As filed with the Securities and Exchange Commission
on May 28, 1997
Registration No. 333-___
__________________________________________________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
________________________
BCB FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
Pennsylvania 6711 23-2444807
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
400 Washington Street 400 Washington Street
P.O. Box 1097 P.O. Box 1097
Reading, Pennsylvania 19603 Reading, Pennsylvania 19603
(610) 376-5933 (610) 376-5933
(Address of principal place (Address and telephone number
of business or intended of principal executive
principal place of business) offices)
Nelson R. Oswald, Chairman and President
BCB FINANCIAL SERVICES CORPORATION
400 Washington Street
P.O. Box 1097
Reading, Pennsylvania 19603
(610) 376-5933
(Name, address and telephone number of agent for service)
Copies to:
Jeffrey P. Waldron, Esquire Daniel P. Weitzel, Esquire
Stevens & Lee Jeffrey D. Haas, Esquire
111 North Sixth Street Elias, Matz, Tiernan & Herrick
P.O. Box 679 L.L.P.
Reading, Pennsylvania 19603 The Walker Building, 12th Floor
734 15th Street, N.W.
Washington, DC 20005
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
<PAGE>
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ] ______.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ] ______.
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
_________________________________________________________________
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered(1) Unit(2) Price(2) Fee (3)
_________________________________________________________________
Common Stock,
$2.50 par
value 1,150,000 $15.50 $17,825,000 $5,402.00
Total $5,402.00
_________________________________________________________________
(1) Based upon the maximum number of shares of the Registrant's
common stock that may be issued under this registration
statement, including 150,000 shares of common stock that may
be issued upon exercise of the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of determining the
registration fee, and, in accordance with Rule 457(c), based
on the last sale reported on the Nasdaq/NMS on May 22, 1997.
(3) The Company will incur approximately $450,000 of additional
costs in connection with the public offering for attorneys'
and accountants fees and expenses, registration fees,
printing costs and other miscellaneous items.
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
PROSPECTUS
1,000,000 Shares
BCB FINANCIAL SERVICES CORPORATION
Holding Company for
Berks County Bank
Common Stock
BCB Financial Services Corporation (the "Company") hereby
offers for sale 1,000,000 shares of its common stock, par value
$2.50 per share (the "Common Stock"), at an offering price of
$______ per share (the "Offering"). The Common Stock is traded
on the Nasdaq National Market System under the symbol "BCBF." On
June ___, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market System was $____________ per share.
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A
DEGREE OF RISK. SEE "RISK FACTORS."
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
=================================================================
Price to Underwriting Proceeds
Public Discount(1) to Company(2)
- -----------------------------------------------------------------
Per Share $_________ $_______ $_________
_________________________________________________________________
Total (3) $_________ $_______ $_________
_________________________________________________________________
=================================================================
(1) The Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933. See
"UNDERWRITING."
(2) Before deducting expenses payable by the Company estimated
to be $450,000.
(3) The Company has granted the Underwriters a 30-day option to
purchase up to an additional 150,000 shares of Common Stock,
on the same terms and conditions as set forth above, to
cover over-allotments. If all of such additional shares are
purchased, the total Price to Public, Underwriting Discount
and Proceeds to the Company will be $____________,
$____________ and $____________, respectively. See
"UNDERWRITING."
_____________________
The shares of Common Stock are offered by the several
Underwriters, subject to prior sale, when, as and if issued to
and accepted by them. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the shares of
Common Stock will be made at the offices of Janney Montgomery
Scott on or about _____________________, 1997.
JANNEY MONTGOMERY SCOTT INC. WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is June __, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, accordingly, files reports, proxy statements and
other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for
inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such documents may also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, copies of such documents may be obtained
through the Commission's Internet address at http://www.sec.gov.
The Common Stock is authorized for quotation on the Nasdaq
National Market System and, accordingly, such materials and other
information can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission under the
Securities Act of 1933, as amended (including the rules and
regulations thereunder, the "Securities Act"), a Registration
Statement on Form SB-2 (No. 333-______) (including all amendments
and exhibits thereto, the "Registration Statement") with respect
to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration
Statement, including any amendments and exhibits thereto, is
available for inspection and copying as set forth above.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such
reference.
The Company will furnish to its shareholders annual reports
containing audited financial statements and will make available
copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information.
<PAGE>
[Insert Map of Market Area]
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained
elsewhere in this Prospectus. This summary is provided for
convenience, it should not be considered complete and is
qualified in its entirety by reference to the more detailed
information contained elsewhere in this Prospectus. Cross
references in this summary are to captions appearing in the body
of this Prospectus. Except as otherwise noted, all information
contained in this Prospectus assumes the Underwriters' over-
allotment option is not exercised.
BCB Financial Services Corporation (the "Company") is a
Pennsylvania corporation headquartered in Reading, Pennsylvania
and is a registered bank holding company for Berks County Bank
(the "Bank"), a Pennsylvania-chartered commercial bank. The Bank
was founded in 1987 to serve individuals and small-to-medium
sized businesses that management believed were not being
adequately served by the larger competitors in its market area.
The Bank offers a full range of commercial and retail banking
services. The Bank currently maintains six full-service branches
in Reading (Berks County), Exeter (Berks County), Wyomissing
(Berks County), Muhlenberg (Berks County), Shillington (Berks
County) and Pottstown (Montgomery County), Pennsylvania, and five
loan production offices in Wyomissing (Berks County), Pottstown
(Montgomery County), Schuylkill Haven (Schuylkill County),
Jamison (Bucks County), and Exton/West Chester (Chester County),
Pennsylvania.
Since December 31, 1994, the Company has grown
substantially. Total assets have grown from $154.7 million at
December 31, 1994 to $343.2 million at March 31, 1997. Total
deposits have grown from $124.3 million at December 31, 1994 to
$292.4 million at March 31, 1997, while net loans have grown from
$125.5 million at December 31, 1994 to $203.9 million at
March 31, 1997. The Company believes its growth has been
achieved by the successful execution of its operating strategy,
key elements of which include:
Maintaining a Community Focus. Berks County and the
surrounding counties represent a stable banking market with
a diversified economy. The Bank is the largest community
bank headquartered in Reading and offers individuals and
small to medium-sized businesses a wide array of banking
products, informed and friendly service, extended operating
hours, consistently applied credit policies, and local,
timely decision making. All Bank customers are afforded
direct access to the Bank's President and other executive
officers in attractive and comfortable banking facilities.
Aggressively Expanding Its Branch Network. The Company has
achieved its expansion and market penetration by expanding
its branch presence into those markets in which it has
identified growth opportunities. Management's goal when
establishing a new branch is to achieve deposits of at least
$50 million in three years or less. The Bank opened its
Pottstown and Wyomissing offices during the first and second
quarters of 1995, respectively. As of May 31, 1997, these
branches had $______ million and $_______ million in
deposits, respectively. The Bank opened its Muhlenberg
office on March 29, 1997 and its Shillington office on
May 3, 1997. As of May 31, 1997, these two new branches had
deposits of $_______ million and $____________ million,
respectively. Management expects to continue to open two
branches per year for the next several years.
Capitalizing on Market Dynamics. Since 1995, banking
offices representing more than 50% of the total deposits in
Berks County have been acquired by large out-of-market
institutions, the most notable of which were CoreStates'
acquisition of Meridian Bank, PNC Corp.'s acquisition of
Midlantic Bank and the pending acquisition of Bank of
Pennsylvania by Allied Irish Banks. The ensuing cultural
changes in these banking institutions have resulted in a
change in their product offerings and the degree of personal
attention they provide to their customers. The Company has
capitalized on these dynamics by offering a community
banking alternative and tailoring its product offerings to
fill voids created as pricing of products and services are
increased or are phased out by the super-regional
competition. As a result, the Company's growth in its
market area has been dramatic. The Bank's three Berks
County branches had approximately 4.0% of the County's
deposits as of June 30, 1996, and there remains ample
opportunity to capture market share.
Emphasizing Transaction Account Generation. The Company
seeks to attract transaction accounts that contribute to a
lower overall cost of deposits and increase its ability to
cross-sell additional products and services. The Bank
prices its money market deposit accounts above the average
in the market and offers a truly free checking account. As
a result, the Company is able to attract deposits that are
less expensive than certificates of deposit. At
December 31, 1994, the percentage of the Company's time
deposits to total deposits was 64.8%; by March 31, 1997,
this percentage had declined to 44.7%. Money market savings
accounts grew from 11.6% of deposits to 33.2% of deposits
over this same period.
Building a Sales and Service Culture. The Company instills
a sales and service oriented culture in its personnel in
order to build customer relationships and maximize
cross-selling opportunities. The Company extensively
screens and trains its employees and offers meaningful
sales-based incentives to all its customer contact
employees. As a result, the average new customer of the
Bank has almost three account relationships.
Attracting Highly Experienced Personnel. The Bank's
executive officers have a combined 122 years of banking
experience in the Bank's market. The Bank's commercial
lenders have a combined 215 years of experience in providing
high-quality service to small and middle-market businesses
in the region. In addition, many of the Bank's executive
officers and other personnel have substantial employment
experience with larger banks in the region.
Financial highlights of the Company and the Bank include the
following:
Profitability. The Company has been profitable during each
full year of operation since its formation in 1987. Net
income increased to $1.9 million in 1996, or 111.1%, from
$902,000 in 1995. Net income increased to $513,000 in the
quarter ended March 31, 1997, or 44.5%, from $355,000 in the
quarter ended March 31, 1996.
Loan Growth. The Company aggressively seeks to leverage
deposit inflows into new loan originations and since 1995
has opened loan production offices in Wyomissing, Pottstown,
Schuylkill Haven, Jamison, and Exton/West Chester. As a
result, the origination of both residential mortgage and
commercial business loans has increased, to $83.1 million
and $56.1 million, respectively, in 1996 from $61.7 million
and $30.1 million, respectively, in 1994. During the
quarter ended March 31, 1997, residential mortgage and
commercial business loan originations were $15.9 million and
$19.3 million, respectively, compared to $15.1 million and
$12.3 million, respectively, for the same period in 1996.
Asset Quality. The Company maintains a strong credit
culture and emphasizes conservative underwriting standards.
Despite the rapid loan growth, the Company's ratio of
non-performing assets to total assets declined to 1.03% at
March 31, 1997, compared to 1.96% at December 31, 1994,
while the allowance for loan losses as a percentage of net
loans has remained in excess of 1.0%. At March 31, 1997,
the allowance for loan losses as a percentage of net loans,
excluding residential mortgage loans, was 1.92%.
Deposit Growth. Deposits have grown from $124.3 million at
December 31, 1994 to $292.4 million at March 31, 1997, a
compound annual growth rate of approximately 46.3%.
Asset/Liability Management. The Company carefully manages
its asset and liability growth and inherent interest rate
risk by utilizing deposit pricing and matched funding
programs to fund loan originations and securities purchases.
As a result, the Company's securities portfolio, which
consists almost entirely of AAA rated securities, has grown
from $15.8 million at December 31, 1994 to $108.9 million at
March 31, 1997. The Company believes that its investment
strategy and asset/liability modeling techniques have
allowed, and will continue to allow, it to stabilize net
earnings in changing interest rate environments.
Dividends. The Company began paying cash dividends in 1993
at an annual rate of $0.04 per share. Since that time, the
Company has paid a cash dividend each quarter, and has
annually increased dividends. The current annual dividend
rate is $0.28 per share.
The Bank is a member of the Federal Reserve System and the Bank's
deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC") to the fullest
extent provided by law. The principal executive offices of the
Company are located at 400 Washington Street, P.O. Box 1097,
Reading, Pennsylvania 19603 and its telephone number is (610)
376-5933. The Company's Internet address is
www.berkscountybank.com.
The Offering
Common Stock offered by
the Company 1,000,000 shares
Common Stock outstanding
prior to the Offering 2,078,673 shares
Common Stock outstanding
after the Offering 3,078,673 shares
Dividends Currently paid quarterly at the
annual rate of $0.28 per share.
Purchasers in this Offering will
first be eligible to receive
dividends in the _____ quarter of
1997. See "MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS --
Dividends."
Use of Proceeds The Company intends to contribute
the majority of the net proceeds
from this Offering to the Bank.
The Bank expects to use the net
proceeds to repay a portion of
outstanding FHLB advances and/or to
fund growth in its loan and
securities portfolio. The capital
provided by the Offering will
support the growth of the Bank,
including future branch expansion.
See "USE OF PROCEEDS."
Nasdaq National Market "BCBF"
Symbol
<PAGE>
Summary Selected Consolidated Financial Data
The following is selected consolidated financial data for
the Company at and for the three months ended March 31, 1997 and
1996 and for each of the five years in the period ended
December 31, 1996. The following financial data is qualified by
reference to the more detailed information contained in the
consolidated financial statements and notes thereto included
elsewhere herein. See the Consolidated Financial Statements.
The results of operations for the three months ended March 31,
1997 and 1996 are not audited but, in the opinion of management,
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations of
such periods have been included. The results for the three
months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the full year or for any other
interim period. The data for each of the five years ended
December 31, 1996 are derived from the Company's audited,
consolidated financial statements for such periods which have
been audited by Beard & Company, Inc., independent accountants.
<PAGE>
<TABLE>
<CAPTION>
At or for the
Three Months Ended
March 31, At or for the Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total interest income $ 5,732 $ 3,838 $ 17,943 $ 13,195 $ 10,703 $ 9,578 $ 11,226
Total interest expense 3,252 2,132 9,809 7,026 5,252 5,074 5,764
Net interest income 2,480 1,706 8,134 6,169 5,451 4,504 5,462
Provision for loan losses 241 80 687 518 22 210 1,619
Other income 333 264 1,345 1,010 860 1,597 1,707
Other expenses 1,954 1,439 6,456 5,423 4,387 3,997 4,093
Federal income taxes 105 96 433 336 536 577 405
Net Income $ 513 $ 355 $ 1,903 $ 902 $ 1,366 $ 1,317 $ 1,052
Per Share Data:
Earnings per share(1)(2) $ 0.24 $ 0.17 $ 0.91 $ 0.43 $ 0.75 $ 0.85 $ 0.69
Cash dividends declared per share(2) $ 0.07 $ 0.05 $ 0.21 $ 0.16 $ 0.12 $ 0.04 $ 0.00
Book value per share(2)(3)(4)(5) $ 9.41 $ 8.83 $ 9.52 $ 8.91 $ 8.41 $ 7.82 $ 6.96
Average shares outstanding(2)(4)(5) 2,070,966 2,068,222 2,069,796 2,069,560 1,741,850 1,540,710 1,508,028
Balance Sheet Data:
Total assets $343,217 $236,046 $324,522 $206,673 $154,698 $144,990 $130,342
Total loans, net 203,852 152,883 192,148 146,291 125,534 109,053 90,594
Total securities 108,907 42,912 88,554 29,566 15,765 15,706 21,173
Total deposits 292,380 203,106 264,323 179,938 124,272 109,704 100,437
FHLB advances - long term 12,000 4,000 22,000 4,000 11,000 21,000 17,000
Redeemable common stock(5) --- 4 --- 130 382 717 587
Total stockholders' equity $ 19,489 $ 18,278 $ 19,704 $ 18,295 $ 16,987 $ 11,397 $ 10,167
Performance Ratios:
Return on average assets(6) 0.65% 0.66% 0.77% 0.51% 0.93% 1.00% 0.84%
Return on average stockholders'
equity(6) 10.57% 7.73% 10.16% 5.14% 9.65% 12.39% 10.75%
Return on average stockholders' equity
and redeemable common stock(6) 10.57% 7.71% 10.15% 5.05% 9.23% 11.62% 10.33%
Net interest margin(6)(7) 3.60% 3.57% 3.72% 3.84% 3.97% 3.71% 4.23%
Total other expenses as a percentage
of average assets 2.44% 2.67% 2.61% 3.09% 2.97% 3.03% 3.27%
Asset Quality Ratios:
Allowance for loan losses as a percentage
of loans, net 1.02% 1.15% 1.03% 1.13% 1.13% 1.31% 2.09%
Allowance for loan losses as a percentage
of non-performing loans(8) 68.72% 74.60% 69.75% 94.10% 47.50% 74.90% 97.09%
Non-performing loans as a percentage of
total loans, net(8) 1.49% 1.54% 1.48% 1.20% 2.38% 1.75% 2.15%
Non-performing assets as a percentage
of total assets(8) 1.03% 1.57% 1.12% 1.50% 1.96% 1.85% 2.61%
Net charge-offs as a percentage of
average loans, net 0.07% (0.02%) 0.21% 0.21% 0.03% 0.69% 1.11%
Liquidity and Capital Ratios:
Tier 1 capital to risk-weighted
assets(9)(10) 9.61% 12.50% 10.39% 12.43% 15.69% 11.32% 11.18%
Leverage ratio(9)(10)(11) 6.22% 8.56% 6.82% 9.30% 11.93% 8.65% 8.15%
Total capital to risk-weighted
assets(9)(10) 10.63% 13.71% 11.44% 13.58% 16.95% 12.59% 12.76%
Dividend payout ratio 28.27% 29.01% 22.86% 36.81% 15.37% 5.32% 0.00%
<FN>
(1) Based upon average shares and common share equivalents outstanding.
(2) Average shares outstanding and per common share data are adjusted for all stock dividends and stock
splits effected through March 31, 1997.
(3) Based upon total shares issued and outstanding at the end of each respective period, including
Rescission Shares classified as redeemable common stock for the three months ended March 31, 1996
and for each of the years in the four year period ended December 31, 1995.
(4) Including Rescission Shares for the three months ended March 31, 1996 and for each of the years in
the four year period ended December 31, 1995.
(5) In conjunction with the Company's initial public offering in 1994, the Company completed a
rescission offer (the "Rescission Offer") for shares of Common Stock sold by the Company between
October 1990 and June 1993 in transactions that were not registered under the Securities Act (the
"Rescission Shares"). The Rescission Shares were classified as redeemable common stock, which was
stated at the amount of the redemption value of the remaining Rescission Shares outstanding.
Stockholders' equity includes Rescission Shares for the three months ended March 31, 1996 and for
each of the years in the four year period ended December 31, 1995. At March 31, 1997 and
December 31, 1996, no Rescission Shares were required to be classified as redeemable common stock
because of the expiration of the rescission period
(6) Annualized ratios at March 31, 1997 and 1996.
(7) Represents net interest income as a percentage of average total interest-earning assets, calculated
on a full tax-equivalent basis.
(8) Non-performing loans are comprised of (i) loans which are on a nonaccrual basis (ii) accruing loans
that are 90 days or more past due which are insured for credit loss, and (iii) restructured loans.
Non-performing assets are comprised of non-performing loans and foreclosed real estate (assets
acquired in foreclosure).
(9) Based on Federal Reserve Board risk-based capital guidelines, as applicable to the Company. The
Bank is subject to similar requirements imposed by the Federal Reserve Board.
(10) Rescission Shares have been classified as redeemable common stock for the three months ended March
31, 1996 and for each of the years in the four year period ended December 31, 1995, and the
Rescission Shares have been excluded from this computation for such periods.
(11) The leverage ratio is defined as the ratio of Tier 1 capital to average total assets.
</TABLE>
<PAGE>
RISK FACTORS
When used in this Prospectus, the words or phrases "will
likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform
Act of 1995. The Company wishes to caution readers that all
forward-looking statements are necessarily speculative and not to
place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that
various risks and uncertainties, including regional and national
economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and
regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or
projected. The risks highlighted herein should not be assumed to
be the only risks that could affect future performance of the
Company.
Rapid Growth
In the last two years, the Company has experienced rapid
growth fueled by its branch expansion and the acquisition of
large local competitors by out-of-market institutions. In the
short term, the Company expects this rapid growth to continue.
To date, the Company has not experienced any material problems as
a result of this rapid growth. The Company believes it has in
place the management, systems, including data processing systems,
internal controls and a strong credit culture to support
continued rapid growth. However, the Company's continued rapid
growth and profitability depends on the ability of its officers
and key employees to manage such growth effectively, to attract
and retain skilled employees and to maintain adequate internal
controls and a strong credit culture. Accordingly, there can be
no assurance that the Company will be successful in managing its
expansion and the failure to do so would adversely affect the
Company's financial condition and results of operations.
A natural corollary of the Company's rapid growth during the
past two years, particularly its branch expansion program, is a
significant increase in non-interest expense. These costs are
associated with branch construction and increased staffing and
equipment needs necessary to create the infrastructure to support
this growth. Because the Company expects rapid growth to
continue, in part because of its ongoing branch expansion
program, purchasers of Common Stock should expect non-interest
expense to rise materially.
Finally, in order to increase earnings to offset the
expected increase in non-interest expense, the Company has
employed matched funding programs that use FHLB advances and
deposit inflows from existing and new branches to fund loan
originations and securities purchases. These leverage matched
funding programs are premised upon the management assumption
that, over a finite time period, lower-cost deposits will grow
sufficiently to permit the Company to earn a positive spread on
the blended yield earned on incremental loans and securities over
the blended yield paid on deposits and FHLB borrowings. If the
expected low-cost deposit growth does not materialize, the
Company may realize narrower net interest margins on incremental
growth and slower growth in future earnings.
Market for Common Stock
The Common Stock is traded on the Nasdaq National Market
System. Trading volume has averaged approximately 2,500 shares
per day for the first quarter of 1997. Accordingly, a regular
and active market has not yet developed. Upon completion of this
Offering, the number of outstanding shares of Common Stock will
increase by at least 1 million shares. The Offering will
materially increase the number of shares of Common Stock held by
non-affiliates. However, no assurance can be given that an
active market will develop, and the price of the Common Stock may
remain susceptible to short-term volatility caused by large
trades by one or more shareholders or otherwise. See "MARKET FOR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Competition
The Bank still faces significant competition from many other
banks, savings institutions and other financial institutions
which have branch offices or otherwise operate in the Bank's
market area, as well as many other companies now offering a
variety of financial services. Many of these competitors have
substantially greater financial resources than the Bank including
a larger capital base that allows them to attract customers
seeking larger loans than the Bank is able to make. See
"BUSINESS -- Competition."
Economic Conditions and Related Uncertainties
Commercial banking is affected, directly and indirectly, by
local, domestic, and international economic and political
conditions, and by government monetary and fiscal policies.
Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, scarce natural resources,
real estate values, international conflicts and other factors
beyond the control of the Company and the Bank, may adversely
affect the potential profitability of the Company and the Bank.
Management does not expect any one particular factor to affect
the Bank's results of operations. However, a continued downtrend
in several areas, such as real estate, construction and consumer
spending, could have an adverse impact on the Bank's ability to
maintain or increase profitability.
Federal and State Government Regulation
The operations of the Company and the Bank are heavily
regulated and will be affected by present and future legislation
and by the policies established from time to time by various
federal and state regulatory authorities. In particular, the
monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of banks in the past,
and are expected to continue to do so in the future. See
"BUSINESS -- Supervision and Regulation."
USE OF PROCEEDS
The net proceeds from the sale of Common Stock offered
hereby, are estimated to be approximately $______ million after
deduction of the underwriting discount and estimated expenses
(approximately $______ million if the Underwriters' over-
allotment-option is exercised in full). The Company presently
intends to contribute the majority of the net proceeds to the
Bank. The cash provided by the net proceeds is expected to be
used to repay a portion of outstanding FHLB advances incurred
and/or to fund growth in the loan and securities portfolio. The
precise amounts and timing of the application of cash proceeds
will depend, among other things, upon the funding requirements of
the Bank and the availability of other funds. The capital
provided by the net proceeds will be used to support the growth
of the Bank, including, among other things, future branch office
expansion. The Company presently has no contract, agreement or
arrangement with respect to any proposed acquisition. Pending
application, the net proceeds are expected to be invested in
short-term government or investment grade obligations.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of the Common Stock are traded in the over-the-
counter market and are quoted on the National Association of
Securities Dealers Automated Quotation System National Market
System ("Nasdaq/NMS") under the symbol "BCBF." At May 15, 1997,
the total number of holders of record of the Common Stock was
approximately 1,600.
The table below presents the high and low trade prices
reported for the Common Stock and the cash dividends declared on
such Common Stock for the periods indicated. The range of high
and low prices is based on trade prices reported on Nasdaq/NMS.
Market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily
reflect actual transactions.
Cash
Dividends
Year Quarter High Low Per Share
1997 2nd(1) $_______ $_______ $.07
1st 19-5/8 14-3/4 .07
1996 4th 12-15/16 10-13/16 .06
3rd 12-15/16 11-7/8 .05
2nd 12-11/16 11-7/8 .05
1st 15-3/4 12-1/16 .05
1995 4th 9-3/4 8-1/2 .04
3rd 9-3/4 8-3/4 .04
2nd 10-1/8 9-5/16 .04
1st 11-1/16 9-5/8 .04
_____________
(1) For the period from April 1, 1997 through June __, 1997.
All price information in the table has been adjusted
retroactively to reflect a 5% stock dividend paid on October 23,
1995 and a 6-for-5 stock split paid on November 19, 1996. On
_____________________, 1997, the last trading day before
commencement of the Offering, the closing price of a share of
Common Stock on the Nasdaq/NMS was $______.
Dividends
Purchasers in this Offering will first be eligible to
receive dividends in the ______ quarter of 1997.
It is the Company's policy to pay cash dividends in January,
April, July and October of each year to shareholders of record on
or about the fourth day of the month in which the dividend is
paid, as and if declared by the Company's Board of Directors out
of legally available funds. However, the continuation of this
policy and the timing and amount of future dividends will depend
upon earnings, capital levels, cash requirements, the financial
condition of the Company and the Bank, applicable government
regulations and policies and other factors deemed relevant by the
Company's Board of Directors, including the amount of dividends
payable to the Company by the Bank.
The principal source of income and cash flow for the
Company, including cash flow to pay dividends on the Common
Stock, is dividends from the Bank. Various federal and state
laws, regulations and policies limit the ability of the Bank to
pay dividends to the Company. For certain limitations on the
Bank's ability to pay dividends to the Company, see "BUSINESS --
Supervision and Regulation" hereof and Note 18 to "Notes to
Consolidated Financial Statements."
