SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for Quarterly period ended
June 30, 1997
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ______ to ____________.
No. 0-24114
(Commission File Number)
BCB FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 232444807
(State of Incorporation) (IRS Employer ID Number)
400 WASHINGTON STREET, READING, PA 19601
(Address of Principal Executive Offices) (Zip Code)
(610) 376-5933
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of Shares Outstanding as of July 31, 1997
COMMON STOCK ($2.50 Par Value) 3,459,473
(Title of Class) (Outstanding Shares)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
FORM 10-QSB
For the Quarter Ended June 30, 1997
Contents
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3-4
Consolidated Statements of Income 5
for the Six and Three Month Periods
ended June 30, 1997 and 1996
Consolidated Statements of Stockholders'
Equity for the Six-Month Period
Ended June 30, 1997 6
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 30,
1997 and 1996 7-8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-28
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security
Holders 29-30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
1997 1996
(Unaudited)
Cash and due from banks $ 13,542,805 $ 8,984,814
Interest-bearing deposits with
banks 214,179 21,407,097
Federal funds sold 250,000 1,290,000
Securities available for sale 94,510,552 53,488,975
Securities held to maturity, fair
value June 30, 1997 $38,746,832;
December 31, 1996 $35,147,354 38,631,431 35,065,480
Loans receivable, net of allowance
for loan losses June 30, 1997
$2,324,495; December 31, 1996
$2,000,612 223,425,469 192,147,673
Mortgages held for sale 455,838 609,397
Due from mortgage investors 4,908,131 3,478,353
Bank premises and equipment, net 6,039,412 4,394,797
Accrued interest receivable 3,018,246 2,129,185
Foreclosed real estate 145,772 761,500
Deferred income taxes 412,781 245,935
Other assets 719,928 519,096
TOTAL ASSETS $386,274,544 $324,522,302
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 36,972,481 $ 29,048,391
Demand, interest bearing 140,545,618 100,846,581
Savings 9,425,550 12,123,061
Time deposits 135,175,008 122,305,298
TOTAL DEPOSITS 322,118,657 264,323,331
Accrued interest payable and other
liabilities 4,521,910 4,776,903
Other borrowed funds 27,043,564 13,718,399
Long-term debt 12,000,000 22,000,000
TOTAL LIABILITIES 365,684,131 304,818,633
Stockholders' equity:
Common stock, par value $2.50
per share; authorized
20,000,000 shares; issued and
outstanding June 30, 1997
2,078,673 shares; December 31,
1996 2,070,385 shares 5,196,683 5,175,963
Surplus 9,983,756 9,876,483
Retained earnings 5,606,666 4,700,631
Net unrealized (depreciation)
on securities available for
sale, net of taxes (196,692) (49,408)
TOTAL STOCKHOLDERS' EQUITY 20,590,413 19,703,669
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $386,274,544 $324,522,302
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Six Months Ended For the Three Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income:
Loan Receivable, including fees $ 8,517,218 $6,497,880 $4,436,464 $3,368,673
Interest and dividends on securities:
U.S. Treasury 104,684 138,313 46,315 68,431
U.S. Government agencies and
corporations 2,286,700 458,949 1,374,336 311,637
State and political subdivisions,
tax exempt 905,903 511,255 438,069 306,311
Dividends 117,711 37,913 71,057 23,497
Interest-bearing deposits with banks 186,227 288,294 39,457 79,120
Interest on federal funds sold 21,042 84,857 6,439 21,760
Total interest income 12,139,485 8,017,461 6,412,137 4,179,429
Interest expense:
Deposits 6,090,812 4,201,175 3,217,028 2,141,070
Other borrowed funds 308,972 39,318 218,775 13,386
Long-term debt 461,697 99,886 174,094 54,220
Total interest expense 6,861,481 4,340,379 3,609,897 2,208,676
Net interest income 5,278,004 3,677,082 2,802,240 1,970,753
Provision for loan losses 501,500 325,000 260,500 245,000
Net interest income after
provision for loan losses 4,776,504 3,352,082 2,541,740 1,725,753
Other income:
Customer service fees 452,695 311,903 238,676 169,521
Mortgage banking activities 344,029 259,268 220,677 144,627
Net realized (loss) gain on sale of
securities (4,465) (682) 1,109 ---
Other 21,468 9,615 15,862 2,260
Total other income 813,727 580,104 476,324 316,408
Other expenses:
Salaries and wages 1,629,878 987,708 884,563 489,654
Employee benefits 400,327 265,591 218,023 141,269
Occupancy 322,870 274,304 173,583 135,584
Equipment depreciation and maintenance 252,522 204,891 131,671 97,718
Other operating expenses 1,519,337 1,239,710 762,526 668,620
Total other expenses 4,124,934 2,972,204 2,170,366 1,532,845
Income before income taxes 1,465,297 959,982 847,698 509,316
Federal income taxes 268,760 181,051 163,679 85,542
Net Income $ 1,196,537 $ 778,931 $ 684,019 $ 423,774
Earnings per common and common
equivalent share $ 0.56 $ 0.37 $ 0.32 $ 0.20
Weighted average common and common
equivalent shares outstanding 2,125,011 2,083,942 2,125,077 2,085,416
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 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 1,664 shares of common stock upon exercise
of stock options 4,160 8,026 --- --- 12,186
Issuance of 6,624 shares of common stock under dividend
reinvestment plan 16,560 99,247 --- --- 115,807
Net change in unrealized depreciation on securities
available for sale, net of taxes --- --- --- (147,284) (147,284)
Cash dividends --- --- (290,502) --- (290,502)
Net income --- --- 1,196,537 --- 1,196,537
Balance, June 30, 1997 $5,196,683 $9,983,756 $5,606,666 ($196,692) $20,590,413
