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, 1998
[ ] 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 National Market System
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.50 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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year. $29,522,000.
<PAGE>
State the aggregate market value of the voting stock held by nonaffiliates
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.)
$43,863,021 as of January 31, 1999. 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: 5,345,021 shares
of common stock as of January 31, 1999.
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 1999 Annual
Meeting of Stockholders to be held on April 20, 1999 is incorporated by
reference into Part III, Items 9 through 12, inclusive.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
Index to Form 10-KSB for December 31, 1998
PART I PAGE NO.
--------
Item 1. Description of Business..........................................1
Item 2. Description of Property..........................................9
Item 3. Legal Proceedings...............................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................11
Item 7. Financial Statements............................................27
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.............................52
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a)of the Exchange Act................52
Item 10. Executive Compensation..........................................52
Item 11. Security Ownership of Certain Beneficial Owners and Management..52
Item 12. Certain Relationships and Related Transactions..................53
Item 13. Exhibits and Reports on Form 8-K................................53
SIGNATURES.................................................................54
<PAGE>
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, 1998, the Company's consolidated
assets were $372.4 million, as compared with consolidated assets of $322.0
million at December 31, 1997. Net income for the year ended December 31, 1998
was $3.5 million ($0.67 per share-basic and $0.65 per share-diluted), up from
$2.6 million ($0.60 per share-basic and $0.56 per share-diluted) in 1997. The
Company declared total cash dividends of $.23 per share and $.18 per share
during 1998 and 1997, respectively.
NONBANK SUBSIDIARIES
During 1998, the Company continued its expansion efforts by forming another
nonbank subsidiary. In March 1998, Highland Capital Corp. ("HCC"), a
wholly-owned nonbank subsidiary, commenced business. HCC is a New Jersey
corporation located in Paramus, New Jersey. The purpose of HCC is to engage in
the business of leasing commercial office equipment to small and mid-size
businesses in Bergen and surrounding counties. At December 31, 1998, HCC
reported total assets of $2.3 million.
In addition to the above, the Company owns four nonbank subsidiaries. (i)
Greater Community Services, Inc., activated in March 1997, provides
accounting/bookkeeping, data processing and management information systems, loan
operations and various other banking-related services at cost to the Bank
Subsidiaries.
(ii) GCB Capital Trust (the "Trust") was formed in April 1997 under the
Business Trust Act of Delaware. The sole purposes of the Trust were issuing and
selling Preferred Securities and Common Securities and using the sales proceeds
to acquire Junior Subordinated Debentures (the "Debentures") issued by the
Company. The Junior Subordinated Debentures are the sole assets of the Trust and
the payments under the Junior Subordinated Debentures are its sole revenues. The
Company owns all of the Trust's Common Securities.
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. Although the Debentures are 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.
(iii) GCB Realty, L.L.C. ("Realty") was formed in July 1997 as a New Jersey
limited liability company located in Totowa, New Jersey. The purposes of Realty
are to acquire and manage real estate properties. Realty owns two properties
purchased for a total of $2.2 million in Bergen County, New Jersey. BCB, HCC and
two other tenants lease space in one of the buildings. BCB also leases its
Lyndhurst location from Realty. Annual rentals from both properties are
estimated at $348,000.
(iv) In October 1996, a majority-owned nonbank subsidiary opened for
business under the name of Greater Community Financial, L.L.C., ("GCF") a New
Jersey limited liability company located in Clifton, New Jersey. This Company
engages in the business of securities broker and dealer.
1
<PAGE>
BANK SUBSIDIARIES
GFB received its charter from the New Jersey Department of Banking &
Insurance (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. Three branches are located in Clifton, two of which were acquired by
merger in April 1995 and the other was a de novo branch established in 1997. The
fifth branch, located at 100 Furler Street, Totowa, has been in operation since
1996.
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. BCB also offers other
customary banking services. In addition to its main office at Two Sears Drive in
Paramus, New Jersey, BCB has five additional branch offices, located in
Hasbrouck Heights, WoodRidge, Wallington, Hackensack, and Lyndhurst.
Each of the Bank Subsidiaries has a wholly-owned investment company
subsidiary formed to manage their respective investment portfolios to increase
net yields.
The Company is in the process of forming a de novo bank subsidiary named
Rock Community Bank ("RCB"), a wholly-owned subsidiary located in Glen Rock,
Bergen County, New Jersey. The Company expects to raise approximately $5.0
million in capital through the sale of the Company's common stock in the
formation of RCB. Currently, the Company has received regulatory approvals from
the Department and the Federal Deposit Insurance Corporation ("FDIC"). The
Company's application for approval from the Federal Reserve Bank of New York is
pending and the Company does not anticipate a problem in receiving such
approval. RCB is expected to open for business early in the second quarter of
1999.
ACQUISITION
During late 1998, the Company signed a definitive merger agreement (the
"Agreement") to acquire First Savings Bancorp of Little Falls ("First Savings")
for $23.0 million in cash. Upon receipt of approval of appropriate regulatory
agencies, the merger is anticipated to be completed in April 1999.
Upon the completion of the merger with First Savings, the Company will have
net loans of $310.6 million, deposits of $467.6 million, and total assets of
approximately $550.5 million.
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
2
<PAGE>
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; 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, 1998, the Company
had approximately $28.4 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.
3
<PAGE>
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 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.
4
<PAGE>
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 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 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," below.
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, 1998, 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," above.
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
5
<PAGE>
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 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. The Bank Subsidiaries' deposit
assessment rates were 0.00% in 1997 and 1998.
In addition, the Deposit Insurance Act of 1996 authorized the Financing
Corporation ("FICO") to levy assessments on BIF assessable deposits and
stipulated that the rate must equal one-fifth the FICO assessment rate that is
applied to deposits assessable by the Savings Association Insurance Fund
("SAIF"). The rates established for GFB and BCB for 1997 through 1999 are 0.065%
and 0.013%, respectively.
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
may be required to develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the
6
<PAGE>
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 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 maintenance
of 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.
These regulations require bank holding companies and state nonmember banks,
respectively, to maintain a minimum leverage ratio of "Tier I capital" 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 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 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
7
<PAGE>
rules have two basic components: a Tier I or core capital requirement and a Tier
II or supplementary capital requirement. 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 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, 1998, the Company's total risk-based capital and leverage
capital ratios were 21.58% and 11.21%, 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
8
<PAGE>
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 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, 1998, the Company employed a total of approximately 125
employees, including 98 full-time employees. Management considers relations with
employees to be satisfactory.
Item 2 - DESCRIPTION OF PROPERTY
The Company does not directly own or lease any land, buildings or
equipment. However, the Company's wholly-owned non-bank subsidiary, Realty, owns
two properties in Bergen County, New Jersey.
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.
9
<PAGE>
BCB leases its main office space at Two Sears Drive, Paramus, New Jersey,
and the Lyndhurst, New Jersey branch 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
insured and leased at fair rentals.
For further information regarding the Bank Subsidiaries' lease obligations,
see Note 14 of the Company's Notes to Consolidated Financial Statements for the
year ended December 31, 1998, contained in Item 7 -"Financial Statements."
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
there is no proceeding threatened or pending against the Company, which, if
determined adversely, would have a material effect on the Company's business,
financial position or results of operations.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1998 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 1,008 holders of
record on December 31, 1998, and is traded on the NASDAQ National Market System
under the symbol GFLS.
The following table indicates the range of high and low closing bid prices
of the Common Stock, as reported by NASDAQ, 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 the 2 for 1 stock split in 1998 and the stock dividend paid in 1997.
Bid Prices Cash
------------------- Dividends
High Low Declared
---- --- --------
Year Ended December 31, 1997:
First Quarter $ 7.44 $ 6.93 $.04
Second Quarter 7.85 7.24 .04
Third Quarter 9.75 8.50 .05
Fourth Quarter 10.00 9.25 .05
Year Ended December 31, 1998
First Quarter $10.75 $ 9.06 $.05
Second Quarter 12.19 10.63 .06
Third Quarter 12.25 9.75 .06
Fourth Quarter 11.75 8.25 .06
10
<PAGE>
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.
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing the Company's financial condition and
results of operations for each of the past two years. In order to fully
appreciate this analysis, the reader is encouraged to review the consolidated
financial statements and statistical data presented in this document. Data is
presented for the Company and its subsidiaries in the aggregate unless otherwise
indicated.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-KSB, both in this MD&A section and elsewhere (including
documents incorporated by reference herein), contains both historical
information and "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are not
historical facts and include expressions about management's confidence and
strategies and management's expectations about new and existing programs and
products, relationships, opportunities, technology and market conditions. These
statements may be identified by an asterisk (*) or such forward-looking
terminology as "projected," "expect," "look," "believe," "anticipate," "may,"
"will," or similar statements or variations of such terms. Such forward-looking
statements involve certain risks and uncertainties. These include, but are not
limited to, the ability of the Company's bank subsidiaries to generate deposits
and loans and attract qualified employees, the direction of interest rates,
continued levels of loan quality and origination volume, continued relationships
with major customers including sources for loans, successful completion of the
implementation of Year 2000 technology changes, as well as the effects of
economic conditions and legal and regulatory barriers and structure. Actual
results may differ materially from such forward-looking statements. The Company
assumes no obligation for updating any such forward-looking statement at any
time.
RECENT DEVELOPMENTS
During 1998 the Company signed an agreement to acquire First Savings
Bancorp of Little Falls, Inc. for $23.0 million in cash. Provided regulatory
approvals are received in the near future, the merger is anticipated to be
completed by March 31, 1999. The acquisition will be accounted for as a purchase
and will result in a goodwill intangible asset of approximately $14.0 million,
which is anticipated to be amortized over 20 years for accounting purposes.
During January 1999, the Department approved the application of Rock
Community Bank ("Rock") for a new charter as a state commercial bank to be
located in Glen Rock, Bergen County, New Jersey. Rock will be the Company's
third wholly-owned community bank subsidiary. Rock will serve a trade area of
Glen Rock and surrounding communities. The Company will contribute $5.0 million
as Rock's initial capital. Rock's board of directors will be compromised of
prominent members of Rock's trade area and the Company's President, George E.
Irwin. Roy Kay, Jr., Rock's President and CEO-designate, has been an officer of
Great Falls Bank since 1995 and has over 40 years banking experience. Rock is
expected to commence operations during the second quarter of 1999 and is
projected to become profitable at the end of its second year of operation.
The Company has agreed to offer its Common Stock privately to Rock's
incorporators and other local persons they introduce to the Company. The Company
will issue between $3.0 million and $5.0 million in Common Stock in the private
offering. Subject to agreed minimum and maximum prices, the purchase price per
share will be 90% of the average prices of the Company's Common Stock, over the
period from November 1997 through the date all required regulatory approvals are
received. If all such approvals had been obtained on March 8, 1999, the purchase
price would have been $9.58 per share.
11
<PAGE>
Results of Operations: Fiscal Years Ended December 31, 1998 and 1997
The Company earned $3.5 million or $0.67 per share-basic and $0.65 per
share-diluted in 1998 compared to $2.6 million or $0.60 per share-basic and
$0.56 per share-diluted in 1997. In 1998, the Company's earnings improved 36%
over 1997. Net interest income increased by $1.3 million, or 11%, in 1998
compared to 1997. The increase in net interest income in 1998 is attributable to
the growth of the Company. Total other expenses showed an increase of $1.7
million in 1998 over 1997. The provision for possible loan losses increased by
$35,000, or 7%, in 1998 as a result of an increased loan portfolio.
The Company's annual interest expense increased by $3.1 million in 1998
compared to 1997. The majority of this increase is related to the increase in
interest expense on deposits due to an increase in average interest-bearing
deposits coupled with an increase in interest expense associated with Preferred
Securities issued in May 1997.
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, 1998, 1997 and 1996. The yields are shown on a fully taxable
basis and assume a 34% tax rate.
12
<PAGE>
Average Balance Sheet, Interest Income and Expense, and Average Interest Rates
<TABLE>
<CAPTION>
For the Years ended
----------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
--------------------------- --------------------------- ---------------------------
Interest Average Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Investment securities .................. $126,719 $ 7,348 5.80% $102,021 $ 6,241 6.12% $ 87,604 $ 5,569 6.36%
Due from banks - interest-bearing ...... 9,917 578 5.83% 5,052 267 5.29% 2,947 138 4.67%
Federal funds sold ..................... 11,524 605 5.25% 7,676 415 5.41% 7,468 365 4.89%
Loans(1)................................ 183,676 16,335 8.89% 149,024 13,625 9.14% 135,161 12,621 9.34%
-------- ------- -------- ------- -------- -------
Total earning assets ............... 331,836 24,866 7.49% 263,773 20,548 7.79% 233,180 18,693 8.02%
Less: Allowance for possible loan losses 3,078 -- -- 2,644 -- -- 2,393 -- --
Unearned income - loans ............ 630 -- -- 341 -- -- 317 -- --
All other assets ....................... 26,753 -- -- 22,229 -- -- 21,433 -- --
-------- ------- -------- ------- -------- -------
Total assets ....................... $354,881 $24,866 $283,017 $20,548 $251,903 $18,693
======== ======= ======== ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and interest-bearing deposits
Time deposits ........................ $ 83,645 $ 1,766 2.11% $ 76,466 $ 1,689 2.21% $ 81,112 $ 1,799 2.22%
Federal funds and
short-term borrowings(2)........... 127,477 7,253 5.69% 92,435 5,128 5.55% 86,277 4,605 5.34%
Trust preferred securities ........... 13,521 633 4.68% 7,507 366 4.88% 6,062 312 5.15%
Total interest-bearing
liabilities 23,669 2,357 9.96% 18,721 1,765 9.43% 4,982 438 8.79%
-------- ------- -------- ------- -------- -------
248,312 12,009 4.84% 195,129 8,948 4.59% 178,433 7,154 4.01%
Non interest-bearing deposits .......... 71,010 -- -- 60,481 -- -- 50,243 -- --
Other liabilities ...................... 5,748 -- -- 3,382 -- -- 3,240 -- --
Shareholders' equity ................... 29,811 -- -- 24,025 -- -- 19,987 -- --
-------- ------- -------- ------- -------- -------
Total liabilities and
shareholders' equity ........... $354,881 $12,009 $283,017 $ 8,948 $251,903 $ 7,154
======== ======= ======== ======= ======== =======
NET INTEREST INCOME
(fully taxable basis) .............. $12,857 $11,600 $11,539
======= ======= =======
NET INTEREST MARGIN
(fully taxable basis) .............. 3.87% 4.40% 4.95%
==== ==== ====
</TABLE>
(1) Average balance includes nonperforming loans.
(2) Balance includes FHLB Advances, Federal Funds purchased and securities sold
under agreements to repurchase.
13
<PAGE>
Net Interest Income
In 1998, interest income increased by $4.3 million or 21% compared to 1997.
Interest and fee income on loans during 1998 increased by $2.7 million or 20%
over the comparable period in 1997 as a result of an increase of 23% in average
total loans. The average yield on loans decreased to 8.89% in 1998 compared to
9.14% in 1997 as a result of repricing of loans at the prevailing rates. Income
earned on investment securities during 1998 increased by $1.1 million, or 18%
compared to the same period in 1997. The increase was primarily due to a 24%
increase in average investments for the year ended December 31, 1998 over 1997.
The average yield on securities was 5.80% for the year ended December 31, 1998
compared to 6.12% 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 1998 increased by $501,000 or 73% compared to the same period
in the prior year as a result of a $8.7 million, or 68%, increase in average
federal funds sold and deposits with banks due to the purchase of $13.1 million
of interest bearing deposits.
Interest expense for the year ended December 31, 1998, increased by $3.1
million or 34% from the level of interest expense for 1997. $2.2 million of the
total increase in interest expense was related to the increase in interest
expense on deposits, $592,000 was related to the increase in interest expense on
long-term borrowings, and the remaining $267,000 was related to the increase in
interest expense on short-term borrowings. The increase in total interest
expense was related to the increase in average interest-bearing liabilities of
$53.0 million or 27% primarily due to a $23.0 million increase in the 10%
Preferred Securities in May 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 3.87% and 4.40% for the years ended
December 31, 1998 and 1997, respectively. The decrease in the net interest
margin was related to some extent to an increase in average yield on time
deposits and long-term borrowing coupled with a slight decline in average yield
on earning assets compared to 1997.