CAPITALIZATION
The following tables present the consolidated capitalization
and certain capital ratios of the Company at March 31, 1997, and,
as adjusted as of such date to give effect to the issuance and
sale of the shares of Common Stock offered hereby (after giving
effect to the estimated underwriting discount and the payment of
estimated issuance related expenses and assuming no exercise of
the Underwriters' over-allotment option) at an assumed offering
price of $_____ per share. This table should be read in
conjunction with the historical consolidated financial statements
of the Company and the related notes thereto set forth elsewhere
herein.
At March 31, 1997
Historical As Adjusted
(In thousands)
Long-term debt $12,000 $12,000
Stockholders' equity:
Common Stock, par value $2.50 share;
20,000,000 shares authorized,
2,071,349 shares issued and
outstanding on March 31,
1997; 3,071,349 shares as adjusted(1) 5,178 7,678
Surplus 9,880
Retained earnings
(Less unrealized depreciation
on securities available for
sale) 4,431 4,431
Total stockholders' equity $19,489 $
Total long-term debt and
stockholders' equity $31,489 $
======= ======
(1) On June 11, 1997, the Company expects to obtain shareholder
approval to amend the Company's Articles of Incorporation to
increase the authorized number of shares of Common Stock
from 3,000,000 shares to 20,000,000 shares.
Capital Ratios
Minimum
Actual at Regulatory
March 31, As Require-
1997 Adjusted(1) ment(2)
Capital Ratios:
Tier 1 capital to risk-
weighted assets 9.61% (3) 4.00%(3)
Total capital to risk-
weighted assets 10.63% (3) 8.00%(3)
Leverage ratio (4)(5) 6.22% (3) 5.00%(3)
__________________
(1) Assumes that the Company's total assets will increase by the
amount of the estimated net proceeds from the issuance and
sale of the Common Stock offered hereby.
(2) Based on the risk-based capital guidelines of the Federal
Reserve Board, a bank holding company, such as the Company,
is required to maintain a Tier 1 capital to risk-weighted
assets ratio of 4.00% and a total capital to risk-weighted
assets ratio of 8.00%. The Bank is subject to similar
capital requirements also adopted by the Federal Reserve
Board. At March 31, 1997, the Company and the Bank each
exceeded their respective regulatory requirements. See
"BUSINESS -- Supervision and Regulation."
(3) Assumes a risk-weighting factor of 58.0% (the average risk-
weighting factor for the Company's total assets at March 31,
1997) for the net proceeds from the issuance and sale of the
Common Stock offered hereby. See "BUSINESS -- Supervision
and Regulation" for a discussion of risk-based capital
guidelines and the Federal Reserve Board's minimum leverage
ratio requirement.
(4) The leverage ratio is defined as the ratio of Tier 1 capital
to average total assets.
(5) Based on the Federal Reserve Board's guidelines, a bank
holding company, such as the Company, generally is required
to maintain a leverage ratio of 3% plus an additional amount
of at least 100 to 200 basis points.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Bank opened its first office in Reading, Pennsylvania in
1987 to serve individuals and small-to-medium sized businesses
that it believed were not being adequately served by its larger
competitors in the Berks County market area. The Bank opened its
second office in Exeter in 1991.
In 1995, the Bank initiated a more aggressive branch
expansion and marketing program targeting customers of larger
institutions that were recently acquired. The Bank opened
branches in Pottstown and Wyomissing in 1995, and in Muhlenberg
and Shillington on March 29 and May 3, 1997, respectively. As a
result, the Company's assets have grown from $154.7 million at
December 31, 1994 to $343.2 million at March 31, 1997, a compound
annual growth rate of approximately 42.5%. In addition, the Bank
aggressively has sought to leverage deposit inflows into new loan
originations and since 1995 has opened loan production offices in
Wyomissing, Pottstown, Schuylkill Haven, Jamison and Exton/West
Chester. Net loans have grown from $125.5 million at
December 31, 1994 to $203.9 million at March 31, 1997, a compound
annual growth rate of approximately 24.1%.
Future growth plans include the opening of a seventh branch
in late 1997 or early 1998 and the addition of two new offices
per year for the next several years in Berks and the contiguous
counties. Management's goal in establishing any new branch is to
achieve deposits of at least $50 million in three years or less.
In addition, the Company expects to open additional loan
production offices in those areas where the Company perceives
market opportunities and which may be suitable for future branch
sites.
The Company's net income historically has fluctuated with
the timing of new branch openings because the Company incurs
incremental non-interest expense when opening a new branch
office. Specifically, in 1995 the Company opened two new
branches within the same calendar quarter. Since the Company was
much smaller in 1995 than it is in 1997, the incremental non-
interest expense as a percentage of net income was substantially
greater in 1995 than the Company expects it to be in 1997. As
the Company continues to open additional branches, it expects the
impact on net income to be less dramatic than in prior years as a
result of the growth in the Company's asset base.
The Company began paying cash dividends in 1993 at an annual
rate of $0.04 per share. Since that time, the Company has paid a
cash dividend each quarter and has annually increased such
dividend to its current annual rate of $0.28 per share.
The following discussion and analysis of financial condition
and results of operations of the Company should be read in
conjunction with the consolidated financial statements of the
Company, including the related notes thereto, included elsewhere
herein.
Results of Operations for the Three Months Ended March 31, 1997
and 1996
Overview
The Company's net income for the three months ended
March 31, 1997 was $513,000, 44.5% more than the $355,000
reported for the same period in 1996. The earnings for the first
quarter were up from the prior year's first quarter primarily due
to an increase in net interest income.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily
upon the Bank's net interest income, which is the difference
between interest earned on interest-earning assets and interest
paid on interest-bearing liabilities. The Company's net interest
income, calculated on a tax-equivalent basis, increased $899,000,
or 50.0%, to $2.7 million during the first quarter of 1997 from
$1.8 million during the first quarter of 1996. The increase in
net interest income was primarily due to an increase in average
interest-earning assets as well as an increase in the average
yield on interest-earning assets. Interest income, on a tax
equivalent basis, increased $2.0 million, or 51.3%, from
$3.9 million for the first three months of 1996 to $5.9 million
for the first three months of 1997, while interest expense
increased $1.2 million, or 57.1%, from $2.1 million for the first
three months of 1996 to $3.3 million for the first three months
of 1997.
Net interest income is affected by changes in the mix of the
volume and rates of interest-earning assets and interest-bearing
liabilities. The following table provides an analysis of net
interest income on a tax-equivalent basis, setting forth for the
periods (i) average assets, liabilities and stockholders' equity,
(ii) interest income earned on interest-earning assets and
interest expense paid on interest-bearing liabilities,
(iii) average yields earned on interest-earning assets and
average rates paid on interest-bearing liabilities, and (iv) the
Bank's net interest margin (net interest income as a percentage
of average total interest-earning assets).
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Interest Interest
(Dollars in thousands) Average Income/ Yield/ Average Income Yield
Balance Expense(1) Rate(2) Balance Expense(1) Rate(2)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits at banks $ 10,652 $ 151 5.75% $ 15,460 $ 209 5.44%
U.S. Treasury 3,464 58 6.79 4,913 70 5.73
U.S. Government agencies 50,950 912 7.26 9,554 147 6.19
State and municipal (3) 34,510 673 7.91 14,487 296 8.21
Other bonds and securities 3,600 47 5.29 1,207 14 4.67
Total securities 92,524 1,690 7.41 30,161 527 7.02
Federal funds sold 1,145 15 5.31 4,954 63 5.11
Commercial loans (3) 92,056 1,993 8.78 72,769 1,611 8.90
Mortgage loans 90,825 1,718 7.67 64,418 1,220 7.62
Installment loans 16,676 381 9.27 14,853 299 8.10
Total loans(4) 199,557 4,092 8.32 152,040 3,130 8.28
Total interest-earning assets 303,878 5,948 7.94 202,615 3,929 7.80
Unrealized (depreciation) on available
for sale securities (85) 217
Allowance for loan losses (2,006) (1,737)
Non-interest earning assets 18,234 14,265
Total assets $320,021 $215,360
======= =======
INTEREST-BEARING LIABILITIES:
Demand deposits, interest bearing $ 96,605 912 3.83 50,201 466 3.73
Savings deposits 18,930 185 3.96 9,796 71 2.92
Other time deposits 126,447 1,777 5.70 110,790 1,523 5.53
Total deposits 241,982 2,874 4.82 170,787 2,060 4.85
Other borrowed funds 6,781 90 5.38 2,575 26 4.06
Long-term debt 21,444 288 5.45 4,000 46 4.63
Total interest-bearing liabilities 270,207 3,252 4.88 177,362 2,132 4.83
Demand deposits, non-interest bearing 26,168 16,962
Other non-interest bearing liabilities 3,968 2,510
Total liabilities 300,343 196,834
Redeemable common stock --- 67
Stockholders' equity 19,678 18,459
Total liabilities, redeemable common
stock and stockholders' equity $320,021 $215,360
======= =======
Net interest income $2,696 $1,797
===== =====
Net interest margin (5) 3.60% 3.57%
==== ====
</TABLE>
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized
cost; all yields are annualized.
(3) Full taxable equivalent basis, using a 34% statutory tax
rate as adjusted for the disallowance of the deduction for
interest expense to carry bank eligible tax-exempt
securities and loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and
interest paid, divided by average total interest-earning
assets.
Rate/Volume Analysis of Changes in Net Interest Income
Net interest income may also be analyzed by aggregating the
volume and rate components of interest income and interest
expense. The following table sets forth an analysis of volume
and rate changes in net interest income for the periods
indicated. For purposes of this table, changes in interest
income and interest expense are allocated to volume and rate
categories based upon the respective percentage changes in
average balances and average rates.
Three Months Three Months
ended ended
March 31, 1997 vs. March 31, 1996
Change due to
Average Average Increase
Volume Rate (Decrease)
(Dollars in Thousands)
Interest earned on:
Interest-bearing deposits
with banks $ (120) $ 62 $ (58)
Federal funds sold (37) (11) (48)
Securities (1) 1,159 4 1,163
Loans(1) 1,160 (198) 962
Total Interest Income $ 2,162 $ (143) $ 2,019
Interest paid on:
Interest-bearing demand
and savings deposits $ 490 $ 70 $ 560
Time deposits under $100,000 217 (20) 197
Time deposits $100,000
and above 36 21 57
Borrowed funds 123 183 306
Total Interest Expense $ 866 $ 254 $ 1,120
Net Interest Income $ 1,296 $ (397) $ 899
(1) Interest income is reported on a full tax-equivalent basis,
using a 34% statutory tax rate as adjusted for the
disallowance of the deduction for interest expense to carry
bank eligible tax-exempt securities and loans.
Net interest margin increased 3 basis points to 3.60% for
the three months ended March 31, 1997 versus 3.57% for the three
months ended March 31, 1996, calculated on a tax-equivalent
basis. Net interest margin increased in the first quarter of
1997 as compared to the same period in 1996 primarily due to an
increase in the average yield on interest-earning assets. For
the first quarter of 1997, the average yield on interest earning
assets, on a tax-equivalent basis, increased 14 basis points to
7.94% from 7.80% for the quarter-ended March 31, 1996.
The Company's total interest income on a tax-equivalent
basis increased by $2.0 million during the first quarter of 1997
over the first quarter of 1996, from $3.9 million in 1996 to
$5.9 million in 1997. Interest and fees on loans increased
$1.0 million, from $3.1 million at March 31, 1996 to $4.1 million
at March 31, 1997, which was largely as a result of an increase
in average loan balances, from $152.0 million at March 31, 1996
to $199.6 million at March 31, 1997. The yield on the loan
portfolio was relatively constant between the periods. Also
contributing to the increase in total interest income was an
increase in interest and dividend income on securities of
$1.2 million, from $527,000 for the first quarter of 1996, to
$1.7 million for the first quarter of 1997, calculated on a tax-
equivalent basis. This increase in investment income was the
result of a combination of an increase in the average balance of
securities owned for the first three months of 1997 versus the
first three months of 1996, from $30.2 million to $92.5 million,
and an increase in the tax-equivalent yield on the average
balance in securities held, from 7.0% for the first three months
of 1996 to 7.4% for the first three months of 1997.
The increase in the average balance of securities is the
result of matched funding programs employed by the Company that
use FHLB advances and the significant deposit inflows at existing
and new branches to fund loan originations and securities
purchases. The purpose of these programs is to target earnings
growth and net interest margin increases while managing
liquidity, credit, market and interest rate risk. From time to
time, a specific matched funding program may attempt to achieve
current earnings benefits from future growth in deposits that
management is reasonably confident will occur by funding current
loan and security portfolio increases partially with short-term
FHLB advances. For example, management may elect to use short-
term FHLB advances during the quarter prior to the opening of a
new branch. Once the new branch opens, management then may elect
to pay off these short-term FHLB advances with lower cost deposit
growth, or convert short-term FHLB debt to long-term debt or
rollover short-term debt if market conditions are favorable.
The increase in average yield on interest-earning assets was
largely the result of the Company's strategy to reduce its
effective tax rate by increasing its holdings in state and
municipal securities located primarily in the Commonwealth of
Pennsylvania, many of which are school district obligations with
underlying insurance that carry the highest rating of Moodys or
Standard and Poor's. The Company has elected during the past
several years to maintain the bulk of its excess liquidity in an
interest-bearing account at the FHLB of Pittsburgh instead of
selling it overnight as Federal Funds Sold. By doing this during
the first quarter of 1997, the Company increased its yield on its
deposits at the FHLB by 44 basis points over what it could have
earned on Federal Funds Sold, an average yield of 5.75% versus
5.31%.
The Company's total interest expense increased $1.2 million,
or 57.1%, to $3.3 million during the first quarter of 1997
compared to $2.1 million during the first quarter of 1996. This
increase was due to an increase in the volume of average
interest-bearing liabilities of $92.8 million, or 52.3%, to
$270.2 million for the quarter ended March 31, 1997 versus
$177.4 million for the quarter ended March 31, 1996. The average
rate paid on interest-bearing liabilities increased 5 basis
points from 4.83% for the first quarter of 1996 compared to 4.88%
for the first quarter of 1997. This slight increase was as a
result of higher amounts of long-term debt and other borrowed
funds in the first quarter of 1997 versus the first quarter of
1996. The average rate paid on deposits decreased 3 basis points
from 4.85% for the first quarter of 1996 compared to 4.82% for
the first quarter of 1997 due to an improved deposit mix as
described below.
In September 1996 the Company elected to increase the annual
percentage yield on money market savings deposits to 4.2%. The
Company currently guarantees this minimum yield through June 30,
1998 for all new money market savings accounts opened and having
balances of $1,000 or more. The total balance in money market
savings deposits increased $6.3 million during the first quarter
of 1997, or 7.0%, from $90.6 million at December 31, 1996 to
$96.9 million at March 31, 1997. This strategy contributed to
the increase in the Company's interest expense during the first
three months of 1997 versus the first three months of 1996.
However, the Company believes the higher rate is justified
because the Company historically had comparatively low money
market deposit balances compared to many other banks and instead
relied more heavily on time deposits as a funding source. The
above market yield on the money market account product is a
conscious strategy designed to change the Company's deposit
composition by significantly increasing money market account
balances while at the same time attracting funds at a yield lower
than that which would have been paid on time deposits. At
March 31, 1997, total money market savings deposits were 33.2% of
total deposits and 37.1% of total interest-bearing deposits.
Interest expense on certificates of deposit increased
$254,000, or 16.9%, from $1.5 million during the first three
months of 1996 to $1.8 million during the first three months of
1997. This increase was due to an increase in the average volume
of certificates of deposit in the amount of $15.6 million, or
14.1%, from $110.8 million for the three months ended March 31,
1996 to $126.4 million for the three months ended March 31, 1997
as well as increases in the average rates from 5.53% to 5.70%,
respectively. During the period, the Bank initiated a program
that provides a 25 basis point premium on certificates of deposit
to customers who maintain both a checking and savings account
with the Bank.
Interest expense on other borrowed funds and long-term debt
increased for the first quarter of 1997 to $378,000 from $72,000
for the first quarter of 1996 because the average balance of
other borrowed funds and long-term debt increased to
$28.2 million for the first quarter of 1997 from $6.6 million for
the first quarter of 1996. The increase, along with the increase
in deposits, funded purchases of securities and origination of
loans as part of an ongoing matched funding program designed to
increase earnings while also managing interest rate risk and
liquidity. Another integral part of this strategy is to
aggressively promote "free" non-interest bearing business and
personal demand (checking) accounts. This strategy will continue
throughout 1997 in an ongoing effort by the Company to lower its
cost of funds. During the first quarter of 1997, the balance of
non-interest bearing business and personal demand (checking)
deposits increased from $29.1 million at December 31, 1996 to
$31.2 million at March 31, 1997, an increase of $2.1 million, or
7.2%.
Provision For Loan Losses
The provision for loan losses is charged to operations to
bring the total allowance for loan losses to a level considered
appropriate by management. The level of the allowance for loan
losses is determined by management of the Bank based upon its
evaluation of the known as well as inherent risks within the
Bank's loan portfolio. Management's periodic evaluation is based
upon an examination of the portfolio, past loss experience,
current economic conditions, the results of the most recent
regulatory examinations and other relevant factors. The
provision for loan losses was $241,000 for the first three months
of 1997 compared to $80,000 for the first three months of 1996.
The increase in the first quarter of 1997 compared to 1996
replaced that portion of the allowance for loan losses used to
fund loan charge-offs, net of recoveries during the first quarter
of 1997 of $134,000, as well as to increase the allowance for
loan losses to a level deemed by management to be satisfactory
given the growth in the size of the loan portfolio during the
first quarter of 1997. Non-performing assets were 1.03% of total
assets at March 31, 1997, compared to 1.12% at December 31, 1996.
Delinquencies were 3.0% of total loans at March 31, 1997,
compared to 2.7% at December 31, 1996. See "BUSINESS -- Asset
Quality."
Other Income
Total other income increased $69,000, or 26.1%, from
$264,000 during the first quarter of 1996 to $333,000 during the
first quarter 1997. The increase was due primarily to a $72,000
increase in customer service fees for services such as merchant
card fee income, overdraft and non-sufficient funds charges, safe
deposit box rentals, and other miscellaneous fees which are
primarily deposit driven. The rate of increase in customer
service fees was faster than the rate of increase in the Bank's
average total deposits for the first three months of 1997.
Customer service fees increased 50.3% during the first quarter of
1997 compared to the first quarter of 1996, while average total
deposits increased 42.8% for the same comparative periods. Also,
income from mortgage banking activities increased $9,000, or
7.9%, from $114,000 during the first quarter of 1996 to $123,000
during the first quarter of 1997. Mortgage banking revenues
include the gain on loans sold and related fees.
Other Expenses
Total other expenses increased $515,000, or 34.3%, from
$1.5 million during the first three months of 1996 to
$2.0 million during the first three months of 1997. Salaries and
wages increased $247,000, or 49.6%, from $498,000 during the
first quarter of 1996 to $745,000 for the first quarter of 1997.
Employee benefits increased $58,000, or 46.8%, from $124,000
during the first quarter of 1996 to $182,000 during the first
quarter 1997. Occupancy expenses increased $10,000, or 7.2%,
from $139,000 during the first three months of 1996 to $149,000
during the same period 1997. Equipment expenses increased
$14,000, or 13.1%, from $107,000 during the first quarter of 1996
to $121,000 during the first quarter 1997. Other operating
expenses increased $186,000, or 32.6%, from $571,000 during the
first three months of 1996 to $757,000 during the same period of
1997. Other operating expenses encompasses all expenses not
otherwise categorized, and includes items such as third-party
data processing costs for ATM machines and payroll processing,
FDIC insurance premiums, professional fees, advertising costs,
office supplies, insurance and other miscellaneous expenses. The
primary reason that other expenses increased during the first
quarter of 1997 compared with the first quarter of 1996 was the
growth of the Bank and increased expenses related to the opening
of the new Muhlenberg and Shillington Branch offices.
Advertising expense decreased $23,000, or 14.7%, from
$156,000 during the first quarter of 1996 to $133,000 during the
first quarter of 1997. This discretionary expense is expected to
increase during the second quarter of 1997 in conjunction with
the promotion of the opening of the Muhlenberg and Shillington
offices. Office supplies and expense increased $42,000, or
47.7%, from $88,000 during the first quarter of 1996 to $130,000
during the first quarter of 1997. This increase was due to the
growth of the Bank and the need to stock the two new branches.
Provision For Income Taxes
The provision for income taxes increased $9,000, or 9.4%, to
$105,000 for the first quarter of 1997 from $96,000 in the first
quarter 1996. The effective tax rates for the first quarters
ended March 31, 1997 and 1996 were 17.0% and 21.2% respectively.
The significant decrease in these effective tax rates from the
statutory tax rate of 34.0% was due to the significant amount of
tax-exempt interest income earned on bank-qualified municipal
securities. Tax-exempt income from municipal securities
increased $263,000, or 128.3%, for the quarter ended March 31,
1997 compared to the quarter ended March 31, 1996.
Results of Operations for the Years Ended December 31, 1996 and
1995
Overview
The Company's net income for the year-ended December 31,
1996 was $1.9 million, increasing by 111.1%, from $902,000 for
1995. The increase in net income for 1996 compared to 1995 was
largely attributable to an increase in net interest income. This
increase was a result of several matched funding strategies
implemented by the Company's asset/liability committee.
Analysis of Net Interest Income
The Company's net interest income, calculated on a tax-
equivalent basis, increased $2.3 million, or 35.9%, to
$8.7 million during 1996 from $6.4 million during 1995. The
increase in net interest income was primarily due to an increase
in average interest-earning assets and a decrease in average
rates paid on average interest-bearing liabilities. Interest
income, on a tax-equivalent basis, increased $5.1 million, or
38.1%, from $13.4 million in 1995 to $18.5 million in 1996, while
interest expense increased $2.8 million, or 40.0%, from
$7.0 million in 1995 to $9.8 million in 1996.
The following table presents the Company's average balances,
yields, cost of funds and net interest margin for the periods
indicated:
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
Interest Interest Interest
(Dollars in thousands) Average Income/ Yield/ Average Income Yield Average Income/ Yield/
Balance Expense(1) Rate(2) Balance Expense(1) Rate(2) Balance Expense(1) Rate(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits
at banks $ 8,095 $ 431 5.32% $ 9,716 $ 560 5.76% $ 5,215 $ 208 3.99%
U.S. Treasury 4,168 261 6.26 5,891 382 6.48 5,719 277 4.84
U.S. Government agencies 25,237 1,770 7.01 6,239 397 6.36 3,787 193 5.10
State and municipal(3) 22,003 1,773 8.06 7,336 591 8.06 4,556 363 7.97
Other bonds and securities 1,920 119 6.20 1,177 78 6.63 1,604 95 5.92
Total securities 53,328 3,923 7.36 20,643 1,448 7.01 15,666 928 5.92
Federal funds sold 2,319 121 5.22 1,290 73 5.66 751 31 4.13
Commercial loans(3) 76,196 6,758 8.87 57,443 5,307 9.24 51,538 4,561 8.85
Mortgage loans 78,745 5,952 7.56 66,832 5,124 7.67 60,074 4,510 7.51
Installment loans 15,194 1,324 8.71 9,585 864 9.01 6,823 577 8.46
Total loans(4) 170,135 14,034 8.25 133,860 11,295 8.44 118,435 9,648 8.15
Total interest-earning
assets 233,877 18,509 7.91 165,509 13,376 8.08 140,067 10,815 7.72
Unrealized depreciation on
available for sale
securities (227) (172) (188)
Allowance for loan losses (1,849) (1,492) (1,461)
Non-interest earning assets 15,479 11,821 8,362
Total assets $247,280 $175,666 $146,780
======== ======== ========
INTEREST-BEARING LIABILITIES:
Demand deposits, interest
bearing $ 68,642 2,582 3.76 28,455 937 3.29 25,546 600 2.35
Savings deposits 11,010 343 3.12 10,162 272 2.68 12,572 306 2.43
Other time deposits 112,498 6,210 5.52 96,129 5,391 5.61 67,110 3,443 5.13
Total deposits 192,150 9,135 4.75 134,746 6,600 4.90 105,228 4,349 4.13
Other borrowed funds 5,803 303 5.22 2,736 141 5.15 2,659 143 5.38
Long-term borrowings 6,742 371 5.50 5,488 285 5.19 12,978 760 5.86
Total interest-bearing
liabilities 204,695 9,809 4.79 142,970 7,026 4.91 120,865 5,252 4.35
Demand deposits, non-
interest bearing 21,127 12,960 9,735
Other non-interest bearing
liabilities 2,718 1,870 1,381
Total liabilities 228,540 157,800 131,981
Redeemable common stock 14 315 639
Stockholders' equity 18,726 17,551 14,160
Total liabilities,
redeemable common stock
and stockholders' equity $247,280 $175,666 $146,780
======== ======== ========
Net interest income $ 8,700 $ 6,350 $ 5,563
======= ======= =======
Net interest margin(5) 3.72% 3.84% 3.97%
===== ===== =====
</TABLE>
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized
cost.
(3) Full taxable equivalent basis, using a 34% statutory tax
rate for 1996, 1995 and 1994 and adjusted for the
disallowance of the deduction for interest expense to carry
bank eligible tax-exempt securities and loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and
interest paid, divided by average total interest-earning
assets.
Rate/Volume Analysis of Changes in Net Interest Income
The following table sets forth an analysis of volume and
rate changes in net interest income for the periods indicated:
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Change due to Change due to
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
with banks $ 428 $ (557) $ (129) $ 330 $ 22 $ 352
Federal funds sold (42) 90 48 22 20 42
Securities (1) 2,941 (466) 2,475 377 143 520
Loans (1) 3,415 (676) 2,739 1,287 360 1,647
Total interest income $6,742 $(1,609) $5,133 $2,016 $ 545 $2,561
Interest paid on:
Interest-bearing demand
and savings deposits $1,097 $ 619 $1,716 $ 35 $ 268 $ 303
Time deposits under $100,000 724 68 792 1,365 361 1,726
Time deposits $100,000
and above 193 (166) 27 124 98 222
Borrowed funds 2,009 (1,761) 248 (434) (43) (477)
Total interest expense $4,023 $(1,240) $2,783 $1,090 $ 684 $1,774
Net interest income $2,719 $ (369) $2,350 $ 926 $(139) $ 787
</TABLE>
(1) Interest income is reported on a full tax-equivalent
basis, using a 34% statutory tax rate as adjusted for
the disallowance of the deduction for interest expense
to carry bank eligible tax-exempt securities and loans.