</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 (Unaudited)
For the Six Months Ended
June 30, June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,196,537 $ 778,931
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan and foreclosed
real estate losses 571,261 362,613
Provision for depreciation and
amortization 235,329 184,598
Net realized loss on sale of
securities 4,465 682
Proceeds from sale of mortgage
loans 20,086,562 15,496,050
Net loss on sale of mortgage
loans 9,983 8,288
Mortgage loans originated for
sale (20,090,150) (15,487,762)
Net amortization of securities
premiums and discounts (19,217) (30,040)
(Increase) decrease in:
Due from mortgage investors (1,429,778) 1,603,713
Accrued interest receivable (889,061) (376,270)
Deferred income taxes (90,973) (35,393)
Other assets 31,518 (222,210)
Increase in accrued interest
payable and other liabilities 898,473 535,357
Net cash provided by operating
activities 514,949 2,818,557
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds for sales of securities
available for sale 4,197,254 2,882,065
Proceeds from maturities of and
principal repayments on
securities available for sale 5,431,980 106,846
Proceeds from maturities of
securities held to maturity 1,440,000 1,165,000
Purchases of securities available
for sale (52,278,205) (8,668,677)
Purchases of securities held to
maturity (4,994,062) (16,564,129)
Decrease in interest-bearing
deposits with banks 21,192,918 3,272,559
Net decrease in federal funds sold 1,040,000 1,721,000
Loans made to customers, net of
principal collected (31,897,074) (24,990,186)
Proceeds from sales of
foreclosed real estate 810,909 31,637
Purchases of bank premises and
equipment (1,879,944) (55,305)
Net cash used in investing
activities (56,936,224) (41,099,190)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 57,795,326 44,771,910
Proceeds from (repayment of) other
borrowed funds 13,325,165 (1,267,059)
Principal payments of long-term
borrowings (10,000,000) ---
Proceeds from exercise of stock
options 12,186 13,447
Proceeds from issuance of stock
under the dividend reinvestment
plan 115,807 ---
Cash dividends (269,218) (189,613)
Net cash provided by financing
activities 60,979,266 43,328,685
Increase in cash and due from
banks 4,557,991 5,048,052
Cash and due from banks:
Beginning 8,984,814 7,656,846
Ending $ 13,542,805 $ 12,704,898
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $ 6,809,237 $ 4,315,319
Income taxes $ 225,000 $ 320,000
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Foreclosed real estate acquired
in settlement of loans $ 188,212 $ 159,782
See Notes To Consolidated Financial Statements
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 six-month period ended June 30, 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 six months ended
June 30, 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
June 30, 1997.
NOTE C: OTHER EXPENSES
The following represents the most significant categories of
other expenses for the six month period ended June 30, 1997
and 1996:
For the Six Months Ended
June 30, June 30,
1997 1996
Advertising $ 357,186 $ 336,485
EDP outsourcing and MAC fees 229,676 155,989
Office Supplies and expense 292,073 177,710
Foreclosed real estate expenses 5,049 106,588
All other expenses 635,353 462,938
$1,519,337 $1,239,710
NOTE D: STOCK OFFERING
The Company successfully completed its secondary public
offering of 1,380,000 shares in July, 1997. The shares were
offered at $16.375 per share. Net proceeds to the Company,
after deducting expenses, will be approximately
$20.8 million.
Note E: Reclassifications
Certain items in the June 30, 1996 financial statements have
been reclassified to conform to the June 30,1997 financial
statement presentation format. These reclassifications had
no effect on net income.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis is intended to assist
in understanding and evaluating the major changes in the
financial condition and earnings performance of BCB Financial
Services Corporation (the "Company") with a primary focus on an
analysis of operating results.
FINANCIAL CONDITION HIGHLIGHTS
Total assets increased to $386,274,544 at June 30, 1997, an
increase of $61,752,242, or 19.03%, from $324,522,302 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 for the first six months.
Loans, net of allowance for loan losses of $2,324,495 at
June 30, 1997 and $2,000,612 at December 31, 1996, increased to
$223,425,469 at June 30, 1997 from $192,147,673 at December 31,
1996. The increase of $31,277,796, or 16.28%, was primarily from
an increase in commercial loans of $17,453,954 to $105,776,876 at
June 30, 1997 from $88,322,922 at December 31, 1996, and an
increase in residential mortgage loans of $11,296,028 to
$100,805,938 at June 30, 1997 from $89,509,910 at December 31,
1996.
Securities increased to $133,141,983 at June 30, 1997 from
$88,554,455 at December 31, 1996. The increase of $44,587,528,
or 50.35%, was due primarily to the purchase of approximately
$52,000,000 in available for sale securities as part of matched
funding programs employed to increase earnings. These matched
funding programs are further discussed under "Analysis of Net
Interest Income." Available for sale securities increased
$41,021,577 and held to maturity securities increased $3,565,951
during the first six months of 1997.
Cash and due from banks, interest-bearing deposits (which
are held at the Federal Home Loan Bank, "FHLB"), and federal
funds sold are all liquid funds. The aggregate amount in these
three categories decreased by $17,674,927 to $14,006,984 at
June 30, 1997 from $31,681,911 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.