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 year's ended December 31,
1998 and 1997. 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 1998 Full Year 1997
Compared to Full Year 1997 Compared to Full Year 1996
Increase (Decrease) Increase (Decrease)
---------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans ............................... $ 3,078 $ (368) $ 2,710 $ 1,271 $ (267) $ 1,004
Investment securities ............... 1,435 (328) 1,107 884 (212) 672
Other earning assets ................ 486 15 501 122 57 179
------- ------- ------- ------- ------- -------
Total earning assets .............. $ 4,999 $ (681) $ 4,318 $ 2,277 $ (422) $ 1,855
======= ======= ======= ======= ======= =======
Interest Paid On:
Savings & money markets ............. $ 152 $ (75) $ 77 $ (101) $ (9) $ (110)
Time deposits ....................... 1,995 130 2,125 344 179 523
Borrowings .......................... 880 (21) 859 1,234 147 1,381
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 3,027 $ 34 $ 3,061 $ 1,477 $ 317 $ 1,794
======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
Provision for Possible Loan Losses
The Company recorded a provision for possible loan losses of $520,000 in
1998 compared with $485,000 in 1997. 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 allowances for possible loan losses at levels that
they consider to be adequate to provide for the inherent risk of loss in their
loan portfolios, 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'
determinations as to the amount of their allowances for possible loan losses are
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, 1998 was $4.7 million,
an increase of $1.9 million or 69% compared to 1997. The $1.9 million 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 $280,000, other commissions and fees increased by $298,000,
realized gain on sale of securities available-for-sale increased by $867,000,
and all other income increased $456,000. The majority of the increase in service
charges on deposit accounts is attributable to the increase in deposit-related
services during 1998. The increase in realized gain on sale of securities
available-for-sale resulted from sale of $6.9 million of available-for-sale
securities.
Other Expenses
Total other expenses increased by $1.7 million for the year ended December
31, 1998 over 1997. The $1.7 million net increase was a result of fluctuations
within the components of other expenses. More specifically, salaries and
employee benefits increased by $962,000 or 20% as a result of an increase in
number of employees and general salary increases coupled with an increase 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 $244,000 or 11%
primarily due to the addition of office space and equipment.
Regulatory, professional and other fees, and office expenses both decreased
by $80,000 or 11% and $25,000 or 4%, respectively. Other real estate operating
expense increased by $101,000 or 168% due to an increase in ORE properties
owned. Computer services expenses increased by $26,000 or 16%. All other
operating expenses increased by $439,000 or 33%. The primary reason for the
increase in such expenses is the growth of the Bank Subsidiaries.
Income Taxes
The Company recorded income tax provisions of $2.0 million and $1.5 million
for the years ended December 31, 1998 and 1997, respectively. The increase in
income tax provision is attributable to increased earnings for 1998 over 1997.
15
<PAGE>
Financial Condition
At December 31, 1998, the Company's total assets were $372.4 million, an
increase of $50.4 million or 16% over the amount reported at December 31, 1997.
Gross loans increased by $44.9 million while investment securities decreased by
$15.2 million. The increase in loans was a direct result of increased loan
demand while the decrease in investment securities was related to the maturities
which were used in purchasing interest-bearing due from banks. Interest-bearing
due from banks increased by $13.2 million. Cash and non interest-bearing due
from banks increased by $5.1 as a result of the overall growth of the Company.
Federal funds sold decreased by $4.3 million and the proceeds were used in
meeting loan demand.
Investment Securities
Investment securities at December 31, 1998 decreased by $15.2 million or
12% over the amount reported at December 31, 1997. The decrease was a result of
investment securities either maturing or being sold. The proceeds were partly
used in funding the increase in interest-bearing due from banks. The following
table presents the composition of the investment securities portfolio along with
the book and market values of those components at December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
(In Thousands)
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury and U.S. .........
Government agencies securities $ 16,370 $ 16,638 $ 33,590 $ 33,884 $ 36,673 $ 36,861
State and political subdivisions 934 934 558 558 1,006 1,006
Other debt and equity securities 18,159 21,564 13,410 16,244 6,192 6,407
Mortgage-backed securities ..... 54,576 54,661 40,599 40,565 7,879 7,977
-------- -------- -------- -------- -------- --------
Total available-for-sale .... $ 90,039 $ 93,797 $ 88,157 $ 91,251 $ 51,750 $ 52,251
-------- -------- -------- -------- -------- --------
Held-to-maturity
U.S. Treasury and U.S. ........
Government agencies securities $ 5,899 $ 5,576 $ 14,822 $ 14,519 $ 18,996 $ 18,602
State and political subdivisions 898 902 1,390 1,391 393 390
Mortgage-backed securities ..... 11,007 11,076 19,313 19,302 18,039 17,978
-------- -------- -------- -------- -------- --------
Total held-to-maturity ...... $ 17,804 $ 17,554 $ 35,525 $ 35,212 $ 37,428 $ 36,970
-------- -------- -------- -------- -------- --------
Total investment securities . $107,843 $111,351 $123,682 $126,463 $ 89,178 $ 89,221
======== ======== ======== ======== ======== ========
</TABLE>
During 1998, the Company realized net gains of $1.1 million through the
sale of $6.9 million of securities from its available-for-sale portfolio.
Included in shareholders' equity at December 31, 1998 is accumulated other
comprehensive income in the amount of $2.3 million, an increase of $385,000 or
21% over the end of 1997. The Company has no securities held for trading
purposes.
Statement of Financial Accounting Standards ("SFAS") No. 133 allows a
reassessment of investment securities classified without calling into question
the intent of the company to hold other investment securities to maturity in the
future, (see "-Impact of Recent Accounting Standards," below). On October 1,
1998, the Company reclassified securities with a fair market value of $5.5
million resulting in an increase of accumulated other comprehensive income of
$28,000.
16
<PAGE>
The following table shows the average yields, book values and fair market
values of the Company's investment securities by maturity.
December 31, 1998
----------------------------
Average Amortized Fair
Yield Cost Value
------- -------- --------
(Dollars in Thousands)
Available-for-sale
Due in one year or less ................... 5.67% $ 6,896 $ 6,908
Due after one year through 5 years ........ 6.05% 10,056 10,289
Due after five years through 10 years ..... 6.18% 352 375
Mortgage-backed securities ................ 6.02% 54,576 54,661
Other debt and equity securities .......... n/a 18,159 21,564
-------- --------
Total available-for-sale ............... $ 90,039 $ 93,797
======== ========
Held-to-maturity
Due in one year or less ................... 5.79% $ 1,608 $ 1,611
Due after one year through 5 years ........ 5.06% 4,189 4,174
Due after five years through 10 years ..... 2.08% 1,000 693
Mortgage-backed securities ................ 6.09% 11,007 11,076
-------- --------
Total held-to-maturity .................. n/a $ 17,804 $ 17,554
-------- --------
Total investment securities ............. $107,843 $111,351
======== ========
Loan Portfolio
The Company's gross loan portfolio at December 31, 1998 totaled $206.1
million, an increase of $44.9 million or 28% compared to the amount reported at
December 31, 1997. This increase was primarily due to increased loan demand. The
Company's gross loan portfolio increased $23.8 million to $161.2 million at
December 31, 1997 compared to the amount reported at December 31, 1996. The
following table summarizes the components of the gross loan portfolio at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans secured by one- to - four-family residential properties $ 66,485 $ 45,700 $ 43,100 $ 43,328 $ 26,925
Loans secured by nonresidential properties .................. 100,687 81,064 58,106 51,133 41,891
Loans to individuals ........................................ 10,609 10,549 9,997 8,661 6,688
Loans to depository institutions ............................ -- -- -- 4,600 600
Commercial loans ............................................ 21,107 16,847 14,106 14,823 10,320
Construction loans .......................................... 5,163 5,784 5,534 4,292 4,754
Other loans ................................................. 2,069 1,305 6,567 4,905 5,486
-------- -------- -------- -------- --------
Total gross loans ...................................... $206,120 $161,249 $137,410 $131,742 $ 96,664
======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
The following table sets forth the contractual maturity and interest rate
sensitivity of components of the loan portfolio at December 31, 1998. 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, 1998
-----------------------------------------
Within 1 - 5 Over 5
1 year Years Years Total
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Loans with predetermined interest rates:
Loans secured by nonresidential properties $ 7,001 $ 27,655 $ 7,908 $ 42,564
Commercial loans ......................... 489 4,609 575 5,673
Construction loans ....................... 414 407 -- 821
-------- -------- -------- --------
Total gross loans ................... $ 7,904 $ 32,671 $ 8,483 $ 49,058
Loans with floating interest rates:
Loans secured by nonresidential properties 10,628 17,548 29,947 58,123
Commercial loans ......................... 11,192 2,342 1,900 15,434
Construction loans ....................... 2,913 1,429 -- 4,342
-------- -------- -------- --------
Total gross loans ................... $ 24,733 $ 21,319 $ 31,847 $ 77,899
-------- -------- -------- --------
$ 32,637 $ 53,990 $ 40,330 $126,957
======== ======== ======== ========
</TABLE>
At the date indicated in the foregoing loan table, 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>
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,
----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans .................................. $1,657 $1,741 $1,033 $1,422 $1,499
Renegotiated loans ................................. 416 521 726 517 526
------ ------ ------ ------ ------
Total nonperforming loans ....................... 2,073 2,262 1,759 1,939 2,025
Loans past due 90 days and accruing ................ 461 135 876 1,125 10
Other real estate .................................. 495 373 1,834 2,070 1,184
------ ------ ------ ------ ------
Total nonperforming assets ...................... $3,029 $2,770 $4,469 $5,134 $3,219
====== ====== ====== ====== ======
Nonperforming loans to total gross loans ........... 1.01% 1.40% 1.28% 1.47% 2.09%
Nonperforming assets to total gross loans and other
real estate owned .............................. 1.47% 1.71% 3.21% 3.84% 3.29%
Nonperforming assets to total assets ............... .81% .86% 1.74% 2.03% 1.91%
Allowance for loan losses to nonperforming loans .. 170.04% 120.73% 144.40% 120.27% 90.07%
</TABLE>
Nonperforming loans decreased by $189,000 at December 31, 1998 compared to
December 31, 1997. The decrease is primarily due to the reclassification of
certain loans from nonaccruing or renegotiated status to current loans. If the
nonaccruing loans in 1998 had continued to pay interest, interest income during
1998 would have increased by $138,000. If nonaccruing loans in 1997 had
continued to pay interest, interest income during 1997 would have increased by
$291,000.
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, 1998, such loans totaled $5.3
million with an allowance of $664,000 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, 1998, the allowance for possible loan losses was $3.5
million as compared to $2.7 million at December 31, 1997. 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>
The following table represents transactions affecting the allowance for
possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year .......................... $ 2,731 $ 2,540 $ 2,332 $ 1,824 $ 1,771
Charge-offs:
Commercial .......................................... (5) (356) (21) (589) (164)
Real estate - mortgages ............................. (31) -- (281) (364) (57)
Installment loans to individuals .................... (34) (9) (63) (82) (43)
Credit cards and related plans ...................... (53) (42) -- -- --
------- ------- ------- ------- -------
(123) (407) (365) (1,035) (264)
------- ------- ------- ------- -------
Recoveries:
Commercial .......................................... 376 104 124 87 100
Real estate - mortgages ............................. 11 7 9 -- --
Installment loans to individuals .................... 5 1 9 3 45
Credit cards and related plans ...................... 5 1 -- -- --
------- ------- ------- ------- -------
397 113 142 90 145
------- ------- ------- ------- -------
Net recoveries (charge-offs) .......................... 273 (294) (223) (945) (119)
Provision for possible loan losses .................... 520 485 440 414 172
Adjustment (allowance for loan losses acquired
from Family First) .................................. -- -- (9) 1,039 --
------- ------- ------- ------- -------
Balance at end of year ................................ $ 3,525 $ 2,731 $ 2,540 $ 2,332 $ 1,824
======= ======= ======= ======= =======
Ratio of net recoveries (charge-offs) during the period
to average loans outstanding during the period ...... .15% (.20%) (.16%) (.79%) (.13%)
</TABLE>
20
<PAGE>
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,
-----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
% 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 ............................ $1,467 43% 59% $1,077 39% 60% $ 859 34% 53%
Real estate - construction ............ 49 1 2 47 2 4 -- -- 4
Real estate - mortgages ............... 919 26 34 898 33 29 670 26 31
Installment loans to
individuals ......................... 369 10 5 280 10 7 206 8 12
Unallocated reserves .................. 721 20 -- 429 16 -- 805 32 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses .............. $3,525 100% 100% $2,731 100% 100% $2,540 100% 100%
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At December 31,
------------------------------------------------------
1995 1994
------------------------- -------------------------
% 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 ............................ $1,256 54% 53% $ 876 48% 54%
Real estate - construction ............ -- -- 3 -- -- 5
Real estate - mortgages ............... 662 28 33 457 25 27
Installment loans to
individuals ......................... 296 13 11 215 12 14
Unallocated reserves .................. 118 5 -- 276 15 --
------ ------ ------ ------ ------ ------
Total allowance for
possible loan losses .............. $2,332 100% 100% $1,824 100% 100%
====== ====== ====== ====== ====== ======
</TABLE>
21
<PAGE>
Other Real Estate
As of December 31, 1998, other real estate totaled $495,000, an increase of
$122,000 or 33% compared to December 31, 1997. The increase was primarily due to
additional foreclosed properties. The $495,000 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, 1998, total deposits were $293.4 million, an increase of
$35.8 million or 14% over total deposits at December 31, 1997. Average deposits
for 1998 were $52.8 million higher than average deposits for 1997. The following
table summarizes the average yield/rate of the components of average deposit
liabilities for the years indicated.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------
Average Average Average
1998 Yield/Rate 1997 Yield/Rate 1996 Yield/Rate
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non interest-bearing deposits ............ $ 71,010 -- $ 60,481 -- $ 50,243 --
Savings and interest-bearing ............. 83,645 2.11% 76,466 2.21% 81,112 2.22%
Time ..................................... 127,477 5.69% 92,435 5.55% 86,277 5.34%
-------- -------- --------
$282,132 $229,382 $217,632
======== ======== ========
</TABLE>
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity.
At December 31, 1998
--------------------
(In Thousands)
Three months or less ............................. $20,987
Over three months through six months ............ 2,506
Over six months through twelve months ............ 6,281
Over twelve months ............................... 1,322
-------
$31,096
=======
Subordinated Debentures and Cancellable Mandatory Stock Purchase Contracts
In December 1993, the Company received gross proceeds of $5.0 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 $5.0 million of the
Company's common stock at a predetermined price of $4.44 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 $4.44 per share. The Company
issued 1,122,674 shares (as adjusted for a 2 for 1 stock split in 1998) 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. Subordinated debentures in the
principal amount of $803,000 remained outstanding at December 31, 1997. All
remaining subordinated debentures were redeemed during 1998.
22
<PAGE>
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 as 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.
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 gaps on a monthly basis, primarily their
six-month and one-year maturities, and work to maintain their gaps 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, 1998. 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 portfolios 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 exposures to interest rate risk.