Net interest margin decreased 12 basis points to 3.72% for
the year-ended December 31, 1996 compared to 3.84% for the
year-ended December 31, 1995, calculated on a tax-equivalent
basis. Net interest margin decreased in 1996 due primarily to a
decrease in the average yield on interest-earning assets
(specifically loans). This was due in large part to the prime
rate decreasing 25 basis points in February 1996 from 8.50% to
8.25% and increased competition for small business and personal
loans. In 1996, the average yield on interest-earning assets, on
a tax-equivalent basis, decreased 17 basis points, or 2.1%, to
7.91% compared to 8.08% for the prior year-ended December 31,
1995.
The Company's total interest income on a tax-equivalent
basis increased by $5.1 million during 1996 over the previous
year from $13.4 million in 1995 to $18.5 million in 1996.
Interest and fees on loans increased $2.7 million, from
$11.3 million for the year ended December 31, 1995 to
$14.0 million for the year ended December 31, 1996, which was a
result of an increase in average loan volume, from $133.9 million
for the year ended December 31, 1995, to $170.1 million for the
year ended December 31, 1996. Also contributing to the increase
in total interest income was an increase in interest and dividend
income on securities of $2.5 million, from $1.4 million in 1995,
to $3.9 million in 1996. This increase in investment income was
the result of a combination of an increase in the average balance
of securities in 1996 versus 1995, from $20.6 million to
$53.3 million as a result of the Company's matched funding
program, and an increase in the tax-equivalent yield on the
average balance in securities held, from 7.0% in 1995 to 7.4% in
1996. The increase in yield was largely the result of the
Company's strategy to increase its holdings in state and
municipal securities that produce a higher yield on a tax-
equivalent basis.
The Company's total interest expense increased $2.8 million,
or 40.0%, to $9.8 million in 1996 from $7.0 million in 1995.
This increase was due to an increase in the volume of average
interest-bearing liabilities of $61.7 million, or 43.2%, to
$204.7 million for the year-ended December 31, 1996 versus
$143.0 million for the year-ended December 31, 1995. The average
rate paid on interest-bearing liabilities decreased 12 basis
points, or 2.4%, from 4.91% for 1995 compared to 4.79% for 1996.
This decrease reflected a shift of the Bank's customer deposit
mix from higher cost certificates of deposit to lower yielding
money market savings and checking in 1996 versus 1995.
The total balance in money market savings deposits increased
$48.3 million during 1996, or 114.2% from $42.3 million at
December 31, 1995, to $90.6 million at December 31, 1996. The
increase was due to the Bank increasing the annual percentage
yield on money market savings deposits to 4.2% as discussed
above. At December 31, 1995, total money market savings deposits
were 23.5% of total deposits and 26.2% of total interest-bearing
deposits. At December 31, 1996, the percentage that total money
market savings deposits were of total deposits and total
interest-bearing deposits, increased to 34.3% and 38.5%,
respectively.
Interest expense on certificates of deposit increased
$800,000, or 14.8%, from $5.4 million during 1995 to $6.2 million
in 1996. This increase was due to an increase in the average
volume of certificates of deposit in the amount of $16.4 million,
or 17.1%, from $96.1 million in 1995 to $112.5 million in 1996.
Interest expense on other borrowed funds and long-term
borrowings increased in 1996 to $674,000 from $426,000 as the
average balance increased to $12.5 million in 1996 from
$8.2 million in 1995. The increase, along with the increase in
deposits and other borrowed funds, funded purchases of securities
and origination of loans as part of the Company's ongoing matched
funding program.
Provision for Loan Losses
The provision for loan losses was $687,000 for 1996 compared
to $518,000 for 1995. The increase in 1996 replaced that portion
of the allowance for loan losses used to fund loan charge-offs,
net of recoveries, in 1996 of $360,000 as well as to increase the
allowance for loan losses to a level deemed to be satisfactory
given the growth in the size of the loan portfolio during 1996.
Non-performing assets were 1.12% of total assets at December 31,
1996, compared to 1.50% at December 31, 1995. Delinquencies
decreased to 2.70% at December 31, 1996, from 3.20% at
December 31, 1995. See "BUSINESS -- Credit Quality."
Other Income
Total other income increased $334,000, or 33.4%, from
$1.0 million in 1995 to $1.3 million in 1996. The increase was
due primarily to a $210,000 increase in customer service fees for
services such as merchant card fee income, overdraft and
non-sufficient funds charges, safe deposit box rentals, and other
miscellaneous fees which are primarily deposit driven. The
increase in customer service fees was nearly proportional to the
increase in the Bank's average total deposits. Also, income from
mortgage banking activities increased $100,000, or 18.7%, from
$534,000 in 1995 to $634,000 in 1996, due to an increase in
investors' mortgage commitments in 1996. Effective January 1,
1996 the Company was required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 122 "Accounting for Mortgage
Servicing Rights." The effect of this adoption did not have a
material impact on the Company's financial position and results
of operations in 1996. See "-- New Financial Accounting
Standards," herein.
Other Expenses
Total other expenses increased $1.0 million, or 18.5%, from
$5.4 million in 1995 to $6.4 million in 1996 primarily because of
increased staffing needs resulting from the growth of the
Company. Salaries, wages and employee benefits increased
$481,000, or 20.0%, from $2.4 million in 1995 to $2.9 million in
1996. Occupancy expenses increased $90,000, or 18.8%, from
$480,000 in 1995 to $570,000 in 1996. Equipment expenses
increased $37,000, or 9.7%, from $382,000 in 1995 to $419,000 in
1996. Other operating expenses increased $425,000, or 19.3%,
from $2.2 million in 1995 to $2.6 million in 1996.
Costs to maintain foreclosed real estate, plus losses on the
sale of such foreclosed real estate totaled $301,000 in 1996
versus $222,000 in 1995, an increase of $79,000, or 35.6%. EDP
outsourcing and MAC fees increased $114,000, or 45.1%, from
$253,000 in 1995 to $367,000 in 1996. The increase was due
largely to the growth of the Bank and the introduction of the
Bank's Visa Check card in January 1996.
Advertising expense increased $274,000, or 85.6%, from
$320,000 in 1995 to $594,000 in 1996. The Company elected to
increase its advertising expenses in order to increase its market
share in response to opportunities resulting from the large
number of mergers and bank name changes, the most notable of
which were CoreStates' acquisition of Meridian Bank, PNC Corp.'s
acquisition of Midlantic Bank and the pending acquisition of Bank
of Pennsylvania by Allied Irish Banks, and also to place greater
marketing emphasis upon certain products (free business checking,
free personal checking and money market savings deposits).
Professional fees decreased $100,000, or 38.3%, from
$261,000 at December 31, 1995 to $161,000 at December 31, 1996.
The reason for the decrease was due in large part to the Company
accruing for anticipated legal fees on foreclosed assets in 1995
that settled in 1996.
Office supplies and expense increased $30,000, or 8.8%, from
$342,000 in 1995 to $372,000 in 1996. This increase was
attributable to the growth of the Company in 1996.
Provision for Income Taxes
The provision for federal income taxes increased $96,000, or
28.5%, to $433,000 in 1996 from $337,000 in 1995. The effective
tax rates for the years ended December 31, 1996 and 1995 were
18.5% and 27.1% respectively. The significant decrease in 1996's
effective tax rate from the statutory tax rate of 34% and 1995's
effective tax rate was due to the significant increase in tax-
exempt interest income earned on bank-qualified municipal
securities. Tax-exempt income increased $820,000, or 200.0%, for
the year ended December 31, 1996 as compared to the year ended
December 31, 1995.
Financial Condition
March 31, 1997 Compared to December 31, 1996
Total assets increased to $343.2 million at March 31, 1997,
an increase of $18.7 million or 5.8% from $324.5 million at
December 31, 1996. The increase in assets is the result of
higher levels of loans and securities, which were funded by the
increase in deposits in the first quarter of 1997. Net loans
increased to $203.9 million at March 31, 1997 from $192.1 million
at December 31, 1996, or 6.1%. Securities increased to
$108.9 million at March 31, 1997 from $88.6 million at
December 31, 1996. The increase of $20.3 million, or 22.9%, was
due primarily to the purchase of approximately $17.0 million in
securities as part of the Company's matched funding strategy
which is intended to increase earnings by anticipating future
deposit growth that management is reasonably confident will
occur. See "Analysis of Net Interest Income" herein.
Cash and due from banks, interest-bearing deposits, which
are held at the FHLB of Pittsburgh, and federal funds sold are
all liquid funds. The aggregate amount in these three categories
decreased by $17.6 million to $14.1 million at March 31, 1997
from $31.7 million at December 31, 1996, because the Company
redeployed these funds into higher yielding loans and securities.
This redeployment of liquid assets was done in anticipation of a
significant increase in liquid assets resulting from deposit
inflows from the Bank's two newest branches in Muhlenberg and
Shillington. These two branches opened at the end of the first
quarter and early in the second quarter of 1997, respectively.
Bank premises and equipment, net of accumulated
depreciation, increased from $4.4 million at year-end 1996 to
$5.5 million at March 31, 1997. The increase of $1.1 million was
mainly attributable to the construction of the Muhlenberg and
Shillington offices.
Total liabilities increased by $18.9 million, or 6.2%, from
$304.8 million at year-end 1996 to $323.7 million at March 31,
1997. During this period, deposits, the Company's primary source
of funds, increased by 10.6% from $264.3 million at year-end 1996
to $292.4 million at March 31, 1997. The deposit mix changed
considerably during 1996 and that trend continued during the
first quarter of 1997. The change in the deposit mix occurred
because the Bank placed greater emphasis upon the generation of
money market savings deposits, accomplished by offering an above-
market annual percentage yield of 4.2% for balances of $1,000 or
more. See "Analysis of Net Interest Income" herein. The Bank
also changed its deposit mix by offering no-fee, "free" personal
and business checking while many competitors charged fees for
these products. The aggregate amount of demand and savings
deposits, which are lower in rate than time deposits, increased
$19.8 million, or 13.9%, from $142.0 million at December 31, 1996
to $161.8 million at March 31, 1997. As a percentage of total
deposits, aggregate demand and savings deposits increased from
53.7% at December 31, 1996 to 55.3% at March 31, 1997. Aggregate
demand deposits include non-interest bearing demand, interest
checking (NOW) and money market savings deposits. Certificates
of deposit increased $8.3 million, or 6.8%, from $122.3 million
at year-end 1996 to $130.6 million at March 31, 1997. As a
percentage of total deposits, certificates of deposit decreased
from 46.3% at December 31, 1996 to 44.7% at March 31, 1997. The
proceeds from the net increase in deposits were used to fund new
loans, new securities purchases, additions to bank premises and
equipment, and to reduce long-term debt and other borrowed funds.
Other borrowed funds and long term debt decreased
$17.6 million from $35.7 million at year-end 1996 to
$18.1 million at March 31, 1997. The decrease was primarily the
result of paying off approximately $18.0 million in short-term
and long-term FHLB advances with proceeds from the growth in
deposits.
December 31, 1996 Compared to December 31, 1995
The Company's total assets increased 57.0% from
$206.7 million at December 31, 1995 to $324.5 million at year-end
1996. During the same period, net loans increased by 31.3% to
$192.1 million, and securities increased by 199.5% to
$88.6 million as a result of the Company's matched funding
strategy.
Cash and amounts due from banks, interest-bearing deposits,
and federal funds sold increased, in the aggregate, by
$11.0 million to $31.7 million at December 31, 1996 from
$20.7 million at December 31, 1995, primarily due to a greater
amount of growth in deposits during 1996 than the amount of
growth in loans and securities.
Bank premises and equipment, net of accumulated
depreciation, increased from $3.5 million at year-end 1995 to
$4.4 million at year-end 1996. The increase of $900,000 was
mainly attributable to the capitalized costs associated with
long-term leases on land on which the Muhlenberg and Shillington
branches were built. See "BUSINESS -- Property."
Total liabilities increased by $116.6 million, or 62.0%,
from $188.2 million at year-end 1995 to $304.8 million at
December 31, 1996. During this period, deposits increased by
46.9% from $179.9 million at year-end 1995 to $264.3 million at
December 31, 1996. As a result of the Company's promotion of its
money market savings account, the aggregate amount of demand and
savings deposits increased $66.1 million, or 87.1%, from
$75.9 million at December 31, 1995 to $142.0 million at
December 31, 1996. As a percentage of total deposits, aggregate
demand and savings deposits increased from 42.2% at December 31,
1995 to 53.7% at December 31, 1996. Aggregate demand deposits
include non-interest bearing demand, interest checking (NOW) and
money market deposits. Certificates of deposit increased
$18.2 million or 17.5% from $104.1 million at year-end 1995 to
$122.3 million at December 31, 1996. As a percentage of total
deposits, certificates of deposit decreased from 57.8% at
December 31, 1995 to 46.3% at December 31, 1996.
Other borrowed funds increased $11.4 million from
$2.3 million at year-end 1995 to $13.7 million at year-end 1996.
The increase was primarily the result of $11.0 million in net new
FHLB advances with a maturity date of less than one year. Long-
term borrowed funds increased $18.0 million from $4.0 million at
year-end 1995 to $22.0 million at year-end 1996. This increase
was as a result of $18.0 million in new FHLB advances with a
maturity date greater than one year. The Company increased its
FHLB borrowings as part of its ongoing matched funding programs
to increase earnings, while also managing interest rate risk and
liquidity.
Interest Rate Risk Management
Interest rate risk management involves managing the extent
to which interest-sensitive assets and interest-sensitive
liabilities are matched. The Bank typically defines interest-
sensitive assets and interest-sensitive liabilities as those that
reprice within one year or less. Maintaining an appropriate
match is a method of avoiding wide fluctuations in net-interest
margin during periods of changing interest rates.
The difference between interest-sensitive assets and
interest-sensitive liabilities is known as the "interest-
sensitivity gap" ("GAP"). A positive GAP occurs when interest-
sensitive assets exceed interest-sensitive liabilities repricing
in the same time periods, and, a negative GAP occurs when
interest-sensitive liabilities exceed interest-sensitive assets
repricing in the same time periods. A negative GAP ratio
suggests that a financial institution may be better positioned to
take advantage of declining interest rates rather than increasing
interest rates, and a positive GAP ratio suggests the converse.
The Bank attempts to manage its assets and liabilities in a
manner that stabilizes net interest income and net economic value
under a broad range of interest rate environments. Adjustments
to the mix of assets and liabilities are made periodically in an
effort to give the Bank dependable and steady growth in net
interest income regardless of the behavior of interest rates in
the economy.
The following table presents a summary of the Bank's
interest rate sensitivity at March 31, 1997 calculated on a beta-
adjusted basis. For purposes of this table, the Bank has used
assumptions based on industry data and historical experience to
calculate the expected maturity of loans because, statistically,
certain categories of loans are prepaid before their maturity
date, even without regard to interest rate fluctuations.
Interest Sensitivity at March 31, 1997 (1)
<TABLE>
<CAPTION>
0 days 31 days 61 days 91 days 181 days 1 year
through through through through through through Over 5
30 days 60 days 90 days 180 days 1 year 5 years Years Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 41,609 $ 4,062 $ 4,582 $ 10,125 $ 26,361 $ 88,275 $ 30,945 $205,959
Securities (2) 2,773 - 45 355 2,489 13,686 90,524 109,872
Interest-bearing deposits
& Federal Funds sold 1,887 - - - - - - 1,887
Total $ 46,269 $ 4,062 $ 4,627 $ 10,480 $ 28,850 $101,961 $121,469 $317,718
Interest-bearing liabilities:
Interest-bearing
deposits (3) $ 75,090 $ 8,295 $ 5,797 $ 24,273 $ 13,374 $ 67,426 $ 66,970 $261,225
Borrowed funds 4,095 - - 2,000 - 2,000 10,000 18,095
Non-interest bearing deposits 5,254 - - - - - 25,901 31,155
Total $ 84,439 $ 8,295 $ 5,797 $ 26,273 $ 13,374 $ 69,426 $102,871 $310,475
Interest-rate sensitivity gap:
Interval $(38,170) $ (4,233) $ (1,170) $(15,793) $ 15,476 $ 32,535 $ 18,598 $ 7,243
======== ======== ======== ======== ======== ======== ======== ========
Cumulative $(38,170) $(42,403) $(43,573) $(59,366) $(43,890) $(11,355) $ 7,243 $ 7,243
======== ======== ======== ======== ======== ======== ======== ========
Ratio of cumulative gap to
total rate-sensitive assets (12.01%) (13.35%) (13.71%) (18.69%) (13.81%) (3.57%) 2.28% 2.28%
===== ===== ===== ===== ===== ==== ==== ====
___________________
</TABLE>
(1) Calculated on a beta-adjusted basis.
(2) Maturity of securities is based on maturity date; excludes
unrealized depreciation on available for sale securities.
(3) All deposits other than time deposits are included in "One
year or less" category.
Shortcomings are inherent in a simplified and static GAP
analysis that may result in an institution with a negative GAP
having interest rate behavior associated with an asset-sensitive
balance sheet. For example, although certain assets and
liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest
rates. Furthermore, repricing characteristics of certain assets
and liabilities may vary substantially within a given time
period. In the event of a change in interest rates, prepayment
and early withdrawal levels could also deviate significantly from
those assumed in calculating GAP in the manner presented in the
table.
The traditional static GAP analysis implicitly assumes that
the interest rates on all assets and liabilities that reprice
within a given repricing period change by the same amount as the
change in the market interest rate of the same duration. For
example, if the Federal funds rate increased by 100 basis points,
a static GAP model assumes that the prime rate and the rate paid
on money-market deposits will each change by 100 basis points.
However, experience suggests that such an analysis is not
accurate. For example, if the Federal funds rate changes by
100 basis points, the prime rate may only change by 90 basis
points and the rate paid on money-market accounts may only change
by 40 basis points. More sophisticated asset/liability
management models attempt to adjust for this defect in the static
GAP model. Accordingly, the Bank measures its interest-rate risk
by conducting various analyses in addition to the traditional
static GAP report, including repricing matrices, beta-adjusted
GAP reports, simulation modeling and duration analyses.
Beta is the measure of the relative sensitivity of the
amount of change in the interest rate on a given asset or
liability with the amount of change in another independent
financial instrument. For example, an asset or liability with a
beta of .75 means that a 100 basis point change in the
independent variable (e.g. Federal funds) will result in a
75 basis point change in the rate of the asset or liability. A
beta is assigned to each key rate for each asset and liability
account; and, the volume of assets and liabilities that reprice
within a repricing period are adjusted by this beta factor. The
result is a beta-adjusted GAP position. This data is also
organized into a repricing matrix to give a graphical
presentation of the GAP position. Results of these analyses as
of March 31, 1997 indicate that despite the negative GAP balance
shown in the table, the Bank does not have material interest-rate
risk in the event that interest rates rise or fall as much as
200 basis points over the next twelve months. This is
principally because the Bank's $96.9 million in money market
savings deposits were assigned a beta assuming that these
deposits carry a market interest rate. In fact, these deposits
carry a rate approximately 200 basis points above the market rate
and therefore are far less susceptible to repricing in a rising
rate environment.
Capital
The Company's Tier 1 capital to risk-weighted assets ratio
at March 31, 1997 was 9.61% compared to 10.39% at December 31,
1996. These ratios exceeded the Tier 1 regulatory capital
requirement of 4.00%. The Company's total capital to risk-
weighted assets ratio at March 31, 1997 was 10.63% compared to
11.44% at December 31, 1996. These ratios exceeded the total
risk-based capital regulatory requirement of 8.00%. At March 31,
1997, the Company's leverage ratio was 6.22% compared to 6.82% at
December 31, 1996 and 9.30% at December 31, 1995. The decline in
the Company's leverage ratio is due to the rapid growth of the
Bank in the last two years. The Company remains categorized as
"well capitalized" under applicable Federal regulations. The
Bank is subject to similar capital requirements adopted by the
Federal Reserve Board. At March 31, 1997, the Bank's capital
exceeded all capital requirements and the Bank remains
categorized as "well capitalized" under applicable federal
regulations.
Liquidity
Financial institutions must maintain liquidity to meet day-
to-day requirements of depositors and borrowers, take advantage
of market opportunities, and provide a cushion against unforeseen
needs. Liquidity needs can be met by either reducing assets or
increasing liabilities. Sources of asset liquidity are provided
by short-term investment securities, cash and amounts due from
banks, interest-bearing deposits with banks, and Federal funds
sold.
These liquid assets totaled $18.3 million at March 31, 1997
compared to $35.0 million at December 31, 1996. Maturing and
repaying loans are another source of asset liquidity. At
March 31, 1997, the Bank estimated that an additional
$23.1 million of loans will mature or repay in the next six-month
period ended September 30, 1997.
Liability liquidity can be met by attracting deposits with
competitive rates, buying Federal funds or utilizing the
facilities of the Federal Reserve System or the Federal Home Loan
Bank System. The Bank utilizes a variety of these methods of
liability liquidity. At March 31,1997, the Bank had
approximately $98.8 million in unused lines of credit available
to it under informal arrangements with correspondent banks
compared to $98.5 million at December 31, 1996. These lines of
credit enable the Bank to purchase funds for short-term needs at
current market rates.
Liquidity can be further analyzed by reference to the
Unaudited Consolidated Statements of Cash Flows. Net cash
provided by (used in) operating activities during the first
quarters ended March 31, 1997 and 1996 was ($1.6) million and
$2.0 million, respectively. The decrease from first quarter of
1996 to first quarter of 1997 was due primarily to an increase in
other assets. Other assets increased due to the recording of
$3.9 million in securities traded but not yet delivered at
March 31, 1997. The Company's cash flows from financing
activities decreased from $23.9 million at March 31, 1996 to
$10.3 million at March 31, 1997, due primarily to the repayment
of other borrowed funds and long term debt. Repayment of other
borrowed funds was $7.6 million at March 31, 1997 and principal
payments on long-term debt amounted to $10.0 million. The
Company utilized $5.5 million in cash for investing activities
through March 31, 1997 versus $24.6 million through March 31,
1996. The decrease in cash utilized for investing activities was
primarily due to a decrease in the interest-bearing deposits with
banks in the amount of $20.6 million at March 31, 1997. The
changes in cash flows resulted in a net increase of internally
generated cash of $3.2 million during the quarter ended March 31,
1997 compared to a net increase of $1.3 million for the quarter
ended March 31, 1996.
At March 31, 1997, the Company had outstanding commitments
(including unused lines of credit) to originate mortgage and non-
mortgage loans of $83.4 million. Certificates of deposit which
are scheduled to mature within one year totaled $61.5 million at
March 31, 1997, and borrowings that are scheduled to mature
within the same period amounted to $6.1 million. The Company
anticipates that it will have sufficient funds available to meet
its current commitments.
As of March 31, 1997, capital expenditures that were
anticipated for the remainder of 1997 included approximately
$200,000 expended to complete the site improvement and
construction of a full service branch facility in Shillington,
Pennsylvania, and approximately $1.0 million for site improvement
and construction of a full service facility in the fourth quarter
1997 or the first quarter 1998 at a location to be determined.
These cost estimates also include furniture, fixtures and
equipment costs necessary to operate these offices.
Effects of Inflation
The Bank's asset and liability structure is primarily
monetary in nature. As such, the Bank's assets and liabilities
tend to move in concert with inflation. While changes in
interest rates may have a significant impact on financial
performance, interest rates do not necessarily move in the same
direction or in the same magnitude as prices of other goods and
services and may frequently reflect government policy initiatives
or economic factors not measured by a price index.
New Financial Accounting Standards
Mortgage Servicing Rights
In 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights", which amends Statement No. 65,
"Accounting for Certain Mortgage Banking Activities." The
Statement applies to all mortgage banking activities in which a
mortgage loan is originated or purchased and then sold or
securitized with the right to service the loan retained by the
seller. The total cost of the mortgage loans is allocated
between the mortgage servicing rights and the mortgage loans
based on their relative fair values. The mortgage servicing
rights are capitalized as assets and amortized over the period of
estimated net servicing income. Additionally, they are subject
to an impairment analysis based on their fair value in future
periods. The Statement was effective for transactions in which
mortgage loans are sold or securitized beginning January 1, 1996.
The impact on the Bank's financial position and results of
operations will be dependent upon the future volume of mortgage
loans sold with servicing rights retained. In 1996, the impact
was immaterial.
Stock-Based Compensation
In 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This standard provides the Company,
with a choice of how to account for the issuance of stock options
and other stock grants. The standard encourages companies to
account for stock options at their fair value and recognize the
expense as compensation over the service period, but also permits
companies to follow existing accounting rules under Accounting
Principles Board Opinion No. 25. Companies electing to follow
APB Opinion No. 25 rules will be required to disclose pro forma
net income and earnings per share information as if the new fair
value approach had been adopted. The Company is continuing to
follow existing accounting rules under APB Opinion No. 25 for
options granted, with pro forma disclosure in the footnotes to
the consolidated financial statements.
Earnings Per Share and Capital Structure
In 1997, the FASB issued Statement No. 128, "Earnings Per
Share" and Statement No. 129, "Disclosure of Information about
Capital Structure." Both Statements are effective for periods
ending after December 15, 1997. Statement No. 128 is designed to
simplify the computation of earnings per share and will require
disclosure of "basic earnings per share" and, if applicable,
"diluted earnings per share." Earlier application is not
permitted for Statement No. 128 and it will require restatement
of all prior period earnings per share data when adopted. The
Statement is not expected to materially impact the reported
earnings per share of the Company. The adoption of Statement No.
129 will have no impact on the Company.
<PAGE>
BUSINESS
General
The Company is a Pennsylvania corporation headquartered in
Reading, Pennsylvania and is a registered bank holding company
for the Bank, a Pennsylvania-chartered commercial bank. The Bank
is a member of the Federal Reserve System and the Bank's deposits
are insured by the FDIC to the fullest extent provided by law.