Amounts due from mortgage investors increased to $4,908,131
at June 30, 1997 from $3,478,353 at December 31, 1996. These
amounts represent loans originated by the Bank for other mortgage
investors/lenders under standing commitments. These loans are
temporarily funded for such investors for periods ranging from
three to twenty-one days after origination.
Bank premises and equipment, net of accumulated
depreciation, increased from $4,394,797 at year-end 1996 to
$6,039,412 at June 30, 1997. The increase of $1,644,615 was
mainly attributable to the construction of the Muhlenberg and
Shillington offices. Muhlenberg opened on March 29, 1997 and
Shillington opened on May 3, 1997.
Foreclosed real estate decreased from $761,500 at
December 31, 1996 to $145,772 at June 30, 1997. Foreclosed real
estate is comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure.
Total liabilities increased by $60,865,498, or 19.97%, from
$304,818,633 at year-end 1996 to $365,684,131 at June 30, 1997.
During this period, deposits, the Company's primary source of
funds, increased by 21.87%, from $264,323,331 at year-end 1996 to
$322,118,657 at June 30, 1997. The deposit mix changed
considerably during 1996 and that trend continued during the
first six months of 1997. The change in the deposit mix occurred
because the Bank placed greater emphasis upon the generation of
money market deposits, accomplished by offering an above-market
rate of 4.20% APY (annual percentage yield) for balances above
$1,000. 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 $44,925,616, or 31.63%, from $142,018,033 at
December 31, 1996 to $186,943,649 at June 30, 1997. As a
percentage of total deposits, aggregate demand and savings
deposits increased from 53.73% at December 31, 1996 to 58.04% at
June 30, 1997. Aggregate demand deposits include non-interest
bearing demand, interest checking (NOW) and money market
deposits. Certificates of deposit increased $12,869,710, or
10.52%, from $122,305,298 at year-end 1996 to $135,175,008 at
June 30, 1997. As a percentage of total deposits, certificates
of deposit decreased from 46.27% at December 31, 1996 to 41.96%
at June 30, 1997. The proceeds from the net increase in deposits
were used to fund new loans, new securities purchases and
increases in bank premises and equipment.
Other borrowed funds and long term debt increased $3,325,165
from $35,718,399 at year-end 1996 to $39,043,564 at June 30,
1997. The increase was primarily used to fund new loans and new
security purchases.
Stockholders' equity increased $886,744, or 4.50%, to
$20,590,413 at June 30, 1997 compared to $19,703,669 at
December 31, 1996. The increase in stockholders' equity is
primarily attributable to the retention of earnings, net of cash
dividends declared of $290,502, and the change in net unrealized
(depreciation) on securities available for sale, net of taxes.
The change in net unrealized (depreciation) on securities
available for sale, net of taxes, was ($147,284), from ($49,408)
at December 31, 1996 compared to ($196,692) at June 30, 1997.
This change was caused by the general increase in interest rates
during the period. At June 30, 1997, the unrealized depreciation
represented less than 0.5% of the securities available for sale
portfolio.
RESULTS OF OPERATIONS
Overview
The Company's net income for the second quarter of 1997 was
$684,019, an increase of $260,245, or 61.41%, from $423,774 net
income for the second quarter of 1996. Net income for the six
months ended June 30, 1997 was $1,196,537, 53.61% more than the
$778,931 reported for the same period in 1996. The earnings for
the second quarter and six months of 1997 were up from the prior
year's 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 $972,000,
or 47.81%, to $3,005,000 during the second quarter of 1997 from
$2,033,000 during the second quarter of 1996. For the first six
months of 1997, net interest income, calculated on a tax-
equivalent basis, increased $1,796,000, or 45.99%, to $5,701,000
from $3,905,000 during the first six months 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 $2,373,000, or 55.94%, from
$4,242,000 for the second quarter of 1996 to $6,615,000 for the
second quarter of 1997, while interest expense increased
$1,401,000, or 63.42%, from $2,209,000 for the second quarter of
1996 to $3,610,000 for the second quarter of 1997. For the first
six months of 1997, interest income, on a tax equivalent basis,
increased $4,317,000, or 52.36%, to $12,562,000 from $8,245,000
for the first six months of 1996, while interest expense
increased $2,521,000, or 58.09%, from $4,340,000 for the first
six months of 1996 to $6,861,000 for the first six months of
1997.
Net interest margin decreased 16 basis points from 3.75% in
the second quarter of 1996 to 3.59% in the second quarter of
1997, calculated on a tax-equivalent basis. Net interest margin
decreased 12 basis points from 3.71% for the first six months of
1996 versus 3.59% for the six months ended June 30, 1997,
calculated on a tax-equivalent basis. Net interest margin is the
difference between interest earned and interest paid, divided by
average total interest-earning assets. Net interest margin
decreased primarily due to an increase in the average rate paid
on interest-bearing liabilities. For the second quarter of 1997,
the average rate paid on interest-bearing liabilities, increased
13 basis points to 4.85% from 4.72% for the quarter-ended
June 30, 1996. For the first six months of 1997, the average
rate paid on interest-bearing liabilities increased 9 basis
points to 4.86% from 4.77% for the first six months of 1996. The
increase in the average rate paid on interest-bearing liabilities
was caused primarily by the increase in the volume and rate from
other borrowed funds and long-term debt for both periods.
