Wednesday in April at approximately 6:00 p.m. at
the principal office of the Corporation, or at such other place as the annual
meeting of Shareholders shall have been held, immediately following the close of
the annual meeting of Shareholders referred to in Article II, Section 1 of the
Bylaws, or at such other time and place as may be specified in a notice given
orally or in writing at least two (2) days prior to such meeting, for the
purposes of electing officers and conducting such other business as may come
before the meeting. In the event that the annual meeting of Shareholders is
adjourned for any reason beyond the date set forth in Article II, Section 1, of
these Bylaws, then the annual meeting of directors shall also be adjourned for
the same number of days. The Board, by resolution, may provide for additional
regular meetings which may be held without notice, except to members not present
at the time of the adoption of the resolution.
3. Special Meetings. A special meeting of the Board may be called at
any time by the Chairman or the President or by any three (3) directors for any
purpose. Such meeting shall be held upon three (3) days' notice if given orally
(either by telephone or in person) or by telegraph, or upon five (5) days'
notice if given by depositing the notice in the United States mails, postage
prepaid. Such notice shall specify the time and place of the meeting.
4. Action Without Meeting. The Board may act without a meeting if,
prior or subsequent to such action, each member of the Board shall consent in
writing to such action. Such written consent or consents shall be filed in the
minute book.
5. Quorum. A majority of the entire Board shall constitute a quorum for
the transaction of business.
6. Vacancies In Board of Directors. Any vacancy in the Board, including
a vacancy caused by an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors, even though less than
a quorum of the Board, or by a sole remaining director. Each Director elected by
the Board of Directors to fill any vacancy shall hold office only until the next
annual meeting of Shareholders, at which time the Shareholders will elect such
Director's successor for the succeeding term or, if applicable, for the
remaining portion of the full term of the Director so elected to the Board.
7. Executive Committee. There shall be a standing committee known as
the Executive Committee, whose membership shall be comprised of the Chairman of
the Board, who shall also be Chairman of the Committee, the Vice Chairman of the
Board, the President of the Corporation, and such number of additional members
as shall be recommended by the Chairman and approved by the Board, who shall be
proposed by the Chairman of the Board and elected by the Board of Directors. The
Board of Directors may at any time change the membership of, and/or increase or
decrease the number of additional members of, and/or fill vacancies on, the
Committee. Unless otherwise provided by resolution of the Board of Directors,
the Executive Committee shall have and may exercise the powers of the Board of
Directors in the management of the business and the affairs of the Corporation,
except that unless provided by a resolution of a majority of the whole Board of
Directors, the Executive Committee shall not be authorized to declare any
dividends to stockholders, elect officers of the Corporation, fill vacancies in
the Board of Directors, the Executive Committee or any other committee of the
Board of Directors, amend these bylaws or take any other action which under
these bylaws or applicable law must be taken only by a vote of a majority of the
entire Board of Directors. All action of the Executive Committee shall be
reported to the Board of Directors at the meeting of such next succeeding the
taking of such action.
8. Management Coordinating Committee. There shall be a standing
committee known as the Management Coordinating Committee, whose membership shall
be comprised of the Vice Chairman, if that office is filled, the President of
the Corporation, and such additional members as may be recommended by the
Chairman and approved by the Board of Directors. In making his recommendation
for membership on the Committee, the Chairman shall give consideration to the
appropriateness of the appointment of persons who, in addition to being members
of the Board, also serve as president and/or CEO of subsidiaries of the
Corporation. The Vice Chairman shall be the chairman of such committee, and
shall preside at all of its meetings. In the event that the office of Vice
Chairman has not been filled, the Board of Directors, at the time it
2
<PAGE> 3
appoints the members of the committee, shall designate a chairman. The committee
shall meet as frequently as it determines is necessary, but at least monthly.
The duties of the committee shall include the coordination of the management and
operations of all of the corporation's subsidiaries, and the recommendation to
the Board of Directors and Executive Committee of policies relating to the
operation of the subsidiaries, and uniformity therein where appropriate. The
committee shall have such other duties and responsibilities as may from time to
time be given to it by the Board of Directors or the Executive Committee.