The Bank was founded in 1987 to serve individuals and small-to-
medium sized businesses that management believed were not being
adequately served by the larger competitors in its market area.
The Bank currently maintains six full-service branches in
Reading, Exeter, Wyomissing, Muhlenberg, Shillington and
Pottstown, Pennsylvania, and five loan production offices in
Wyomissing, Pottstown, Schuylkill Haven, Jamison and Exton/West
Chester, Pennsylvania. At March 31, 1997, the Company had total
consolidated assets, deposits, net loans and stockholders equity
of $343.2 million, $292.4 million, $203.9 million and $19.5
million, respectively.
Market Overview
The Bank's primary market area consists of Berks County, the
central western portion of Montgomery County, the southern half
of Schuylkill County, central Bucks County and eastern Chester
County. Berks County, with a population of 350,000, includes the
City of Reading, the county's largest municipality with a
population of 78,000. The central western portion of Montgomery
County includes the Borough of Pottstown and six contiguous
townships, which together have a population of approximately
82,000. The Bank's extended market area consists of the
remainder of the foregoing counties and Lehigh, Lancaster and
Lebanon counties.
As of June 30, 1996, there were 19 different banking
institutions operating approximately 118 branch offices and
having total deposits of approximately $4.6 billion in Berks
County. The six largest of these institutions with respect to
total deposits operated over 70% of the County's branch offices
and had over 78% of the County's deposits. The Bank's three
Berks County branches had approximately 4.0% of the County's
deposits at June 30, 1996, versus 3.3% and 2.6% of the County's
deposits at June 30, 1995 and 1994, respectively, and was the
County's seventh largest banking institution with respect to
total deposits at December 31, 1996.
Operating Strategy
Since December 31, 1994, the Company has grown
substantially. Total assets have grown from $154.7 million at
December 31, 1994 to $343.2 million at March 31, 1997. Total
deposits have grown from $124.3 million at December 31, 1994 to
$292.4 million at March 31, 1997, while net loans have grown from
$125.5 million at December 31, 1994 to $203.9 million at
March 31, 1997. The Company believes its growth has been driven
by the successful execution of its operating strategy, key
elements of which include:
Maintaining a Community Focus. Berks County and the
surrounding counties represent a stable banking market with
a diversified economy. The Bank is the largest community
bank headquartered in Reading and offers individuals and
small to medium-sized businesses a wide array of banking
products, informed and friendly service, extended operating
hours, consistently applied credit policies, and local,
timely decision making. All Bank customers are afforded
direct access to the Bank's President and other executive
officers in attractive and comfortable banking facilities.
Capitalizing on Market Dynamics. Since 1995, banking
offices representing more than 50% of the total deposits in
Berks County have been acquired by large out-of-market
institutions. The ensuing cultural changes in these banking
institutions have resulted in a change in their product
offerings and the degree of personal attention they provide
to their customers. The Company has capitalized on these
dynamics by offering a community banking alternative and
tailoring its product offering to fill voids created as
pricing of products and services are increased or are phased
out by the super-regional competition. As a result, the
Company's growth in its market area has been dramatic. The
Bank's three Berks County branches had approximately 4.0% of
the County's deposits as of June 30, 1996, and there remains
ample opportunity to capture market share.
Building a Sales and Service Culture. The Company instills
a sales and service oriented culture in its personnel in
order to build customer relationships and maximize
cross-selling opportunities. The Company extensively
screens and trains its employees and offers meaningful
sales-based incentives to all its customer contact
employees. As a result, the average new customer of the
Bank has almost three account relationships.
Emphasizing Transaction Account Generation. The Company
seeks to attract transaction accounts that contribute to a
lower overall cost of deposits and increase its ability to
cross-sell additional products and services. The Bank
prices its money market deposit accounts above the average
in the market and offers a truly free checking account. As
a result, the Company is able to attract deposits that are
less expensive than certificates of deposit. At
December 31, 1994, the percentage of the Company's time
deposits to total deposits was 64.8%; by March 31, 1997,
this percentage had declined to 44.7%. Money market savings
accounts grew from 11.6% of deposits to 33.2% of deposits
over this same period.
Attracting Highly Experienced Personnel. The Bank's
executive officers have a combined 122 years of banking
experience in the market. The Bank's commercial lenders
have a combined 215 years of experience in providing
high-quality service to small and middle-market businesses
in the region. In addition, many of the Bank's executive
officers and other personnel have substantial employment
experience with larger banks in the region.
Products and Services
The Bank offers a range of commercial and retail banking
services to its customers, including personal and business
checking and savings accounts, certificates of deposit,
residential mortgage, consumer and commercial loans, and trust
and private banking services. While the Bank's customers
typically borrow between $25,000 and $1.5 million, should a
customer's loan request exceed the Bank's $3.1 million legal
lending limit, the Bank seeks to arrange such loans on a
participation basis with other financial institutions. In
addition, the Bank provides safe deposit boxes, traveler's
checks, wire transfer of funds, ACH (Automated Clearing House)
Origination and other typical banking services. The Bank is a
member of the MAC/Plus network, provides clients with access to
automated teller machines worldwide, and makes credit cards
available to its customers through correspondent banking
institutions.
The Company continues to update its product offering in
order to remain competitive. In the past twelve months, the
Company has introduced a number of new products and services such
as a VISA CheckCard for point-of-sale purchases, trust services,
a private banking group to service high net worth individuals,
Home Equity Conversion Mortgages (HECM) to aide homeowners age 62
and older, and leasing services through an affiliation with
Business Lease Consultants.
Branch Expansion Plans and Growth Strategy
The Company has achieved its expansion and market
penetration by expanding its branch presence into those markets
in which it has identified growth opportunities. Management's
goal when establishing a new branch is to achieve deposits of at
least $50 million in three years or less. The Bank opened its
Pottstown and Wyomissing offices during the first and second
quarters of 1995, respectively. As of May 31, 1997, these
branches had $______ million and $______ million in deposits,
respectively. Similarly, the Bank opened its Muhlenberg office
on March 29, 1997 and its Shillington office on May 3, 1997. As
of May 31, 1997, these two new branches had deposits of
$_______ million and $____________ million, respectively.
Management expects to continue to open two branches per year for
the next several years and is currently considering several
sites.
The Company currently is opening approximately 200 new
accounts per day and seeks to acquire new customers by actively
marketing its attractive product offering and personalized
approach to community banking. However, no assurance can be
given that the Company will continue to open as many as 200 new
accounts per day. The Company believes that its product
offering, which features competitive interest rates on selected
products, low minimum balance requirements and free checking,
coupled with its continued introduction of new products, such as
its VISA CheckCard, will continue to contribute to account and
deposit growth. The Bank aggressively seeks to leverage deposit
inflows into new loan originations and since 1995 has opened loan
production offices in Wyomissing, Pottstown, Schuylkill Haven,
Jamison and Exton/West Chester. In addition, the Company expects
to open additional loan production offices in those areas where
the Company perceives market opportunities and which may be
suitable for future branch sites.
Loan Portfolio
The Company's loan portfolio consists of commercial loans,
residential one-to-four-family mortgage loans and consumer loans.
Commercial loans are primarily made to small businesses and
professionals in the form of term loans and for working capital
purposes with maturities generally between one and five years.
The majority of these commercial loans are collateralized by real
estate and further secured by personal guarantees. In 1996, the
Company originated $56.1 million in commercial loans.
The Company is the largest originator of residential
mortgage loans in Berks County. In 1996, the Company originated
$83.1 million in residential mortgage loans. Substantially all
thirty year fixed rate mortgages are resold in the secondary
market. The Company does not retain servicing rights on those
loans sold in the secondary market. The Company's consumer loans
consist principally of home equity lines of credit.
The Company's net loans at March 31, 1997 totaled $203.9
million, an increase of $11.8 million, or 6.1%, compared to net
loans at December 31, 1996 of $192.1 million. This follows an
increase of $45.8 million, or 31.3% from the $146.3 million
amount of net loans at December 31, 1995. This increase reflects
continued loan demand from the Company's target customers.
The following tables set forth (i) the Company's loans by
major categories as of the dates indicated and (ii) the Company's
loan origination activity by major categories for the periods
indicated:
Loan Portfolio Composition
<TABLE>
<CAPTION>
At March 31, At December 31,
1997 1996 1996 1995 1994 1993 1992
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Real estate secured $59,663 $44,578 $ 55,732 $ 43,057 $ 38,003 $ 33,066 $ 30,935
Non-real estate secured\
unsecured 31,013 19,939 27,154 18,159 14,826 13,635 14,131
Construction 4,450 3,251 5,006 3,004 2,577 1,294 2,725
95,126 67,768 87,892 64,220 55,406 47,995 47,791
Less deferred loan fees
(costs) (512) (250) (431) (207) (166) (94) (105)
Total Commercial $95,638 $68,018 $ 88,323 $ 64,427 $ 55,572 $ 48,089 $ 47,896
Residential:
Mortgages $88,654 $66,142 $ 85,027 $ 63,538 $ 58,497 $ 50,155 $ 33,321
Construction 4,719 5,788 4,666 5,502 5,690 5,556 4,926
93,373 71,930 89,693 69,040 64,187 55,711 38,247
Less deferred loan fees
(costs) 180 166 184 185 105 43 146
Total Residential $93,193 $71,764 $ 89,509 $ 68,855 $ 64,082 $ 55,668 $ 38,101
Consumer:
Installment $ 3,781 $ 2,584 $ 3,590 $ 2,468 $ 1,732 $ 1,535 $ 1,317
Home equity lines-secured 12,230 11,578 11,832 11,512 5,030 4,627 4,716
Lines of credit-unsecured 1,062 677 840 666 529 559 475
17,073 14,839 16,262 14,646 7,291 6,721 6,508
Less deferred loan fees (55) (39) (54) (37) (26) (22) (21)
Total Consumer $17,128 $14,878 $ 16,316 $ 14,683 $ 7,317 $ 6,743 $ 6,529
Loans, net of deferred
loan fees $205,959 $154,660 $194,148 $147,965 $126,971 $110,500 $ 92,526
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Loan Originations
Three Months Ended Years Ended
March 31, At December 31,
1997 1996 1996 1995 1994
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial:
Real estate secured $11,101 $ 6,895 $34,883 $20,390 $17,343
Non-real estate secured/
unsecured 4,024 2,519 13,738 9,976 8,958
Construction 4,213 2,879 7,514 3,742 3,772
Total commercial $19,338 $12,293 $56,135 $34,108 $30,073
Residential:
Mortgages $13,500 $13,200 $69,100 $47,700 $44,400
Construction 2,428 1,949 13,970 14,020 17,251
Total residential $15,928 $15,149 $83,070 $61,720 $61,651
Consumer:
Installment $ 777 $ 522 $ 2,922 $ 2,009 $ 1,200
Home equity lines-
secured 2,123 801 6,331 14,193 2,709
Lines of credit-
unsecured 130 51 536 772 149
Total consumer $ 3,030 $ 1,374 $ 9,789 $16,974 $ 4,058
</TABLE>
Loan Maturity and Interest Rate Sensitivity
The amount of loans outstanding by category as of the dates
indicated, which are due in (i) one year or less, (ii) more than
one year through five years and (iii) over five years, is shown
in the following table. Loan balances are also categorized
according to their sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
At March 31, 1997 At December 31, 1996
More Than More Than
One Year One Year
Through Over Through Over
One Year Five Five Total One Year Five Five Total
or Less Years Years Loans or Less Years Years Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Construction,
other $48,298 $37,462 $ 9,878 $ 95,638 $46,140 $34,631 $ 7,592 $ 88,363
Mortgage 24,990 47,211 20,992 93,193 22,969 45,813 20,729 89,511
Consumer 13,451 3,602 75 17,128 12,761 3,394 119 16,274
Total(1) $86,739 $88,275 $30,945 $205,959 $81,870 $83,838 $28,440 $194,148
======= ======= ======= ======== ======= ======= ======= ========
Loans with Fixed Rate $37,790 $68,627 $29,169 $135,586 $36,131 $67,502 $26,499 $130,132
Loans with Floating Rate 48,949 19,648 1,776 70,373 45,739 16,336 1,941 64,016
Total $86,739 $88,275 $30,945 $205,959 $81,870 $83,838 $28,440 $194,148
======= ======= ======= ======== ======= ======= ======= ========
Percent Composition by
maturity 42.11% 42.86% 15.03% 100.00% 42.17% 43.18% 14.65% 100.00%
======= ======= ======= ======= ======= ======= ====== =======
Fixed rate loans as a
percentage of total
loans maturing 18.35% 33.32% 14.16% 65.83% 18.61% 34.77% 13.65% 67.03%
======= ====== ====== ====== ======= ======= ====== =======
Floating rate loans as a
percentage of total loans
maturing 23.77% 9.54% 0.86% 34.17% 23.56% 8.41% 1.00% 32.97%
======= ====== ======= ====== ======= ======= ====== =======
</TABLE>
(1) Includes deferred loan fees
In the ordinary course of business, loans maturing within
one year may be renewed, in whole or in part, as to principal
amount, at interest rates prevailing at the date of renewal.
At March 31, 1997, 65.8% of total loans were fixed rate
compared to 67.0% at December 31, 1996. For additional
information regarding interest rate sensitivity, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Interest-Rate Risk Management."
Credit Quality
The Company's written lending policies require underwriting,
loan documentation and credit analysis standards to be met prior
to funding any loan. After the loan has been approved and
funded, continued periodic review is required. In addition, due
to the secured nature of residential mortgages and the smaller
balances of individual installment loans, sampling techniques are
used on a continuing basis for credit reviews in these loan
areas. The Bank has a policy to discontinue accrual of interest
income within ten days following the month end in which a loan
becomes 90 days past due in either principal or interest, except
for those insured for credit loss. In addition, if circumstances
warrant, accrual of interest may be discontinued prior to 90
days. In all cases, any payments received on non-accrual loans
are credited to principal until full recovery of past due
payments has been recognized, and the loan is not restored to
accrual status until the customer becomes and remains current for
six consecutive payments. Loans are charged off, in whole or in
part, upon determination that a loss is anticipated. Non-accrual
and large delinquent loans are reviewed monthly to determine
potential losses.
The following summary shows information concerning loan
delinquency and other non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1996 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans accruing, but past due 90 days
or more $ 421 $ 449 $ 187 $ 231 $ 41 $ 39 $ 182
Total non-accrual loans 2,567 1,849 2,603 1,463 2,893 1,893 1,808
Restructured loans 78 84 79 85 91 --- ---
Total non-performing loans 3,066 2,382 2,869 1,779 3,025 1,932 1,990
Foreclosed real estate (1) 460 1,334 762 1,316 --- 754 1,418
Total non-performing assets (2) $3,526 $3,716 $3,631 $3,095 $3,025 $2,686 $3,408
====== ====== ====== ====== ====== ====== ======
Non-performing loans as a percentage
of total loans, net of unearned
income 1.49% 1.54% 1.48% 1.20% 2.38% 1.75% 2.15%
Non-performing assets as a percentage
of total assets 1.03% 1.57% 1.12% 1.50% 1.96% 1.85% 2.61%
________________
</TABLE>
(1) Foreclosed real estate having a carrying value of $446,000
was sold on April 7, 1997 for a gain of $57,000.
(2) Non-performing loans are comprised of (i) loans that are on
a non-accrual basis, (ii) accruing loans that are 90 days or
more past due which are insured for credit loss, and
(iii) restructured loans. All loans, except for loans that
are insured for credit loss, are placed on non-accrual
status upon becoming 90 days past due in either principal or
interest. Non-performing assets are composed of non-
performing loans and foreclosed real estate (assets acquired
in foreclosure).
Restructured loans are loans whose terms have been modified,
because of a deterioration in the financial position of the
borrower, to provide for a reduction of either interest or
principal. At March 31, 1997, there was one restructured loan in
the amount of $78,000.
At March 31, 1997, the Company had no foreign loans and no
loan concentrations exceeding 10% of total loans not disclosed in
the table "Loan Portfolio Composition." "Loan concentrations"
are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that
would cause them to be similarly impacted by economic or other
conditions.
Foreclosed real estate is initially recorded at fair value,
net of estimated selling costs at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the assets are carried
at the lower of cost or fair value, less estimated costs to sell.
Revenues and expenses from operations and changes in the
valuation allowance are included in other expenses.
Potential problem loans consist of loans which are included
in performing loans, but for which potential credit problems of
the borrowers have caused management to have serious doubts as to
the ability of such borrowers to continue to comply with present
repayment terms. At March 31, 1997, all identified potential
problem loans were included in the preceding table except for
$1.7 million of loans included on the Bank's internal watch list.
The bank had no credit exposure to "highly leveraged
transactions" at March 31, 1997, as defined by the Federal
Reserve Board.
Allowance for Loan Losses
A detailed analysis of the Company's allowance for loan
losses for the three month periods ended March 31, 1997 and 1996
and for the years ended December 31, 1996, 1995, 1994, 1993 and
1992 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,001 $ 1,674 $ 1,674 $ 1,437 $ 1,447 $ 1,932 $ 1,414
Charge-offs:
Commercial 13 3 90 222 56 579 784
Real estate-mortgage 104 35 329 173 49 267 348
Consumer 35 15 29 10 3 24 16
Total charge-offs $ 152 $ 53 $ 448 $ 405 $ 108 $ 870 $ 1,148
Recoveries:
Commercial 6 56 62 102 39 65 33
Real estate - mortgage 11 18 24 20 32 107 11
Consumer -- 2 2 2 5 3 3
Total recoveries $ 17 $ 76 $ 88 $ 124 $ 76 $ 175 $ 47
Net charge-offs (recoveries) 135 (23) 360 281 32 695 1,101
Provision for loan losses 241 80 687 518 22 210 1,619
Balance at end of period $ 2,107 $ 1,777 $ 2,001 $ 1,674 $ 1,437 $ 1,447 $ 1,932
======== ======== ======== ======== ======== ======== =======
Average loans outstanding(1) $199,557 $152,040 $170,135 $133,860 $118,435 $100,235 $99,273
======== ======== ======== ======== ======== ======== =======
As a percent of average loans(1):
Net charge-offs 0.07% (0.02)% 0.21% 0.21% 0.03% 0.69% 1.11%
Provision for loan losses 0.12% 0.05% 0.40% 0.39% 0.02% 0.21% 1.63%
Allowance for loan losses 1.06% 1.17% 1.18% 1.25% 1.21% 1.44% 1.95%
Allowance as a percent of each
of the following:
Total loans, net of
unearned income 1.02% 1.15% 1.03% 1.13% 1.13% 1.31% 2.09%
Total delinquent loans
(past due 30 to 89 days) 58.30% 48.43% 68.69% 52.08% 244.80% 215.33% 167.71%
Total non-performing loans 68.72% 74.60% 69.75% 94.10% 47.50% 74.90% 97.09%
_____________________
</TABLE>
(1) Includes non-accruing loans.
Management makes a monthly determination as to an
appropriate provision from earnings necessary to maintain an
allowance for loan losses that is adequate for potential yet
undetermined losses. This determination necessarily includes a
review of loans that are current, but for which management has
determined for a variety of reasons require more careful
monitoring going forward. The dollar amount charged to earnings
is determined based upon several factors including: a continuing
review of delinquent, classified and non-accrual loans, large
loans, and overall portfolio quality; regular examination and
review of the loan portfolio by regulatory authorities;
analytical review of loan charge-off experience, delinquency
rates, other relevant historical and peer statistical ratios; and
management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
Determining the appropriate level of the allowance for loan
losses at any given date is difficult, particularly in a
continually changing economy. In management's opinion, the
allowance for loan losses was adequate at March 31, 1997.
However, there can be no assurance that, if asset quality
deteriorates in future periods, additions to the allowance for
loan losses will not be required.
The Bank's management is unable to determine in what loan
category future charge-offs and recoveries may occur. The
following schedule sets forth the allocation of the allowance for
loan losses among various categories. At March 31, 1997,
approximately 38.3% of the allowance for loan losses is allocated
to general risk to protect the Bank against potential yet
undetermined losses. The allocation is based upon historical
experience. The entire allowance for loan losses is available to
absorb future loan losses in any loan category.
<TABLE>
<CAPTION>
At March 31,
1997 1996
Percent Percent
of Loans of Loans
in Each in Each
Category Category
Amount to Loans(1) Amount to Loans(1)
<S> <C> <C> <C> <C>
Allocation of
allowance
for loan losses:
Commercial $ 658 44.27% $ 449 41.88%
Mortgage 446 42.96% 343 42.66%
Consumer 128 8.32% 111 9.62%
Construction 68 4.45% 68 5.84%
General Allowance 807 806
Total $2,107 $1,777
====== ======
<CAPTION>
AT December 31,
1996 1995 1994 1993 1992
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of
allowance for Loan
losses:
Commercial $ 652 42.91% $ 420 41.51% $ 692 41.59% $ 806 42.35% $1,009 48.82%
Mortgage 434 43.70% 336 42.82% 298 46.11% 265 45.35% 172 35.85%
Consumer 122 8.40% 110 9.92% 55 5.78% 50 6.10% 49 7.06%
Construction 73 4.99% 64 5.75% 62 6.52% 57 6.20% 57 8.27%
General allowance 720 744 330 269 645
Total $2,001 $1,674 $1,437 $1,447 $1,932
====== ====== ====== ====== ======
</TABLE>
(1) Loans, net of unearned income.
Securities Portfolio
The Company's securities portfolio is intended to provide
liquidity, reduce interest rate risk and contribute to earnings
while exposing the Company to reduced credit risk. As a result
of the Company's recent growth, the securities portfolio has also
grown significantly from $29.6 million at December 31, 1995 to
$88.6 million at December 31, 1996, and $108.9 million at
March 31, 1997. This significant increase is due in large part
to matched funding programs employed by the Company that use FHLB
advances and the significant deposit inflows at existing and new
branches to fund both loan originations and securities purchases.
The purpose of these matched funding programs is to target
earnings growth and net interest margin increases while managing
liquidity, credit, market and interest rate risk. From time to
time a specific matched funding program may attempt to achieve
current earnings benefits from future growth in deposits that
management is reasonably confident will occur. See "RISK FACTORS
- -- Rapid Growth."
A summary of securities available for sale and securities
held to maturity at March 31, 1997 and 1996 and at December 31,
1996, 1995, and, 1994 follows.
<TABLE>
<CAPTION>
Securities Securities
Available for Sale Held To Maturity
at March 31, at March 31,
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,221 $ 4,446 $ --- $ ---
U.S. Government
Agencies 30,741 2,500 28,748 9,771
State and Municipal 21,435 16,382 10,544 6,250
Mortgage-backed and
asset-backed
securities (1) 12,436 2,623 --- ---
Other Securities (2) 2,723 1,321 25 ---
Total Amortized Cost of
Securities $70,556 $27,272 $39,317 $16,021
======= ======= ======= =======
Total Fair Value of
Securities $69,590 $26,892 $38,904 $15,968
======= ======= ======= =======
<CAPTION>
Securities Securities
Available for Sale Held To Maturity
at December 31, at December 31,
1996 1995 1994 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 3,465 $ 5,450 $ 6,468 $ - $ - $ -
U.S. Government Agencies 18,000 3,757 3,856 24,253 3,002 -
State and Municipal 23,275 6,978 - 10,787 6,205 4,070
Mortgage-backed and asset
backed securities(1) 4,357 2,807 635 - - -
Other Securities(2) 4,467 1,134 1,205 25 - -
Total Amortized Cost of
Securities $53,564 $20,126 $12,164 $35,065 $ 9,207 $ 4,070
======= ======= ======= ======= ======= =======
Total Fair Value of
Securities $53,489 $20,359 $11,695 $35,147 $ 9,367 $ 3,979
======= ======= ======= ======= ======= =======
</TABLE>
(1) All of these obligations consist of U.S. Government Agency
issued securities.
(2) Comprised mostly of FHLB, Federal Reserve Bank stock and a
Pennsylvania community bank stock.
The following table presents the maturity distribution and
weighted average yield of the securities portfolio of the Company
at March 31, 1997 and December 31, 1996. Weighted average yields
on tax-exempt obligations have been computed on a fully taxable
equivalent basis.
<TABLE>
<CAPTION> Available for Sale
March 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years After 10 Years
But But or no
Within 1 Year Within 5 Years Within 10 Years maturity(1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <S> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury
Securities $2,489 6.631% $ 732 7.682% $ --- ---% $ --- ---% $ 3,221 6.870%
U.S. Government
Agencies 750 6.856 11,000 6.802 13,991 7.405 5,000 7.577 30,741 7.204
State and Municipal --- --- --- --- --- --- 21,435 7.840 21,435 7.840
Mortgage-Backed and
asset-backed
securities --- --- --- --- --- --- 12,436 5.798 12,436 5.798
Other Securities 2,273 6.380 --- --- --- --- 450 3.955 2,723 5.979
Total Securities
Available for Sale $5,512 6.558% $11,732 6.857% $13,991 7.405% $39,321 7.116% $70,556 7.087%
<CAPTION>
Available for Sale
December 31, 1996
(Dollars In Thousands)
After 1 Year After 5 Years After 10 Years
But But or no
Within 1 Year Within 5 Years Within 10 Years maturity(1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury
Securities $1,992 6.647% $ 1,473 7.083% $ - -% $ - -% $ 3,465 6.833%
U.S. Government
Agencies 1,000 6.840 11,000 6.809 5,500 7.464 500 7.070 18,000 7.018
State and Municipal - - - - - - 23,275 7.825 23,275 7.825
Mortgage-Backed and
asset-backed
securities - - - - - - 4,357 5.873 4,357 5.873
Other Securities 3,804 6.250 - - - - 663 3.938 4,467 5.907
Total Securities
Available for Sale $6,796 6.453% $12,473 6.841% $5,500 7.464% $28,795 7.427% $53,564 7.171%
====== ===== ======= ===== ====== ===== ======= ===== ======= =====
<CAPTION> Held to Maturity
March 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years After 10 Years
But But or no
Within 1 Year Within 5 Years Within 10 Years maturity(1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury
Securities $ --- ---% $ --- ---% $ --- ---% $ --- ---% $ --- ---%
U.S. Government
Agencies --- --- --- --- 16,481 7.475 12,267 7.603 28,748 7.530
State and Municipal 150 8.487 1,954 7.003 746 8.099 7,694 8.085 10,544 7.891
Mortgage-Backed and
asset-backed
securities --- --- --- --- --- --- --- --- --- ---
Other Securities --- --- --- --- 25 7.500 --- --- 25 7.500
Total Securities
Held to Maturity $ 150 8.487% $ 1,954 7.003% $17,252 7.502% $19,961 7.789% $39,317 7.627
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
Held to Maturity
December 31, 1996
(Dollars In Thousands)
After 1 Year After 5 Years After 10 Years
But But or no
Within 1 Year Within 5 Years Within 10 Years maturity(1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury
Securities $ - -% $ - -% $ - -% $ - -% $ - -%
U.S. Government
Agencies - - - - 14,981 7.488 9,272 7.576 24,253 7.522
State & Municipal 299 8.488 1,959 7.103 736 7.793 7,793 8.092 10,787 7.903
Mortgage-backed and
asset backed
securities
Other Securities - - - - 25 7.500 - - 25 7.500
Total Securities Held
to Maturity $ 299 8.488% $ 1,959 7.103% $15,742 7.502% $17,065 7.812% $35,065 7.639%
</TABLE>
(1) The majority of the securities listed in this category
are callable or likely to repay within five years.