To the extent that the Company chooses to invest in tax-free
securities or extend tax-free loans, the Company's tax expense
can be reduced from the statutory rate of 34% to an effective
rate below that level. The amount of tax that is saved by the
acquisition of tax-free assets is included in interest income for
purposes of calculating the tax-equivalent yield on earning
assets. During 1996, the Company significantly increased its
investments in State and Municipal Securities, which are
substantially tax-free, except for the disallowance of the
deduction of twenty percent of interest expense on deposits or
liabilities used to fund these investments, in accordance with
the Federal tax laws governing bank qualified securities. The
bulk of these investments in State and Municipal Securities were
maintained in the portfolio during the first six 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 tables provide 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).
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Net Interest Margin
Three Months Ended Three Months Ended
June 30, 1997 June 30, 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> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits at
banks $ 2,939 $ 39 5.32% $ 6,239 $ 79 5.09%
U.S. Treasury 2,647 46 6.97 4,448 68 6.15
U.S. Government agencies 78,123 1,374 7.05 18,812 312 6.67
State and municipal(3) 31,975 631 7.91 19,054 369 7.79
Other bonds and securities 4,323 71 6.59 1,521 23 6.08
Total securities 117,068 2,122 7.27 43,835 772 7.08
Federal funds sold 465 6 5.18 1,803 22 4.91
Commercial loans(3) 100,842 2,192 8.72 79,903 1,735 8.73
Mortgage loans 96,737 1,846 7.65 70,750 1,331 7.57
Installment loans 17,727 410 9.28 15,051 303 8.10
Total loans(4) 215,306 4,448 8.29 165,704 3,369 8.18
Total interest-earning
assets 335,778 6,615 7.90 217,581 4,242 7.84
Unrealized depreciation on
available for sale securities (959) (383)
Allowance for loan losses (2,223) (1,798)
Non-interest earning assets 20,693 14,165
Total assets $353,289 $229,565
INTEREST-BEARING LIABILITIES:
Demand deposits, interest
bearing $126,953 $1,253 3.96% $ 64,888 $ 599 3.71%
Savings deposits 10,440 67 2.57 9,841 71 2.90
Other time deposits 133,051 1,897 5.72 108,582 1,471 5.45
Total deposits 270,444 3,217 4.77 183,311 2,141 4.70
Other borrowed funds 16,070 219 5.47 1,038 14 5.42
Long-term debt 12,000 174 5.82 4,000 54 5.43
Total interest-bearing
liabilities 298,514 3,610 4.85 188,349 2,209 4.72
Demand deposits, non-
interest bearing 30,385 20,243
Other non-interest bearing
liabilities 4,620 2,556
Total liabilities 333,519 211,148
Stockholders' equity 19,770 18,417
Total liabilities and
stockholders' equity $353,289 $ 229,565
Net interest income $ 3,005 $ 2,033
Net interest margin (5) 3.59% 3.75%
</TABLE>
(1) Includes loan fee income.
(2) Yields on investments are calculated on amortized cost; all
yields are annualized.
(3) Taxable, equivalent basis, using a 34% statutory tax rate,
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.
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Net Interest Margin
Six Months Ended Six Months Ended
June 30, 1997 June 30, 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> <C>
INTEREST-EARNING ASSETS:
Interest-bearing
deposits at banks $ 6,775 $ 186 5.54% $ 10,849 $ 288 5.34%
U.S. Treasury 3,054 105 6.93 4,680 138 5.93
U.S. Government agencies 64,611 2,287 7.14 13,466 459 6.85
State and municipal(3) 33,235 1,304 7.91 18,624 739 7.98
Other bonds and securities 3,963 118 6.00 1,231 38 6.21
Total securities 104,863 3,814 7.33 38,001 1,374 7.27
Federal funds sold 803 21 5.27 3,378 85 5.06
Commercial loans(3) 96,473 4,186 8.75 75,851 3,345 8.87
Mortgage loans 93,797 3,564 7.66 68,785 2,551 7.46
Installment loans 17,205 791 9.27 14,952 602 8.10
Total loans(4) 207,475 8,541 8.30 159,588 6,498 8.19
Total interest-earning
assets 319,916 12,562 7.92 211,816 8,245 7.83
Unrealized depreciation on
available for sale
securities (524) (83)
Allowance for loan losses (2,115) (1,768)
Non-interest earning assets 19,469 10,463
Total assets $336,746 $220,428
INTEREST-BEARING LIABILITIES:
Demand deposits, interest
bearing $111,004 $2,139 3.89% $ 57,544 $1,066 3.73%
Savings deposits 15,522 278 3.61 9,818 141 2.89
Other time deposits 129,768 3,674 5.71 109,686 2,994 5.49
Total deposits 256,294 6,091 4.79 177,048 4,201 4.77
Other borrowed funds 11,451 309 5.44 1,806 39 4.34
Long-term debt 16,696 461 5.57 4,000 100 5.03
Total interest-bearing
liabilities 284,441 6,861 4.86 182,854 4,340 4.77
Demand deposits, non-
interest bearing 28,288 18,614
Other non-interest
bearing liabilities 4,294 2,708
Total liabilities 317,023 204,176
Stockholders' equity 19,723 16,252
Total liabilities and
stockholders' equity $336,746 $220,428
Net interest income $ 5,701 $ 3,905
Net interest margin(5) 3.59% 3.71%
</TABLE>
(1) Includes loan fee income.
(2) Yields on investments are calculated on amortized cost; all
yields are annualized.
(3) Taxable, equivalent basis, using a 34% statutory tax rate,
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.
<PAGE>
The Company's total interest income on a tax-equivalent
basis increased by $2,373,000 during the second quarter of 1997
over the second quarter of 1996, from $4,242,000 in 1996 to
$6,615,000 in 1997. Interest and fees on loans, on a tax-
equivalent basis, increased $1,079,000 from $3,369,000 during the
second quarter of 1996 to $4,448,000 at June 30, 1997, which was
as a result of an increase in average loan balances, from
$165,704,000 at June 30, 1996 to $215,306,000 at June 30, 1997.
