SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A NO. 1
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for Quarterly period ended
March 31, 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 19603
(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 April 25, 1997
COMMON STOCK ($2.50 Par Value) 2,077,991
(Title of Class) (Outstanding Shares)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
FORM 10-QSB
For the Quarter Ended March 31, 1997
Contents
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
as of March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income
(Unaudited) for the Three Month Period
ended March 31, 1997 and 1996 4
Consolidated Statements of Stockholders'
Equity (Unaudited) for the Three-Month Period
Ended March 31, 1997 5
Consolidated Statements of Cash Flows
(Unaudited) for the Three-Month Period
Ended March 31, 1997 and 1996 6-7
Notes to Consolidated Financial
Statements (Unaudited) 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-28
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
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
<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
<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
<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
<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>
<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 EXPENSES
The following represents the most significant categories of other
expenses for the three month period ended March 31, 1997 and
1996:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
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
=========== ==========
</TABLE>
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 EVENT
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.
<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 $343,217,151 at March 31, 1997, an
increase of $18,694,849 or 5.76% 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 quarter.
Loans, net of allowance for possible loan losses of
$2,107,360 at March 31, 1997 and $2,000,612 at December 31, 1996,
increased to $203,851,914 at March 31, 1997 from $192,147,673 at
December 31, 1996. The increase of $11,704,241, or 6.09%, was
primarily from an increase in commercial loans of $7,314,318 to
$95,637,240 at March 31, 1997 from $88,322,922 at December 31,
1996, and an increase in residential mortgage loans of $3,683,922
to $93,193,832 at March 31, 1997 from $89,509,910 at December 31,
1996.
Securities increased to $108,906,338 at March 31, 1997 from
$88,554,455 at December 31, 1996. The increase of $20,351,883,
or 22.98%, was due primarily to the purchase of approximately
$17,000,000 in U.S. Government Agency Securities as part of an
arbitrage strategy to increase earnings. This arbitrage strategy
is further discussed under "Analysis of Net Interest Income".
Available for sale securities increased $16,100,668 and held to
maturity securities increased $4,251,215 during the first quarter
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 $17,623,346 to $14,058,565 at
March 31, 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 decreased from
$3,478,353 at year-end 1996 to $2,310,201 at March 31, 1997.
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.
Mortgages held for sale declined slightly, from $609,397 at
December 31, 1996 to $457,118 at March 31, 1997. Mortgages held
for sale are loans originated and intended for sale in the
secondary market. These loans 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.
Bank premises and equipment, net of accumulated
depreciation, increased from $4,394,797 at year-end 1996 to
$5,469,150 at March 31, 1997. The increase of $1,074,353 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 $460,000 at March 31, 1997. Foreclosed real
estate is comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure.
Other assets increased from $519,096 at December 31, 1996 to
$4,484,928 at March 31, 1997. The increase resulted from
recording a receivable for securities traded to sell, but not
settled, at March 31, 1997. The Company sold approximately $3.9
million of securities available for sale.
Total liabilities increased by $18,909,765, or 6.20%, from
$304,818,633 at year-end 1996 to $323,728,398 at March 31, 1997.
During this period, deposits, the Company's primary source of
funds, increased by 10.61% from $264,323,331 at year-end 1996 to
$292,379,714 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 deposits, accomplished by offering an above-market
rate of 4.20% APY (annual percentage yield) for balances above
$1000. 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 $19,773,065, or 13.92%, from $142,018,033 at
December 31, 1996 to $161,791,098 at March 31, 1997. As a
percentage of total deposits, aggregate demand and savings
deposits increased from 53.73% at December 31, 1996 to 55.34% at
March 31, 1997. Aggregate demand deposits include non-interest
bearing demand, interest checking (NOW) and money market
deposits. Certificates of deposit increased $8,283,318, or
6.77%, from $122,305,298 at year-end 1996 to $130,588,616 at
March 31, 1997. As a percentage of total deposits, certificates
of deposit decreased from 46.27% at December 31, 1996 to 44.66%
at March 31, 1997. The proceeds from the net increase in
deposits were used to fund new loans, new securities purchases,
increases in bank premises and equipment, and to reduce long-term
debt and other borrowed funds.
Accrued interest payable and other liabilities increased
$8,476,412 from $4,776,903 at December 31, 1996 to $13,253,315.
The increase was primarily attributable to the recording of the
purchase of approximately $9.0 million in securities traded but
not settled at March 31, 1997. Generally accepted accounting
principles require companies to use "trade" date accounting
versus "settlement" date accounting.