The following table summarizes, as of December 31, 1998, 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)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Investment securities...................$ $ 28,787 $ 30,012 $ 29,835 $ 18,169 $ 4,798 $111,601 $111,351
Rate 6.00% 5.99% 5.82% 6.02% 5.70% 5.88%
Federal funds sold and deposit from bank$ 8,032 8,179 3,934 1,249 -- 21,394 21,394
Rate 4.93% 5.89% 5.93% 6.08% -- 4.97%
Total loans..............................$ 64,752 24,565 18,757 80,926 16,290 205,290 207,045
Rate 8.59% 8.25% 8.62% 8.15% 6.89% 8.25%
-------- -------- -------- -------- -------- --------
Total rate-sensitive assets ......... $101,571 $ 62,756 $ 52,526 $100,344 $ 21,088 $338,285 $339,790
======== ======== ======== ======== ======== ======== ========
Rate-sensitive liabilities:
Interest-bearing demand deposits.........$ $ 19,849 $ 5,876 $ 12,862 $ 19,631 $ 6,769 $ 64,987 $ 64,987
Rate 1.73% 1.73% 1.73% 1.73% 1.73% 1.73%
Savings deposits.........................$ 9,598 192 5,008 11,547 6,538 32,883 32,883
Rate 2.37% 2.25% 2.25% 2.25% 2.25% 2.27%
Time deposits............................$ 51,348 60,875 5,545 1,405 6 119,179 119,792
Rate 5.46% 5.22% 5.43% 5.16% 5.45% 5.33%
Total borrowings.........................$ 7,103 -- -- -- 33,000 40,103 40,258
Rate 3.87% -- -- 4.87% 7.55% 5.43%
-------- -------- -------- -------- -------- --------
Total rate-sensitive liabilities .... $ 87,898 $ 66,943 $ 23,415 $ 32,583 $ 46,313 $257,152 $257,920
======== ======== ======== ======== ======== ======== ========
Interest rate-sensitivity gap ............ 13,673 (4,187) 29,111 67,761 (25,225) 81,133
Interest rate-sensitivity gap
as a percentage of total rate-sensitive
assets .................................. 4.04% (1.24%) 8.61% 20.03% (7.46%)
Cumulative interest rate-sensitivity gap.. 13,673 9,486 38,597 106,358 81,133
======== ======== ======== ======== ========
Cumulative interest rate-sensitivity gap
as a percentage of total rate-sensitive
assets .................................. 4.04% 2.80% 11.41% 31.44% 23.98%
</TABLE>
23
<PAGE>
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 this high liquidity trend to continue until overall economic conditions
improve and loan demand rises.
Sources of liquidity at December 31, 1998 totaled $150.8 million or 40% of
total assets, consisting of investment securities of $111.6 million and $39.2
million in cash and cash equivalents and interest-bearing due from banks. By
comparison, total liquidity sources at December 31, 1997, were $152.0 million or
47% of total assets, consisting of investment securities in the amount of $126.8
million and cash and cash equivalents and interest-bearing due from banks in the
amount of $25.2 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, 1998, 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.
24
<PAGE>
The following table presents the risk-based and leverage capital ratios for
the Company, GFB and BCB, respectively, as of December 31, 1998 and 1997.
<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, 1998
Total capital (to risk-weighted assets)
Greater Community Bancorp ...................... $55,953 21.58% $20,746 8.00% $ -- --
Great Falls Bank ............................... 16,863 11.11% 12,145 8.00% 15,181 10.00%
Bergen Commercial Bank ......................... 8,961 11.74% 6,106 8.00% 7,633 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ...................... 39,726 15.32% 10,373 4.00% -- --
Great Falls Bank ............................... 14,956 10.45% 6,072 4.00% 9,108 6.00%
Bergen Commercial Bank ......................... 8,100 10.61% 3,053 4.00% 4,579 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp ...................... 39,726 11.21% 14,015 4.00% -- --
Great Falls Bank ............................... 14,956 6.48% 9,011 4.00% 11,265 5.00%
Bergen Commercial Bank ......................... 8,100 6.96% 4,655 4.00% 5,818 5.00%
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%
</TABLE>
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.
25
<PAGE>
Impact of Recent Accounting Standards
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This standard establishes new rules for reporting
comprehensive income, which includes net income as well as certain other items
which result in a change to equity during the period. The Company's financial
statements for periods prior to 1998 have been restated to reflect the
application of SFAS No. 130.
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 redefines how operating
segments are determined and requires disclosures of certain financial and
descriptive information about the Company's operating segments. Under current
conditions, the company is reporting one segment.
On October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
as fair value. Additionally, SFAS No. 133 allows a one-time reclassification of
securities without calling into question the intent of the company to hold other
securities to maturity.
Year 2000
The year 2000 problem involves the risks that computer programs and
computer systems may not be able to perform without interruption into the year
2000. If the computer systems do not correctly recognize the date change from
December 31, 1999 to January 1, 2000, computer applications that rely on the
date field could fail or create erroneous results. Such erroneous results could
affect many banking and other transactions such as interest payments or due
dates, and could cause the temporary inability to process transactions and to
engage in ordinary business activities.
The Company has been working since early 1997 to prepare its computer
systems and applications for the year 2000. A year 2000 committee, with
representatives from all departments of the Company, has been reviewing,
modifying and communicating with external service providers as well as customers
to ensure the year 2000 issue is being addressed appropriately. The Company has
dedicated a substantial amount of management and staff resources to the year
2000 project.
The inventory and assessment phases are complete. The committee started the
year 2000 compliance testing late in the third quarter 1998 and it is expected
to be completed in early 1999. Given the Company's computer systems structure,
management estimates that the testing of its computer systems and applications
will be substantially completed by March 31, 1999. Currently, almost all of the
PCs and local area network servers have been tested for year 2000 readiness and
have been returned to production as ready. The Company is also taking steps to
run tests with its mission critical service providers as well as its mid-range
computer systems. To date, the Company has not identified any material third
party servicer problems, but it continues to assess the situation.
The estimated total cost to become year 2000 compliant is approximately
$100,000. Accordingly, as of December 31, 1998, the Company has expensed
$100,000 in year 2000 anticipated expenses. It is not possible to predict with
certainty all adverse effects which might result from failure to become fully
year 2000 compliant or whether such effects could have a material impact on the
Company's financial condition, results of operations or liquidity.
For the computer systems and facilities that it has determined to be most
critical, the Company expects to complete development, test, and adopt business
contingency plans by June 30, 1999. The plans will conform to recently issued
guidelines from the FFIEC on business contingency planning for year 2000
readiness. Contingency plans will include, among other actions, manual
workarounds, identification of resource requirements and alternative solutions
for resuming critical business processes in the event of a year 2000-related
failure. While the Company will have contingency plans to address temporary
disruption, there can be no assurance that any failure or disruption will be
only temporary, that the contingency plans will function as anticipated, or that
the results of operations, financial condition, or liquidity of the Company will
not be adversely affected in the event of a prolonged disruption or failure.
26
<PAGE>
Item 7 - FINANCIAL STATEMENTS
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------------
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS - Non interest-bearing ................................................... $ 17,790 $ 12,735
FEDERAL FUNDS SOLD ............................................................................... 5,850 10,110
--------- ---------
Total cash and cash equivalents ......................................................... 23,640 22,845
DUE FROM BANKS - Interest-bearing ................................................................ 15,544 2,362
INVESTMENT SECURITIES - Available-for-sale ....................................................... 93,797 91,251
INVESTMENT SECURITIES - Held-to-maturity (aggregate fair values of
$17,554 and $35,212 at December 31, 1998 and 1997, respectively) ............................. 17,804 35,525
--------- ---------
111,601 126,776
LOANS ............................................................................................ 206,120 161,249
Allowance for possible loan losses ............................................................. (3,525) (2,731)
Unearned income ................................................................................ (830) (393)
--------- ---------
Net loans ............................................................................... 201,765 158,125
PREMISES AND EQUIPMENT, net ...................................................................... 5,251 5,439
OTHER REAL ESTATE ................................................................................ 495 373
ACCRUED INTEREST RECEIVABLE ...................................................................... 2,293 2,149
INTANGIBLE AND OTHER ASSETS ...................................................................... 11,811 3,916
--------- ---------
TOTAL ASSETS ..................................................................................... $ 372,400 $ 321,985
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non interest-bearing .......................................................................... $ 76,346 $ 72,521
Interest-bearing .............................................................................. 64,987 45,010
Savings ....................................................................................... 32,883 27,503
Time (includes deposits $100 and over of $31,096 and $26,104
at December 31, 1998 and 1997, respectively) .............................................. 119,179 112,521
--------- ---------
Total deposits .......................................................................... 293,395 257,555
FHLB ADVANCES .................................................................................... 10,000 --
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ................................................... 7,103 6,338
REDEEMABLE SUBORDINATED DEBENTURES ............................................................... -- 803
ACCRUED INTEREST PAYABLE ......................................................................... 2,589 2,053
OTHER LIABILITIES ................................................................................ 4,004 2,975
GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S
SUBORDINATED DEBT ............................................................................ 23,000 23,000
--------- ---------
Total liabilities ....................................................................... 340,091 292,724
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, without par value: 1,000,000 shares authorized, none outstanding .............. -- --
Common stock, par value $0.50 per share: 20,000,000 shares authorized, 5,329,566 and
5,294,032 shares outstanding at December 31, 1998 and 1997, respectively .................. 2,665 2,647
Additional paid-in capital ..................................................................... 25,460 25,138
Retained earnings (Accumulated deficit) ........................................................ 1,932 (391)
Accumulated other comprehensive income ......................................................... 2,252 1,867
--------- ---------
Total shareholders' equity .............................................................. 32,309 29,261
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................................... $ 372,400 $ 321,985
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
27
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees .................................................................... $16,335 $13,625
Investment securities .................................................................... 7,348 6,241
Federal funds sold and deposits with banks ............................................... 1,183 682
------- -------
Total interest income ............................................................... 24,866 20,548
INTEREST EXPENSE:
Deposits ................................................................................. 9,019 6,817
Short-term borrowings .................................................................... 633 366
Long-term borrowings ..................................................................... 2,357 1,765
------- -------
Total interest expense .............................................................. 12,009 8,948
------- -------
NET INTEREST INCOME .......................................................................... 12,857 11,600
PROVISION FOR POSSIBLE LOAN LOSSES ........................................................... 520 485
------- -------
Net interest income after provision for possible loan losses ........................ 12,337 11,115
OTHER INCOME:
Service charges on deposit accounts ...................................................... 1,761 1,481
Other commission and fees ................................................................ 925 627
Gain on sale of investment securities .................................................... 1,083 216
All other income ......................................................................... 887 431
------- -------
Total other income .................................................................. 4,656 2,755
OTHER EXPENSES:
Salaries and employee benefits .......................................................... 5,703 4,741
Occupancy and equipment ................................................................. 2,383 2,139
Regulatory, professional and other fees ................................................. 654 734
FDIC insurance assessment ............................................................... 60 52
Computer services ....................................................................... 193 167
Office expenses ......................................................................... 545 570
Other real estate operating expenses .................................................... 161 60
All other operating expenses ............................................................ 1,751 1,312
------- -------
Total other expenses ................................................................ 11,450 9,775
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES ..................................................... 5,543 4,095
PROVISION FOR INCOME TAXES ................................................................... 2,000 1,495
------- -------
NET INCOME ................................................................................... $ 3,543 $ 2,600
======= =======
Net income per share - basic ................................................................. $ 0.67 $ 0.60
------- -------
Net income per share - diluted ............................................................... $ 0.65 $ 0.56
------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
28
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Retained Other Total
Common Stock Additional Earnings Compre- Share- Compre-
------------------- Paid-in (Accumulated hensive Treasury holders' hensive
Shares Par Value Capital Deficit) Income Stock Equity Income
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 .................. 1,892 $ 1,892 $ 17,841 $ 1,209 $ 307 $ (188) $ 21,061
Net income - 1997 ...................... -- -- -- 2,600 -- -- 2,600 $ 2,600
10% stock dividend ...................... 189 189 3,211 (3,400) -- -- --
Exercise of stock options ............... 50 50 400 -- -- -- 450
Exercise of equity contracts ............ 560 560 4,433 -- -- -- 4,993
Cash dividends .......................... -- -- (800) -- -- (800)
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- 1,560 -- 1,560 1,560
--------
Total comprehensive income .............. $ 3,560
========
Purchase of treasury stock .............. -- -- -- -- (156) (156)
Retirement of treasury stock ............ (44) (44) (747) -- -- 344 (447)
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1997 ................ 2,647 $ 2,647 $ 25,138 $ (391) $ 1,867 $ -- $ 29,261
======== ======== ======== ======== ======== ======== ========
Net income - 1998 ...................... -- -- -- 3,543 -- -- 3,543 $ 3,543
2 for 1 stock split ..................... 2,647 -- -- -- -- -- --
Exercise of stock options ............... 48 24 438 -- -- -- 462
Cash dividends .......................... -- -- -- (1,220) -- -- (1,220)
Other comprehensive income, net of
reclassification adjustments and taxes -- -- -- -- 385 -- 385 385
--------
Total comprehensive income .............. -- -- -- -- -- -- -- $ 3,928
========
Purchase of treasury stock .............. -- -- -- -- -- (122) (122)
Retirement of treasury stock ............ (12) (6) (116) -- -- 122 --
-------- -------- -------- -------- -------- -------- --------
BALANCE, December 31, 1998 ................ 5,330 $ 2,665 $ 25,460 $ 1,932 $ 2,252 $ -- $ 32,309
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
29
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................................... $ 3,543 $ 2,600
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization .................................................................... 1,201 1,056
Accretion of discount on securities, net ......................................................... 125 (127)
Accretion of discount on debentures .............................................................. -- 11
Realization of discount on securities sold ....................................................... -- (88)
Gain on sale of securities, net .................................................................. (1,083) (216)
Provision for possible loan losses ............................................................... 520 485
Deferred income tax provision (benefit) .......................................................... (310) (233)
Decrease (increase) in accrued interest receivable ............................................... 83 (243)
Increase in other assets ......................................................................... (7,895) (1,394)
Increase in accrued interest and other liabilities ............................................... 1,565 1,972
-------- --------
Net cash (used in) provided by operating activities .................................... (2,251) 3,823
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities -
Purchases ...................................................................................... (56,752) (62,411)
Sales .......................................................................................... 6,928 10,986
Maturities ..................................................................................... 48,568 14,339
Held-to-maturity securities -
Purchases ...................................................................................... (21,224) (9,177)
Maturities ..................................................................................... 38,945 11,079
Net decrease (increase) in interest-bearing deposits with banks ................................... (13,182) 2,119
Net increase in loans ............................................................................. (43,640) (23,728)
Capital expenditures .............................................................................. (1,281) (3,184)
(Increase) decrease in other real estate .......................................................... (122) 1,549
-------- --------
Net cash used in investing activities .................................................. (41,760) (58,428)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts .................................................................. 35,840 34,313
Increase in securities sold under agreement to repurchase ......................................... 10,765 2,179
Proceeds from issuance of subordinated debt ....................................................... -- 23,000
Proceeds from exercise of equity contracts ........................................................ -- 165
Proceeds from redeemable subordinated debentures .................................................. (803) --
Dividends paid .................................................................................... (1,220) (800)
Proceeds from exercise of stock options ........................................................... 235 450
Purchases of treasury stock ....................................................................... (122) (156)
Other, net ........................................................................................ 111 5
-------- --------
Net cash provided by financing activities .............................................. 44,806 59,156
-------- --------
Net increase (decrease) in cash and cash equivalents ................................... 795 4,551
CASH AND CASH EQUIVALENTS, beginning of period ....................................................... 22,845 18,294
-------- --------
CASH AND CASH EQUIVALENTS, end of period ............................................................. $ 23,640 $ 22,845
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
30
<PAGE>
GREATER COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Greater Community Bancorp ("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 twelve 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.
The Company is in the process of forming a de novo bank subsidiary, Rock
Community Bank ("RCB"). The Company anticipates raising $5.0 million through the
sale of the Company stock. RCB anticipates commending operations in early 1999,
subject to regulatory approval.
In February 1998, Highland Capital Corp. ("HCC"), a wholly-owned nonbank
subsidiary, was formed. HCC engages in commercial equipment leasing focusing on
small ticket and lower or middle market leases for resale to third parties. Two
warehouse lines funded by the Bank Subsidiaries provide funding of leases.
GCB Capital Trust ("Trust"), a wholly-owned nonbank subsidiary was formed
in 1997 under the Business Trust Act of Delaware for the sole purposes of
issuing and selling Preferred Securities and Common Securities and using the
sales proceeds to acquire Junior Subordinated Debentures issued by the Company.
The Junior Subordinated Debentures are the sole assets of the Trust and the
payments under the Junior Subordinated Debentures are its sole revenue. All of
the Trust's Common Securities are owned by the Company.