Also contributing to the increase in total interest income was an
increase in interest and dividend income on securities of
$1,350,000, from $772,000 for the second quarter of 1996, to
$2,122,000 for the second 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 second quarter of 1997 versus the second
quarter of 1996, from $43,835,000 to $117,068,000 and an increase
in the tax-equivalent yield on the average balance in securities
held, from 7.08% for the second quarter of 1996 to 7.27% for the
second quarter of 1997.
Total interest income on a tax-equivalent basis increased by
$4,317,000 for the first six months of 1997 to $12,562,000 versus
$8,245,000 for the first six months of 1996. Interest and fees
on loans, on a tax-equivalent basis, increased $2,043,000, from
$6,498,000 for the first six months of 1996, to $8,541,000 for
the first six months of 1997. Total interest and dividend income
on securities also increased significantly from $1,374,000 for
the first six months of 1996 to $3,814,000 for the first six
months of 1997, calculated on a tax-equivalent basis. The
average balance of securities increased from $38,001,000 for the
first six months ended June 30, 1996 to $104,863,000 for the
first six 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 yield on securities was largely the result
of the Company's strategy to increase 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, and to increase its holdings of U.S.
Government agency securities. The Company has elected during the
past several years to maintain the bulk of its excess liquidity
in an interest-bearing account at the Federal Home Loan Bank of
Pittsburgh instead of selling it overnight as Federal Funds Sold.
By doing this during the first six months of 1997, the Company
increased its yield on its deposits at the FHLB by 27 basis
points over what it could have earned in Federal Funds Sold, an
average yield of 5.54% versus 5.27%.
The Company's total interest expense increased $1,401,000,
or 63.42%, to $3,610,000 during the second quarter of 1997
compared to $2,209,000 during the second quarter of 1996. Total
interest expense for the six months of 1997 increased $2,521,000,
or 58.09%, to $6,861,000 compared to $4,340,000 for the first six
months of 1996. This increase in interest expense was due to an
increase in the volume of average interest-bearing liabilities of
$110,165,000, or 58.49% to $298,514,000 for the quarter ended
June 30, 1997 versus $188,349,000 for the quarter ended June 30,
1996. The volume of average interest-bearing liabilities
increased $101,587,000, or 55.56%, to $284,441,000 for the first
six months of 1997 versus $182,854,000 for the first six months
of 1996. The average rate paid on interest-bearing liabilities
increased 13 basis points from 4.72% for the second quarter of
1996 compared to 4.85% for the second quarter of 1997. The
average rate paid on interest-bearing liabilities increased 9
basis points from 4.77% for the first six months of 1996 to 4.86%
for the first six months of 1997.
In September of 1996 the Company elected to increase the
annual percentage yield on money market savings deposits to
4.20%. The Company currently guarantees this minimum yield
through June 30, 1998 for all new money market savings accounts
opened having balances of $1,000 or more. The Bank's total
balance in money market savings deposits increased $33,915,568
during the first six months of 1997, or 37.44%, from $90,586,393
at December 31, 1996 to $124,501,961 at June 30, 1997. This
strategy contributed to the increase in the Company's interest
expense during the first six months of 1997 versus the first six
months of 1996. However, the Company believes the higher rate is
justified because the Company has historically had comparatively
low money market deposit balances compared to many banks and
instead relied more heavily on higher rate time deposits as a
funding source. The above market yield on the money market
account was 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 December 31, 1996, total money market savings
deposits were 34.3% of total deposits and 38.5% of total
interest-bearing deposits. At June 30, 1997, the percentage that
total money market savings deposits were of total deposits and
total interest-bearing deposits, increased to 38.7% and 43.7%,
respectively.
Interest expense on certificates of deposit increased
$426,000, or 28.96%, from $1,471,000 during the second quarter of
1996 to $1,897,000 during the second quarter of 1997. Interest
expense on certificates of deposit increased $680,000, or 22.71%,
from $2,994,000 during the first six month of 1996 to $3,674,000
during the first six months of 1997. This increase was due to an
increase in the average volume of certificates of deposit in the
amount of $24,469,000, or 22.54%, from $108,582,000 for the
quarter ended June 30, 1996 to $133,051,000 for the quarter ended
June 30, 1997. For the six months ended June 30, 1997, the
average volume of certificates of deposits increased $20,082,000,
or 18.31%, to $129,768,000 versus $109,686,000 for the first six
months of 1996.
Interest expense on other borrowed funds and long-term debt
increased for the second quarter of 1997 to $393,000 from $68,000
for the second quarter of 1996 because the average balance of
borrowed funds and long-term debt increased to $28,070,000 for
the second quarter of 1997 from $5,038,000 for the second quarter
of 1996. For the first six months of 1997, interest expense on
other borrowed funds and long term debt increased to $770,000
from $139,000 for the first six months of 1996. The average
balance of borrowed funds and long-term debt increased to
$28,147,000 for the first six months of 1997 versus $5,806,000
for the first six months of 1996. The increase, along with the
increase in deposits, funded purchases of securities and loans as
part of an on-going matched-funding program that is designed for
the primary purpose of increasing 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 on-going effort by the
Company to lower its overall cost of funds. During the first six
months of 1997, the balance of non-interest bearing business and
personal demand (checking) deposits increased from $29,048,391 at
December 31, 1996 to $36,972,481 at June 30, 1997, an increase of
$7,924,090, or 27.28%.