9. Other Committees. The Board of Directors or the Chairman may at any
time and from time to time establish, and appoint such other committees as
deemed advisable. If created by the Board, the resolution establishing such
committees shall define the duties and powers of the committees. Appointments to
the committees shall be made by the Board, if the resolution establishing the
committee so provides, or by the Chairman in all other cases. Such appointed
members shall serve at the pleasure of the Board.
10. Qualifications. No person who shall have attained the age of
seventy (70) shall be eligible to be elected or reelected as a director;
provided, that this restriction shall not apply to John Soldoveri, the founder
and first Chairman of the Board of the Corporation, until he shall have attained
the age of seventy-five (75).
11. Nominations for Director. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any Shareholder of any
outstanding class of capital stock entitled to vote for the election of
directors. Nominations, other than those made by or on behalf of the existing
management, shall be made in writing and shall be delivered or mailed to the
Chairman of the Board of the Corporation not less than fourteen (14) days nor
more than fifty (50) days prior to any meeting of Shareholders called for the
election of Directors, provided however, that if less than twenty-one (21) days'
notice of the meeting is given to Shareholders, such nominations shall be mailed
or delivered to the Chairman of the Board not later than the close of business
on the seventh (7th) day following the day on which the notice of meeting was
mailed.
ARTICLE IV
WAIVERS OF NOTICE
Any notice required by these Bylaws, by the Certificate of
Incorporation, or by the New Jersey Business Corporation Act may be waived in
writing by any person entitled to notice. The waiver or waivers may be executed
either before or after the event with respect to which notice is waived. Each
director or Shareholder attending a meeting without protesting, prior to its
conclusion, the lack of proper notice shall be deemed conclusively to have
waived notice of the meeting.
ARTICLE V
OFFICERS
1. Election and Appointment. The Directors at their first meeting
following the annual meeting of Shareholders shall elect a Chairman of the Board
of Directors and a President. The Board may also elect a Vice Chairman of the
Board of Directors, and one or more Vice Presidents from their own number. The
Board shall designate a Chief Executive Officer, and may designate a Chief
Operating Officer from among the officers so elected. They shall also elect a
Secretary and a Treasurer, who need not be Directors. Except where prohibited by
law any two offices may be held by the same person. Other officers, including
additional Vice Presidents, who need not be Directors, may from time to time be
elected or appointed by the Board of Directors.
2. Term of Office. The Chairman of the Board of Directors, the
President and any Vice-Presidents selected from among the members of the Board
shall hold office from the time of their election until the next annual meeting
of the Board. All other officers shall hold office at the pleasure of the Board.
Any officer may be removed from office by the affirmative vote of two-thirds
(2/3rds) of the remaining directors.
3. Compensation. Salaries of all officers shall be fixed from time to
time by the Board of Directors.
4. Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Board of Directors, and have general charge and supervision
of the affairs of the Board of Directors and of the Corporation. He shall
execute the orders of the Board and supervise the policies adopted or approved
by the Board. He shall preside at all meetings of the shareholders. He shall be
a member of and chairman of the Executive Committee, as well as a member
ex-officio of all standing committees, except any audit committee, if
established, unless otherwise provided by law or by the Board of Directors.
3
<PAGE> 4
5. Vice Chairman. The Board of Directors may elect a Vice Chairman. The
Vice Chairman, in the absence or disability of the Chairman of the Board, shall
perform all the duties of the Chairman. The Vice Chairman shall be the Chairman
of the Management Coordinating Committee, a member of the Executive Committee,
and shall perform such other duties as from time to time may be assigned to
him/her by the Board of Directors, or delegated to him/her by the Chairman.
6. President. The President, in the absence or disability of the
Chairman of the Board and the Vice Chairman of the Board, shall perform the
duties of the Chairman. The President shall sign all instruments which may be
required by the Bylaws or in carrying on the normal and proper business of the
Corporation, and all certificates of stock of the corporation when necessary.
The President shall be a member of the Executive Committee, the Management
Coordinating Committee, and shall be a member ex-officio of all other
committees, except an audit committee, unless otherwise provided by law, or by
the Board of Directors.