GCB Realty, L.L.C. ("Realty"), a New Jersey limited liability company
located in Totowa, New Jersey, was formed in 1997. 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 and HCC are two of the tenants. Four tenants lease space in the
building. In July 1998, Realty consummated the purchase of an office building in
Lyndhurst, New Jersey for $400,000 which is currently being leased to BCB for
one of their banking offices.
Greater Community Services, Inc. (formerly known as Great Falls Financial
Services, Inc.) is a wholly-owned nonbank subsidiary of the Company. 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 1996 the Company formed Greater Community Financial, L.L.C. ("GCF"), a
majority-owned New Jersey limited liability company located in Clifton, New
Jersey. GCF is a registered broker-dealer with the Securities and Exchange
Commission and is a member of the National Association of Security Dealers.
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, Bank Subsidiaries and GCF 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, their respective businesses are
particularly susceptible to being affected by state and federal legislation and
regulations.
31
<PAGE>
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
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. These estimates and
assumptions also affect reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The principal estimate that is particularly susceptible to significant
change in the near term relates to the allowance for loan losses. The evaluation
of the adequacy of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
the capability of specific borrowers to pay specific loan obligations, and
current loan collateral values. However, actual losses on specific loans, which
also are encompassed in the analysis, may vary from estimated losses.
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about the
Company's operating segments. Under current conditions, the company is reporting
one segment.
FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board ("FASB") issued 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.
On October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Additionally, SFAS No. 133 allows a one-time reclassification of
securities without calling into question the intent of the company to hold other
securities to maturity.
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 are net of unearned discount, unearned loan fees, and an
allowance for loan losses. The allowance for possible loan losses is established
through a provision for possible loan losses charged to expense. Loans are
charged against the allowance for possible 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
32
<PAGE>
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.
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 Company accounts for its transfers and servicing assets in accordance
with 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.
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.
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, 1998 and
1997, were approximately $350,000 and $458,000, 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 for the years ended December 31, 1998 and 1997.
Financing costs related to the issuance of the subordinated debt is 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, 1998 and 1997.
33
<PAGE>
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, other real
estate, interest income on nonaccrual loans, depreciation and amortization,
difference between book and tax basis of assets acquired and acquired net
operating loss carryforwards. The Company and its subsidiaries file a
consolidated Federal income tax return.
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, 1998 and 1997, GFB
had $7.7 million and $5.9 million and BCB had $4.1 million and $3.4 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 $1.9 million and $1.5
million for the years ended December 31, 1998 and 1997, respectively. Cash paid
for interest was $11.5 million and $8.4 million for the years ended December 31,
1998 and 1997, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 1998 and 1997 were approximately $209,000 and
$201,000, respectively.
STOCK OPTIONS
The Company accounts for its stock options under SFAS No. 123, "Accounting
for Stock-Based Compensation." 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
In 1997, the Company adopted the provisions of 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 takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock. All weighted
average actual shares or per share information in the financial statements has
been adjusted retroactively for the effect of stock split and dividends.
34
<PAGE>
START-UP COST
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position ("SOP") 98-5,
"Reporting on Costs of Start-up Activities." SOP 98-5 requires that costs of
start-up activities, as defined, including organization costs, be expensed as
incurred. The Company adopted this pronouncement upon issuance of SOP 98-5.
During 1998 the Company expensed $119,000 of costs that would have been
previously categorized as start-up costs. The Company did not have any prior
start-up cost capitalized.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This standard establishes new standards for reporting
comprehensive income which includes net income as well as certain other items
which result in a change to equity during the period. These financial statements
have been reclassified to reflect the provisions of SFAS No. 130.
The income tax effects allocated to comprehensive income is as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------------- ---------------------------------------
Before tax Tax Net of Tax Before tax Tax Net of Tax
Amount Expense Amount Amount Expense Amount
---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains on securities
Unrealized holding gains
arising during period ................... $ 1,747 $ (712) $ 1,035 $ 2,809 $(1,119) $ 1,690
Less reclassification adjustment
for gains realized in net income ........... 1,083 (433) 650 216 (86) 130
------- ------- ------- ------- ------- -------
Other comprehensive income, net .............. $ 644 $ (279) $ 385 $ 2,593 $(1,033) $ 1,560
======= ======= ======= ======= ======= =======
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 financial statements
to conform to the classifications used in 1998.
NOTE 2 ACQUISITION
On September 4, 1998, the Company entered into an Agreement and Plan of
Merger ("the Merger Agreement") with First Savings Bancorp of Little Falls, Inc.
("First Savings"). The Shareholders of First Savings will be entitled to receive
$52.26 for each share of First Savings common stock owned on the effective date
of the merger, subject to certain provisions of the merger agreement. The total
purchase price will not exceed $23.0 million. The merger is subject to the
approval of applicable regulatory agencies. The merger is anticipated to close
in March 1999. The transaction will be accounted for under the purchase method
of accounting.
35
<PAGE>
NOTE 3 INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and fair 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,
------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- --------------------------------------------
Gross Un- Gross Un- Gross Un- Gross Un-
Amortized realized realized Fair Amortized realized realized Fair
Cost Gain Losses Value Cost Gain Losses Value
--------- -------- -------- -------- --------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury and U.S. ................
Government agencies securities ...... $ 16,370 $ 268 $ -- $ 16,638 $ 33,590 $ 294 $ -- $ 33,884
State and political
subdivisions ........................ 934 -- -- 934 558 -- -- 558
Other debt and equity
securities .......................... 18,159 3,815 (410) 21,564 13,410 2,844 (10) 16,244
Mortgage-backed securities:
FHLMC ........................... 36,083 109 (47) 36,145 33,298 47 (117) 33,228
FNMA ............................ 18,493 81 (58) 18,516 7,301 43 (7) 7,337
-------- -------- -------- -------- -------- -------- -------- --------
54,576 190 (105) 54,661 40,599 90 (124) 40,565
-------- -------- -------- -------- -------- -------- -------- --------
$ 90,039 $ 4,273 $ (515) $ 93,797 $ 88,157 $ 3,228 $ (134) $ 91,251
======== ======== ======== ======== ======== ======== ======== ========
Held-to-maturity
U.S. Treasury and U.S. ................
Government agencies securities ...... $ 5,899 $ 2 $ (325) $ 5,576 $ 14,822 $ 93 $ (396) $ 14,519
State and political
subdivisions ........................ 898 4 -- 902 1,390 1 -- 1,391
Mortgage-backed securities:
FHLMC ........................... 7,793 82 (16) 7,859 10,242 38 (19) 10,261
FNMA ............................ 3,214 10 (7) 3,217 9,071 6 (37) 9,041
-------- -------- -------- -------- -------- -------- -------- --------
11,007 92 (23) 11,076 19,313 44 (56) 19,302
-------- -------- -------- -------- -------- -------- -------- --------
$ 17,804 $ 98 $ (348) $ 17,554 $ 35,525 $ 138 $ (452) $ 35,212
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
The amortized cost and fair value of securities at December 31, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers and borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
December 31, 1998
----------------------
Amortized Fair
Cost Value
--------- -------
(In Thousands)
Available-for-sale
Due in one year or less ............................ $ 6,896 $ 6,908
Due after one year through five years .............. 10,056 10,289
Due after five years through ten years ............. 352 375
Mortgage-backed securities ......................... 54,576 54,661
Other debt and equity securities ................... 18,159 21,564
------- -------
$90,039 $93,797
======= =======
Held-to-maturity
Due in one year or less ............................ 1,608 1,611
Due after one year through five years .............. 4,189 4,174
Due after five years through ten years ............. 1,000 693
Mortgage-backed securities ......................... 11,007 11,076
------- -------
$17,804 $17,554
======= =======
Proceeds from sales of available-for-sale securities for the years ended
December 31, 1998 and 1997 were $6.9 million and $11.0 million, respectively.
Gross gains of $1.1 million and $216,000 were realized on these sales for the
years ended December 31, 1998 and 1997, respectively. Gross losses were not
significant for the years ended December 31, 1998 and 1997.
Securities with a carrying value of $27.1 million and $17.5 million at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and repurchase agreements and for other purposes required by law.
SFAS No. 133 allowed a reclassification of investment securities without
calling into question the intent of the company to hold other investment
securities to maturity in the future. On October 1, 1998, the Company
reclassified securities with a fair market value of $5.5 million resulting in an
increase of accumulated other comprehensive income of $28,000.
NOTE 4 LOANS
Major classifications of loans are as follows:
December 31,
----------------------
1998 1997
-------- --------
(In Thousands)
Loans secured by one- to four-family
residential properties ........................... $ 66,485 $ 45,700
Loans secured by nonresidential properties ......... 100,687 81,064
Loans to individuals ............................... 10,609 10,549
Commercial loans ................................... 21,107 16,847
Construction loans ................................. 5,163 5,784
Other loans ........................................ 2,069 1,305
-------- --------
$206,120 $161,249
======== ========
37
<PAGE>
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.
December 31,
--------------------
1998 1997
------ ------
(In Thousands)
Nonaccrual loans ................................... $1,657 $1,741
Renegotiated loans ................................. 416 521
------ ------
Total nonperforming loans ........................ $2,073 $2,262
====== ======
Loans past due 90 days and accruing ................ $ 461 $ 135
====== ======
Gross interest income which would have
been recorded under original terms ............... $ 138 $ 291
====== ======
The balance of impaired loans was $907,000 and $1.3 million at December 31,
1998 and 1997, 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 $138,000 and $156,000 at December
31, 1998 and 1997, respectively. The average recorded investment in impaired
loans was $419,000 and $1.0 million at December 31, 1998 and 1997, respectively.
The income recognized on impaired loans for the years ended December 31, 1998
and 1997, were $44,000 and $19,000, 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, 1998, loans outstanding to these related parties
amounted to $7.7 million. An analysis of activity in loans to related parties at
December 31, 1998, resulted in new loans of $4.2 million and repayments of $2.4
million. All such loans are current as to principal and interest payments at
December 31, 1998.
NOTE 5 ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
Years ended December 31,
------------------------
1998 1997
------- -------
(In Thousands)
Balance at beginning of year ................. $ 2,731 $ 2,540
Provision charged to operations .............. 520 485
Charge-offs .................................. (123) (407)
Recoveries ................................... 397 113
------- -------
Balance at end of year ....................... $ 3,525 $ 2,731
======= =======
38
<PAGE>
NOTE 6 PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
Estimated ---------------------------
Useful Lives 1998 1997
------------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Land............................................. indefinite $ 809 $ 617
Buildings and improvements....................... 5 to 20 years 2,323 2,468
Furniture, fixtures and equipment................ 3 to 10 years 4,617 3,897
Leasehold improvements........................... 3 to 40 years 2,307 2,130
-------- --------
10,056 9,112
Less accumulated depreciation and amortization... (4,805) (3,673)
-------- --------
$ 5,251 $ 5,439
======== ========
</TABLE>
NOTE 7 DEPOSITS
At December 31, 1998, the schedule of maturities of Certificates of Deposit
is as follows (in thousands):
1999 ......................................... $112,222
2000 ......................................... 5,546
2001 ......................................... 889
2002 ......................................... 242
2003 ......................................... 280
--------
$119,179
========
NOTE 8 DEBT
Federal Home Loan Bank Advances
At December 31, 1998, the Company had $10.0 million of advances to the
Federal Home Loan Bank ("FHLB"). These advances mature in 2008 unless refinanced
or repaid by the Company based upon provision defined in the loan agreement. The
weighted average interest rate was 4.98%.
The Company has a line of credit for $15.9 million with the 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, 1998 and 1997 there were no outstanding balances.
Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt
In May 1997, the Company issued $23.0 million of 10.00% of junior
subordinated debentures to Trust, a Delaware Business Trust, in which the
Company owns all of the common equity. The trust issued $23.0 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 as 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.
39
<PAGE>
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 $4.44 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 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 $4.44 per share. The Company issued 1,122,674 shares of common
stock in connection with these November exercises. Subordinated debentures in
the principal amount of $0 and $803,000 were outstanding at December 31, 1998
and 1997.
NOTE 9 INCOME TAXES
The provision for income taxes was as follows:
Year Ended December 31,
--------------------------
1998 1997
------- -------
(In Thousands)
Federal
Current ..................... $ 1,953 $ 1,512
Deferred .................... (223) (198)
State
Current ...................... 346 216
Deferred ..................... (76) (35)
------- -------
$ 2,000 $ 1,495
======= =======
The reconciliation of the tax computed at the statutory federal rate was as
follows:
Year Ended December 31,
-----------------------
1998 1997
------- -------
(In Thousands)
Tax at statutory rate .......................... $ 1,884 $ 1,392
Increase (reduction) in tax resulting from:
Tax-exempt income ............................ (197) (46)
Amortization of intangible assets ............ 37 36
State income tax, net of federal benefit ..... 181 142
Other ........................................ 95 (29)
------- -------
Provision for income taxes ................... $ 2,000 $ 1,495
======= =======
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Allowance for possible losses on loans and other real estate ................... $ 938 $ 720
Interest income on nonaccrual loans ............................................ 310 303
Depreciation and amortization .................................................. 339 202
Acquired net operating loss carryforward ....................................... 191 231
Difference between book and tax basis of assets acquired ....................... 355 351
Unrealized holding gains on investment securities available-for-sale ........... (1,506) (1,227)
Other .......................................................................... (139) (112)
------- -------
Total net deferred tax asset (included in other assets) .................. $ 488 $ 468
======= =======
</TABLE>
40
<PAGE>
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $555,000. This net operating loss
carryforward originated from preacquisition losses at Family First. Subject to
certain yearly limitations, the Company can utilize the preacquisition net
operating loss carryforward to offset future consolidated taxable income. The
net operating loss carryforwards, if unused, would expire in the years 2008 to
2010.
NOTE 10 SHAREHOLDERS' EQUITY
During 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized common shares from 10,000,000 shares with a
par value of $1.00 to 20,000,000 shares with a par value of $.50. In conjunction
with this amendment, the Company declared a 2 for 1 stock split where one common
share of $1.00 par value stock was exchanged for two common shares of $0.50 par
value stock.
On July 31, 1997, the Company paid a 10% stock dividend on its common stock
to shareholders of record on July 15, 1997.
NOTE 11 EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS No.
128, "Earnings Per Share," is as follows:
For Year Ended December 31, 1998
------------------------------------
Shares
Income (Denomi- Per Share
(Numerator) nator) Amount
----------- -------- -----------
(In Thousands, except
for per share data)
Basic EPS
Net income available to common stockholders $ 3,543 5,297 $ 0.67
Effect of Dilutive Securities
Options ................................... -- 190 (0.02)
-------- -------- -----------
Diluted EPS
Net income available to common stockholders
plus assumed conversions ................ $ 3,543 5,487 $ 0.65
======== ======== ===========
Options to purchase 91,950 shares of common stock at $10.375 were outstanding
during 1998. 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 stock.
For Year Ended December 31, 1997
--------------------------------
(In Thousands, except
for per share data)
Basic EPS
Net Income available to common stockholders ... $2,600 4,346 $0.60
Effect of Dilutive Securities
Options ....................................... -- 156 (0.03)
Equity Contracts .............................. 208 462 (0.01)
------ ------ -----
Diluted EPS
Net Income available to common stockholders
plus assumed conversions ................... $2,808 4,964 $0.56
====== ====== =====
Options to purchase 9,000 shares of common stock at $9.69 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 stock.
41
<PAGE>
NOTE 12 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 222,608 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, 1998 and 1997, options to purchase 53,275 and 89,396
shares were outstanding.
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 71,874 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 484,000 shares is authorized to be granted under the
1996 Employee Plan. During 1998 and 1997, options to acquire 91,950 and 18,900
shares were granted under this plan. At December 31, 1998 and 1997, options to
purchase a total of 331,925 and 255,400 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 229,900 shares is authorized to
be granted under the 1996 Directors Plan. During 1996, options to acquire
229,900 shares were granted under this plan. At December 31, 1998 and 1997,
options to purchase a total of 225,569 and 228,754 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, basic and diluted earnings per
share would have been reduced to the pro forma amounts indicated below.