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 (See
discussion under "Asset Quality"). The provision for loan losses
was $260,500 for the second quarter of 1997 compared to $245,000
for the second quarter 1996. For the first six months of 1997,
the loan loss provision was $501,500 compared to $325,000 for the
first six months of 1996. The reason for the increase in the
second quarter of 1997 versus 1996 was to replace that portion of
the allowance for loan losses used to fund loan charge-offs, as
well as to build the allowance for loan losses to a level deemed
to be satisfactory given the growth in the size of the loan
portfolio during the first six months of 1997. Non-performing
assets were 1.09% of total assets at June 30, 1997, compared to
1.12% at December 31, 1996. Delinquencies were 1.8% of total
loans at June 30, 1997, compared to 2.7% at December 31, 1996.
Other Income
Total other income increased $159,916, or 50.54%, from
$316,408 during the second quarter 1996 to $476,324 during the
second quarter of 1997. The increase was due primarily to a
$69,155 increase in customer service fees for services such as
merchant card fee income, overdraft and NSF (non-sufficient
funds) charges, safe deposit box rentals, and other miscellaneous
fees which are primarily deposit driven and a $76,050 increase in
income from mortgage banking activities.
For the first six months of 1997, other income increased
$233,623, or 40.27%, to $813,727 from $580,104 for the same
period in 1996. The primary reasons for the increase were an
increase in customer service fees of $140,792, an increase in
fees from mortgage banking activities of $84,761 and a slight
increase in other income of $11,853.
Other Expenses
Total other expenses increased $637,521, or 41.59%, during
the second quarter of 1997 versus the same period in 1996, to
$2,170,366 from $1,532,845. Total other expenses also increased
during the first six months of 1997 versus the first six months
of 1996, by $1,152,730, or 38.78%, to $4,124,934 from $2,972,204.
The increases in total other expenses reflect the growth of the
bank, especially from the opening of the Muhlenberg and
Shillington offices on March 29, 1997 and May 3, 1997,
respectively, and compares favorably with the 53.98% increase in
total assets, from $250,854,160 at June 30, 1996 to $386,274,544
at June 30, 1997.
Salaries, wages and employee benefits increased from
$630,923 for the three months ended June 30, 1996 to $1,102,586
for the same period in 1997. For the first six months of 1997,
salaries, wages and benefits increased $776,906, or 61.99%, to
$2,030,205 versus $1,253,299 for the same period in 1996.
Salaries, wages and employee benefits increased due to the growth
of the bank, especially from the opening of the new Muhlenberg
and Shillington branches.
Occupancy expense increased $37,999, or 28.03%, to $173,583
for the three months ended June 30, 1997 versus $135,584 for the
three months ended June 30, 1996. For the first six months of
1997, occupancy expense was $322,870 versus $274,304 for the same
period in 1996, an increase of $48,566, or 17.71% These
increases reflect step-up rates in lease contracts, due to
inflation escalators, and to building, lease, and other occupancy
expenses related to the operation of the new Muhlenberg and
Shillington offices for the second quarter of 1997.
Equipment depreciation and maintenance expenses increased
$33,953, or 34.75%, from $97,718 for the second quarter of 1996
to $131,671 for the second quarter of 1997. For the first six
months of 1997, equipment depreciation and maintenance expenses
increased $47,631, or 23.25%, to $252,522 from $204,891 for the
same period in 1996. Equipment depreciation and maintenance
increased due primarily to the depreciation on the new Muhlenberg
and Shillington branches.
Other operating expenses increased in the second quarter of
1997 versus the second quarter of 1996, to $762,526 from
$668,620, an increase of $93,906, or 14.04%. Significant changes
in the second quarter of 1997 compared to the second quarter of
1996 occurred in advertising, EDP outsourcing and MAC Fees,
office supplies and expense and foreclosed real estate expenses.
Advertising expense increased $44,024, or 24.41%, to $224,394 for
the second quarter of 1997 compared to $180,370 for the same
period in 1996. The increase was due to the promotion of the
opening of the Muhlenberg and Shillington offices. EDP
outsourcing and MAC fees increased $44,075, or 55.34%, to
$123,720 for the second quarter of 1997 versus $79,645 for the
second quarter of 1996. The increase was a result of expenses
relating to the Bank's Visa Checkcard associated with volume
increases in cards outstanding. Office supplies and expenses
increased $73,099, or 81.88%, to $162,375 for the second quarter
of 1997 compared to $89,276 for the second quarter of 1996. The
increase was due to the growth of the Bank and the need to stock
the two new branches. Foreclosed real estate expenses decreased
$143,294, or 163.49%, to ($55,649) for the second quarter of 1997
from $87,645 for the second quarter of 1996. The large decrease
was due mainly to the recognition of a $72,000 gain on the sale
of one of the properties during the second quarter of 1997.
For the first six months of 1997, other expenses increased
$279,627, or 22.56%, to $1,519,337 compared to $1,239,710 for the
first six months of 1996. Again, the significant changes
occurred in advertising, EDP outsourcing and MAC fees, office
supplies and expense and foreclosed real estate expenses.
Provision For Income Taxes
The provision for income taxes was $163,679 for the second
quarter of 1997 versus $85,542 for the second quarter of 1996.
The provision for income taxes was $268,760 for the first six
months of 1997 versus $181,051 for the first six months of 1996.