The Bank maintains a securities portfolio for the secondary
application of funds as well as a secondary source of liquidity.
At March 31, 1997, securities having an amortized cost of
$13.0 million were pledged as collateral for public funds and
other purposes as required or permitted by law.
Neither the Company nor the Bank hold securities of any one
issuer, excluding U.S. treasury and U.S. agencies, that exceeded
10% of stockholders' equity at March 31, 1997 or any prior period
end.
Deposit Structure
The following is a distribution of the average balances of
the Bank's deposits and the average rates paid thereon for the
three months ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
1997 1996 1996 1995 1994
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand--non-interest
bearing $ 26,168 ---% $ 16,962 ---% $ 21,127 ---% $ 12,960 ---% $ 9,735 ---%
Demand--interest-
bearing 96,605 3.83% 50,201 3.73% 68,642 3.76% 28,455 3.29% 25,546 2.35%
Savings 18,930 3.96% 9,796 2.92% 11,010 3.12% 10,162 2.68% 12,572 2.43%
Time, $100,000 and
over 12,780 5.84% 9,023 5.57% 9,965 5.52% 9,221 5.77% 6,428 4.82%
Time, other 113,667 5.69% 101,767 5.53% 102,533 5.52% 86,908 5.59% 60,682 5.16%
Total deposits $268,150 4.35% $187,749 4.41% $213,277 4.28% $147,706 4.47% $114,963 3.78%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
The following is a breakdown, by maturities, of the
Company's time certificates of deposit issued in denominations of
$100,000 or more as of March 31, 1997 and 1996 and December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
Certificate of $100,000 or more
at March 31, at December 31,
1997 1996 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C>
Maturing in:
Three months or less $ 3,509 $ 2,655 $ 2,866 $3,915 $ 812
Over three through six months 3,243 2,046 2,416 1,120 1,301
Over six through twelve months 1,218 1,749 2,539 976 1,865
Over twelve months 5,764 4,180 4,550 2,367 2,632
Total $13,734 $10,630 $12,371 $8,378 $6,610
======= ======= ======= ====== ======
</TABLE>
Long-Term Debt and Other Borrowings
The Bank maintains a U.S. Treasury tax and loan note option
account for the deposit of withholding taxes, corporate income
taxes and certain other payments to the federal government.
Deposits are subject to withdrawal and are evidenced by an open-
ended interest-bearing note. Borrowings under this note option
account were approximately $1.1 million at March 31, 1997 and
1996, respectively.
The Bank has a flexible line of credit commitment available
from the FHLB for borrowings of up to approximately $9.8 million,
expiring September 11, 1997. There were no borrowings under this
line of credit at March 31, 1997 and 1996. The line of credit
interest rate at March 31, 1997 was 7.1%.
The Bank has other short-term borrowings from the FHLB at
March 31, 1997 and 1996 in the amount of $5.0 million and
$2.0 million, respectively. The March 31, 1997 balance
outstanding is due in April and August 1997, at an average
interest rate of 6.1%.
Long-term debt consisted of the following at March 31, 1997
and 1996:
1997 1996
Advances from the FHLB bearing
interest at a weighted average
rate of 5.81% and 4.89% as of
March 31, 1997 and 1996,
respectively $12,000,000 $ 4,000,000
=========== ===========
Maturities of long-term debt at March 31, 1997 are as
follows:
1997 $ -
1998 2,000,000
1999 5,000,000
2000 -
2001 5,000,000
$12,000,000
===========
The Bank has maximum borrowing capacity with the FHLB of
approximately $130.8 million. Advances from the FHLB are secured
by qualifying assets of the Bank.
Berks Mortgage Company
The Bank owns a 70% interest in Berks Mortgage Company, a
Pennsylvania business trust. The remaining 30% is owned by a
mortgage banking affiliate of the local Coldwell Banker real
estate franchise. As a majority-owned subsidiary of the Bank,
Berks Mortgage Company is authorized to engage in full service
mortgage banking in Pennsylvania. At the present time, Berks
Mortgage Company originates loans that are separately
underwritten and funded by the Bank. Berks Mortgage Company
commenced operations in 1995. The overall activity of Berks
Mortgage Company in 1995, 1996 and the first quarter of 1997 was
immaterial in relation to the Company taken as a whole.
Competition
The Bank faces significant competition from other commercial
banks, savings banks, savings and loan associations and several
other financial or investment service institutions in the
communities it serves. Several of these institutions are
affiliated with major banking and financial institutions which
are substantially larger and have greater financial resources
than the Company and the Bank. As the financial services
industry continues to consolidate, competition affecting the Bank
may increase. For most of the services that the Bank performs,
there is also competition from credit unions and issuers of
commercial paper and money market funds. Such institutions, as
well as brokerage firms, consumer finance companies, factors,
insurance companies and pension trusts, are important competitors
for various types of financial services.
Property
All property is owned or leased by the Bank. The Company
does not own or lease any property. As of March 31, 1997, the
Bank owned one property, the land and building at the site of its
branch location at High and Wilson Streets, Pottstown, Montgomery
County, Pennsylvania.
The Bank leases the land upon which it constructed the
branch office it owns in Exeter Township, Berks County,
Pennsylvania. This lease expires in June 1999 and has renewal
options for twenty years thereafter. The lease expense for this
land was $43,000 and $44,000 in 1995 and 1996, respectively. The
lease expense for 1997 will be $45,000. The Bank also leases
land located in Wyomissing Hills, Berks County, Pennsylvania,
upon which it constructed its Wyomissing branch. The total term
of the lease of the land upon which it constructed the Wyomissing
facility is twenty-nine years, eleven months, expiring November
2024. The lease expense for 1995 and 1996 was $37,000 and
$41,000, respectively. The lease expense for 1997 will be
$42,000.
The Bank also leases the land upon which it constructed its
Muhlenberg Township branch. The branch opened on March 29, 1997.
The total term of the lease is three years, expiring November
1999. At the conclusion of the lease, the Bank will purchase the
land for $375,000. The monthly lease payments are fixed at
$4,000 per month until the end of the lease. The Bank also
leases the land upon which it constructed its Shillington (Cumru
Township) branch. The branch opened May 3, 1997. The total term
of the lease is ten years, expiring in January 2007. At the
conclusion of the lease, the Bank will purchase the land for
$400,000. The monthly lease payments are fixed at $4,000 until
the end of the lease.
The Bank also leases space for its main branch and
executive/administrative offices at 400 Washington Street,
Reading, Pennsylvania. The space consists of a first floor
location for the Bank branch and office space on the second,
eighth, ninth and twelfth floors for lending and operations
staff. The space is leased under separate leases that, in the
aggregate, required annual lease payments of $159,000 and
$164,000 in 1995 and 1996, respectively, and will require lease
payments of $145,000 in 1997. The leases expire at various dates
through 1998. The Bank has options to renew the terms of the
leases for additional periods.
The Bank leases space for its mortgage center and loan
office at Two Woodland Road in Wyomissing, Pennsylvania. The
lease expires in February 1998 and has three renewal options of
one year each. The annual lease expense in 1995 and 1996 was
$33,000 and $39,000, respectively. The lease expense for 1997
will be $40,000.
The Bank also leases space for a mortgage center and loan
office at 108 East Main Street, Schuylkill Haven, Schuylkill
County, Pennsylvania. The lease expires in November 1997 and has
four additional extensions of six months each. The lease expense
in 1996 was $450. The lease expense for 1997 will be $5,000.
The Bank leases space for a mortgage center and loan office
in Jamison, Bucks County, Pennsylvania. The lease expires March
1998. The annual lease expense for 1997 will be $6,000. The
Bank expects to lease space for its new Exton/West Chester loan
production office.
In addition to its branches and offices, the Bank operates
an automated teller machine at a location owned by St. Joseph's
Hospital, Reading, Pennsylvania.
Legal Proceedings
The Company and the Bank are from time to time a party
(plaintiff or defendant) to lawsuits which are in the normal
course of the Company's and the Bank's business. While any
litigation involves an element of uncertainty, management, after
reviewing pending legal actions with its legal counsel, is of the
opinion that the liability of the Company and the Bank, if any,
resulting from such actions will not have a material effect on
the financial condition or results of operations of the Company
and the Bank.
Supervision and Regulation
Various requirements and restrictions under the laws of the
United States and the Commonwealth of Pennsylvania affect the
Company and the Bank.
General
The Company is a bank holding company subject to supervision
and regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended. As a bank holding
company, the Company's activities and those of its subsidiary are
limited to the business of banking and activities closely related
or incidental to banking, and the Company may not directly or
indirectly acquire the ownership or control of more than 5% of
any class of voting shares or substantially all of the assets of
any company, including a bank, without the prior approval of the
Federal Reserve Board.
The Bank is subject to supervision and examination by
applicable federal and state banking agencies. The Bank is a
member of the Federal Reserve System, and therefore, subject to
the regulations of the Federal Reserve Board. The Bank is also a
Pennsylvania-chartered bank subject to supervision and regulation
by the Pennsylvania Department of Banking.
In addition, because the deposits of the Bank are insured by
the FDIC, the Bank is subject to regulation by the FDIC. The
Bank is also subject to requirements and restrictions under
federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts
of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be
made and the types of services that may be offered. Various
consumer laws and regulations also affect the operations of the
Bank. In addition to the impact of regulation, commercial banks
are affected significantly by the actions of the Federal Reserve
Board in attempting to control the money supply and credit
availability in order to influence the economy.
Holding Company Structure
The Bank is subject to restrictions under federal law which
limit its ability to transfer funds to the Company, whether in
the form of loans, other extensions of credit, investments or
asset purchases. Such transfers by the Bank to the Company are
generally limited in amount to 10% of the Bank's capital and
surplus. Furthermore, such loans and extensions of credit are
required to be secured in specific amounts, and all transactions
are required to be on an arm's length basis. The Bank has never
made any loan or extension of credit to the Company nor has it
purchased any assets from the Company.
Under Federal Reserve Board policy, a bank holding company
is expected to act as a source of financial strength to the Bank
and to commit resources to support the Bank, i.e., to downstream
funds to the Bank. This support may be required at times when,
absent such policy, the bank holding company might not otherwise
provide such support. Any capital loans by a bank holding
company to the Bank are subordinate in right of payment to
deposits and to certain other indebtedness of the Bank. In the
event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to
maintain the capital of the Bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Regulatory Restrictions on Dividends
Dividend payments by the Bank to the Company are subject to
the Pennsylvania Banking Code of 1965 (the "Banking Code"), the
Federal Reserve Act, and the Federal Deposit Insurance Act (the
"FDIA"). Under the Banking Code, no dividends may be paid except
from "accumulated net earnings" (generally, undivided profits).
Under the Federal Reserve Board's regulations, the Bank cannot
pay dividends that exceed its net income from the current year
and the preceding two years. Under the FDIA, no dividends may be
paid by an insured bank if the bank is in arrears in the payment
of any insurance assessment due to the FDIC. Under current
banking laws, the Bank would be limited to approximately $2.9
million of dividends in 1997 plus an additional amount equal to
the Bank's net profit for 1997, up to the date of any such
dividend declaration.
State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by
banks. Adherence to such standards further limits the ability of
the Bank to pay dividends to the Company.
The payment of dividends to the Company by the Bank may also
be affected by other regulatory requirements and policies. If,
in the opinion of the Federal Reserve Board, the Bank is engaged
in, or is about to engage in, an unsafe or unsound practice
(which, depending on the financial condition of the Bank, could
include the payment of dividends), the Federal Reserve Board may
require, after notice and hearing, that the Bank cease and desist
from such practice. The Federal Reserve Board has formal and
informal policies providing that insured banks and bank holding
companies should generally pay dividends only out of current
operating earnings.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the
assessment of premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a
semiannual basis, assigns each institution to one of three
capital groups (well capitalized, adequately capitalized or under
capitalized) and further assigns such institution to one of three
subgroups within a capital group corresponding to the FDIC's
judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis
and other information relevant to gauging the risk posed by the
institution. Only institutions with a total capital to risk-
adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk-adjusted assets ratio of 6.0% or greater and a Tier 1
leverage ratio of 5.0% or greater, are assigned to the well-
capitalized group.
Over the last two years, FDIC insurance assessments have
seen several changes for both BIF and SAIF institutions. The
most recent change occurred on September 30, 1996, when the
President signed into law a bill designed to remedy the disparity
between BIF and SAIF deposit premiums. The first part of the
bill called for the SAIF to be capitalized by a one-time
assessment on all SAIF insured deposits held as of March 31,
1995. This assessment, which was 65.7 cents per $100 in
deposits, raised approximately $4.7 billion to bring the SAIF up
to its required 1.25 reserve ratio. This special assessment,
paid on November 30, 1996, had no effect on the Bank. The second
part of the bill remedied the future anticipated shortfall with
respect to the payment of FICO interest. For 1997 through 1999,
the banking industry will help pay the FICO interest payments at
an assessment rate that is 1/5 the rate paid by thrifts. The
FICO Assessment on BIF insured deposits is 1.29 cents per $100 in
deposits; for SAIF insured deposits, it is 6.44 cents. Beginning
January 1, 2000, the FICO interest payments will be paid pro-rata
by banks and thrifts based on deposits. At December 31, 1996,
the Company estimated the FICO interest assessment to be
approximately $30,000 for 1997. For the three month period ended
March 31, 1997, the Company paid FICO expenses of approximately
$7,000. The Bank has not been required to pay any FDIC insurance
assessments since the fourth quarter of 1996 because BIF has met
its statutorily required ratios and the Bank is categorized as
"well capitalized."
Capital Adequacy
The Federal Reserve Board adopted risk-based capital
guidelines for bank holding companies, such as the Company. The
required minimum ratio of total capital to risk-weighted assets
(including off-balance sheet activities, such as standby letters
of credit) is 8.0%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common
stockholders' equity, noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated
subsidiaries, less goodwill. The remainder ("Tier 2 capital")
may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital
instruments and other debt securities, perpetual preferred stock,
and a limited amount of the general loan loss allowance.
In addition to the risk-based capital guidelines, the
Federal Reserve Board established minimum leverage ratio (Tier 1
capital to average total assets) guidelines for bank holding
companies. These guidelines provide for a minimum leverage ratio
of 3% for those bank holding companies which have the highest
regulatory examination ratings and are not contemplating or
experiencing significant growth or expansion. All other bank
holding companies are required to maintain a leverage ratio of at
least 1% to 2% above the 3% stated minimum. The Company is in
compliance with these guidelines. The Bank is subject to similar
capital requirements also adopted by the Federal Reserve Board.
The risk-based capital standards are required to take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking Law"), amended various
federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The
interstate banking provisions allow for the acquisition by a bank
holding company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption
transactions will be allowed effective June 1, 1997; however,
states may "opt-out" of the merger and purchase and assumption
provisions by enacting a law which specifically prohibits such
interstate transactions. States may, in the alternative, enact
legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States may also
enact legislation to allow for de novo interstate branching by
out of state banks. In July 1995, Pennsylvania adopted "opt-in"
legislation which allows such transactions.
MANAGEMENT
The following sets forth information concerning the
Company's executive officers.
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
Nelson R. Oswald 51 Chairman of the Board, President and Chief Executive
(1)(2)(3)(4) Officer of the Company and the Bank.
Robert D. McHugh, Jr. 42 Senior Vice President and Treasurer of the Company
and the Bank.
Norman E. Heilenman 49 Vice President of Residential Mortgage Lending of the
Company and the Bank.
Steven A. Ehrlich 35 Vice President of Commercial and Consumer Lending of
the Company and the Bank.
Donna L. Rickert, CPA 30 Controller of the Company and the Bank.
Sherelyn A. Ammon 39 Vice President of Operations of the Company and the
Bank.
</TABLE>
(1) Member of the Loan Committee.
(2) Member of the Executive Committee.
(3) Member of the Property Committee.
(4) Member of the Insurance Committee.
Nelson R. Oswald. Mr. Oswald has been Chairman of the Board,
President, Chief Executive Officer and Director of the Company
and the Bank since their formation February 1987. Senior Vice
President of Lending and Credit of Bank of Pennsylvania from
October 1982 to January 1987. Senior Real Estate Lender of
Meridian Bank from 1978 to 1982 and Vice President of Lending of
Meridian Bank from 1974 to 1978.
Robert D. McHugh, Jr. Mr. McHugh has been Senior Vice President
and Treasurer of the Company and the Bank since July 1987.
Consultant for Grant Thornton, CPA's from 1986 to 1987. Vice
President/Finance Auditor of National Bank of Boyertown from 1978
to 1986.
Norman E. Heilenman. Mr. Heilenman has been Vice President of
Residential Mortgage Lending of the Company and the Bank since
September 1992. Department Head of the Bank's Mortgage
Department since September 1992. Chief Financial Officer and
Vice President of Finance and Administration of Robertson
Brothers Company (real estate development firm) from October 1989
to August 1992. Chief Financial Officer and Vice President of
The Mallard Group (real estate development firm) from June 1984
to September 1989. Vice President and Department Head of
Residential Mortgage Lending/Servicing of Germantown Savings Bank
from 1969 to 1984.
Steven A. Ehrlich. Mr. Ehrlich has been Vice President of
Commercial and Consumer Lending of the Company and the Bank since
November 1990 and Senior Commercial Lender since August 1994.
Assistant Vice President of the Company and the Bank from
September 1989 to November 1990. Commercial loan officer of the
Bank from October 1988 to September 1989. Prior thereto, credit
analyst for Meridian Bank from April 1988 to October 1988.
Credit analyst and commercial real estate lender for Sovereign
Bank from July 1985 to April 1988.
Donna L. Rickert, CPA. Ms. Rickert has been Controller of the
Company and the Bank since March 1994. Prior thereto, Senior
Accountant, Beard and Company, Inc., CPA's, from 1989 to 1984,
specializing in audits of financial institutions.
Sherelyn A. Ammon. Ms. Ammon has been Vice President of
Operations of the Company and the Bank since August 1987.
Operations Officer for Meridian Bank from 1981 to 1987. Quality
Control Specialist for Meridian Bank from 1979 to 1981.
The following table sets forth information concerning the
Company's directors.
<TABLE>
<CAPTION>
Principal Occupation Director or
for Past Five Years and Executive Officer
Position Held with the of Company/
Name Age Company and the Bank Bank/Since
<S> <C> <C> <C>
Harold C. Bossard 79 Retired President of Bernville 1987/1987
(1)(2) Bank, N.A.; Secretary of the
Company and the Bank
Edwards J. Edwards 70 Real Estate Sales and Appraisals 1987/1987
(2)(3)(4) E. J. Edwards Real Estate
Lewis R. Frame, Jr. 38 Vice President, Frame Group, Ltd. 1988/1988
(4)(5)
Ivan H. Gordon 63 Chairman, Gloray Company 1987/1987
(1)(4)
Jeffrey W. Hayes 50 President, Hayes Construction, 1988/1988
(3)(5) Inc.
Alfred B. Mast 53 President, Mast and Moyer, Inc. 1987/1987
(2)
Nelson R. Oswald 51 President, Chief Executive 1987/1987
(2)(3)(5)(6) Officer and Chairman of the Board
of Directors of the Company and
the Bank
Wesley R. Pace 48 Chairman of the Board, Air 1987/1987
(1)(3)(4)(6) Compressor Services Co.;
President, Wesrock Capital Co.;
Consultant
Floyd S. Weber 64 Partner, King's Potato Chip Co. & 1987/1987
(1)(3)(4)(5) King Distributing Co.
Randall S. Weeber 41 President, Weeber Realtors; 1987/1987
(2) Realtor Sales Associate,
Berkshire Real Estate Network
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Loan Committee.
(3) Member of the Executive Committee.
(4) Member of the Compensation Committee.
(5) Member of the Property Committee.
(6) Member of the Insurance Committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 15, 1997, the
amount and percentage of the Common Stock beneficially owned by
each person who is known to the Company to own more than five
percent of the Common Stock, each director, each named executive
officer, and all directors and executive officers of the Company
as a group.
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner(1) Ownership(2)(3) of Class
PRINCIPAL SHAREHOLDERS:
National Properties, Inc. 149,627 7.20%
and RPI Company(4)
150 East Swedesford Road
Wayne, PA 19087
Nelson R. Oswald(5) 116,087 5.46%
DIRECTORS:
Harold C. Bossard (6)(7) 19,635 0.94%
Edward J. Edwards (6)(8) 28,569 1.30%
Lewis R. Frame, Jr. (9)(10) 75,919 3.64%
Ivan H. Gordon (11)(12) 15,276 0.73%
Jeffrey W. Hayes(11)(13) 54,830 2.63%
Alfred B. Mast (11)(14) 33,334 1.59%
Nelson R. Oswald (5)(6) 116,087 5.46%
Wesley R. Pace (6)(15) 35,143 1.69%
Floyd S. Weber (9)(16) 35,842 1.72%
Randall S. Weeber (9)(17) 15,861 0.76%
OTHER NAMED EXECUTIVE OFFICERS:
Robert D. McHugh, Jr. (18) 29,835 1.42%
All directors and executive 483,040 21.74%(19)
officers as a group (15 persons)
____________________
(1) Unless otherwise indicated, the address of each
beneficial owner is Berks County Bank, 400 Washington
Street, Reading, Pennsylvania 19603.
(2) The securities "beneficially owned" by an individual
are determined in accordance with the definitions of
"beneficial ownership" set forth in the General Rules
and Regulations of the Securities and Exchange
Commission and may include securities owned by or for
the individual's spouse and minor children and any
other relative who has the same home, as well as
securities to which the individual has or shares voting
or investment power or has the right to acquire
beneficial ownership within sixty (60) days after
May 15, 1997. Beneficial ownership may be disclaimed
as to certain of the securities. Shares of the
Company's common stock held in the 401(k) Retirement
Savings Plan are not included in ownership amounts
above. These shares are voted by the Plan
Administrators.
(3) Information furnished by the directors, executive
officers and the Company.
(4) Includes (i) 148,995 shares of Common Stock held by
National Properties, Inc. and RPI Company which are
entities controlled by or under the control of
Mr. Jeffery L. King and (ii) 632 shares of Common Stock
held by Mr. King's children and wife.
(5) Includes (i) 69,931 shares of Common Stock held jointly
by Mr. Oswald and his spouse, (ii) 218 shares of Common
Stock held by Mr. Oswald's son and (iii) 45,938 shares
of Common Stock subject to stock options granted to
Mr. Oswald which are currently exercisable.
(6) A current Class C Director whose term expires in 2000.
(7) Includes 13,635 shares of Common Stock held jointly by
Mr. Bossard and his spouse and 6,000 shares subject to
stock options granted to Mr. Bossard which are
currently exercisable.
(8) Includes 22,569 shares of Common Stock held jointly by
Mr. Edwards and his spouse and 6,000 shares subject to
stock granted to Mr. Edwards which are currently
exercisable.
(9) A Class B Director whose term expires in 1999.
(10) Includes 69,919 shares of Common Stock held
individually by Mr. Frame and 6,000 shares subject to
stock options granted to Mr. Frame which are currently
exercisable.
(11) A Class A Director whose term expires in 1998.
(12) Includes 5,166 shares of Common Stock held individually
by Mr. Gordon, 4,110 shares of Common Stock held
jointly by Mr. Gordon and his spouse and 6,000 shares
subject to stock options granted to Mr. Gordon which
are currently exercisable.
(13) Includes 31,502 shares of Common Stock held
individually by Mr. Hayes, 14,684 shares of Common
Stock held by Irene D. Hayes, his spouse, 2,644 shares
of Common Stock held by Irene D. Hayes, custodian for
daughter and 6,000 shares subject to stock options
granted to Mr. Hayes which are currently exercisable.
(14) Includes 27,010 shares of Common Stock held
individually by Mr. Mast, 324 shares of Common Stock
held by Mr. Mast's children and 6,000 shares subject to
stock options granted to Mr. Mast which are currently
exercisable.
(15) Includes 29,008 shares of Common Stock held jointly by
Mr. Pace and his spouse, 135 shares of Common Stock
held by Mr. Pace's son and 6,000 shares subject to
stock options granted to Mr. Pace which are currently
exercisable.
(16) Includes 29,842 shares of Common Stock held jointly by
Mr. Weber and his spouse and 6,000 shares subject to
stock options granted to Mr. Weber which are currently
exercisable.
(17) Includes 238 shares of Common Stock held individually
by Mr. Weeber, 6,493 shares of Common Stock held by
Randall S. Weeber Profit Sharing Keough Plan,
3,117 shares held by Weeber Realtors and 6,000 shares
subject to stock options granted to Mr. Weeber which
are currently exercisable.
(18) Includes 7,657 shares of Common Stock held individually
by Mr. McHugh and 22,178 shares subject to stock
options granted to Mr. McHugh which are currently
exercisable.