1998 1997
------ ------
(In Thousands, except per share data)
Net income.......................... As reported $3,543 $2,600
Pro forma $3,412 $2,511
Net income per share - basic........ As reported $0.67 $0.60
Pro forma $0.65 $0.56
Net income per share - diluted...... As reported $0.65 $0.56
Pro forma $0.63 $0.52
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 1998 and 1997, respectively: dividend yields of
2.1% and 2.2%; expected volatility of 22% and 27%; risk-free interest rates of
4.58% and 6.43%; and expected lives of five and ten years.
42
<PAGE>
A summary of the status of the Company's stock option plans as of December
31, 1998 and 1997 and the changes during the years ending on those dates is
represented below.
<TABLE>
<CAPTION>
1998 1997
--------------------------- -----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ------ --------- -----
<S> <C> <C> <C> <C>
Outstanding, beginning of year............... 573,550 $ 6.61 664,872 $6.23
Granted...................................... 91,950 10.38 18,900 8.66
Exercised.................................... (48,334) 4.87 (101,054) 4.51
Terminated................................... (6,397) 7.78 (9,168) 7.04
-------- ------ --------- -----
Outstanding, end of year..................... 610,769 $ 7.30 573,550 $6.61
-------- ------ --------- -----
Options exercisable at year-end.............. 64,133 36,076
======== =========
Weighted average fair value of
options granted during the year........... $ 2.28 $3.60
====== =====
</TABLE>
The following table summarizes information about nonqualified options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ------------------------------------
Number Weighted- Number
Outstanding at Average Weighted- Outstanding at Weighted-
Range of December 31, Remaining Average December 31, Average
Exercise Prices 1998 Contractual Life Exercise Price 1998 Exercise Price
--------------- ---------------- ----------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$3.10 - $ 4.65 29,708 4.39 years $3.39 13,500 $3.38
$4.66 - $ 6.99 442,730 8.17 years 6.85 48,646 6.87
$7.00 - $10.50 138,331 9.28 years 9.42 1,987 7.78
</TABLE>
NOTE 13 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 $325,000 and $183,000 for the years ended December
31, 1998 and 1997, respectively.
NOTE 14 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 $630,000 and $681,000 for the years ended December 31, 1998 and
1997, respectively. Included in these amounts is $215,081 in 1998 and $146,000
in 1997, paid to a general partnership that includes two directors of the
Company.
43
<PAGE>
As of December 31, 1998, future approximate minimum annual rental payments
under these leases are as follows (in thousands):
1999 ............................................ $ 525
2000 ............................................ 432
2001 ............................................ 201
2002 ............................................ 54
2003 ............................................ 10
------
Total ...................................... $1,222
======
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 15 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 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,
-----------------------
1998 1997
------- ------
Financial instruments whose contract amounts represent credit risk (In Thousands)
<S> <C> <C>
Commitments to extend credit................................. $37,453 $30,221
Standby letters of credit and financial guarantees written.. 1,108 1,468
</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
44
<PAGE>
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, 1998 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 16 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, 1998 and 1997 are outlined
below.
For cash and due from banks, the recorded book values of $23.6 million and
$22.8 million at December 31, 1998 and 1997, respectively, approximate fair
values. For interest-bearing deposits with banks, the recorded book values of
$15.5 million and $2.4 million at December 31, 1998 and 1997, 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 not available if quoted market
prices are not available.
The net loan portfolio at December 31, 1998 and 1997, 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, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale $ 93,797 $ 93,797 $ 91,251 $ 91,251
Investment securities held-to-maturity . 17,804 17,554 35,535 35,212
Loans, net of unearned income ........... 205,290 207,045 160,856 161,807
</TABLE>
45
<PAGE>
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, securities sold under agreements to repurchase and FHLB
advances at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Time deposits ................................. $119,179 $119,792 $112,521 $112,739
Securities sold under agreements to repurchase 7,103 7,103 6,338 6,338
FHLB Advances ................................. 10,000 10,155 -- --
</TABLE>
The fair values of the 8.5% redeemable subordinated debentures totaling $0
and $803,000 at December 31, 1998 and 1997, respectively, are estimated to
approximate their recorded book balances. The fair value of the guaranteed
preferred beneficial interest in the Company's subordinated debt totaling $23.0
million at December 31, 1998 and 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
$38.6 million and $31.7 million at December 31, 1998 and 1997, respectively, and
primarily comprise unfunded loan commitments which are generally priced at
market at the time of funding.
NOTE 17 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 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,
1998, management believes that the Company and the Bank Subsidiaries meet all
capital adequacy requirements to which they are subject.
46
<PAGE>
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank Subsidiaries as well-capitalized under the regulatory
framework for prompt corrective action. 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, 1998
Total capital (to risk-weighted assets)
Greater Community Bancorp ........... $55,953 21.58% $20,746 8.00% $ -- --
Great Falls Bank .................... 16,863 11.11% 12,145 8.00% 15,181 10.00%
Bergen Commercial Bank .............. 8,961 11.74% 6,106 8.00% 7,633 10.00%
Tier 1 capital (to risk-weighted assets)
Greater Community Bancorp ........... 39,726 15.32% 10,373 4.00% -- --
Great Falls Bank .................... 14,956 10.45% 6,072 4.00% 9,108 6.00%
Bergen Commercial Bank .............. 8,100 10.61% 3,053 4.00% 4,579 6.00%
Tier 1 capital (to average assets)
Greater Community Bancorp ........... 39,726 11.21% 14,015 4.00% -- --
Great Falls Bank .................... 14,956 6.48% 9,011 4.00% 11,265 5.00%
Bergen Commercial Bank .............. 8,100 6.96% 4,655 4.00% 5,818 5.00%
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%
</TABLE>
47
<PAGE>
NOTE 18 CONDENSED FINANCIAL
INFORMATION - PARENT COMPANY ONLY
The condensed financial information of Greater Community Bancorp is as
follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
December 31,
-------------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
ASSETS:
Cash and Federal Funds sold ................................................................ $ 5,217 $ 3,258
Investment securities available-for-sale ................................................... 23,172 24,925
Accrued interest receivable ................................................................ 78 177
Investment in subsidiaries ................................................................. 27,209 25,189
Other assets ............................................................................... 1,914 1,684
------- -------
Total assets .......................................................................... $57,590 $55,233
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Redeemable subordinated debentures ......................................................... $ -- $ 803
Guaranteed preferred beneficial interest in the Company's subordinated debt ................ 23,711 23,711
Other liabilities .......................................................................... 1,570 1,458
Shareholders' equity ....................................................................... 32,309 29,261
------- -------
Total liabilities and shareholders' equity ............................................ $57,590 $55,233
======= =======
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Year Ended December 31,
-------------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Income
Equity in undistributed income of Bank Subsidiaries ....................................... $ 1,450 $ 2,093
Dividends from Bank Subsidiaries ........................................................... 2,167 958
Interest income ............................................................................ 1,457 1,008
Gain on sale of investment securities ...................................................... 1,026 154
------- -------
6,100 4,213
Expenses
Interest on subordinated debt .............................................................. 2,357 1,765
Other expenses ............................................................................. 327 253
------- -------
2,684 2,018
Income before income tax benefit ...................................................... 3,416 2,195
Income tax benefit ......................................................................... 127 405
------- -------
Net income ............................................................................ $ 3,543 $ 2,600
======= =======
</TABLE>
48
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................... $ 3,543 $ 2,600
Adjustments to reconcile net income to cash (used in) provided by operating activities:
(Gain) loss on sale of investment securities available-for-sale ........................... (1,026) (154)
(Increase) decrease in other assets ...................................................... (253) (1,740)
(Increase) decrease in other liabilities .................................................. 605 1,149
Equity in undistributed income of subsidiaries ............................................ (1,450) (2,093)
------- -------
Net cash provided by (used in) operating activities ............................... 1,419 (238)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ..................................... (8,597) (23,951)
Proceeds from sales of investment securities, available-for-sale .......................... 11,547 4,891
Payments for investments in and advances to subsidiaries .................................. (500) (775)
------- -------
Net cash provided by (used in) investing activities ................................ 2,450 (19,835)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of subordinated debt ................................................... -- 23,000
Proceeds from exercise of stock options ................................................... 235 450
Proceeds from exercise of equity contracts ................................................ -- 165
Repayment of long-term debt ............................................................... (803) --
Dividends paid ............................................................................ (1,220) (800)
Purchase of treasury stock ................................................................ (122) (156)
Other, net ................................................................................ -- 45
------- -------
Net cash provided by (used in) financing activities ................................ (1,910) 22,704
------- -------
Net increase in cash and cash equivalents .......................................... 1,959 2,631
CASH AND CASH EQUIVALENTS, beginning of year ................................................... 3,258 627
------- -------
CASH AND CASH EQUIVALENTS, end of year ......................................................... $ 5,217 $ 3,258
======= =======
</TABLE>
49
<PAGE>
NOTE 19 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>
1998
Interest income .................................. $6,411 $6,420 $6,144 $5,891
Interest expense ................................. 2,982 3,137 3,075 2,815
Net interest income .............................. 3,429 3,283 3,069 3,076
Provision for credit losses ...................... 181 111 108 120
Other operating income ........................... 1,488 1,139 1,111 918
Other operating expenses ......................... 3,097 2,842 2,821 2,690
Income before income taxes ....................... 1,639 1,469 1,251 1,184
Net income ....................................... $1,040 $ 938 $ 794 $ 771
Per share data
Average common shares outstanding - basic ........ 5,297 5,302 5,291 5,286
Average common shares outstanding - diluted ...... 5,487 5,492 5,486 5,470
Net income per common share - basic .............. $ 0.20 $ 0.18 $ 0.15 $ 0.14
Net income per common share - diluted ............ 0.19 0.17 0.14 0.14
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 ........ 5,308 4,170 4,155 4,132
Average common shares outstanding - diluted ...... 5,487 4,911 4,919 4,896
Net income per common share - basic .............. $ 0.15 $ 0.14 $ 0.15 $ 0.16
Net income per common share - diluted ............ 0.14 0.14 0.13 0.15
</TABLE>
50
<PAGE>
[TO COME]
51
<PAGE>
Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART II
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 in the registrant's definitive Proxy
Statement for its 1999 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 in the registrant's
definitive Proxy Statement for its 1999 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 in the
registrant's definitive Proxy Statement for its 1999 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 in the
registrant's definitive Proxy Statement for its 1999 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 in the registrant's definitive
Proxy Statement for its 1999 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.
52
<PAGE>
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Reg. S-B is contained in the
registrant's definitive Proxy Statement for its 1999 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.
[Note: Exhibits filed with Form 10-KSB have been omitted from the
Annual Report to Stockholders, other than Exhibit 23.]
Exhibit No. Description
----------- -----------
10.1 Employment Agreement of George E. Irwin
dated July 31, 1998
10.2 Employment Agreement of C. Mark Campbell
dated July 31, 1998
21 Subsidiaries of Registrant
23 Consent of Grant Thornton LLP
27 Financial Data Schedule
B. Reports on Form 8-K: The registrant did not file any reports on
Form 8-K with the Securities and Exchange Commission during the
last quarter of the fiscal year ended December 31, 1998. On
January 27, 1999, the registrant filed a report on Form 8-K
reporting the proposed acquisition of a de novo bank, Rock
Community Bank, the capitalization of that bank at $5 million,
and the Company's intention to conduct a private placement of up
to $5 million of Common Stock.
53
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Greater Community Bancorp
Date: March 17, 1999 BY: /s/John L. Soldoveri
----------------------------------------
John L. Soldoveri
Principal Executive Officer and
Chairman of the Board
Date: March 17, 1999 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.
Date: March 17, 1999 BY: /s/George E. Irwin
----------------------------------------
George E. Irwin
President, Chief Operating Officer
and Director
Date: March 17, 1999 BY: /s/Anthony M. Bruno, Jr.
----------------------------------------
Anthony M. Bruno, Jr.
Vice Chairman of the Board and Director
Date: March 17, 1999 BY: /s/Charles J. Volpe
----------------------------------------
Charles J. Volpe
Director
Date: March 17, 1999 BY: /s/C. Mark Campbell
----------------------------------------
C. Mark Campbell
Executive Vice President and Director
Date: March 17, 1999 BY: /s/Joseph A. Lobosco
----------------------------------------
Joseph A. Lobosco
Director
Date: March 17, 1999 BY: /s/John L. Soldoveri
----------------------------------------
John L. Soldoveri
Principal Executive Officer and Chairman
of the Board
54
EXHIBIT 10.1
EMPLOYMENT AGREEMENT OF GEORGE E. IRWIN
DATED JULY 31, 1998
TABLE OF CONTENTS
1. Employment; Duties.................................................. 1
a. Employment................................................. 1
b. Duties..................................................... 1
2. Base Compensation................................................... 2
3. Term................................................................ 2
4. Stock Options....................................................... 2
5. Other Benefits...................................................... 2
a. Participation in 401K, Medical and Insurance
Plans...................................................... 2
b. Expenses................................................... 3
c. Car Allowance.............................................. 3
6. Loyalty; Noncompetition............................................. 3
a. Devotion to Performance.................................... 3
b. Investments................................................ 3
7. Standards........................................................... 4
8. Vacation............................................................ 4
a. Annual Vacation............................................ 4
b. No Additional Compensation................................. 4
9. Termination and Termination Pay..................................... 4
a. Death...................................................... 4
b. Disability................................................. 4
c. Just Cause................................................. 5
d. Termination Without Just Cause............................. 6
(1) Payment of Base Salary............................ 6
(2) Manner of Payment................................. 6
(3) Covenant Not to Compete........................... 6
e. Termination or Suspension Under Federal law ............... 7
f. Voluntary Termination by Employee; Covenant Not to
Compete.................................................... 7
10. No Mitigation....................................................... 7
11. Change in Control................................................... 8
a. Involuntary Termination After Change in Control............ 8
b. Voluntary Termination After Change in Control.............. 9
c. Dispute Resolution......................................... 9
i
<PAGE>
12. Confidentiality of Information...................................... 9
13. Injunctive Relief................................................... 10
14. Representation of the Employee...................................... 10
15. Successors and Assigns.............................................. 10
a. Acquisition of GCB or the Bank............................. 10
b. No Assignment by Employee.................................. 10
16. Joint and Several Liability......................................... 10
17. Amendments.......................................................... 10
18. Applicable Law...................................................... 11
a. State Law.................................................. 11
b. Compliance with Law and Regulation......................... 11
19. Severability........................................................ 11
20. Headings............................................................ 11
21. Entire Agreement.................................................... 11
ii
<PAGE>
EMPLOYMENT AGREEMENT OF GEORGE E. IRWIN
THIS AGREEMENT entered into as of July 31, 1998 ("Effective Date"), by and
among GREAT FALLS BANK, a New Jersey commercial banking corporation having its
principal place of business at 55 Union Boulevard, Totowa, New Jersey 07511 (the
"Bank"), GREATER COMMUNITY BANCORP, a New Jersey business corporation having its
principal place of business at 55 Union Boulevard, Totowa, New Jersey 07511
("GCB"), and GEORGE E. IRWIN, residing at 17 Green Ridge Drive, Montville, New
Jersey (the "Employee").
WHEREAS, the Employee has heretofore been employed as the President and
Chief Operating Officer of GCB, President and Chief Executive Officer of the
Bank, and is experienced in the business of banking; and
WHEREAS, GCB owns the Bank, and the Bank is engaged in the business of
commercial banking, with offices in Passaic County, New Jersey; and
WHEREAS, GCB and the Bank wish to employ the Employee as President and
Chief Operating Officer of GCB and President and Chief Executive Officer of the
Bank; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of the Employee by the Bank and GCB;
NOW, THEREFORE, it is AGREED as follows:
1. Employment; Duties.
a. Employment. The Bank and GCB hereby employ the Employee, and the
Employee hereby accepts employment by GCB and the Bank, as the President
and Chief Operating Officer of GCB and the President and Chief Executive
Officer of the Bank. The Employee also agrees to serve as a Director of GCB
and the Bank if elected to such position.
b. Duties. Subject to the direction of the respective Boards of
Directors of GCB and the Bank and the Chief Executive Officer of GCB, the
Employee shall have responsibility for the general management and control
of the business and affairs of GCB, the Bank and their subsidiaries, and
shall perform all duties and shall have all powers which are commonly
incident to the offices of President, Chief Executive Officer, Chief
Operating Officer or which, consistent therewith, are delegated to him by
the respective Boards of Directors and Chief Executive Officer. Such duties
include, but are not limited to, (1) managing the day-to-day operations of
GCB and the Bank, (2) managing the efforts of GCB and the Bank to comply
with applicable laws and regulations, (3) promotion of GCB and the Bank and
their services, (4) supervising other employees of GCB and the Bank, (5)
providing prompt and accurate reports to the
<PAGE>
Boards of Directors of GCB and the Bank regarding the affairs and condition
of GCB, the Bank and their subsidiaries, respectively, and (6) making
recommendations to the Boards of Directors of GCB and/or the Bank, as the
case may be, concerning the strategies, capital structure, tactics, and
general operations of GCB and/or the Bank.