For the first six months of 1997, the Company's effective tax
rate was 18.34% versus an effective tax rate of 18.86% for the
same period in 1996. The significant decrease in 1997's
effective tax rate from the statutory tax rate of 34% was due to
the significant amount of tax-exempt interest income earned on
bank-qualified municipal securities and tax-free loans. This
increased $394,648, or 77.19%, during the first six months of
1997 to $905,903 from $511,255 during the same period of 1996.
Asset Quality
Non-performing assets as a percentage of total assets
decreased slightly from 1.12% at December 31, 1996 to 1.09% at
June 30, 1997. Non-performing assets increased 16.00%, from
$3,630,587 at December 31, 1996 to $4,211,499 at June 30, 1997.
The ratio of the allowance for loan losses to non-performing
assets was 55.10% at December 31, 1996 compared to 55.19% at
June 30, 1997. Non-performing assets are comprised of
non-accrual loans, accruing loans that are 90 days or more past
due which are insured for credit loss, foreclosed real estate
(assets acquired in foreclosures), and restructured loans. It is
the Bank's policy to classify a loan, other than a loan insured
for credit loss, as non-accrual within ten days after the month
end in which the loan becomes 90 days past due for either
principal or interest.
The balance in the allowance for loan losses was $2,324,495,
or 1.03% of total loans at June 30, 1997 compared with
$2,000,612, or 1.03% of total loans at December 31, 1996. The
balance in the allowance for loan losses was 1.86% of total loans
excluding residential mortgages at June 30, 1997, compared to
1.83% at December 31, 1996. It has been the Bank's experience
that the percentage of loan losses have been substantially less
in its residential mortgage portfolio than its commercial loan
portfolio. At June 30, 1997, 44.7% of the Bank's loan portfolio
was in residential mortgage loans, compared to 43.7% at
December 31, 1996.
As a financial institution which assumes lending and credit
risks as a principal element of its business, the Company
anticipates that credit losses will be experienced in the normal
course of business. Accordingly, management of the Company makes
a quarterly determination as to an appropriate provision from
earnings necessary to maintain an allowance for loan losses that
is adequate for potential yet undetermined losses. The amount
charged against earnings is based upon several factors including,
at a minimum, each of the following:
- a continuing review of delinquent, classified and non-
accrual loans, large loans, and overall portfolio quality. This
continuous review assesses the risk characteristics of both
individual loans and the total loan portfolio;
- analytical review of loan charge-off experience,
delinquency rates and other relevant historical and peer
statistical ratios;
- management's judgment with respect to local and general
economic conditions and their impact on the existing loan
portfolio;
- regular examinations and reviews of the loan portfolio
by the Bank's regulator.
When it is determined that the prospect for recovery of the
principal of a loan has significantly diminished, that portion of
the loan is immediately charged against the allowance account.
Subsequent recoveries, if any, are credited to the allowance
account. In addition, non-accrual and large delinquent loans are
reviewed monthly to determine potential losses.
Management believes the allowance for loan losses was
adequate to cover risks inherent in its loan portfolio at
June 30, 1997. However, there can be no assurance that the
Company will not have to increase its provision for loan losses
in the future as a result of changes in economic conditions or
for other reasons. Any such increase could adversely affect the
Company's results of operations.
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.
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 June 30, 1997 indicate that despite the negative GAP balance,
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.
Capital
The Company's Tier 1 capital to risk-weighted assets ratio
at June 30, 1997 was 9.12% compared to 10.39% at December 31,
1996. These ratios far exceeded the Tier 1 regulatory capital
requirement of 4.00%. The Company's total capital to risk-
weighted assets ratio at June 30, 1997 was 10.15% compared to
11.44% at December 31, 1996. These ratios exceeded the total
risk-based capital regulatory requirement of 8.00%. At June 30,
1997, the Company's leverage ratio was 5.86% versus 6.82% at
December 31, 1996. The Company is categorized as "well
capitalized" under applicable Federal regulations. The Company's
capital performance, as measured by its annualized return on
average equity ratio (ROAE), increased to 13.84% for the second
quarter of 1997 from 9.20% for the second quarter of 1996. For
the first six months of 1997, ROAE increased to 12.13%, from
9.59% for the first six months of 1996. This increase was caused
by the increase in earnings from the first six months of 1996
compared to the first six months of 1997. In July of 1997, the
Company completed a secondary common stock offering. The Company
sold 1,380,000 shares at $16.375 per share. Net proceeds after
deducting expenses, will be approximately $20.8 million. The
Company's Tier 1 to risk-weighted assets ratio, the total capital
to risk-weighted assets and the leverage ratio, as adjusted for
the net proceeds from the offering were 17.40%, 18.37%, and
12.40% respectively.
Banking laws and regulations limit the amount of dividends
that may be paid. Under current banking laws, the Bank would be
limited to approximately $2,900,000 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 June of 1997, the
Company declared a $.07 per share cash dividend to stockholders
of record on July 7, 1997, payable July 21, 1997.
Liquidity and Capital Resources
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 $17.0 million at June 30, 1997
compared to $35.0 million at December 31, 1996. Maturing and
repaying loans are another source of asset liquidity. At
June 30, 1997, the Bank estimated that an additional
$24.7 million of loans will mature or repay in the next six-month
period ended December 31, 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 June 30,1997, the Bank had approximately
$100.3 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. The bulk of these unused lines of credit were with the
FHLB.
Liquidity can be further analyzed by reference to the
Unaudited Consolidated Statements of Cash Flows. Net cash
provided by operating activities during the first six months of
June 30, 1997 and 1996 was $514,949 and $2,818,557, respectively.