(19) The percent of class assumes all outstanding stock
options issued to the executive officers and non-
employee directors have been exercised and, therefore,
on a pro forma basis, 2,221,965 shares of Common Stock
would be outstanding.
EXECUTIVE COMPENSATION
Compensation Paid to Executive Officers
Set forth below is information concerning the annual
compensation for services in all capacities to the Company and
the Bank for the fiscal years ended December 31, 1996, 1995, and
1994 of those persons who were, at December 31, 1996, (i) Chief
Executive Officer or (ii) Executive Officers of the Company and
the Bank to the extent such executive officers' total annual
salary and bonus exceeded $100,000. There were no other
executive officers for whom disclosure would have been provided
but for the fact that such individuals were not serving at the
end of the 1996 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Name Other Restricted Under- All Other
and Annual Stock lying LTIP Compen-
Principal Salary Bonus Compen- Award(s) Options/ Payouts sation
Position Year ($) ($) sation($) ($) SARs(#) ($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson R. Oswald, 1996 192,948(1) 50,000 0 0 -- 0 6,138
Chairman of the Board, 1995 180,000 38,048 0 0 -- 0 6,231
President and CEO 1994 168,000 56,821 0 0 14,467 0 6,930
Robert D. McHugh, Jr., 1996 112,000 35,945(2) 0 0 -- 0 6,164
Senior Vice President 1995 100,000 28,474 0 0 -- 0 3,863
and Treasurer 1994 93,000 38,161 0 0 6,201 0 3,649
___________
</TABLE>
(1) 1996 salary includes deferred compensation of $2,948.
(2) 1996 bonus includes the fair value of 992 shares of the
Company's Common Stock granted to Mr. McHugh which equalled
$10,945 at January 2, 1996.
(3) Amounts shown represent contributions by the Company on
behalf of the named individuals to the Company's 401(k)
Retirement Savings Plan.
The following table sets forth certain information
concerning stock options granted during the fiscal year ended
December 31, 1996 to the named executives:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARs EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE
<S> <C> <C> <C>
Nelson R. Oswald 9,600 31.37% 12.40 October 22, 2006
Robert D. McHugh, Jr. 9,000 29.41% 12.40 October 22, 2006
_________________
</TABLE>
(1) All amounts represent incentive stock options; no SARs or
SARs granted in tandem with options were granted during
1996. Terms of outstanding options are for a period of ten
years from the date the option is granted. Options are not
exercisable following an optionee's voluntary termination of
employment other than by reason of retirement or disability.
(2) Under the terms of the 1996 Stock Option Plan, the exercise
price per share must equal the fair market value on the date
the option is granted. The exercise price may be paid in
cash, in shares of Common Stock valued at fair market value
on the date of exercise or pursuant to a cashless exercise
procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale
proceeds, an amount equal to the exercise price plus all
applicable withholding taxes.
The following table sets forth information concerning the
exercise of options to purchase the Company's Common Stock by the
named executive officers during the fiscal year ended
December 31, 1996 as well as the number of securities underlying
unexercised options and the potential value of unexercised
options as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired on Value Year-end (#) Year-end ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(2) (3) (4)
<S> <C> <C> <C> <C>
Nelson R. Oswald 1,250 $7,530 37,638/9,600 $260,287/$27,360
Robert D. McHugh, Jr. -- -- 13,178/9,000 $ 86,983/$25,650
_________________
</TABLE>
(1) All amounts represent stock options. No SARs or SARs
granted in tandem with stock options were either exercised
during 1996 or outstanding at fiscal year-end 1996.
(2) Represents the aggregate market value of the underlying
shares of Common Stock at the date of exercise minus the
aggregate exercise prices for options exercised.
(3) Unexercisable stock options represent options granted under
the 1996 Stock Option plan. Options will be exercisable
April 22, 1997.
(4) "In-the-money options" are stock options with respect to
which the market value of the underlying shares of Common
Stock exceeded the exercise price at December 31, 1996. The
value of such options is determined by subtracting the
aggregate exercise price for such options from the aggregate
fair market value of the underlying shares of Common Stock
on December 31, 1996.
Compensation Paid to Directors
All directors of the Company are also directors of the Bank.
During 1996, the Company and the Bank held 12 joint Board of
Directors meetings and 16 joint committee meetings. In 1996,
non-employee directors received $300 prior to July 1, 1996 and
$350 after July 1, 1996 for each jointly held Board of Directors
and committee meeting attended. Beginning July 1, 1996, the
directors are paid an annual retainer of $1,000. Harold C.
Bossard, Director and Secretary of the Company, received $100 per
month for additional services provided to the Company and the
Bank. Each non-employee director of the Company was granted an
option to purchase 6,000 shares of Common Stock at an exercise
price per share equal to the fair value of the Common Stock on
the date of grant.
The Board of Directors has established the following
committees:
Executive Committee. This committee meets on an as-needed
basis between meetings of the Board of Directors to decide and
take action on any issues that require attention between Board
meetings. This committee also performs the functions of the
Nominating Committee. Messrs. Edwards, Hayes, Oswald, Pace and
Weber are members of the Executive Committee.
Audit Committee. This committee recommends an outside
auditor for the year and reviews the financial statements and
progress of the Company and the Bank. Messrs. Bossard, Gordon,
Pace and Weber are members of the Audit Committee.
Property Committee. This committee makes recommendations
concerning building projects and space needs for the Company and
the Bank. Messrs. Frame, Hayes, Oswald and Pace are members of
the Property Committee.
Loan Committee. This committee meets the second Thursday of
each month to review loan asset quality and credit related
matters. Messrs. Bossard, Edwards, Mast, Oswald and Weeber are
members of the Loan Committee.
Insurance Committee. This committee meets to review
insurance policies regarding the Company and the Bank.
Messrs. Oswald and Weber are members of the Insurance Committee.
Compensation Committee. This Committee was formed in 1994
and meets on an as-needed basis between meetings of the Board of
Directors to discuss compensation related matters.
Messrs. Edwards, Frame, Gordon, Pace and Weber are members of the
Compensation Committee.
Executive Employment Agreements
Nelson R. Oswald and Robert D. McHugh, Jr. each have
Executive Employment Agreements with the Company and the Bank.
Mr. Oswald's Executive Employment Agreement originally dated
July 14, 1987, as amended, has been extended through December 31,
2000. Mr. McHugh's Executive Employment Agreement originally
dated December 31, 1991, has been renewed thru December 31, 1998.
The Executive Employment Agreements specify: term; the
Executive's position and duties; compensation; benefits;
indemnification; and termination rights. Each of the Executive
Employment Agreements also contain a noncompetition clause and a
confidentiality provision which inure to the benefit of the
Company and the Bank.
Each of the Executive Employment Agreements contain a
"Change of Control" provision which provides, among other things,
that when any "person" as defined therein, obtains the beneficial
ownership of a specified percentage of stock, the Executive is
entitled to certain payments and benefits from the Company and
the Bank. Mr. Oswald's and Mr. McHugh's Agreements also contain
provisions allowing the Company and the Bank to terminate
Mr. Oswald's or Mr. McHugh's employment for "Cause" (as defined).
Under the terms of his Executive Employment Agreement, Mr.
Oswald is a member of the Bank's Board of Directors and was
entitled to an annual salary during 1996 of $190,000. The
Executive Employment Agreement provides that this amount will be
increased by not less than five percent (5%) per year.
Mr. Oswald also receives certain employee benefits: including
life insurance, disability and health insurance, vacation days
and a supplemental retirement plan. The Bank provides an
automobile for Mr. Oswald.
Under the terms of his Executive Employment Agreement,
Mr. McHugh was entitled to an annual salary during 1996 of
$112,000 plus a grant of 992 shares of the Company's common stock
at the end of each twelve months of employment. Mr. McHugh's
Executive Employment Agreement also provides that this amount
will be increased by not less than five percent (5%) per year.
Mr. McHugh also receives certain employee benefits including life
insurance, disability and health insurance and vacation days.
The Bank also provides Mr. McHugh with an automobile.
Each of the Executive Employment Agreements provide that if
the Executive's employment is terminated by the Bank other than
for "Cause" as defined therein, or if the Executive terminates
his employment for "Good Reason", as defined therein, the
Executive is entitled to receive certain monetary benefits.
Mr. Oswald is entitled to his full Annual Direct Salary (as
defined) from the date of termination through December 31, 1999,
or an amount equal to one and one-half (1 1/2) of his Annual
Direct Salary, whichever is greater, or to three (3) times his
Annual Direct Salary upon the occurrence of certain merger or
acquisition events. The Bank shall also maintain in full force
and effect certain employee benefits. Mr. McHugh is entitled to
a severance allowance equal to his then Annual Direct Salary from
the date of termination through the following six (6) calendar
months, or to one (1) time his Annual Direct Salary upon the
occurrence of certain merger or acquisition events.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors, executive officers of the Company,
beneficial owners of 5% or more of the Common Stock and their
affiliates were customers of and had transactions with the Bank
in the ordinary course of business during the Bank's fiscal year
ended December 31, 1996. Similar transactions may be expected to
take place in the future. It is expected that any other
transactions with directors and officers and their associates in
the future will be conducted on the same basis.
Hayes Construction, Inc., a construction company of which
Jeffrey W. Hayes, a director of the Company and the Bank, is
President, received payments of approximately $49,000 in 1996 in
connection with the ongoing construction of the Bank's Muhlenberg
Branch Office and $8,800 in 1996 in connection with the ongoing
construction of the Bank's Shillington branch; also $425,000 in
1995 in connection with the construction of the Bank's Pottstown
branch office and $480,000 in 1995 in connection with the
construction of the Bank's Wyomissing branch office. In the
first quarter of 1997 Hayes Construction received payments of
$554,000 and $629,000 relating to the construction of the Bank's
Muhlenberg and Shillington branch offices, respectively. Such
payments were in amounts and on substantially the same terms and
conditions as would have been available to the Company from an
unaffiliated party.
Mast and Moyer, Inc. an insurance agency of which Alfred G.
Mast, a director of the Company and the Bank, is President,
received payments in the form of gross insurance premiums of
approximately $141,000 and $74,000 in 1996 and 1995,
respectively, in connection with various insurance policies the
Bank has purchased through the insurance agency. In the first
quarter of 1997, Mast and Moyer, Inc. received payments of
$2,000. Such payments were in amounts and on substantially the
same terms and conditions as would have been available to the
Company from an unaffiliated party.
At December 31, 1996, the Bank had total loans outstanding
and commitments to loan to directors, executive officers,
beneficial owners of 5% or more of the Common Stock and their
affiliates of $3.8 million, or approximately 19.2% of the total
consolidated equity capital as of that date. Loans to such
persons were made in the ordinary course of business, were made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons. The loans did not involve more
than the normal risk of collectibility or present other
unfavorable features.
DESCRIPTION OF COMMON STOCK
The following is a summary of the material provisions of the
Company's Articles of Incorporation and Bylaws. This summary
does not purport to be complete and is qualified in its entirety
by reference to such instruments, each of which is an exhibit to
the Registration Statement of which this Prospectus forms a part.
Authorized Common Stock
The Company has 20,000,000 shares of authorized Common Stock
and no authorized shares of Preferred Stock. As of May 15, 1997,
2,078,673 shares of Common Stock were outstanding.
Holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote at a
meeting of shareholders. Each share of Common Stock is entitled
to share, pro rata, in dividends and in the Company's assets in
the event of dissolution or liquidation of the Company. Holders
of shares of Common Stock do not possess any preemptive rights
and are not entitled to cumulate votes in elections of directors.
The outstanding shares of Common Stock are fully paid and
nonassessable. No option, warrant, privilege or right has been
issued or is outstanding other than the options granted under the
Company's Stock Option Plans. See "EXECUTIVE COMPENSATION."
Special Charter and Pennsylvania Corporate Law Provisions
The Company's Articles of Incorporation and Bylaws contain
certain provisions which may have the effect of deterring or
discouraging, among other things, a nonnegotiated tender or
exchange offer for the Company's Common Stock, a proxy contest
for control of the Company, the assumption of control of the
Company by a holder of a large block of the Company's Common
Stock and the removal of the Company's management. These
provisions: (1) divide the Board of Directors into three classes
serving staggered three-year terms; (2) require that shares with
at least 75% of total voting power approve any merger,
consolidation, dissolution, liquidation and other similar
transactions; (3) require that shares with at least 75% of total
voting power approve any amendment of those provisions of the
Articles of Incorporation pertaining to shareholder approval of
any merger, consolidation, dissolution or liquidation; (4) permit
the Board of Directors to oppose a tender offer or other offer
for the Company's securities on the basis of factors other than
the economic benefit to shareholders; (5) permit the Company to
issue warrants for the purchase of Common Stock at below market
prices in the event any person or entity acquires 25% or more of
the Company's Common Stock; (6) eliminate cumulative voting in
elections of directors; (7) require that shares with at least
66-2/3% of total voting power approve any substantive amendment
of the Bylaws; and (8) require advance notice of nominations for
the election of directors.
The Pennsylvania Business Corporation Law contains certain
provisions that will become applicable to the Company following
completion of the Offerings which may have similar effects.
These provisions, among other things: (1) require that,
following any acquisition by any person or group of 20% of a
public corporation's voting power, the remaining shareholders
have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of
the shares, including an increment representing a proportion of
any value payable for control of the corporation; and
(2) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation
of the corporation or a sale, lease or exchange of assets) with a
shareholder or group of shareholders beneficially owning 20% or
more of a public corporation's voting power.
In April 1990, Pennsylvania adopted legislation further
amending the Pennsylvania Business Corporation Law. To the
extent applicable to the Company at the present time, this
legislation generally (1) expands the factors and groups
(including shareholders) which the Board of Directors can
consider in determining whether a certain action is in the best
interests Of the corporation; (2) provides that the Board need
not consider the interests of any particular group as dominant or
controlling; (3) provides that directors, in order to satisfy the
presumption that they have acted in the best interests Of the
corporation, need not satisfy any greater obligation or higher
burden of proof with respect to actions relating to an
acquisition or potential acquisition of control; (4) provides
that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed
to satisfy the directors, standard unless it is proven by clear
and convincing evidence that the directors did not assent to such
action in good faith after reasonable investigation; and
(5) provides that the fiduciary duty of directors is solely to
the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder
directly. One of the effects of the new fiduciary duty
provisions may be to make it more difficult for a shareholder to
successfully challenge the actions of the Board of Directors in a
potential change in control context.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement (the form of which is filed as an Exhibit
to the Registration Statement of which this Prospectus is a
part), the Company has agreed to sell to the Underwriters named
below (the "Underwriters"), for whom Janney Montgomery Scott Inc.
and Wheat, First Securities, Inc. are acting as Representatives
(the "Representatives"), and the Underwriters have severally
agreed to purchase from the Company, the number of shares of
Common Stock set forth opposite their names below:
Number
Underwriter of Shares
Janney Montgomery Scott Inc.
Wheat, First Securities, Inc.
Total.......................................... 1,000,000
In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to
purchase all the shares of the Common Stock offered hereby (other
than those subject to the over-allotment option described below)
if any shares are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may
be terminated. The Representatives have advised the Company that
the several Underwriters propose initially to offer the shares of
the Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of
$____________ per share. The Underwriters may allow and such
dealers may reallow a concession not in excess of
$____________ per share to other dealers. After the initial
public offering, the public offering price and such concessions
maybe changed.
The Company has granted the Underwriters an option,
exercisable within 30 days of the date of this Prospectus, to
purchase up to 150,000 additional shares of the Common Stock from
the Company at the same price per share as the initial 1,000,000
shares of the Common Stock to be purchased by the Underwriters.
The Underwriters may exercise such option only to cover over-
allotments in the sale of the shares of the Common Stock that the
Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase the
same percentage of the option shares of the Common Stock as the
number of shares of the Common Stock to be purchased by such
Underwriter in the above table bears to the total shares of
Common Stock offered.
The Company and its directors and executive officers have
agreed that they will not, with certain exceptions, publicly sell
or otherwise dispose of any shares of the Common Stock, except
the shares of the Common Stock offered hereby, for 180 days from
the date of this Prospectus without the prior written consent of
the Representatives.
The Underwriting Agreement provides that the Company will
indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect
thereof.
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The bylaws of the Company provide for (1) indemnification of
directors, officers, employees and agents of the registrant and
its subsidiaries and (2) the elimination of a director's
liability for monetary damages, to the fullest extent permitted
by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by the Company.
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to the directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against
public policy as expressed in the 1933 Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the shares offered hereby will be passed
upon for the Company by Stevens & Lee, Reading, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by
Elias, Matz, Tiernan & Herrick L.L.P.
EXPERTS
The consolidated financial statements appearing in this
Prospectus have been audited by Beard & Company, Inc.,
independent accountants, to the extent and for the periods
indicated in their report appearing elsewhere herein, and are
included in reliance upon such report and upon the authority of
such Firm as experts in accounting and auditing.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BCB Financial Services Corporation and Berks County Bank:
Financial Statements (Unaudited)
Consolidated Balance Sheets -- As of
March 31, 1997 and December 31, 1996................... F-2
Consolidated Statements of Income -- For the
three months ended March 31, 1997 and 1996............. F-3
Consolidated Statements of Stockholders' Equity -- For
the three months ended March 31, 1997.................. F-4
Consolidated Statements of Cash Flows -- For the
three months ended March 31, 1997 and 1996............. F-5
Notes to Consolidated Financial Statements............... F-7
Financial Statements (Audited)
Independent Auditor's Report............................. F-9
Consolidated Balance Sheets -- As of
December 31, 1996 and 1995............................. F-10
Consolidated Statements of Income -- For the
years ended December 31, 1996 and 1995................. F-12
Consolidated Statements of Stockholders' Equity -- For
the years ended December 31, 1996 and 1995............. F-14
Consolidated Statements of Cash Flows -- For the
years ended December 31, 1996 and 1995................. F-15
Notes to Consolidated Financial Statements............... F-17
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1997 1996
<S> <C> <C>
Cash and due from banks $ 12,171,583 $ 8,984,814
Interest-bearing deposits with banks 846,982 21,407,097
Federal funds sold 1,040,000 1,290,000
Securities available for sale 69,589,643 53,488,975
Securities held to maturity, fair value March 31, 1997 $38,903,558;
December 31, 1996 $35,147,354 39,316,695 35,065,480
Loans receivable, net of allowance for loan losses March 31, 1997
$2,107,360; December 31, 1996 $2,000,612 203,851,914 192,147,673
Mortgages held for sale 457,118 609,397
Due from mortgage investors 2,310,201 3,478,353
Bank premises and equipment, net 5,469,150 4,394,797
Accrued interest receivable 2,576,378 2,129,185
Foreclosed real estate 460,000 761,500
Deferred income taxes 642,559 245,935
Other Assets 4,484,928 519,096
TOTAL ASSETS $343,217,151 $324,522,302
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 31,154,918 $ 29,048,391
Demand, interest bearing 108,996,369 100,846,581
Savings 21,639,811 12,123,061
Time deposits 130,588,616 122,305,298
TOTAL DEPOSITS 292,379,714 264,323,331
Accrued interest payable and other liabilities 13,253,315 4,776,903
Other borrowed funds 6,095,369 13,718,399
Long-term debt 12,000,000 22,000,000
TOTAL LIABILITIES 323,728,398 304,818,633
Stockholders' equity:
Common stock, par value $2.50 per share;
authorized 3,000,000 shares; issued and outstanding March 31, 1997
2,071,349 shares; December 31, 1996 2,070,385 shares 5,178,373 5,175,963
Surplus 9,879,959 9,876,483
Retained earnings 5,068,154 4,700,631
Net unrealized (depreciation) on securities available for
sale, net of taxes (637,733) (49,408)
TOTAL STOCKHOLDERS' EQUITY 19,488,753 19,703,669
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $343,217,151 $324,522,302
============ ============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Interest Income:
Loan Receivable, including fees $4,080,754 $3,129,207
Interest and dividends on securities:
U.S. Treasury 58,369 69,882
U.S. Government agencies and corporations 912,364 147,312
State and political subdivisions, tax exempt 467,834 204,944
Dividends 46,654 14,416
Interest-bearing deposits with banks 151,018 209,174
Interest on federal funds sold 14,603 63,097
Total interest income 5,731,596 3,838,032
Interest expense:
Deposits 2,873,784 2,060,105
Other borrowed funds 90,197 25,932
Long-term debt 287,603 45,666
Total interest expense 3,251,584 2,131,703
Net interest income 2,480,012 1,706,329
Provision for loan losses 241,000 80,000
Net interest income after provision for
loan losses 2,239,012 1,626,329
Other income:
Customer service fees 214,019 142,382
Mortgage banking activities 123,352 114,641
Net realized loss on sale of securities (5,574) (682)
Other 1,358 7,355
Total other income 333,155 263,696
Other expenses:
Salaries and wages 745,315 498,054
Employee benefits 182,304 124,322
Occupancy 149,287 138,720
Equipment depreciation and maintenance 120,851 107,173
Other operating expenses 756,811 571,090
Total other expenses 1,954,568 1,439,359
Income before income taxes 617,599 450,666
Federal income taxes 105,081 95,509
Net Income $ 512,518 $ 355,157
========== ==========
Earnings per common and common equivalent share $ 0.24 $ 0.17
========== ==========
Weighted average common and common equivalent
shares outstanding 2,124,945 2,082,468
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1997 (Unaudited)
<TABLE>
<CAPTION> Net Unrealized
(Depreciation)
On Securities
Common Retained Available for
Stock Surplus Earnings Sale Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $5,175,963 $9,876,483 $4,700,631 ($49,408) $19,703,669
Issuance of 964 shares of common stock upon
exercise of stock options 2,410 3,476 --- --- 5,886
Net change in unrealized depreciation on
securities available for sale, net of taxes --- --- --- (588,325) (588,325)
Cash dividends declared ($ .07 per share) --- --- (144,995) --- (144,995)
Net income --- --- 512,518 --- 512,518
Balance, March 31, 1997 $5,178,373 $9,879,959 $5,068,154 ($637,733) $19,488,753
========== ========== ========== ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 512,518 $ 355,157
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Provision for loan and foreclosed real estate losses 281,172 92,613
Provision for depreciation and amortization 108,302 91,992
Net realized loss on sale of securities 5,574 682
Proceeds from sale of mortgage loans 7,986,812 8,343,200
Net loss on sale of mortgage loans 9,983 19,222
Mortgage loans originated for sale (7,838,121) (8,322,994)
Net amortization of securities premiums and discounts (14,766) (15,931)
(Increase) decrease in:
Due from mortgage investors 1,168,152 1,234,795
Accrued interest receivable (447,193) (147,044)
Deferred income taxes (93,548) (56,074)
Other assets (3,961,584) (76,122)
Increase in accrued interest payable and other liabilities 654,681 508,974
Net cash provided by (used in) operating
activities (1,628,018) 2,028,470
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds for sales of securities available for sale 3,909,637 2,882,065
Proceeds from maturities of and principal repayments
on securities available for sale 2,064,733 66,137
Proceeds from maturities of securities held to maturity 750,000 665,000
Purchases of securities available for sale (15,167,689) (7,068,316)
Purchases of securities held to maturity (4,994,062) (5,469,483)
(Increase) decrease in interest-bearing deposits with banks 20,560,115 (9,492,441)
Net decrease in federal funds sold 250,000 555,000
Loans made to customers, net of principal collected (11,952,109) (6,722,770)
Proceeds from sales of foreclosed real estate 261,801 ---
Purchases of bank premises and equipment (1,182,654) (15,832)
Net cash used in investing activities (5,500,228) (24,600,640)
</TABLE>
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $28,056,383 $23,167,667
Proceeds from (repayment of) other borrowed funds (7,623,030) 797,739
Principal payments of long-term borrowings (10,000,000) ---
Proceeds from exercise of stock options 5,886 13,448
Cash dividends (124,224) (86,146)
Net cash provided by financing activities 10,315,015 23,892,708
Increase in cash and due from banks 3,186,769 1,320,538
Cash and due from banks:
Beginning 8,984,814 7,656,846
Ending $12,171,583 $ 8,977,384
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 3,262,712 $ 2,170,393
=========== ===========
Income taxes --- $ 15,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Foreclosed real estate acquired in
settlement of loans $ 159,782 $ 31,113
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE A. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the
accounts of the BCB Financial Services Corporation and its
wholly-owned subsidiary, Berks County Bank. All significant
intercompany accounts and transactions have been eliminated. The
accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included.
Operating results of the three-month period ended March 31, 1997
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
NOTE B. EARNINGS PER SHARE
Earnings per common and common equivalent share are computed
based on the weighted average number of common shares and common
equivalent shares outstanding during the period. Common share
equivalents included in the computations represent shares
issuable upon the assumed exercise of outstanding stock option
and grants that have an exercise price less than market price.
These common stock equivalents had a dilutive effect for the
three months ended March 31, 1997 and 1996. The number of common
shares outstanding was increased by the number of shares issuable
under the common stock options and grants and was reduced by the
number of common shares which are assumed to have been
repurchased with the proceeds from the exercise of the options.
Weighted average number of common shares and common equivalent
shares outstanding have been adjusted for all stock dividends and
stock splits effected through March 31, 1997.
NOTE C: OTHER OPERATING EXPENSES
The following represents the most significant categories of other
operating expenses for the three month period ended March 31,
1997 and 1996:
For the Three Months Ended
March 31, March 31,
1997 1996
Advertising $ 132,792 $ 156,115
EDP outsourcing and MAC fees 105,956 76,344
Office Supplies and expense 129,698 88,433
Other real estate owned expenses 60,698 19,123
All other expenses 327,667 231,075
$ 756,811 $ 571,090
=========== ==========
NOTE D: RECLASSIFICATIONS
Certain items in the March 31, 1996 financial statements have
been reclassified to conform to the March 31, 1997 financial
statement presentation format. These reclassifications had no
effect on net income.