2. Base Compensation. GCB and the Bank agree to pay the Employee so long as
he is employed pursuant to this Agreement a salary not less than One Hundred
Seventy Thousand and 00/100 Dollars ($170,000) per annum, payable on the same
schedule as salaries of other executive officers of the Bank are paid. This
salary may be increased from time to time as approved by the Board of Directors
of GCB and the Bank. Any increase by the Board of Directors will be the "Base
Compensation" under this Agreement. The Bank will pay the Employee such salary
for so long as Bank is an employer of the Employee hereunder, and GCB will pay
the Employee such salary if it is the sole employer of the Employee hereunder.
3. Term. The Employee's initial employment by GCB and the Bank pursuant to
this Agreement is for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter (or on such earlier date as is determined in
accordance with Section 9 hereof). Thereafter, the Employee's employment by GCB
and the Bank pursuant to this Agreement is automatically renewed annually on the
anniversary of the Effective Date for the period ending twenty-four (24) months
thereafter (or on such earlier date as is determined in accordance with Section
9 hereof).
4. Stock Options. The Employee shall be entitled to participate in the
employee stock option plans that GCB and/or the Bank maintains from time to time
for the benefit of its executive employees. This provision shall not preclude
GCB and/or the Bank from any amendment to, or termination of, any stock option
plan. Provided, however, that notwithstanding anything to the contrary contained
in said plans or in Employee's separate Stock Option Agreements, in the event
that Employee is terminated without just cause pursuant to Paragraph 9d of this
Agreement, or terminates voluntarily or involuntarily as a result of change in
control pursuant to Paragraph 11 of this Agreement, all stock options currently
held by Employee on the date of such termination shall become fully vested and
fully exercisable. The Boards of Directors of GCB and the Bank, and the Stock
Option Committee of GCB will take all appropriate steps to effectuate this
provision, including the amendment of any existing plan and/or agreement to
conform herewith.
5. Other Benefits.
a. Participation in 401K, Medical and Insurance Plans. The Employee
shall be entitled to participate in the employee benefit plans that GCB
and/or the Bank maintains from
Employment Agreement of George E. Irwin Page 2
<PAGE>
time to time for the benefit of its employees and which include its
executive employees relating to (1) 401K benefits, (2) medical insurance
and/or the reimbursement of uninsured medical expenses, (3) group term life
insurance benefits, and (4) group disability benefits. This provision shall
not preclude GCB and/or the Bank from any amendment to, or termination of,
any such plan.
b. Expenses. The Employee shall be entitled to be reimbursed for all
reasonable out-of-pocket business expenses which he shall incur in
connection with his rendition of services under this Agreement upon
substantiation of such expenses in accordance with applicable policies of
GCB or the Bank.
c. Car Allowance. The employee shall be entitled to a minimum of Nine
Hundred and 00/100 Dollars ($900.00) per month for car expenses. This car
allowance may be increased from time to time as approved by the Board of
Directors of GCB and/or the Bank. Any increase by the Board of Directors
will be the "Car Allowance" under this Agreement.
6. Loyalty; Noncompetition.
a. Devotion to Performance. During the period of his employment
hereunder and except for illnesses, reasonable vacation periods, and
reasonable leaves of absence, the Employee shall devote all his full
business time, attention, skill, and efforts to the faithful performance of
his duties hereunder; provided, however, that from time to time, Employee
may, with the prior written consent of the Boards of GCB and the Bank,
serve on the boards of directors of, and hold any other offices or
positions in, companies or organizations which will not (1) present any
conflict of interest with GCB or the Bank or any of their subsidiaries or
affiliates, (2) unfavorably affect the performance of Employee's duties
pursuant to this Agreement, or (3) violate any applicable statute or
regulation. The phrase "full business time" as used herein means that the
Employee cannot be gainfully employed in any other position or job, but the
time devoted to GCB and the Bank shall be that amount of time usually
devoted to like companies by similarly situated executive officers. During
the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or
interests of GCB or the Bank.
b. Investments. Nothing contained in this Section 6 shall be deemed to
prevent or limit the Employee's right to invest in the capital stock or
other securities of any business dissimilar from that of GCB or the Bank,
or, solely as a passive or minority investor, in any business.
Employment Agreement of George E. Irwin Page 3
<PAGE>
7. Standards. The Employee shall perform his duties under this Agreement in
accordance with such reasonable standards as the respective Boards of Directors
of GCB or the Bank may establish from time to time. GCB and/or the Bank will
provide the Employee with working facilities and staff customary for similarly
situated executive officers and necessary for him to perform his duties.
8. Vacation. At such reasonable times as the respective Boards of Directors
of GCB or the Bank shall in their discretion permit, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with respect to GCB or the Bank, respectively,
under this Agreement, all such voluntary absences to count as vacation time,
provided that:
a. Annual Vacation. The Employee shall be entitled to an annual
vacation in accordance with such policies as the respective Boards of
Directors of GCB or the Bank periodically establish for senior management
employees of GCB or the Bank, respectively; provided however that such
annual vacation period shall be for a period of five (5) weeks, with no
reduction in pay or benefits.
b. No Additional Compensation. The Employee shall not receive any
additional compensation from GCB or the Bank on account of his failure to
take a vacation, and the Employee shall not accumulate unused vacation from
one fiscal year to the next, except in either case to the extent authorized
by the Board of Directors of GCB or the Bank.
9. Termination and Termination Pay. Subject to Section 11 hereof (relating
to a change in control), the Employee's employment hereunder may be terminated
under the following circumstances:
a. Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the base compensation
due the Employee through the last day of the calendar month in which his
death occurred. The Employee's beneficiary and/or estate shall have the
benefit of all insurance programs in effect.
b. Disability. GCB or the Bank may terminate the Employee's employment
after having established the Employee's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs
the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee's becoming eligible for
long-term disability benefits under either GCB's or the Bank's long-term
disability plan (or, if neither GCB nor the Bank has such a plan
Employment Agreement of George E. Irwin Page 4
<PAGE>
in effect, which impairs the Employee's ability to substantially perform
his duties under this Agreement for a period of one hundred eighty (180)
consecutive days). The Employee shall be entitled to the compensation and
other employee benefits provided for under this Agreement for (1) any
period during the term of this Agreement and prior to the establishment of
the Employee's Disability during which the Employee is unable to work due
to the physical or mental infirmity, and (2) any period of Disability which
is within twenty-four months after the Employee's termination of employment
pursuant to this subsection 9.b. In addition, for any period of Disability
within twenty-four months after the Employee's termination of employment
pursuant to this subsection 9.b., the Employee shall be entitled to (1)
base compensation at the annual rate in effect at the date of termination,
and (2) any other benefits provided under the terms of employee benefit
plans in effect at such time to which the Employee may be entitled under
the terms of such plans given the Employee's disabled status. The Employee
will turn over all amounts which the Employee receives under any disability
insurance maintained by GCB or the Bank prior to the establishment of the
Employee's Disability and during the twenty-four month period after the
Employee's termination of employment pursuant to this subsection 9.b.
c. Just Cause. The Board of Directors of GCB or the Bank may, by
written notice to the Employee in the form and manner specified in this
subsection, immediately terminate his employment with GCB or the Bank,
respectively, at any time, for "Just Cause" (as defined herein). The
Employee shall not be entitled to receive compensation or other benefits
for any period after a termination of employment for Just Cause. The phrase
"Just Cause" as used herein shall exist when there has been a good faith
determination by GCB's or the Bank's Board of Directors that there shall
have occurred one or more of the following events with respect to the
Employee: (1) personal dishonesty; (2) willful commission of an act that
causes or that probably will cause substantial economic damage to GCB or
the Bank or substantial injury to their business reputation; (3) willful
misconduct; (4) breach of fiduciary duty involving personal profit; (5)
intentional failure to perform stated duties; (6) willful violation of any
law, rule or regulation (other than traffic violations or similar offenses)
or final cease-and desist order; or (7) material breach of any provision of
this Agreement. Notwithstanding the foregoing, Just Cause shall not be
deemed to exist unless there shall have been delivered to the Employee a
copy of a resolution duly adopted by the affirmative vote of not less than
a majority of the entire membership of the Board of Directors of GCB or the
Bank at a meeting of such Board called and held for the purpose (after
reasonable notice to the Employee and an opportunity for the Employee to be
heard before the Board), finding that in the good faith opinion of the
Board the Employee was guilty of conduct
Employment Agreement of George E. Irwin Page 5
<PAGE>
described above and specifying the particulars thereof. Prior to holding a
meeting at which the Board is to make a final determination whether Just
Cause exists, if the Board of Directors of GCB or the Bank determines in
good faith at a meeting of Directors, by not less than a majority of its
entire membership, that there is probable cause for it to find that the
Employee was guilty of conduct constituting Just Cause as described above,
the Board of Directors may suspend the Employee from his duties hereunder
for a reasonable time not to exceed fourteen (14) days pending a further
meeting at which the Employee shall be given the opportunity to be heard
before the Board. During any such period of suspension the Board of
Directors may also suspend payment of the Employee's base compensation and
no stock options may be exercised.
d. Termination Without Just Cause.
(1) Payment of Base Salary. Subject to Section 11 hereof, the
Board of Directors of GCB or the Bank may, by written notice to the
Employee, immediately terminate his employment at any time for a
reason other than Just Cause, in which event the Employee shall be
entitled to receive, as a severance benefit, his base salary for the
remaining term of this Agreement, including any renewals or extensions
hereof, at the annual rate then in effect. Employee shall also be
entitled to continue to receive all benefits provided pursuant to
Paragraph 5a hereof for the remaining term hereof.
(2) Manner of Payment. Said sum shall be paid, at the option of
the Employee, either (a) in equal, consecutive monthly payments
beginning the month following such termination as if the Employee's
employment had not been terminated, or (b) in one lump sum within ten
(10) days after such termination; provided that no amount of any such
payment shall be made to the extent it would cause the aggregate
amount payable hereunder to equal or exceed the difference between (i)
the product of 2.99 times his "base amount" as defined on
ss.280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations promulgated thereunder, and (ii) the sum of
any other "parachute payments" (as defined under ss.280G(b)(2) of the
Code) that the Employee receives on account of such termination.
(3) Covenant Not to Compete. In the event of such termination by
GCB or the Bank without Just Cause hereunder, during the remaining
term of this Agreement (including any extensions or renewals thereof),
the Employee shall not serve as an officer or Director or employee of
any bank holding company, bank, savings association or mortgage
company with its principal office in Passaic County, New Jersey, and
which offers products or services in Passaic County, New Jersey,
competing with those offered by GCB or the Bank; provided, that if the
Employee does not accept (or has returned) the severance benefit
provided for
Employment Agreement of George E. Irwin Page 6
<PAGE>
in this Section 9.d., he shall not be prevented from competing with
GCB or the Bank by reason of this Section 9.d. for such term or for
any portion thereof with respect to which he has not accepted (or has
returned) such severance benefit.
e. Termination or Suspension Under Federal law.
(1) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under ss.8(e)(4) or ss.8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. ss.1818(e)(4) and (g)(1)), all obligations of GCB
and the Bank under this Agreement shall terminate, as of the effective
date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in ss.3(x)(1) of FDIA),
all obligations of GCB and the Bank under this Agreement shall
terminate as of the date of default; however, this subsection shall
not affect the vested rights of the parties.
(3) If a notice served under ss.8(e)(3) or ss.8(g)(1) of the FDIA
(12 U.S.C. ss.ss.1818(e)(3) and (g)(1)) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's
affairs, GCB's and the Bank's obligations under this Agreement shall
be suspended as of the date of such service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Bank shall (a) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended, and (b)
reinstate (in whole or in part) any of its obligations which were
suspended.
f. Voluntary Termination by Employee; Covenant Not to Compete. Subject
to Section 11 hereof, the Employee may voluntarily terminate employment
with GCB and the Bank during the term of this Agreement upon at least sixty
(60) days' prior written notice to each of their respective Boards of
Directors. In the event of such voluntary termination hereunder, the
Employee shall receive only his compensation, vested rights and employee
benefits up to the date of his termination, and during the remaining term
of this Agreement and any extensions or renewals thereof, the Employee
shall not serve as an officer or director or employee of any bank holding
company, bank, savings association or mortgage company with its principal
office in Passaic County, New Jersey, which offers products or services
from offices in Passaic County, New Jersey, competing with those offered by
GCB or the Bank.
10. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment
Employment Agreement of George E. Irwin Page 7
<PAGE>
shall be offset or reduced by the amount of any compensation or benefits
provided to the Employee in any subsequent employment.
11. Change in Control.
a. Involuntary Termination After Change in Control. Notwithstanding
any provision herein to the contrary, if, in connection with or within
twelve (12) months after any change in "control" of GCB or the Bank, the
Employee's employment under this Agreement is terminated by GCB or the Bank
without the Employee's prior written consent and for a reason other than
Just Cause, the Employee shall be paid an amount equal to two times base
annual compensation less that amount of base compensation actually paid
after the change of control unless the Bank was placed in conservatorship
or receivership in connection with such change in control and the Board of
Directors of GCB or the Bank determines in good faith that the change in
control was directed by or otherwise required by the FDIC. Employee shall
also be entitled to continue to receive all benefits provided pursuant to
Paragraph 5a hereof for the remaining term hereof. In no event, however,
may the aggregate amount payable hereunder equal or exceed the difference
between (i) the product of 2.99 times the Employee's "base amount" as
defined in ss.280G(b)(3) of the Code and regulations promulgated
thereunder, and (ii) the sum of any other parachute payments (as defined
under ss.280G(b)(2) of the Code) that the Employee receives on account of
the change in control. Said sum shall be paid in one lump sum within ten
(10) days of such termination. The term "control," for purposes of
determining whether a "change in control" has occurred for purposes of this
Section 11, shall be deemed to have occurred if any of the following events
shall occur after the effective date of this Agreement: (1) the acquisition
by any person (other than GCB) of ownership or power to vote more than
twenty-five percent (25%) of GCB's or the Bank's voting stock; (2) the
acquisition by any person (other than GCB) of the control of the election
of a majority of GCB's or the Bank's directors; (3) the exercise of a
controlling influence over the management or policies of GCB or the Bank by
any person (other than GCB) or by persons acting as a group within the
meaning of ss.13(d) of the Securities Exchange Act of 1934; or (4) during
any period of two consecutive years, individuals who at the beginning of
such two-year period constitute the Board of Directors of GCB (the "Company
Board") (the "Continuing Directors") cease for any reason to constitute at
least two-thirds (2/3) thereof, provided that any individual whose election
or nomination for election as a member of the Company Board was approved by
a vote of at least two-thirds (2/3) of the Continuing Directors then in
office shall be considered a Continuing Director. The term "person" as used
above means an individual (other than the Employee), corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. It is the understanding of
Employment Agreement of George E. Irwin Page 8
<PAGE>
the parties that the merger or consolidation of the Bank with one or more
banking subsidiaries of GCB shall not be considered a "change in control"
for purposes of this Agreement and specifically Paragraphs 11(a) and 11(b).
b. Voluntary Termination After Change in Control. Notwithstanding any
other provision of this Agreement to the contrary, the Employee may
voluntarily terminate his employment under this Agreement within twelve
(12) months following a change in control of GCB or the Bank, and the
Employee shall thereupon be entitled to receive the payment described in
subsection 11.a. of this Agreement, upon the occurrence of any of the
following events, or within ninety (90) days thereafter, which shall have
not been consented to in advance by the Employee in writing: (1) the
requirement that the Employee move his personal residence; (2) the
assignment to the Employee of duties and responsibilities substantially
inconsistent with those normally associated with his position described in
Section 1 hereof; or (3) a material reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with GCB or the Bank. Provided, however,
that the assignment of the Employee to a senior officer position with a
successor bank resulting from a merger or consolidation of the Bank with
one or more banking subsidiaries of GCB shall not be considered a "material
reduction in the Employee's responsibilities or authority" for purposes of
this Paragraph 11(b).
c. Dispute Resolution. In the event that any dispute arises between
the Employee and GCB and/or the Bank as to the terms or interpretation of
this Agreement, each party hereto agrees that such dispute may, at the
request of any other party hereto, be submitted to binding arbitration
before the American Arbitration Association in Northern New Jersey.