The decrease from 1996 to 1997 was due primarily to an increase
in proceeds due from mortgage investors. Proceeds due from
mortgage investors increased due to the increase in volume of
mortgages originated for the secondary market. The Company's
cash flows from financing activities increased from $43,328,685
at June 30, 1996 to $60,979,266 at June 30, 1997, due primarily
to the increase in deposits. The net increase in deposits was
$57,795,326 at June 30, 1997 versus $44,771,910 at June 30, 1996.
The Company utilized $56,936,224 in cash for investing activities
through June 30, 1997 versus $41,099,190 through June 30,1996.
The increase in cash utilized for investing activities was
primarily due to an increase in purchases of securities. For the
six months ended June 30, 1997, the Company purchased a total of
$57,272,267 in securities versus $25,232,806 for the first six
months of 1996. The changes in cash flows resulted in a net
increase of internally generated cash of $4,557,991 during the
six months ended June 30, 1997 compared to a net increase of
$5,048,052 for the six months ended June 30, 1996.
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.
<PAGE>
PART II
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The 1997 Annual Meeting of Shareholders (the "Meeting") of
the Company was held on April 16, 1997. Notice of the Meeting
was mailed to shareholders on or about March 14, 1997.
The Meeting was held for the following purposes:
1. To elect four Class C directors to hold office for
three years from the date of election and until their
successors are elected and qualified (Matter No.1);
2. To ratify the appointment by the Company's Board of
Directors of Beard & Company, Inc., as the Company's
independent auditors for the fiscal year ending
December 31, 1997 (Matter No. 2).
3. To approve the Corporation's 1996 Stock Option Plan.
(Matter No. 3).
There was no solicitation in opposition to the nominees of
the Board of Directors. All nominees of the Board of Directors
were elected. The number of votes cast for or against, as well
as the number of abstentions for each of the nominees for
election to the Board of Directors were as follows:
Abstentions and
Nominee For Against Broker Non-Votes
Harold C. Bossard 1,722,287 0 4,485
Edward J. Edwards 1,723,409 0 3,363
Nelson R. Oswald 1,725,445 0 1,327
Wesley R. Pace 1,724,960 0 1,812
Matter No. 2 was approved by shareholders at the Meeting.
The votes cast for this Matter were as follows:
Abstentions and
For Against Broker Non-Votes
1,723,044 1,328 2,400
Matter No. 3 was approved by Shareholders at the meeting.
The votes cast for this Matter were as follows:
For Against Abstention Broker Non-Votes
1,248,395 235,015 50,853 192,509
On June 11, 1997, the Company held a Special Meeting of
Shareholders. Notice of the Special Meeting was mailed to
Shareholders on or about May 19, 1997.
The Special Meeting was held to approve the proposal by the
Company's Board of Directors to amend the Articles of
Incorporation to increase the number of authorized shares of
common stock from 3,000,000 to 20,000,000 shares. (Matter
No. 1).
Matter No. 1 was approved by Shareholders at the meeting.
The votes cast for this Matter were as follows:
For Against Abstention
1,170,973 139,324 5,725
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
11. Statement regarding computation of per
share earnings
27. Financial Data Schedule.
(b) Reports on Form 8 - K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
August 14, 1997 BCB FINANCIAL SERVICES CORPORATION
(Registrant)
By/s/ Nelson R. Oswald
Nelson R. Oswald,
Chairman and President
(Principal Executive Officer)
By/s/ Donna L. Rickert
Donna L. Rickert
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11 Statement regarding computation of
per share earnings
27 Financial Data Schedule.
Exhibit (11) - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 2,076,929 2,069,304 2,073,964 2,068,763
Net effect of dilutive
stock options - based on
the treasury stock method
using average market price 48,148 16,112 51,047 15,179
Totals 2,125,077 2,085,416 2,125,011 2,083,942
Net income $ 684,019 $ 423,774 $1,196,537 $ 778,931
Per share amount $ 0.32 $ 0.20 $ 0.56 $ 0.37
Fully diluted:
Average shares outstanding 2,076,929 2,069,304 2,073,964 2,068,763
Net effect of dilutive stock
options - based on the
treasury stock method using
average market price which
is greater than quarter-end
market price 48,242 16,136 51,567 15,955
Totals 2,125,171 2,085,440 2,125,531 2,084,718
Net income $ 684,019 $ 423,774 $1,196,537 $ 778,931
Per share amount $ 0.32 $ 0.20 $ 0.56 $ 0.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,543
<INT-BEARING-DEPOSITS> 214
<FED-FUNDS-SOLD> 250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,511
<INVESTMENTS-CARRYING> 38,631
<INVESTMENTS-MARKET> 38,747
<LOANS> 225,750
<ALLOWANCE> 2,325
<TOTAL-ASSETS> 386,275
<DEPOSITS> 322,118
<SHORT-TERM> 27,043
<LIABILITIES-OTHER> 4,522
<LONG-TERM> 12,000
0
0
<COMMON> 5,196
<OTHER-SE> 15,396
<TOTAL-LIABILITIES-AND-EQUITY> 386,275
<INTEREST-LOAN> 8,517
<INTEREST-INVEST> 3,415
<INTEREST-OTHER> 207
<INTEREST-TOTAL> 12,139
<INTEREST-DEPOSIT> 6,091
<INTEREST-EXPENSE> 6,861
<INTEREST-INCOME-NET> 5,278
<LOAN-LOSSES> 501
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 4,125
<INCOME-PRETAX> 1,465
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