NOTE E: RECENTLY ISSUED FASB STATEMENTS
In 1997, the FASB issued Statement No. 128, "Earnings Per Share"
and Statement No. 129, "Disclosure of Information about Capital
Structure". Both Statements are effective for periods ending
after December 15, 1997. Statement No. 128 is designed to
simplify the computation of earnings per share and will require
disclosure of "basic earnings per share" and, if applicable,
"diluted earnings per share". Earlier application is not
permitted for Statement No. 128 and it will require restatement
of all prior period earnings per share data when adopted. The
Statement is not expected to materially impact the reported
earnings per share of the Company. The adoption of Statement No.
129 will have no impact on the Company.
NOTE F: SUBSEQUENT EVENTS
On May 1, 1997, the Company's Board of Directors approved an
amendment to the articles of incorporation to increase the number
of authorized shares of the Company's common stock from 3,000,000
shares to 20,000,000 shares. The amendment is contingent upon
shareholder approval, at a special meeting of shareholders to be
held on June 11, 1997. The Company's Board of Directors also
approved a public offering of up to 1,150,000 shares of the
Company's common stock. The public offering is expected to be
completed in the second or third quarter of 1997.
<PAGE>
To the Board of Directors
BCB Financial Services Corporation
Reading, Pennsylvania
We have audited the accompanying consolidated balance sheets
of BCB Financial Services Corporation and its wholly-owned
subsidiary, Berks County Bank, as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of BCB Financial Services Corporation and its
wholly-owned subsidiary, Berks County Bank, as of December 31,
1996 and 1995, and the consolidated results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 31, 1997
<PAGE>
BCB Financial Services Corporation and
Its Wholly-Owned Subsidiary,
Berks County Bank
CONSOLIDATED BALANCE SHEETS
December 31, 1996 1995
=================================================================
ASSETS
Cash and due from banks $ 8,984,814 $ 7,656,846
Interest-bearing deposits with banks 21,407,097 10,043,324
Federal funds sold 1,290,000 3,045,000
Securities available for sale 53,488,975 20,359,157
Securities held to maturity,
fair value 1996 $35,147,354;
1995 $9,366,552 35,065,480 9,207,069
Loans receivable, net of allowance
for loan losses 1996 $2,000,612;
1995 $1,674,057 192,147,673 146,290,946
Mortgage loans held for sale 609,397 452,900
Due from mortgage investors 3,478,353 3,204,383
Premises and equipment, net 4,394,797 3,494,618
Accrued interest receivable 2,129,185 1,226,026
Foreclosed real estate 761,500 1,315,532
Deferred income taxes 245,935 208,712
Prepaid expenses and other assets 519,096 168,752
Total assets $324,522,302 $206,673,265
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 29,048,391 $ 18,421,557
Demand, interest bearing 100,846,581 48,024,548
Savings 12,123,061 9,418,076
Time deposits 122,305,298 104,073,689
Total deposits 264,323,331 179,937,870
Accrued interest payable and
other liabilities 4,776,903 2,020,915
Other borrowed funds 13,718,399 2,289,940
Long-term debt 22,000,000 4,000,000
Total liabilities 304,818,633 188,248,725
Redeemable common stock, issued
and outstanding
1995 12,539 shares - 129,969
Stockholders' equity:
Common stock, par value $2.50 per
share; authorized 3,000,000
shares; issued and outstanding
1996 2,070,385 shares;
1995 1,710,389 shares 5,175,963 4,275,973
Surplus 9,876,483 10,628,354
Retained earnings 4,700,631 3,233,574
Net unrealized appreciation
(depreciation) on securities
available for sale, net of taxes (49,408) 156,670
Total stockholders' equity 19,703,669 18,294,571
Total liabilities and
stockholders' equity $324,522,302 $206,673,265
===========================
____________
See Notes to Consolidated Financial Statements
<PAGE>
BCB Financial Services Corporation and
Its Wholly-Owned Subsidiary,
Berks County Bank
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 1995
=================================================================
Interest income:
Loans receivable, including fees $ 14,011,402 $ 11,294,430
Interest and dividends on securities:
U.S. Treasury 261,188 382,213
U.S. Government agencies and
corporations 1,769,959 397,286
State and political subdivisions,
tax-exempt 1,229,519 409,753
Dividends 118,561 77,520
Interest-bearing deposits with banks 430,748 560,385
Interest on federal funds sold 121,305 72,995
Total interest income 17,942,682 13,194,582
Interest expense:
Deposits 9,134,770 6,599,633
Other borrowed funds 302,888 140,961
Long-term debt 370,766 284,867
Total interest expense 9,808,424 7,025,461
Net interest income 8,134,258 6,169,121
Provision for loan losses 687,000 517,500
Net interest income after
provision for loan losses 7,447,258 5,651,621
Other income:
Customer service fees 696,872 486,412
Mortgage banking activities 633,761 533,704
Net realized loss on sale of
securities (682) (24,020)
Other 14,668 14,100
Total other income 1,344,619 1,010,196
Other expenses:
Salaries and wages 2,264,875 1,895,971
Employee benefits 579,596 467,272
Occupancy 570,025 480,156
Equipment depreciation and
maintenance 419,437 382,289
Other 2,622,293 2,197,400
Total other expenses 6,456,226 5,423,088
Income before income taxes 2,335,651 1,238,729
Federal income taxes 432,566 336,351
Net income $ 1,903,085 $ 902,378
==========================
Earnings per common and common
equivalent share $ 0.91 $ 0.43
==========================
Weighted average common and common
equivalent shares outstanding 2,089,626 2,074,794
==========================
____________
See Notes to Consolidated Financial Statements
<PAGE>
BCB Financial Services Corporation and
Its Wholly-Owned Subsidiary,
Berks County Bank
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
=================================================================
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $4,001,848 $ 9,606,234 $ 3,688,970 $ (309,748) $16,987,304
Issuance of 2,325 shares of common
stock upon exercise of stock
options 5,812 15,892 - - 21,704
Net change in unrealized apprecia-
tion (depreciation) on securities
available for sale, net of taxes - - - 466,418 466,418
Transfer of 25,557 shares from
redeemable common stock 63,893 188,548 - - 252,441
Issuance of 81,768 shares of common
stock in connection with a 5%
stock dividend 204,420 817,680 (1,025,603) - (3,503)
Cash dividends - - (332,171) - (332,171)
Net income - - 902,378 - 902,378
Balance, December 31, 1995 $4,275,973 $10,628,354 $ 3,233,574 $ 156,670 $18,294,571
Issuance of 2,584 shares of common
stock upon exercise of stock
options 6,460 11,690 - - 18,150
Net change in unrealized appreciation
(depreciation) on securities
available for sale, net of taxes - - - (206,078) (206,078)
Transfer of 12,539 shares from
redeemable common stock 31,347 98,622 - - 129,969
Issuance of 344,873 shares of common
stock in connection with a 6 for 5
stock split, effectuated as a 20%
stock dividend 862,183 (862,183) (1,381) - (1,381)
Cash dividends - - (434,647) - (434,647)
Net income - - 1,903,085 - 1,903,085
Balance, December 31, 1996 $5,175,963 $ 9,876,483 $ 4,700,631 $ (49,408) $19,703,669
===================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BCB Financial Services Corporation and
Its Wholly-Owned Subsidiary,
Berks County Bank
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
==============================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,903,085 $ 902,378
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for loan and foreclosed real estate
losses 919,613 750,744
Provision for depreciation and amortization 376,616 337,790
Loss on sale of equipment 1,689 26,855
Net realized loss on sales of securities 682 24,020
Proceeds from sale of mortgage loans 34,709,663 33,431,124
Net (gain) loss on sale of mortgage loans 11,587 (4,111)
Mortgage loans originated for sale (34,877,747) (33,704,925)
Net amortization of securities premiums
and discounts (74,449) (61,812)
(Increase) decrease in:
Due from mortgage investors (273,970) (2,232,348)
Accrued interest receivable (903,159) (378,138)
Deferred income taxes 68,938 (73,734)
Prepaid expenses and other assets (350,344) (31,100)
Increase in accrued interest payable and
other liabilities 1,523,267 304,422
Net cash provided by (used in)
operating activities 3,035,471 (708,835)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available
for sale 2,882,065 1,502,786
Proceeds from maturities of and principal
repayments on securities available for sale 1,822,376 1,566,130
Proceeds from maturities of securities held
to maturity 1,610,000 1,200,000
Purchases of securities available for sale (36,916,098) (11,543,345)
Purchases of securities held to maturity (27,430,400) (5,782,475)
Increase in interest-bearing deposits with banks (11,363,773) (7,530,281)
Net (increase) decrease in federal funds sold 1,755,000 (2,245,000)
Loans made to customers, net of principal
collected (46,797,198) (22,971,971)
Proceeds from sales of foreclosed real estate 574,890 148,869
Proceeds from sale of premises and equipment 3,245 -
Purchases of premises and equipment (1,281,729) (1,599,364)
Net cash used in investing activities (115,141,622) (47,254,651)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 84,385,461 55,665,417
Proceeds from (repayment of) other borrowed
funds 11,428,459 (70,428)
Proceeds from long-term debt 22,000,000 9,000,000
Principal payments of long-term borrowings (4,000,000) (14,000,000)
Proceeds from exercise of stock options 18,150 21,704
Cash payments for fractional shares in
connection with stock dividend (1,381) (3,503)
Cash dividends (396,570) (311,578)
Net cash provided by financing
activities 113,434,119 50,301,612
Increase in cash and due from banks 1,327,968 2,338,126
Cash and due from banks:
January 1 7,656,846 5,318,720
December 31 $ 8,984,814 $ 7,656,846
===========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 9,511,976 $ 6,755,798
===========================
Income taxes $ 490,000 $ 390,091
===========================
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement
of loans $ 245,282 $ 1,639,618
===========================
____________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BCB Financial Services Corporation and
Its Wholly-Owned Subsidiary,
Berks County Bank
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of BCB Financial Services Corporation ("the Company"), a bank
holding company, and its wholly-owned subsidiary, Berks County
Bank ("the Bank"). All significant intercompany accounts and
transactions have been eliminated.
Nature of operations:
The Bank operates under a state bank charter and provides
full banking services. The bank holding company and the Bank are
subject to regulation of the Pennsylvania Department of Banking
and the Federal Reserve Bank. The area served by the Bank is
principally Berks, Montgomery and Schuylkill Counties in
Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks.
Securities:
Securities that management has both the positive intent and
ability to hold to maturity are classified as securities held to
maturity and are carried at cost, adjusted for amortization of
premium or accretion of discount using the interest method.
Securities that may be sold prior to maturity for asset/liability
management purposes, or that may be sold in response to changes
in interest rates, changes in prepayment risk, to increase
regulatory capital or other similar factors, are classified as
securities available for sale and carried at fair value with
adjustments to fair value, after tax, reported as a separate
component of stockholders' equity. Management determines the
appropriate classification of debt securities at the time of
purchase and reevaluates such designation at each balance sheet
date.
Interest and dividends on securities, including the
amortization of premiums and the accretion of discounts, are
reported in interest and dividends on securities using the
interest method. Gains and losses on the sale of securities are
recorded on the trade date and are calculated using the specific
identification method.
Loans receivable:
Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff
are stated at their outstanding unpaid principal balances, net of
an allowance for loan losses and any deferred fees or costs.
Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the yield (interest
income) of the related loans. The Bank is generally amortizing
these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan
agreement. The accrual of interest is generally discontinued
when the contractual payment of principal or interest has become
90 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is
currently performing. A loan may remain on accrual status if it
is in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as
interest income, according to management's judgment as to the
collectibility of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed
to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash flows
using the loan's initial effective interest rate or the fair
value, less selling costs, of the collateral for collateral
dependent loans. By the time a loan becomes probable of
foreclosure it has been charged down to fair value, less
estimated cost to sell.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. Management's periodic evaluation of the adequacy of
the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, composition of the loan
portfolio, current economic conditions and other relevant
factors. This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows expected to
be received on impaired loans.
Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated
fair value. Net unrealized losses are recognized through a
valuation allowance by corresponding charges in the statements of
income. All sales are made without recourse.
Due from mortgage investors:
A division of the Bank performs underwriting and origination
services for various mortgage investors. As part of this
program, the Bank will temporarily fund the investors' mortgage
commitments for periods generally ranging from three to
twenty-one days.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line and
accelerated depreciation methods over their estimated useful
lives.
Foreclosed real estate:
Foreclosed real estate is comprised of property acquired
through a foreclosure proceeding or acceptance of a deed-in-lieu
of foreclosure.
Foreclosed real estate is initially recorded at fair value,
net of estimated selling costs at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the assets are carried
at the lower of cost or fair value, less estimated costs to sell.
Revenues and expenses from operations and changes in the
valuation allowance are included in other expenses.
Advertising costs:
The Bank follows the policy of charging the production costs
of advertising to expense as incurred.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion of the deferred tax
assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on
the date of enactment. The Company and the Bank file a
consolidated federal income tax return.
Earnings per share:
Earnings per common and common equivalent share are computed
based on the weighted average number of common shares and common
equivalent shares outstanding during the year. Stock options are
included as share equivalents, when dilutive, using the treasury
stock method. These common stock equivalents had a dilutive
effect for the years ended December 31, 1996 and 1995.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and commitments
to sell loans. Such financial instruments are recorded in the
consolidated balance sheets when they are funded.
Reclassifications:
Certain items in the 1995 financial statements have been
reclassified to conform to the 1996 financial statement
presentation format. These reclassifications had no effect on
net income.
2. RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances
with the Federal Reserve Bank or in vault cash. The total of
those reserve balances was approximately $1,000,000 and $700,000
at December 31, 1996 and 1995 respectively.
3. SECURITIES
The amortized cost and approximate fair value of securities
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C>
Available for sale securities:
December 31, 1996:
U.S. Treasury securities $ 3,464,778 $ 44,167 $ - $ 3,508,945
U.S. Government agencies and corporations 18,000,000 57,606 (75,149) 17,982,457
States and political subdivisions 23,275,073 141,312 (219,000) 23,197,385
Mortgage-backed and asset-backed
securities 4,356,515 10,941 (35,062) 4,332,394
Equity securities 4,467,470 324 - 4,467,794
$53,563,836 $ 254,350 $ (329,211) $53,488,975
=============================================================
December 31, 1995:
U.S. Treasury securities $ 5,449,850 $ 112,759 $ (3,546) $ 5,559,063
U.S. Government agencies and corporations 3,757,021 27,813 (46,865) 3,737,969
States and political subdivisions 6,977,585 176,908 - 7,154,493
Mortgage-backed and asset-backed
securities 2,806,806 2,860 (36,484) 2,773,182
Equity securities 1,134,450 - - 1,134,450
$20,125,712 $ 320,340 $ (86,895) $20,359,157
=============================================================
Held to maturity securities:
December 31, 1996:
U.S. Government agencies and corporations $24,253,220 $ 138,307 $ (217,406) $24,174,121
States and political subdivisions 10,787,260 173,026 (12,053) 10,948,233
Other 25,000 - - 25,000
$35,065,480 $ 311,333 $ (229,459) $35,147,354
=============================================================
December 31, 1995:
U.S. Government agencies and corporations $ 3,002,260 $ 31,353 $ - $ 3,033,613
States and political subdivisions 6,204,809 142,378 (14,248) 6,332,939
$ 9,207,069 $ 173,731 $ (14,248) $ 9,366,552
=============================================================
</TABLE>
Equity securities are principally comprised of a
Pennsylvania community bank, Federal Home Loan Bank and Federal
Reserve Bank stock.
During 1995, the Bank transferred $500,000 of securities
from securities available for sale to securities held to
maturity. The securities were transferred at their fair value on
the date of transfer which was $4,122 more than the amortized
cost of the securities. This difference, net of taxes of $1,401,
was reflected as unrealized appreciation in stockholders' equity
and is being amortized over the period to maturity of the
respective securities.
The amortized cost and fair value of securities as of
December 31, 1996 , by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid with or without
any penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $ 2,991,908 $ 3,017,057 $ 298,906 $ 301,748
Due after one year through five years 12,472,870 12,445,200 1,958,754 1,972,745
Due after five years through ten years 5,500,000 5,546,721 15,741,656 15,854,476
Due after ten years 23,775,073 23,679,809 17,066,164 17,018,385
Mortgage-backed and asset-backed
securities 4,356,515 4,332,394 - -
Equity securities 4,467,470 4,467,794 - -
$53,563,836 $53,488,975 $35,065,480 $35,147,354
=============================================================
</TABLE>
Gross gains of $1,757 and gross losses of $2,439 were
realized on sales of available for sale securities in 1996. Gross
gains of $ -0- and gross losses of $24,020 were realized on sales
of available for sale securities in 1995.
Securities with an amortized cost of $4,963,000 and
$3,205,000 at December 31, 1996 and 1995 respectively were
pledged as collateral on public deposits and for other purposes
as required or permitted by law.
4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31, 1996 and
1995 were as follows:
1996 1995
Commercial $ 82,885,968 $ 61,215,823
Installment 16,261,387 14,646,121
Mortgage 85,027,169 63,538,149
Construction 9,672,254 8,506,396
193,846,778 147,906,489
Less:
Allowance for loan losses 2,000,612 1,674,057
Net deferred loan fees and
costs (301,507) (58,514)
1,699,105 1,615,543
$192,147,673 $146,290,946
==================================
Changes in the allowance for loan losses for the years ended
December 31, 1996 and 1995 were as follows:
1996 1995
Balance, beginning $ 1,674,057 $ 1,436,945
Provision for loan losses 687,000 517,500
Loans charged off (447,883) (404,827)
Recoveries 87,438 124,439
Balance ending $ 2,000,612 $ 1,674,057
=================================
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $587,483 and $527,198 at
December 31, 1996 and 1995 respectively. The recorded investment
in impaired loans requiring an allowance for loan losses was
$711,861 and $102,824 at December 31, 1996 and 1995 respectively.
At December 31, 1996 and 1995, the related allowance for loan
losses associated with those loans was $252,321 and $18,456
respectively. For the years ended December 31, 1996 and 1995,
the average recorded investment in these impaired loans was
$1,425,975 and $694,318 respectively. There was no interest
income recognized on impaired loans in 1996 or 1995.
5. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1996
and 1995 were as follows:
1996 1995
Land $ 1,487,371 $ 523,989
Building and improvements 2,255,892 2,227,808
Leasehold improvements 63,393 63,393
Equipment 1,424,062 1,297,975
Furniture and fixtures 420,529 377,996
Construction in progress 103,969 -
5,755,216 4,491,161
Less accumulated depreciation 1,360,419 996,543
$ 4,394,797 $ 3,494,618
=================================
6. DEPOSITS
The aggregate amount of certificates of deposit with a
minimum denomination of $100,000 was $12,371,561 and $8,377,643
at December 31, 1996 and 1995 respectively. At December 31,
1996, the scheduled maturities of time deposits are as follows:
1997 $ 61,206,664
1998 13,993,668
1999 31,096,140
2000 6,766,233
2001 and thereafter 9,242,593
$122,305,298
============
7. OTHER BORROWED FUNDS AND LONG-TERM DEBT
The Bank maintains a U.S. Treasury tax and loan note option
account for the deposit of withholding taxes, corporate income
taxes and certain other payments to the federal government.
Deposits are subject to withdrawal and are evidenced by an open-
ended interest-bearing note. Borrowings under this note option
account were $718,399 and $289,940 at December 31, 1996 and 1995
respectively.
The Bank has a flexible line of credit commitment available
from the Federal Home Loan Bank for borrowings of up to
approximately $9,800,000, expiring September 11, 1997. There
were no borrowings under this line of credit at December 31, 1996
and 1995. The line of credit interest rate at December 31, 1996
was 7.23%.
The Bank has other short-term borrowings from the Federal
Home Loan Bank at December 31, 1996 and 1995 in the amount of
$13,000,000 and $2,000,000 respectively. The December 31, 1996
balance outstanding is due in 1997, at an average interest rate
of 5.41%.
Long-term debt consisted of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Advances from the Federal Home Loan Bank
bearing interest at a weighted average
rate of 5.49% and 4.89% as of December 31,
1996 and 1995 respectively $22,000,000 $4,000,000
==========================
</TABLE>
Maturities of long-term debt at December 31, 1996 are as
follows:
1997 $ -
1998 2,000,000
1999 5,000,000
2000 -
2001 15,000,000
$ 22,000,000
=============
The Bank has maximum borrowing capacity with the Federal
Home Loan Bank of approximately $122,490,000. Advances from the
Federal Home Loan Bank are secured by qualifying assets of the
Bank.
8. INCOME TAXES
The provision for federal income taxes for the years ended
December 31, 1996 and 1995 consisted of the following:
1996 1995
Current $ 363,628 $ 410,085
Deferred 68,938 (73,734)
$ 432,566 $ 336,351
=========================
A reconciliation of the statutory income tax at a rate of
34% to the income tax expense in the consolidated statements of
income for the years ended December 31, 1996 and 1995 is as
follows:
1996 1995
Federal income tax at statutory rate $ 794,121 $ 421,168
Tax-exempt interest (435,726) (139,316)
Disallowance of interest expense 61,682 19,952
Other 12,489 34,547
$ 432,566 $ 336,351
=========================
The income tax provision includes $232 in 1996 and $8,167 in
1995 of income tax benefit related to net realized securities
losses.
Net deferred tax assets consisted of the following
components as of December 31, 1996 and 1995:
1996 1995
Deferred tax assets:
Allowance for loan losses $ 333,176 $ 299,163
Interest on non-accrual loans 67,821 44,391
Unrealized depreciation on securi-
ties available for sale 25,453 -
Foreclosed real estate 34,636 60,136
Other 16,096 18,338
477,182 422,028
Deferred tax liabilities:
Premises and equipment 116,843 104,537
Supplies inventory 11,891 8,175
Loan origination fees and costs 102,513 19,895
Unrealized appreciation on securi-
ties available for sale - 80,709
Total deferred tax liabilities 231,247 213,316
Net deferred tax assets $ 245,935 $ 208,712
=========================
9. REDEEMABLE COMMON STOCK
In conjunction with an SEC registration and stock offering
in the Spring of 1994, the Company effected a rescission offer to
past purchasers of treasury stock. Under the terms of the
rescission offer, past purchasers of selected treasury stock had
the right to sell their shares back to the Company at their cost
plus a nominal interest amount from the date of purchase. The
redeemable common stock was stated at the amount of the
redemption value of the remaining rescission shares outstanding.
10. RETIREMENT SAVINGS PLAN - 401(K)
The Bank has adopted a 401(k) plan which covers employees
who meet the eligibility requirements of having worked 1,000
hours in a plan year and have attained the age of 21.
Participants are permitted to contribute from 1% to 15% of
compensation. The Bank will match 75% of the participant's
contributions up to a maximum match of 4.5%. The expense related
to the Bank's 401(k) plan was $80,851 and $56,642 for the years
ended December 31, 1996 and 1995 respectively.
11. OTHER EXPENSES
The following represents the most significant categories of
other expenses for the years ended December 31, 1996 and 1995:
1996 1995
Advertising $ 593,925 $ 319,672
EDP outsourcing and MAC fees 367,242 252,794
Office supplies and expenses 372,149 342,358
Professional fees 160,806 260,732
Foreclosed real estate expenses 300,892 222,064
All other expenses 827,279 799,780
$2,622,293 $2,197,400
12. STOCK OPTIONS AND GRANTS
The Company has adopted various qualified and non-qualified
stock option plans during 1989, 1994 and 1996 with approximately
200,000 shares of common stock reserved for options to key
employees and non-employee directors. The option prices under
the plans are the fair market value of the common stock on the
date the options are granted and an option's maximum term is
generally ten years.
The 1996 stock option plan (the "Plan") includes provisions
for Non-employee Director Stock Options and Incentive Stock
Options for officers and key employees. Under the Plan,
Incentive Stock Options are granted at the discretion of the
Board of Directors.
On October 22, 1996, a one-time grant of options to purchase
54,000 shares of common stock was granted to non-employee
directors and options to purchase 30,600 shares were granted to
officers and key employees, subject to stockholder approval, at
the fair value of the common stock on the date of grant. All
options are exercisable six months after the date of grant.
Stock option transactions under these plans were as follows
for the years ended December 31, 1996 and 1995:
1996 1995
Options outstanding, beginning 62,321 65,239
Options granted 84,600 -
Options exercised, at prices ranging
from $6.93 to $11.79 per share (2,964) (2,918)
Options outstanding, ending 143,957 62,321
=========================
Options exercisable 59,357 62,321
=========================
Stock options outstanding at December 31, 1996 are
exercisable at prices ranging from $6.93 to $12.40 a share.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized for options granted in
1996. Had compensation cost for stock options granted in 1996
been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the
pro-forma amounts indicated below:
Net income, as reported $1,903,085
=========
Net income, pro forma $1,744,844
=========
Earnings per share, as reported $ 0.91
=========
Earnings per share, pro forma $ 0.84
=========
The fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following weighted-
average assumptions: risk-free interest rate of 6.2%, 10.48%
volatility, and an expected life of five years. The weighted-
average fair value of options granted was $2.52 per share for
both the Non-employee Directors and Incentive Stock Options.
One of the Company's officers is entitled to receive a grant
of 992 shares of the Company's common stock at the end of each 12
months of employment under his employment agreement. The fair
value of the stock grant is recorded each year as compensation
expense.
13. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense:
The Bank rents facilities under lease agreements which
expire between 1997 and 2009, and require various minimum annual
rentals.
The total minimum rental commitment at December 31, 1996 is
approximately $980,000 which is due as follows:
During the year ending December 31:
1997 $225,000
1998 165,000
1999 68,000
2000 46,000
2001 47,000
Later years 429,000
$980,000
========
The total rental expense included in the income statements
for the years ended December 31, 1996 and 1995 is $336,760 and
$320,143 respectively.
Contingencies:
The Company is a defendant in various lawsuits wherein
various amounts are claimed. In the opinion of the Company's
management, these suits are without merit and should not result
in judgments which, in the aggregate, would have a material
adverse effect on the Company's consolidated financial
statements.