12. Confidentiality of Information. The Employee agrees to maintain the
confidentiality of any nonpublic information concerning the operation or
financial status of GCB and the Bank, the names or addresses of any of the
Bank's customers, borrowers and depositors, any information concerning or
obtained from such customers, borrowers and depositors and any other nonpublic
information, knowledge or data of or concerning GCB or the Bank to which the
Employee may be exposed during the course of his employment. The Employee
further agrees that, unless required by law or specifically permitted by GCB or
the Bank in writing, he will not disclose to any person or entity, either during
or subsequent to his employment, any of the above mentioned nonpublic
information which is not generally known to the public nor shall he employ such
information in any way other than for the benefit of GCB and the Bank.
Employment Agreement of George E. Irwin Page 9
<PAGE>
13. Injunctive Relief. If there is a breach or threatened breach of the
provisions of the Covenants not to Compete contained in Section 6 or subsections
9.d.(3) or 9.f., or the prohibitions upon disclosure contained in Section 12, of
this Agreement, the Employee acknowledges and agrees that there is no adequate
remedy at law for such breach and that GCB and the Bank each shall be entitled
to injunctive relief restraining the Employee from such breach or threatened
breach, but such relief shall not be the exclusive remedy hereunder for such
breach.
14. Representation of the Employee. The Employee hereby represents and
warrants to GCB and the Bank that he has full power and authority to enter into
this Agreement and to perform his duties and obligations hereunder, and that the
execution and performance hereof is not and will not in any manner conflict with
or result in a violation of any other contract, agreement, covenant or
restriction to which the Employee is a party or by which he is bound.
15. Successors and Assigns.
a. Acquisition of GCB or the Bank. This Agreement shall inure to the
benefit of and be binding upon any corporate or other successor of GCB or
the Bank which shall acquire, directly or indirectly, by merger,
consolidation, purchase or otherwise, all or substantially all of the
assets or stock of GCB or the Bank.
b. No Assignment by Employee. Since GCB and the Bank are contracting
for the unique and personal skills of the Employee, the Employee shall be
precluded from assigning or delegating his rights or duties hereunder
without first obtaining the written consent of GCB and the Bank.
16. Joint and Several Liability. To the extent permitted by law, except as
otherwise provided herein, GCB and the Bank shall be jointly and severally
liable for the payment of all amounts due under this Agreement. It is the
understanding of the parties that the Bank is not able, legally, to enter into a
binding employment agreement for the position of President and Chief Executive
Officer. It is with that understanding that GCB has agreed to be jointly and
severally liable and to guarantee the Bank's performance hereunder.
17. Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties hereto, except
as herein otherwise specifically provided.
18. Applicable Law.
Employment Agreement of George E. Irwin Page 10
<PAGE>
a. State Law. Except to the extent preempted by Federal law, the laws
of the State of New Jersey shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or
otherwise.
b. Compliance with Law and Regulation. All provisions of this
Agreement are intended to be consistent with and comply with all laws and
regulations enacted or promulgated both before and after the Effective
Date, applicable to GCB and the Bank, and to the extent that any provision
is inconsistent or in non-compliance, such provision shall be deemed void.
19. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Headings. Headings contained herein are for convenience of reference
only and are not intended to affect the meaning of the text of this Agreement.
21. Entire Agreement. This Agreement, together with any modifications
thereof as may hereafter be agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: GREAT FALLS BANK
/s/ Edith A. Leonhard By: /s/ John L. Soldoveri
- ---------------------------- ------------------------------
Edith A. Leonhard, Secretary John L. Soldoveri, Chairman
of the Board of Directors
ATTEST: GREATER COMMUNITY BANCORP
/s/ Edith A. Leonhard By: /s/ John L. Soldoveri
- ---------------------------- ------------------------------
Edith A. Leonhard, Secretary John L. Soldoveri, Chairman
of the Board of Directors
WITNESS: EMPLOYEE
/s/ Jeannette M. Chardavoyne /s/ George E. Irwin
- ---------------------------- ---------------------------------
Jeannette M. Chardavoyne George E. Irwin,
Notary Public of New Jersey Individually
My Commission Expires
Aug. 14, 2000
Employment Agreement of George E. Irwin Page 11
EXHIBIT 10.2
EMPLOYMENT AGREEMENT OF C. MARK CAMPBELL
DATED JULY 31, 1998
TABLE OF CONTENTS
1. Employment; Duties.................................................. 1
a. Employment................................................. 1
b. Duties..................................................... 1
2. Base Compensation................................................... 2
3. Term................................................................ 2
4. Stock Options....................................................... 2
5. Other Benefits...................................................... 3
a. Participation in 401K, Medical and Insurance
Plans............................................................... 3
b. Expenses................................................... 3
c. Car Allowance.............................................. 3
6. Loyalty; Noncompetition............................................. 3
a. Devotion to Performance.................................... 3
b. Investments................................................ 4
7. Standards........................................................... 4
8. Vacation............................................................ 4
a. Annual Vacation............................................ 4
b. No Additional Compensation................................. 4
9. Termination and Termination Pay..................................... 4
a. Death...................................................... 4
b. Disability................................................. 5
c. Just Cause................................................. 5
d. Termination Without Just Cause............................. 6
(1) Payment of Base Salary............................ 6
(2) Manner of Payment................................. 6
(3) Covenant Not to Compete........................... 6
e. Termination or Suspension Under Federal law ............... 7
f. Voluntary Termination by Employee; Covenant Not to
Compete............................................................. 7
10. No Mitigation....................................................... 8
11. Change in Control................................................... 8
a. Involuntary Termination After Change in Control............ 8
b. Voluntary Termination After Change in Control.............. 9
c. Dispute Resolution......................................... 9
i
<PAGE>
12. Confidentiality of Information...................................... 9
13. Injunctive Relief................................................... 10
14. Representation of the Employee...................................... 10
15. Successors and Assigns.............................................. 10
a. Acquisition of GCB or the Bank............................. 10
b. No Assignment by Employee.................................. 10
16. Joint and Several Liability......................................... 10
17. Amendments.......................................................... 11
18. Applicable Law...................................................... 11
a. State Law.................................................. 11
b. Compliance with Law and Regulation......................... 11
19. Severability........................................................ 11
20. Headings............................................................ 11
21. Entire Agreement.................................................... 11
ii
<PAGE>
EMPLOYMENT AGREEMENT OF C. MARK CAMPBELL
THIS AGREEMENT entered into as of July 31, 1998 ("Effective Date"), by and
among BERGEN COMMERCIAL BANK, a New Jersey commercial banking corporation having
its principal place of business at Two Sears Drive, Paramus, New Jersey 07652
(the "Bank"), GREATER COMMUNITY BANCORP, a New Jersey business corporation
having its principal place of business at 55 Union Boulevard, Totowa, New Jersey
07511 ("GCB"), and C. MARK CAMPBELL, residing at 5 Fair Ridge Court, Wayne, New
Jersey (the "Employee").
WHEREAS, the Employee has heretofore been employed as the Executive Vice
President of GCB, President and Chief Executive Officer of the Bank, and is
experienced in the business of banking; and
WHEREAS, GCB owns the Bank, and the Bank is engaged in the business of
commercial banking, with offices in Bergen County, New Jersey; and
WHEREAS, GCB and the Bank wish to employ the Employee as Executive Vice
President of GCB and President and Chief Executive Officer of the Bank; and
WHEREAS, the parties desire by this writing to set forth the
employment relationship of the Employee by the Bank and GCB;
NOW, THEREFORE, it is AGREED as follows:
1. Employment; Duties.
a. Employment. The Bank and GCB hereby employ the Employee, and the
Employee hereby accepts employment by GCB and the Bank, as the Executive
Vice President of GCB and the President and Chief Executive Officer of the
Bank. The Employee also agrees to serve as a Director of GCB and the Bank
if elected to such position.
b. Duties. Subject to the direction of the respective Boards of
Directors of GCB and the Bank, and the CEO and President of GCB, the
Employee shall have responsibility for the general management and control
of the business and affairs of the Bank and its subsidiaries, and to
participate in the general management and control of the business and
affairs of GCB and its subsidiaries and shall perform all duties and shall
have all powers which are commonly incident to the offices of President and
Chief Executive Officer of a commercial bank, and the Executive Vice
President of a bank holding company or which, consistent therewith, are
delegated to him by the respective Boards of Directors and the CEO and
President of GCB. Such duties include, but are not limited to (1) managing
the day to day operations of the Bank and participating in the management
of
<PAGE>
GCB; (2) managing the efforts of the Bank, and participating in the efforts
of GCB to comply with applicable laws and regulations; (3) promotion of GCB
and the Bank and their services, (4) supervising other employees of GCB and
the Bank, (5) providing prompt and accurate reports to the Boards of
Directors of GCB and the Bank regarding the affairs and condition of GCB,
the Bank and their subsidiaries, respectively, and (6) making
recommendations to the Boards of Directors of GCB and/or the Bank, as the
case may be, concerning the strategies, capital structure, tactics, and
general operations of GCB and/or the Bank.
2. Base Compensation. GCB and the Bank agree to pay the Employee so long as
he is employed pursuant to this Agreement a salary not less than One Hundred
Fifty-four Thousand and 00/100 Dollars ($154,000) per annum, payable on the same
schedule as salaries of other executive officers of the Bank are paid. This
salary may be increased from time to time as approved by the Board of Directors
of GCB and the Bank. Any increase by the Board of Directors will be the "Base
Compensation" under this Agreement. The Bank will pay the Employee such salary
for so long as Bank is an employer of the Employee hereunder, and GCB will pay
the Employee such salary if it is the sole employer of the Employee hereunder.
3. Term. The Employee's initial employment by GCB and the Bank pursuant to
this Agreement is for the period commencing on the Effective Date and ending
twenty-four (24) months thereafter (or on such earlier date as is determined in
accordance with Section 9 hereof). Thereafter, the Employee's employment by GCB
and the Bank pursuant to this Agreement is automatically renewed annually on the
anniversary of the Effective Date for the period ending twenty-four (24) months
thereafter (or on such earlier date as is determined in accordance with Section
9 hereof).
4. Stock Options. The Employee shall be entitled to participate in the
employee stock option plans that GCB and/or the Bank maintains from time to time
for the benefit of its executive employees. This provision shall not preclude
GCB and/or the Bank from any amendment to, or termination of, any stock option
plan. Provided, however, that notwithstanding anything to the contrary contained
in said plans or in Employee's separate Stock Option Agreements, in the event
that Employee is terminated without just cause pursuant to Paragraph 9d of this
Agreement, or terminates voluntarily or involuntarily as a result of change in
control pursuant to Paragraph 11 of this Agreement, all stock options currently
held by Employee on the date of such termination shall become fully vested and
fully exercisable. The Boards of Directors of GCB and the Bank, and the Stock
Option Committee of GCB will take all appropriate steps to effectuate this
provision, including the amendment of any existing plan and/or agreement to
conform herewith.
Employment Agreement of C. Mark Campbell Page 2
<PAGE>
5. Other Benefits.
a. Participation in 401K, Medical and Insurance Plans. The Employee
shall be entitled to participate in the employee benefit plans that GCB
and/or the Bank maintains from time to time for the benefit of its
employees and which include its executive employees relating to (1) 401K
benefits, (2) medical insurance and/or the reimbursement of uninsured
medical expenses, (3) group term life insurance benefits, and (4) group
disability benefits. This provision shall not preclude GCB and/or the Bank
from any amendment to, or termination of, any such plan.
b. Expenses. The Employee shall be entitled to be reimbursed for all
reasonable out-of-pocket business expenses which he shall incur in
connection with his rendition of services under this Agreement upon
substantiation of such expenses in accordance with applicable policies of
GCB or the Bank.
c. Car Allowance. The employee shall be entitled to a minimum of Nine
Hundred and 00/100 Dollars ($900.00) per month for car expenses. This car
allowance may be increased from time to time as approved by the Board of
Directors of GCB and/or the Bank. Any increase by the Board of Directors
will be the "Car Allowance" under this Agreement.
6. Loyalty; Noncompetition.
a. Devotion to Performance. During the period of his employment
hereunder and except for illnesses, reasonable vacation periods, and
reasonable leaves of absence, the Employee shall devote all his full
business time, attention, skill, and efforts to the faithful performance of
his duties hereunder; provided, however, that from time to time, Employee
may, with the prior written consent of the Boards of GCB and the Bank,
serve on the boards of directors of, and hold any other offices or
positions in, companies or organizations which will not (1) present any
conflict of interest with GCB or the Bank or any of their subsidiaries or
affiliates, (2) unfavorably affect the performance of Employee's duties
pursuant to this Agreement, or (3) violate any applicable statute or
regulation. The phrase "full business time" as used herein means that the
Employee cannot be gainfully employed in any other position or job, but the
time devoted to GCB and the Bank shall be that amount of time usually
devoted to like companies by similarly situated executive officers. During
the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or
interests of GCB or the Bank.
Employment Agreement of C. Mark Campbell Page 3
<PAGE>
b. Investments. Nothing contained in this Section 6 shall be deemed to
prevent or limit the Employee's right to invest in the capital stock or
other securities of any business dissimilar from that of GCB or the Bank,
or, solely as a passive or minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement in
accordance with such reasonable standards as the respective Boards of Directors
of GCB or the Bank may establish from time to time. GCB and/or the Bank will
provide the Employee with working facilities and staff customary for similarly
situated executive officers and necessary for him to perform his duties.
8. Vacation. At such reasonable times as the respective Boards of Directors
of GCB or the Bank shall in their discretion permit, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with respect to GCB or the Bank, respectively,
under this Agreement, all such voluntary absences to count as vacation time,
provided that:
a. Annual Vacation. The Employee shall be entitled to an annual
vacation in accordance with such policies as the respective Boards of
Directors of GCB or the Bank periodically establish for senior management
employees of GCB or the Bank, respectively; provided however that such
annual vacation period shall be for a period of five (5) weeks, with no
reduction in pay or benefits.
b. No Additional Compensation. The Employee shall not receive any
additional compensation from GCB or the Bank on account of his failure to
take a vacation, and the Employee shall not accumulate unused vacation from
one fiscal year to the next, except in either case to the extent authorized
by the Board of Directors of GCB or the Bank.