7. Chief Executive Officer. The Chief Executive Officer shall have
general charge of the administrative affairs of the Corporation, and in the
absence of a Chief Operating Officer, the operations of the Corporation. He
shall have the authority to prescribe the duties of all officers whose duties
are not prescribed herein, and may delegate authority and responsibilities to
other officers and employees where it may be deemed appropriate for the prompt
and orderly transaction of the Corporation's business.
8. Chief Operating Officer. The Chief Operating Officer, if appointed,
shall have general charge of the operational affairs of the Corporation, and
shall be responsible for the implementation by the subsidiaries of the policies
adopted by the Board, the Executive Committee and the Management Coordinating
Committee. He or she shall prescribe the duties of all clerks, agents and
employees of the Corporation, and shall have the authority to appoint, dismiss
and fix the salaries of such persons, and to perform such other duties as shall
from time to time be assigned or delegated to him or her by the Chief Executive
Officer.
9. Vice Presidents. In the absence or disability of the Chairman of the
Board and the President, their duties shall be performed by one or more of the
Vice Presidents as may be delegated by the Board of Directors. They shall also
perform such duties as may be assigned by the Chairman, the President, the Board
of Directors or the Executive Committee, if there be one.
10. Duties and Authority of Treasurer. The Treasurer shall have the
custody of the funds and securities of the Corporation and shall keep or cause
to be kept regular books of account for the Corporation. The Treasurer shall
perform such other duties and possess such other powers as are incident to that
office or as shall be assigned by the Chairman, President or the Board.
11. Duties and Authority of Secretary. The Secretary shall cause
notices of all meetings to be served as prescribed in these Bylaws and shall
keep or cause to be kept the minutes of all meetings of the Shareholders and the
Board. The Secretary shall have charge of the seal of the Corporation. The
Secretary shall perform such other duties and possess such other powers as are
incident to that office or as are assigned by the Chairman, President or the
Board. Provided, however, that the Board may appoint a Secretary to the Board
for the purpose of keeping its minutes and performing such other duties as may
be delegated by the Board.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Proceedings by Others. Provided a specific determination has been
made as set forth below, the Corporation shall indemnify any person who is or
was a Director or officer of the Corporation, or the legal representative of any
such Director or officer, against reasonable costs, disbursements, and expenses,
reasonable counsel fees, and amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties, in connection with any proceeding
involving such Director or officer by reason of his being or having been such a
Director or officer, other than a proceeding by or in the right of the
Corporation, if
(i) such Director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and
(ii) with respect to any criminal proceeding, such Director or
officer had no reasonable cause to believe his conduct was unlawful.
4
<PAGE> 5
The termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that such Director or officer did not meet the applicable standards
of conduct set forth in subparagraphs (i) and (ii) hereof. No indemnification
called for by this paragraph shall be made by the Corporation unless authorized
in the specific case upon a determination that indemnification is proper in the
circumstances because the Director or officer met the standard of conduct set
forth in subparagraph (i) and, if applicable (ii) of this paragraph (a). Such
determination shall be made
(1) by the Board of Directors acting by a quorum of Directors who were
not parties to the proceeding; or
(2) if such a quorum is not obtainable, or, even if obtainable and a
quorum of the disinterested Directors so directs, by independent legal
counsel in a written opinion; or
(3) by its Shareholders.
(b) Proceedings by Corporation. Provided a specific
determination has been made, or court order entered, as set forth
below, the Corporation shall indemnify any person who is or was a
Director or officer of the Corporation against his reasonable costs,
disbursements and counsel fees in connection with any proceeding by or
in the right of the Corporation to procure a judgment in its favor
which involves such Director or officer by reason of his being or
having been such Director or officer, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation. However, in no such proceeding shall
indemnification be provided in respect of any claim, issue or matter as
to which such Director or officer shall have been adjudged to be liable
for negligence or misconduct, unless and only to the extent that the
court in which such proceeding was brought shall determine upon
application that despite the adjudication of liability, in view of all
circumstances of the case such Director or officer is fairly and
reasonably entitled to indemnity for such reasonable costs,
disbursements and counsel fees as the court shall deem proper. No
indemnification called for by this paragraph shall be made by the
Corporation unless ordered by a court, or unless authorized in the
specific case upon a determination that indemnification is proper in
the circumstances because the Director or officer met the standard of
conduct set forth above in this paragraph (b). Such determination shall
be made in one of three (3) manners referred to in the last sentence of
paragraph (a) of this Article.