Construction in progress:
At December 31, 1996, the Bank has construction projects in
progress to build two branch offices on land owned in Muhlenberg
and Shillington. Costs incurred through December 31, 1996 on
these projects are included in premises and equipment as
construction in progress. The estimated cost to complete these
projects is approximately $1,200,000 at December 31, 1996.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit, letters of credit and
commitments to sell loans. Those instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess
of the amount recognized in the balance sheets.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and letters of credit is represented
by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial
instrument commitments at December 31, 1996 and 1995 is as
follows:
1996 1995
Commitments to extend credit $31,141,000 $23,850,000
Outstanding letters of credit 1,102,000 1,215,000
Commitments to sell loans - -
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. Since many of the commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The Bank
evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include
personal or commercial real estate, accounts receivable,
inventory and equipment.
Outstanding letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
Commitments to sell loans are to the Federal National
Mortgage Association and other mortgage investors. These
commitments are generally met through mortgage originations in
the normal course of business.
15. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans
to customers primarily located in Berks, Montgomery and
Schuylkill Counties in Pennsylvania. The concentrations of
credit by type of loan are set forth in Note 4. Although the
Bank has a diversified loan portfolio, its debtors' ability to
honor their contracts is influenced by the region's economy.
16. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had, and may be expected to have in the future,
banking transactions in the ordinary course of business with its
executive officers and directors and their related interests on
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others.
At December 31, 1996 and 1995, these persons were indebted to the
Bank for loans totaling $2,898,000 and $2,684,000 respectively.
During 1996, $2,670,000 of new loans were made; repayments
totaled $1,194,000. Other changes decreased the loans
outstanding by $1,262,000.
17. STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
During 1995, the Company established a dividend reinvestment
and stock purchase plan available to stockholders who elect to
reinvest their cash dividends and, from time to time, as the
Board of Directors of the Company may in its discretion
determine, voluntary cash payments for the purchase of additional
shares of the Company's common stock. The common stock may be
purchased in the open market or from authorized but unissued
shares, substantially at prevailing market prices. The Company
has reserved 200,000 shares of common stock for possible issuance
under the plan. Stock purchases under the plan totaled 6,486 and
1,434 shares in 1996 and 1995 respectively. All purchases were
made in the open market.
18. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
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 must meet
specific capital guidelines that involve quantitative measures of
its assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts and
ratios (set forth below) of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets, and of Tier 1
capital to average assets. Management believes, as of
December 31, 1996, that the Company and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from
the Federal Reserve Bank categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
The actual capital amounts and ratios are also presented in
the table below:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Minimum Minimum Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk weighted assets)
Company $21,752 11.44% $ 15,208 8.00% N/A N/A
Bank 19,873 10.46 15,205 8.00 $ 19,006 10.00%
Tier I capital (to risk weighted assets)
Company 19,751 10.39 7,604 4.00 N/A N/A
Bank 17,872 9.40 7,602 4.00 11,403 6.00
Tier I capital (to average assets)
Company 19,751 6.82 11,579 4.00 N/A N/A
Bank 17,872 6.18 11,572 4.00 14,465 5.00
As of December 31, 1995:
Total capital (to risk weighted assets)
Company $19,753 13.58% $ 11,637 8.00% N/A N/A
Bank 17,543 12.06 11,637 8.00 $ 14,546 10.00%
Tier I capital (to risk weighted assets)
Company 18,079 12.43 5,818 4.00 N/A N/A
Bank 15,869 10.91 5,818 4.00 8,728 6.00
Tier I capital (to average assets)
Company 18,079 9.30 7,772 4.00 N/A N/A
Bank 15,869 8.17 7,772 4.00 9,715 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends
that may be paid. Under current banking laws, the Bank would be
limited to approximately $2,886,000 of dividends in 1997 plus an
additional amount equal to the Bank's net profit for 1997, up to
the date of any such dividend declaration.
In October 1996, the Board of Directors declared a 6 for 5
stock split, to be effectuated as a 20% stock dividend, with a
record date of November 5, 1996, payable on November 19, 1996.
All per share amounts, weighted average shares outstanding and
stock options in the accompanying consolidated financial
statements have been adjusted to give retroactive effect to the
stock dividend. In December 1996, the Company declared a $.06 per
share cash dividend to stockholders of record on January 2, 1997,
payable January 20, 1997.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Company
could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured
as of their respective year ends, and have not been reevaluated
or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the
estimated fair values of these financial instruments subsequent
to the respective reporting dates may be different than the
amounts reported at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a fair
value calculation is only provided for a limited portion of the
Company's assets. Due to a wide range of valuation techniques
and the degree of subjectivity used in making the estimates,
comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and
assumptions were used to estimate the fair values of the
Company's financial instruments at December 31, 1996 and 1995:
Cash, federal funds sold and interest-bearing deposits with
banks: The carrying amounts reported in the balance sheet for
cash and short-term instruments approximate those assets' fair
values.
Securities: Fair values for securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable securities.
Loans receivable: For variable-rate loans that reprice
frequently and with no significant change in credit risk, fair
values are based on carrying values. The fair values for fixed
rate loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Mortgage loans held for sale: The fair values of the Bank's
mortgages held for sale are based on quoted market prices of
similar loans sold.
Due from mortgage investors: The carrying amounts of due
from mortgage investors approximate their fair values.
Accrued interest receivable: The carrying amounts of
accrued interest receivable approximate their fair values.
Deposit liabilities: The fair value of demand deposits,
savings accounts and certain money market accounts is the amount
payable on demand at the reporting date. The carrying amounts
for variable-rate fixed-term money market accounts and
certificates of deposits approximate their fair values at the
reporting date. The fair value of fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered for deposits
of similar remaining maturities.
Accrued interest payable: The carrying amounts of accrued
interest payable approximate their fair values.
Other borrowed funds: The carrying amounts of short-term
borrowings approximate their fair values.
Long-term debt: The fair values of the Bank's long-term
debt are estimated using discounted cash flow analyses, based on
the Bank's current incremental borrowing rates for similar types
of borrowing arrangements.
Off-balance sheet instruments: The fair values of the
Bank's commitments to extend credit and outstanding letters of
credit are estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms
of the agreements and the counterparties' credit standing.
The estimated fair value of the Company's financial
instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 8,985 $ 8,985 $ 7,657 $ 7,657
Interest-bearing deposits with banks 21,407 21,407 10,043 10,043
Federal funds sold 1,290 1,290 3,045 3,045
Securities 88,554 88,636 29,566 29,726
Loans receivable, net 192,148 193,674 146,291 148,238
Mortgage loans held for sale 609 609 453 453
Due from mortgage investors 3,478 3,478 3,204 3,204
Accrued interest receivable 2,129 2,129 1,226 1,226
Financial Liabilities:
Deposits 264,323 263,910 179,938 180,643
Accrued interest payable 1,141 1,141 844 844
Other borrowed funds 13,718 13,718 2,290 2,290
Long-term debt 22,000 21,854 4,000 3,876
Off-Balance Sheet Financial Instruments:
Commitments to extend credit - - - -
Outstanding letters of credit - - - -
Commitments to sell loans - - - -
20. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 1995
==============================================================================
<S> <C> <C>
ASSETS
Cash $ 1,968,072 $ 2,353,206
Investment in bank subsidiary 17,825,193 16,084,504
Securities available for sale 363,243 -
Other assets 113,829 85,520
$20,270,337 $18,523,230
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 566,668 $ 98,690
Redeemable common stock - 129,969
Stockholders' equity 19,703,669 18,294,571
$20,270,337 $18,523,230
=========================
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31, 1996 1995
==============================================================================
<S> <C> <C>
Expenses $ (66,507) $ (55,406)
Federal income tax benefit 22,612 18,838
Equity in undistributed net income of
bank subsidiary 1,946,980 938,946
Net income $ 1,903,085 $ 902,378
=========================
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995
==============================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,903,085 $ 902,378
Undistributed earnings of bank subsidiary (1,946,980) (938,946)
(Increase) decrease in other assets (28,309) 46,989
Increase (decrease) in other liabilities 429,791 (18,156)
Net cash provided by (used in)
operating activities 357,587 (7,735)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (362,920) -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 18,150 21,704
Additional investment in bank subsidiary - (2,000,004)
Cash payments for fractional shares in
connection with stock dividend (1,381) (3,503)
Cash dividends (396,570) (311,578)
Net cash used in financing activities (379,801) (2,293,381)
Net decrease in cash (385,134) (2,301,116)
CASH:
Beginning 2,353,206 4,654,322
Ending $ 1,968,072 $2,353,206
=========================
</TABLE>
<PAGE>
_______________________________ ______________________________
No dealer, salesperson or any
other individual has been
authorized to give any
information or make any 1,000,000 shares
representations not contained
in this Prospectus in
connection with the offering
covered by this Prospectus. BCB Financial Services
If given or made, such Corporation
information or representations
must not be relied on as having
been authorized by the Company
or _________________. This Common Stock
Prospectus does not constitute
an offer to sell, or a
solicitation of an offer to
buy, the Common Stock in any
jurisdiction where, or to any
person to whom, it is unlawful ____________
to make such offer or
solicitation. Neither the PROSPECTUS
delivery of this Prospectus ____________
nor any sale made hereunder
shall, under any circumstances,
create an implication that
there has not been any change
in the facts set forth in this
Prospectus or in the affairs of _______________________
the Company since the date _____________
hereof. Until ______,1997 ________________
all dealers effecting
transactions in the registered
securities, whether or not
participating in this June __, 1997
distribution, may be required
to deliver a prospectus. This
is in addition to the
obligation of dealers to
deliver a prospectus when
acting as underwriters and with JANNEY MONTGOMERY SCOTT INC.
respect to their unsold
allotments or subscriptions. WHEAT FIRST BUTCHER SINGER
____________
Table of Contents
Page
Available Information... 3
Prospectus Summary...... 5
Risk Factors............ 12
Use of Proceeds......... 14
Market for Common Stock
and Related
Shareholder Matters... 14
Capitalization.......... 16
Management's Discussion
and Analysis of
Financial Condition
and Results of
Operations............ 17
Business................ 40
Management.............. 60
Security Ownership of
Certain Beneficial
Owners and Manaement.. 63
Executive Compensation.. 65
Certain Relationships
and Related
Transactions.......... 70
Description of Common
Stock................. 71
Underwriting............ 72
Indemnification......... 74
Legal Matters........... 74
Experts................. 74
Index to Consolidated
Financial Statements.. F-1
______________________________ ______________________________
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The bylaws of the Company and the Bank provide for
(1) indemnification of directors, officers, employees and agents
of the registrant and (2) the elimination of a director's
liability for monetary damages, to the fullest extent permitted
by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by the Company and the Bank.
Item 25. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission registration fee... $ 5,402
NASD fees............................................. 20,000*
Attorneys' fees and expenses.......................... 150,000
Printing.............................................. 50,000*
Accountants' fees and expenses........................ 50,000*
Blue Sky fees and expenses............................ 5,000*
Unaccountable Expense Reimbursement to Underwriters... 150,000
Miscellaneous......................................... 19,598*
Total............................................... $450,000
- ---------------
*Estimated
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
The following exhibits are filed herewith or incorporated by
reference herein as part of the Registration Statement:
1.1* Underwriting Agreement.
3.1 Articles of Incorporation of BCB Financial
Services Corporation, as amended, incorporated
herein by reference to Exhibit 3.1 of the
Registration Statement No. 33-76748 on Form SB-2
of the Registrant.
3.2 Bylaws of BCB Financial Services Corporation
incorporated herein by reference to Exhibit 3.2 of
the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant.
4.1 Specimen Common Stock Certificate, incorporated
herein by reference to Exhibit 99.2 of the
Registration Statement No. 33-76748 on Form SB-2
of the Registrant.
5.1* Opinion of Stevens & Lee re: Legality of Common
Stock.
10.1 Lease, dated November 1, 1988, between Berks
County Bank and Madison Avenue Associates, as
amended, incorporated herein by reference to
Exhibit 10.1 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.2 Indenture of Lease, dated August 2, 1989, between
Windon Twelfth Real Estate Limited Partnership and
Berks County Bank, incorporated herein by
reference to Exhibit 10.2 of the Registration
Statement No. 33-76748 on Form SB-2 of the
Registrant.
10.3 Lease Agreement, dated August 4, 1989, between
Berks County Bank and Mary Beth Speicher and Kathy
Susan Gees-Larue, incorporated herein by reference
to Exhibit 10.3 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.4 Option and Lease Agreement, dated January 25,
1993, by and between Berks County Bank and Richard
L. Henry, Jr., incorporated herein by reference to
Exhibit 10.5 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.5 1988 Incentive Stock Option Plan of BCB Financial
Services Corporation, incorporated herein by
reference to Exhibit 10.6 of the Registration
Statement No. 33-76748 on Form SB-2 of the
Registrant. **
10.6 1989 Stock Option Plan of BCB Financial Services
Corporation, incorporated herein by reference to
Exhibit 10.7 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.7 1994 Stock Option Plan of BCB Financial Services
Corporation, incorporated herein by reference to
Exhibit 10.8 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.8 Executive Employment Agreement, dated January 1,
1989, among BCB Financial Services Corporation,
Berks County Bank and Nelson R. Oswald,
incorporated herein by reference to Exhibit 10.9
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant. **
10.9 Executive Employment Agreement, dated December 31,
1991, among BCB Financial Services Corporation,
Berks County Bank and Robert D. McHugh, Jr.,
incorporated herein by reference to Exhibit 10.10
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant. **
10.10 401(k) Plan of BCB Financial Services Corporation,
incorporated herein by reference to Exhibit 10.11
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant.
10.11 Amendment to Executive Employment Agreement, dated
January 1, 1989, among BCB Financial Services
Corporation, Berks County Bank and Nelson R.
Oswald, incorporated herein by reference to
Exhibit 10.12 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.12 Amendment to Executive Employment Agreement, dated
December 31, 1991, among BCB Financial Services
Corporation, Berks County Bank and Robert D.
McHugh, Jr., incorporated herein by reference to
Exhibit 10.13 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.13 Amendment to Lease, dated October 10, 1994,
between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank,
incorporated herein by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.14 Amendment to Lease, dated November 9, 1994,
between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank,
incorporated herein by reference to Exhibit 10.15
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.15 Sublease Agreement, dated February 14, 1995, by
and between Berkshire Travel Agency, Inc. and
Berks County Bank, incorporated herein by
reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994.
10.16 Agreement of Trust of Berks Mortgage Company,
dated November 7, 1994, by and between Berks
Mortgage Corporation and Berks County Bank,
incorporated herein by reference to Exhibit 10.17
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.17 Amendment to Option and Lease Agreement dated
November 25, 1994, by and between Berks County
Bank and Richard L. Henry, Jr., incorporated
herein by reference to Exhibit 10.18 of the
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.18 BCB Financial Services Corporation Shareholder
Automatic Dividend Reinvestment and Stock Purchase
Plan, incorporated herein by reference to Exhibit
99.1 of the Registration Statement No. 33-955002
on Form S-3 of the registrant.
10.19 Amendment to Lease, dated July 27, 1995, between
Crown Life Insurance Company and Berks County
Bank, incorporated herein by reference to Exhibit
10.20 of the Company's annual report on Form
10-KSB for the year ended December 31, 1995
10.20 Amendment to lease, dated January 22, 1996,
between Crown Life Insurance Company and Berks
County Bank, incorporated herein by reference to
Exhibit 10.21 of the Company's annual report on
form 10-KSB for the year ended December 31, 1995.
10.21 Amendment to Agreement of Trust of Berks Mortgage
Company, dated November 7, 1994, by and between
Berks Mortgage Corporation and Berks County Bank
incorporated herein by reference to Exhibit 10.22
of the Company's Annual Report on form 10-KSB for
the year ended December 31, 1995.
10.22 Option and Lease/Purchase Agreement, dated
August 13, 1996, by and between Berks County Bank
and Richard J. Webb, incorporated herein by
reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-QSB for the period
ended September 30, 1996.
10.23 Option and Lease/Purchase Agreement, dated
August 30, 1996, by and between Berks County Bank
and John C. Gordon and Betty L. Gordon,
incorporated herein by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1996.
10.24 Amendment to Lease, dated May 29, 1996, by and
between Crown Life Insurance Company and Berks
County Bank, incorporated herein by reference to
Exhibit 10.24 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1996.
10.25 Amendment to Lease, dated February 4, 1997, by and
between Madison Reading Associates L. L.C. and
Berks County Bank, incorporated herein by
reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
10.26 Lease Agreement, dated December 1, 1996, between
George R. Vincent and Berks County Bank,
incorporated herein by reference to Exhibit 10.26
of the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.
10.27 BCB Financial Services Corporation Deferred
Compensation Plan, incorporated herein by
reference to Exhibit 10.27 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1996.**
11.1 Statement regarding computation of per share
earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1996.
11.2 Statement regarding computation of per share
earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Quarterly Report on
Form 10-QSB/A No. 1 for the quarter ended
March 31, 1997.
21.1 List of Subsidiaries of BCB Financial Services
Corporation, included herein, incorporated herein
by reference to Exhibit 21.1 of the Company's
Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
23.1 Consent of Stevens & Lee (included in
Exhibit 5.1).
23.2 Consent of Beard & Company, Inc., independent
auditors.
24.1 Power of Attorney (included on signature page).
________________
*To be filed by amendment.
**Denotes compensatory plan or arrangement.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
The registrant hereby undertakes:
(a) For purposes of determining any liability under
the Securities Act, the information omitted from
the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the
registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be
part of this registration statement as of the time
the Commission declared it effective.
(b) For purposes of determining any liability under
the Securities Act, each post-effective amendment
that contains a form of prospectus shall be deemed
to be a new registration statement for the
securities offered in the registration statement,
and the offering of such securities at that time
shall be deemed to be the initial bona fide
offering of those securities.<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on
Form SB-2 and authorized this registration statement to be signed
on its behalf by the undersigned, in the City of Reading,
Commonwealth of Pennsylvania on May 22, 1997.
BCB FINANCIAL SERVICES CORPORATION
(Registrant)
Date: May 22, 1997 By /s/ Nelson R. Oswald
Nelson R. Oswald,
Chairman of the Board,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Nelson R.
Oswald, Robert D. McHugh, Jr., or Jeffrey P. Waldron, Esquire,
and each of them, his true and lawful attorney-in-fact, as agent
with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacity, to sign any
or all amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting to such attorney-in-fact and agents full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as they might
or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following
person in the capacities and on the dates stated.
Signature Title Date
/s/ Nelson R. Oswald Director and Chairman May 22, 1997
Nelson R. Oswald Board and President
(Principal Executive
Officer)
/s/ Robert D. McHugh, Jr. Senior Vice President/ May 22, 1997
Robert D. McHugh, Jr. Treasurer (Principal
Financial Officer)
/s/ Donna L. Rickert Controller May 22, 1997
Donna L. Rickert (Principal Accounting
Officer)
/s/ Harold C. Bossard Director and Secretary May 22, 1997
Harold C. Bossard
/s/ Edward J. Edwards Director May 20, 1997
Edward J. Edwards
/s/ Lewis R. Frame, Jr. Director May 20, 1997
Lewis R. Frame, Jr.
/s/ Ivan H. Gordon Director May 22, 1997
Ivan H. Gordon
/s/ Jeffrey W. Hayes Director May 20, 1997
Jeffrey W. Hayes
/s/ Alfred B. Mast Director May 20, 1997
Alfred B. Mast
/s/ Wesley R. Pace Director May 19, 1997
Wesley R. Pace
/s/ Floyd S. Weber Director May 22, 1997
Floyd S. Weber
/s/ Randall S. Weeber Director May 20, 1997
Randall S. Weeber
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
1.1* Underwriting Agreement.
3.1 Articles of Incorporation of BCB Financial
Services Corporation, as amended, incorporated
herein by reference to Exhibit 3.1 of the
Registration Statement No. 33-76748 on Form SB-2
of the Registrant.
3.2 Bylaws of BCB Financial Services Corporation
incorporated herein by reference to Exhibit 3.2 of
the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant.
4.1 Specimen Common Stock Certificate, incorporated
herein by reference to Exhibit 99.2 of the
Registration Statement No. 33-76748 on Form SB-2
of the Registrant.
5.1* Opinion of Stevens & Lee re: Legality of Common
Stock.
10.1 Lease, dated November 1, 1988, between Berks
County Bank and Madison Avenue Associates, as
amended, incorporated herein by reference to
Exhibit 10.1 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.2 Indenture of Lease, dated August 2, 1989, between
Windon Twelfth Real Estate Limited Partnership and
Berks County Bank, incorporated herein by
reference to Exhibit 10.2 of the Registration
Statement No. 33-76748 on Form SB-2 of the
Registrant.
10.3 Lease Agreement, dated August 4, 1989, between
Berks County Bank and Mary Beth Speicher and Kathy
Susan Gees-Larue, incorporated herein by reference
to Exhibit 10.3 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.4 Option and Lease Agreement, dated January 25,
1993, by and between Berks County Bank and Richard
L. Henry, Jr., incorporated herein by reference to
Exhibit 10.5 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.5 1988 Incentive Stock Option Plan of BCB Financial
Services Corporation, incorporated herein by
reference to Exhibit 10.6 of the Registration
Statement No. 33-76748 on Form SB-2 of the
Registrant. **
10.6 1989 Stock Option Plan of BCB Financial Services
Corporation, incorporated herein by reference to
Exhibit 10.7 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.7 1994 Stock Option Plan of BCB Financial Services
Corporation, incorporated herein by reference to
Exhibit 10.8 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.8 Executive Employment Agreement, dated January 1,
1989, among BCB Financial Services Corporation,
Berks County Bank and Nelson R. Oswald,
incorporated herein by reference to Exhibit 10.9
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant. **
10.9 Executive Employment Agreement, dated December 31,
1991, among BCB Financial Services Corporation,
Berks County Bank and Robert D. McHugh, Jr.,
incorporated herein by reference to Exhibit 10.10
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant. **
10.10 401(k) Plan of BCB Financial Services Corporation,
incorporated herein by reference to Exhibit 10.11
of the Registration Statement No. 33-76748 on Form
SB-2 of the Registrant.
10.11 Amendment to Executive Employment Agreement, dated
January 1, 1989, among BCB Financial Services
Corporation, Berks County Bank and Nelson R.
Oswald, incorporated herein by reference to
Exhibit 10.12 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.12 Amendment to Executive Employment Agreement, dated
December 31, 1991, among BCB Financial Services
Corporation, Berks County Bank and Robert D.
McHugh, Jr., incorporated herein by reference to
Exhibit 10.13 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.13 Amendment to Lease, dated October 10, 1994,
between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank,
incorporated herein by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.14 Amendment to Lease, dated November 9, 1994,
between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank,
incorporated herein by reference to Exhibit 10.15
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.15 Sublease Agreement, dated February 14, 1995, by
and between Berkshire Travel Agency, Inc. and
Berks County Bank, incorporated herein by
reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-KSB for the year ended
December 31, 1994.
10.16 Agreement of Trust of Berks Mortgage Company,
dated November 7, 1994, by and between Berks
Mortgage Corporation and Berks County Bank,
incorporated herein by reference to Exhibit 10.17
of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
10.17 Amendment to Option and Lease Agreement dated
November 25, 1994, by and between Berks County
Bank and Richard L. Henry, Jr., incorporated
herein by reference to Exhibit 10.18 of the
Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.18 BCB Financial Services Corporation Shareholder
Automatic Dividend Reinvestment and Stock Purchase
Plan, incorporated herein by reference to Exhibit
99.1 of the Registration Statement No. 33-955002
on Form S-3 of the registrant.
10.19 Amendment to Lease, dated July 27, 1995, between
Crown Life Insurance Company and Berks County
Bank, incorporated herein by reference to Exhibit
10.20 of the Company's annual report on Form
10-KSB for the year ended December 31, 1995
10.20 Amendment to lease, dated January 22, 1996,
between Crown Life Insurance Company and Berks
County Bank, incorporated herein by reference to
Exhibit 10.21 of the Company's annual report on
form 10-KSB for the year ended December 31, 1995.
10.21 Amendment to Agreement of Trust of Berks Mortgage
Company, dated November 7, 1994, by and between
Berks Mortgage Corporation and Berks County Bank
incorporated herein by reference to Exhibit 10.22
of the Company's Annual Report on form 10-KSB for
the year ended December 31, 1995.
10.22 Option and Lease/Purchase Agreement, dated
August 13, 1996, by and between Berks County Bank
and Richard J. Webb, incorporated herein by
reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-QSB for the period
ended September 30, 1996.
10.23 Option and Lease/Purchase Agreement, dated
August 30, 1996, by and between Berks County Bank
and John C. Gordon and Betty L. Gordon,
incorporated herein by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1996.
10.24 Amendment to Lease, dated May 29, 1996, by and
between Crown Life Insurance Company and Berks
County Bank, incorporated herein by reference to
Exhibit 10.24 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1996.
10.25 Amendment to Lease, dated February 4, 1997, by and
between Madison Reading Associates L. L.C. and
Berks County Bank, incorporated herein by
reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
10.26 Lease Agreement, dated December 1, 1996, between
George R. Vincent and Berks County Bank,
incorporated herein by reference to Exhibit 10.26
of the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.
10.27 BCB Financial Services Corporation Deferred
Compensation Plan, incorporated herein by
reference to Exhibit 10.27 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1996.**
11.1 Statement regarding computation of per share
earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1996.
11.2 Statement regarding computation of per share
earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Quarterly Report on
Form 10-QSB/A No. 1 for the quarter ended
March 31, 1997.
21.1 List of Subsidiaries of BCB Financial Services
Corporation, included herein, incorporated herein
by reference to Exhibit 21.1 of the Company's
Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
23.1 Consent of Stevens & Lee (included in
Exhibit 5.1).
23.2 Consent of Beard & Company, Inc., independent
auditors.
24.1 Power of Attorney (included on signature page).
_______________
* To be filed by amendment.
** Denotes compensatory plan or arrangement.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement
on Form SB-2 of our report, dated January 31, 1997, relating to
the consolidated financial statements of BCB Financial Services
Corporation and its wholly-owned subsidiary, Berks County Bank.
We also consent to the reference to our Firm under the captions
"Experts" and "Summary Selected Consolidated Financial Data" in
the Prospectus.
/s/ BEARD & COMPANY, INC.
Reading, Pennsylvania
May 22, 1997