9. Termination and Termination Pay. Subject to Section 11 hereof (relating
to a change in control), the Employee's employment hereunder may be terminated
under the following circumstances:
a. Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the base compensation
due the Employee through the last day of the calendar month in which his
death occurred. The Employee's beneficiary and/or estate shall have the
benefit of all insurance programs in effect.
b. Disability. GCB or the Bank may terminate the Employee's employment
after having established the Employee's
Employment Agreement of C. Mark Campbell Page 4
<PAGE>
Disability. For purposes of this Agreement, "Disability" means a physical
or mental infirmity which impairs the Employee's ability to substantially
perform his duties under this Agreement and which results in the Employee's
becoming eligible for long-term disability benefits under either GCB's or
the Bank's long-term disability plan (or, if neither GCB nor the Bank has
such a plan in effect, which impairs the Employee's ability to
substantially perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days). The Employee shall be entitled to
the compensation and other employee benefits provided for under this
Agreement for (1) any period during the term of this Agreement and prior to
the establishment of the Employee's Disability during which the Employee is
unable to work due to the physical or mental infirmity, and (2) any period
of Disability which is within twenty-four months after the Employee's
termination of employment pursuant to this subsection 9.b. In addition, for
any period of Disability within twenty-four months after the Employee's
termination of employment pursuant to this subsection 9.b., the Employee
shall be entitled to (1) base compensation at the annual rate in effect at
the date of termination, and (2) any other benefits provided under the
terms of employee benefit plans in effect at such time to which the
Employee may be entitled under the terms of such plans given the Employee's
disabled status. The Employee will turn over all amounts which the Employee
receives under any disability insurance maintained by GCB or the Bank prior
to the establishment of the Employee's Disability and during the
twenty-four month period after the Employee's termination of employment
pursuant to this subsection 9.b.
c. Just Cause. The Board of Directors of GCB or the Bank may, by
written notice to the Employee in the form and manner specified in this
subsection, immediately terminate his employment with GCB or the Bank,
respectively, at any time, for "Just Cause" (as defined herein). The
Employee shall not be entitled to receive compensation or other benefits
for any period after a termination of employment for Just Cause. The phrase
"Just Cause" as used herein shall exist when there has been a good faith
determination by GCB's or the Bank's Board of Directors that there shall
have occurred one or more of the following events with respect to the
Employee: (1) personal dishonesty; (2) willful commission of an act that
causes or that probably will cause substantial economic damage to GCB or
the Bank or substantial injury to their business reputation; (3) willful
misconduct; (4) breach of fiduciary duty involving personal profit; (5)
intentional failure to perform stated duties; (6) willful violation of any
law, rule or regulation (other than traffic violations or similar offenses)
or final cease-and desist order; or (7) material breach of any provision of
this Agreement. Notwithstanding the foregoing, Just Cause shall not be
deemed to exist unless there shall have been delivered to the Employee a
copy of a resolution duly adopted by
Employment Agreement of C. Mark Campbell Page 5
<PAGE>
the affirmative vote of not less than a majority of the entire membership
of the Board of Directors of GCB or the Bank at a meeting of such Board
called and held for the purpose (after reasonable notice to the Employee
and an opportunity for the Employee to be heard before the Board), finding
that in the good faith opinion of the Board the Employee was guilty of
conduct described above and specifying the particulars thereof. Prior to
holding a meeting at which the Board is to make a final determination
whether Just Cause exists, if the Board of Directors of GCB or the Bank
determines in good faith at a meeting of Directors, by not less than a
majority of its entire membership, that there is probable cause for it to
find that the Employee was guilty of conduct constituting Just Cause as
described above, the Board of Directors may suspend the Employee from his
duties hereunder for a reasonable time not to exceed fourteen (14) days
pending a further meeting at which the Employee shall be given the
opportunity to be heard before the Board. During any such period of
suspension the Board of Directors may also suspend payment of the
Employee's base compensation and no stock options may be exercised.
d. Termination Without Just Cause.
(1) Payment of Base Salary. Subject to Section 11 hereof, the
Board of Directors of GCB or the Bank may, by written notice to the
Employee, immediately terminate his employment at any time for a
reason other than Just Cause, in which event the Employee shall be
entitled to receive, as a severance benefit, his base salary for the
remaining term of this Agreement, including any renewals or extensions
hereof, at the annual rate then in effect. Employee shall also be
entitled to continue to receive all benefits provided pursuant to
Paragraph 5a hereof for the remaining term hereof.
(2) Manner of Payment. Said sum shall be paid, at the option of
the Employee, either (a) in equal, consecutive monthly payments
beginning the month following such termination as if the Employee's
employment had not been terminated, or (b) in one lump sum within ten
(10) days after such termination; provided that no amount of any such
payment shall be made to the extent it would cause the aggregate
amount payable hereunder to equal or exceed the difference between (i)
the product of 2.99 times his "base amount" as defined on
ss.280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations promulgated thereunder, and (ii) the sum of
any other "parachute payments" (as defined under ss.280G(b)(2) of the
Code) that the Employee receives on account of such termination.
(3) Covenant Not to Compete. In the event of such termination by
GCB or the Bank without Just Cause hereunder, during the remaining
term of this Agreement (including any extensions or renewals thereof),
the Employee shall not serve as
Employment Agreement of C. Mark Campbell Page 6
<PAGE>
an officer or Director or employee of any bank holding company, bank,
savings association or mortgage company with its principal office in
Bergen County, New Jersey, and which offers products or services in
Bergen County, New Jersey, competing with those offered by GCB or the
Bank; provided, that if the Employee does not accept (or has returned)
the severance benefit provided for in this Section 9.d., he shall not
be prevented from competing with GCB or the Bank by reason of this
Section 9.d. for such term or for any portion thereof with respect to
which he has not accepted (or has returned) such severance benefit.
e. Termination or Suspension Under Federal law.
(1) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under ss.8(e)(4) or ss.8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. ss.1818(e)(4) and (g)(1)), all obligations of GCB
and the Bank under this Agreement shall terminate, as of the effective
date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in ss.3(x)(1) of FDIA),
all obligations of GCB and the Bank under this Agreement shall
terminate as of the date of default; however, this subsection shall
not affect the vested rights of the parties.
(3) If a notice served under ss.8(e)(3) or ss.8(g)(1) of the FDIA
(12 U.S.C. ss.ss.1818(e)(3) and (g)(1)) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's
affairs, GCB's and the Bank's obligations under this Agreement shall
be suspended as of the date of such service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Bank shall (a) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended, and (b)
reinstate (in whole or in part) any of its obligations which were
suspended.
f. Voluntary Termination by Employee; Covenant Not to Compete. Subject
to Section 11 hereof, the Employee may voluntarily terminate employment
with GCB and the Bank during the term of this Agreement upon at least sixty
(60) days' prior written notice to each of their respective Boards of
Directors. In the event of such voluntary termination hereunder, the
Employee shall receive only his compensation, vested rights and employee
benefits up to the date of his termination, and during the remaining term
of this Agreement and any extensions or renewals thereof, the Employee
shall not serve as an officer or director or employee of any bank holding
company, bank, savings association or mortgage company with its principal
office in Bergen County, New Jersey, which offers products or services from
Employment Agreement of C. Mark Campbell Page 7
<PAGE>
offices in Bergen County, New Jersey, competing with those offered by GCB
or the Bank.
10. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
11. Change in Control.
a. Involuntary Termination After Change in Control. Notwithstanding
any provision herein to the contrary, if, in connection with or within
twelve (12) months after any change in "control" of GCB or the Bank, the
Employee's employment under this Agreement is terminated by GCB or the Bank
without the Employee's prior written consent and for a reason other than
Just Cause, the Employee shall be paid an amount equal to two times base
annual compensation less that amount of base compensation actually paid
after the change of control unless the Bank was placed in conservatorship
or receivership in connection with such change in control and the Board of
Directors of GCB or the Bank determines in good faith that the change in
control was directed by or otherwise required by the FDIC. Employee shall
also be entitled to continue to receive all benefits provided pursuant to
Paragraph 5a hereof for the remaining term hereof. In no event, however,
may the aggregate amount payable hereunder equal or exceed the difference
between (i) the product of 2.99 times the Employee's "base amount" as
defined in ss.280G(b)(3) of the Code and regulations promulgated
thereunder, and (ii) the sum of any other parachute payments (as defined
under ss.280G(b)(2) of the Code) that the Employee receives on account of
the change in control. Said sum shall be paid in one lump sum within ten
(10) days of such termination. The term "control," for purposes of
determining whether a "change in control" has occurred for purposes of this
Section 11, shall be deemed to have occurred if any of the following events
shall occur after the effective date of this Agreement: (1) the acquisition
by any person (other than GCB) of ownership or power to vote more than
twenty-five percent (25%) of GCB's or the Bank's voting stock; (2) the
acquisition by any person (other than GCB) of the control of the election
of a majority of GCB's or the Bank's directors; (3) the exercise of a
controlling influence over the management or policies of GCB or the Bank by
any person (other than GCB) or by persons acting as a group within the
meaning of ss.13(d) of the Securities Exchange Act of 1934; or (4) during
any period of two consecutive years, individuals who at the beginning of
such two-year period constitute the Board of Directors of GCB (the "Company
Board") (the "Continuing Directors") cease for any reason to constitute at
least two-thirds (2/3) thereof, provided that any individual whose election
or nomination for election as a member of the Company Board was approved by
a vote of at least two-thirds (2/3)
Employment Agreement of C. Mark Campbell Page 8
<PAGE>
of the Continuing Directors then in office shall be considered a Continuing
Director. The term "person" as used above means an individual (other than
the Employee), corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any
other form of entity not specifically listed herein. It is the
understanding of the parties that the merger or consolidation of the Bank
with one or more banking subsidiaries of GCB shall not be considered a
"change in control" for purposes of this Agreement and specifically
Paragraphs 11(a) and 11(b).
b. Voluntary Termination After Change in Control. Notwithstanding any
other provision of this Agreement to the contrary, the Employee may
voluntarily terminate his employment under this Agreement within twelve
(12) months following a change in control of GCB or the Bank, and the
Employee shall thereupon be entitled to receive the payment described in
subsection 11.a. of this Agreement, upon the occurrence of any of the
following events, or within ninety (90) days thereafter, which shall have
not been consented to in advance by the Employee in writing: (1) the
requirement that the Employee move his personal residence; (2) the
assignment to the Employee of duties and responsibilities substantially
inconsistent with those normally associated with his position described in
Section 1 hereof; or (3) a material reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with GCB or the Bank. Provided, however,
that the assignment of the Employee to a senior officer position with a
successor bank resulting from a merger or consolidation of the Bank with
one or more banking subsidiaries of GCB shall not be considered a "material
reduction in the Employee's responsibilities or authority" for purposes of
this Paragraph 11(b).
c. Dispute Resolution. In the event that any dispute arises between
the Employee and GCB and/or the Bank as to the terms or interpretation of
this Agreement, each party hereto agrees that such dispute may, at the
request of any other party hereto, be submitted to binding arbitration
before the American Arbitration Association in Northern New Jersey.
12. Confidentiality of Information. The Employee agrees to maintain the
confidentiality of any nonpublic information concerning the operation or
financial status of GCB and the Bank, the names or addresses of any of the
Bank's customers, borrowers and depositors, any information concerning or
obtained from such customers, borrowers and depositors and any other nonpublic
information, knowledge or data of or concerning GCB or the Bank to which the
Employee may be exposed during the course of his employment. The Employee
further agrees that, unless required by law or specifically permitted by GCB or
the Bank in writing, he will not disclose to any person or entity, either during
or
Employment Agreement of C. Mark Campbell Page 9
<PAGE>
subsequent to his employment, any of the above mentioned nonpublic information
which is not generally known to the public nor shall he employ such information
in any way other than for the benefit of GCB and the Bank.
13. Injunctive Relief. If there is a breach or threatened breach of the
provisions of the Covenants not to Compete contained in Section 6 or subsections
9.d.(3) or 9.f., or the prohibitions upon disclosure contained in Section 12, of
this Agreement, the Employee acknowledges and agrees that there is no adequate
remedy at law for such breach and that GCB and the Bank each shall be entitled
to injunctive relief restraining the Employee from such breach or threatened
breach, but such relief shall not be the exclusive remedy hereunder for such
breach.
14. Representation of the Employee. The Employee hereby represents and
warrants to GCB and the Bank that he has full power and authority to enter into
this Agreement and to perform his duties and obligations hereunder, and that the
execution and performance hereof is not and will not in any manner conflict with
or result in a violation of any other contract, agreement, covenant or
restriction to which the Employee is a party or by which he is bound.
15. Successors and Assigns.
a. Acquisition of GCB or the Bank. This Agreement shall inure to the
benefit of and be binding upon any corporate or other successor of GCB or
the Bank which shall acquire, directly or indirectly, by merger,
consolidation, purchase or otherwise, all or substantially all of the
assets or stock of GCB or the Bank.
b. No Assignment by Employee. Since GCB and the Bank are contracting
for the unique and personal skills of the Employee, the Employee shall be
precluded from assigning or delegating his rights or duties hereunder
without first obtaining the written consent of GCB and the Bank.
16. Joint and Several Liability. To the extent permitted by law, except as
otherwise provided herein, GCB and the Bank shall be jointly and severally
liable for the payment of all amounts due under this Agreement. It is the
understanding of the parties that the Bank is not able, legally, to enter into a
binding employment agreement for the position of President and Chief Executive
Officer. It is with that understanding that GCB has agreed to be jointly and
severally liable and to guarantee the Bank's performance hereunder.
17. Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by
Employment Agreement of C. Mark Campbell Page 10
<PAGE>
all of the parties hereto, except as herein otherwise specifically provided.
18. Applicable Law.
a. State Law. Except to the extent preempted by Federal law, the laws
of the State of New Jersey shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or
otherwise.
b. Compliance with Law and Regulation. All provisions of this
Agreement are intended to be consistent with and comply with all laws and
regulations enacted or promulgated both before and after the Effective
Date, applicable to GCB and the Bank, and to the extent that any provision
is inconsistent or in non-compliance, such provision shall be deemed void.
19. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Headings. Headings contained herein are for convenience of reference
only and are not intended to affect the meaning of the text of this Agreement.
21. Entire Agreement. This Agreement, together with any modifications
thereof as may hereafter be agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: BERGEN COMMERCIAL BANK
/s/ Jenny Drivas
- ---------------------------- By: /s/ Anthony M. Bruno, Jr.
Jeanny Drivas, Secretary -------------------------
Anthony M. Bruno, Jr.,
Chairman of the Board
of Directors
ATTEST: GREATER COMMUNITY BANCORP
/s/ Edith A. Leonhard
- ---------------------------- By: /s/ John L. Soldoveri
Edith A. Leonhard, Secretary -------------------------
John L. Soldoveri, Chairman
of the Board of Directors
Employment Agreement of C. Mark Campbell Page 11
<PAGE>
WITNESS: EMPLOYEE
/s/ Jeannette M. Chardavoyne /s/ C. Mark Campbell
- ---------------------------- --------------------------------
Jeannette M. Chardavoyne C. Mark Campbell,
Notary Public of New Jersey Individually
My Commission Expires
Aug. 14, 2000
Employment Agreement of C. Mark Campbell Page 12
Greater Community Bancorp
EXHIBIT 21
TO
1998 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> <C>
| | | | | |
| | | | | |
| | | | | |
Greater Community Great Falls Bergen Commercial Greater Community GCB Realty, LLC Highland Capital Corp.
Services, Inc. Bank ("GFB") Bank ("BCB") Financial, LLC ("HCC")
100% 100% 100% 60% 100% 100%
| |
| |
| |
Great Falls Investment BCB Investment
Company, Inc, Company, Inc.
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 19, 1999, accompanying the
consolidated financial statements included in the 1998 Annual Report of Greater
Community Bancorp on Form 10-KSB for the year ended December 31, 1998. 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 17, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17790
<INT-BEARING-DEPOSITS> 15544
<FED-FUNDS-SOLD> 5850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93797
<INVESTMENTS-CARRYING> 17804
<INVESTMENTS-MARKET> 17554
<LOANS> 205290
<ALLOWANCE> (3525)
<TOTAL-ASSETS> 372400
<DEPOSITS> 293395
<SHORT-TERM> 7103
<LIABILITIES-OTHER> 6593
<LONG-TERM> 23000
2665
0
<COMMON> 0
<OTHER-SE> 29644
<TOTAL-LIABILITIES-AND-EQUITY> 372400
<INTEREST-LOAN> 16335
<INTEREST-INVEST> 7348
<INTEREST-OTHER> 1183
<INTEREST-TOTAL> 24866
<INTEREST-DEPOSIT> 9019
<INTEREST-EXPENSE> 12009
<INTEREST-INCOME-NET> 12857
<LOAN-LOSSES> 520
<SECURITIES-GAINS> 1083
<EXPENSE-OTHER> 11450
<INCOME-PRETAX> 5543
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3543
<EPS-PRIMARY> .67
<EPS-DILUTED> .65
<YIELD-ACTUAL> 3.87
<LOANS-NON> 1657
<LOANS-PAST> 461
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5300
<ALLOWANCE-OPEN> 2731
<CHARGE-OFFS> (123)
<RECOVERIES> 397
<ALLOWANCE-CLOSE> 3525
<ALLOWANCE-DOMESTIC> 3525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 721
</TABLE>