(c) Required Indemnification. Notwithstanding the requirements
of paragraphs (a) and (b) for a determination that indemnification is
proper in a specific case, the Corporation shall in all cases indemnify
any person who is or was a Director or officer of the Corporation
against reasonable costs, disbursements and counsel fees to the extent
that such Director or officer has been successful on the merits or
otherwise in any proceeding referred to in paragraphs (a) and (b) of
this Article or in defense of any claim, issue or matter therein.
(d) Advance Payment of Expenses Permitted. Reasonable costs,
disbursements and counsel fees incurred by a Director or officer of the
Corporation in connection with a proceeding may be paid by the
Corporation in advance of the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of the Director or officer to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified as provided in this Article.
(e) Proceeding Defined. As used in this Article VI, the term
"proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and
any appeal therein and any inquiry or investigation which could lead to
such action, suit or proceeding.
(f) Provisions not Exclusive. The indemnification provided by
this Article shall be in addition to, and not exclusive of, any other
rights to which a Director or officer, or any rights to which an
employee or agent, of the Corporation may be entitled under the laws of
the State of New Jersey or under any agreement, vote of shareholders,
or otherwise.
ARTICLE VII
AMENDMENTS TO AND EFFECT OF
BYLAWS; FISCAL YEAR
1. Force and Effect of Bylaws. These Bylaws are subject to the
provisions of the New Jersey Business Corporation Act and the Corporation's
Certificate of Incorporation, as it may be amended from time to time. If any
provision in these Bylaws is inconsistent with a provision in that Act or the
Certificate of Incorporation, the provision of the Act or
5
<PAGE> 6
the Certificate of Incorporation shall govern.
2. Amendments to Bylaws. These Bylaws may be altered, amended or
repealed by the Shareholders or the Board. Any Bylaw adopted, amended or
repealed by the Shareholders may be amended or repealed by the Board, unless the
resolution of the Shareholders adopting such Bylaw expressly reserves to the
Shareholders the right to amend or repeal it.
3. Fiscal Year. The fiscal year of the Corporation shall end on the
31st day of December of each year.
6
<PAGE> 1
Greater Community Bancorp
EXHIBIT 21
TO
1997 ANNUAL REPORT ON FORM 10-KSB
Subsidiaries of the Company
Greater Community Bancorp (the "Company") has two directly-owned
operating bank subsidiaries, Great Falls Bank and Bergen Commercial Bank (the
"Bank Subsidiaries"), both of which are New Jersey commercial banking
corporations. The Company owns 100% of the outstanding shares of the Bank
Subsidiaries. Each of the Bank Subsidiaries 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 Company also owns 100% of the outstanding shares of a directly-owned
nonbanking subsidiary, Greater Community Services, Inc., a New Jersey business
corporation, which began to provide accounting/bookkeeping, data processing and
management information systems, loan operations and various other
banking-related services at cost to the Bank Subsidiaries, effective March 1997.
The Corporation also owns 60% of Greater Community Financial, LLC, a registered
broker-dealer, and 100% of GCB Realty, LLC.
These relationships are indicated in the following chart.
<TABLE>
<CAPTION>
===============================================================================================================
GREATER COMMUNITY BANCORP
(registrant)
(the "Company")
===============================================================================================================
<S> <C> <C> <C> <C>
Greater Community Great Falls Bergen Commercial Greater Community GCB Realty, LLC
Services, Inc. Bank ("GFB") Bank ("BCB") Financial, LLC
100% 100% 100% 60% 100%
<S> <C> <C>
Great Falls Investment BCB Investment
Company, Inc, Company, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998, accompanying the
consolidated financial statements included in the 1997 Annual Report of Greater
Community Bancorp on Form 10-KSB for the year ended December 31, 1997. 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.
333-16153, and File No. 333-16149 effective November 14, 1996).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 13, 1998
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0
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