Other borrowed funds and long term debt decreased
$17,623,030 from $35,718,399 at year-end 1996 to $18,095,369 at
March 31, 1997. The decrease was primarily the result of paying
off approximately $18,000,000 in short-term and long-term FHLB
advances with proceeds from the growth in deposits.
Stockholders' equity decreased $214,916, or 1.09% to
$19,488,753 at March 31, 1997 compared to $19,703,669 at
December 31, 1996. The decrease in stockholders' equity is
primarily the net result of aggregating net income earned in
1997's first quarter, $512,518, cash dividends declared of
$144,995 on March 25, 1997, 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 ($49,408) at December 31,
1996 compared to ($637,733) at March 31, 1997. This change was
caused by the general increase in interest rates during the
period. At March 31, 1997, the unrealized depreciation
represented less than 1% of the securities available for sale
portfolio.
<PAGE>
RESULTS OF OPERATIONS
FOR THE FIRST QUARTERS ENDED
March 31, 1997 and 1996
Overview
The Company's net income for the three months ended
March 31, 1997 was $512,518, 44.31% more than the $355,157
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 $899,276,
or 50.04%, to $2,696,463 during the first quarter of 1997 from
$1,797,187 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 $2,019,315, or 51.40%, from
$3,928,890 for the first three months of 1996 to $5,948,205 for
the first three months of 1997, while interest expense increased
$1,119,881, or 52.53%, from $2,131,703 for the first three months
of 1996 to $3,251,584 for the first three months of 1997.
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 is the difference between interest
earned and interest paid, divided by average total
interest-earning assets. 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 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.
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 quarter 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).
<PAGE>
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Net Interest Margin
Three Months Ended Three Months Ended
March 31, 1997 March 31, 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 $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 on amortized cost; all
yields are annualized.
(3) Full taxable equivalent basis, using a 34% effective tax
rate and adjusted for TEFRA disallowance.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and
interest paid, divided by average total interest-earning
assets.
The Company's total interest income on a tax-equivalent
basis increased by $2,019,315 during the first quarter of 1997
over the first quarter of 1996, from $3,928,890 in 1996 to
$5,948,205 in 1997. Interest and fees on loans increased
$962,753, from $3,129,207 at March 31, 1996 to $4,091,960 at
March 31, 1997, which was as a result of an increase in average
loan balances, from $152,040,063 at March 31, 1996 to
$199,557,098 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 $1,163,054, from
$527,412 for the first quarter of 1996, to $1,690,466 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 $30,160,531 to $92,524,140, and an increase
in the tax-equivalent yield on the average balance in securities
held, from 7.02% for the first three months of 1996 to 7.41% for
the first three months of 1997. The increase in yield 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. 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 quarter of
1997, the Company increased its yield on its deposits at the FHLB
by 44 basis points over what it could have earned in Federal
Funds Sold, an average yield of 5.75% versus 5.31%. In addition,
the FHLB affords the Company the protection of an AAA/Aaa rated
institution by Moodys and Standard and Poor's because it is a
quasi- Federal government agency.
The Company's total interest expense increased $1,119,881,
or 52.53%, to $3,251,584 during the first quarter of 1997
compared to $2,131,703 during the first quarter of 1996. This
increase was due to an increase in the volume of average
interest-bearing liabilities of $92,845,000, or 52.35%, to
$270,207,000 for the quarter ended March 31, 1997 versus
$177,362,000 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 the improved deposit mix.
In September of 1996 the Company elected to increase the
rate on money market deposits to 4.20% APY (annual percentage
yield). The Company has guaranteed this minimum APY for all
money market savings accounts opened as of December 31, 1996 and
having balances of $1000 or more, through June 30, 1998. The
Bank's total balance in money market savings deposits increased
$6,344,293 during the first quarter of 1997, or 7.00%, from
$90,586,393 at December 31, 1996 to $96,930,686 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 has historically had
comparatively low money market deposit balances compared to many
banks and instead relied more heavily on 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 March 31, 1997, the percentage
that total money market savings deposits were of total deposits
and total interest-bearing deposits, decreased slightly to 33.2%
and 37.1%, respectively.
Interest expense on certificates of deposit increased
$253,891, or 16.67%, from $1,523,233 during the first three
months of 1996 to $1,777,124 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 $15,657,000, or
14.13%, from $110,790,000 for the three months ended March 31,
1996 to $126,447,000 for the three months ended March 31, 1997.
Interest expense on other borrowed funds and long-term debt
increased for the first quarter of 1997 to $377,800 from $71,598
for the first quarter of 1996 because the average balance of
borrowed funds and long-term debt increased to $28,225,382 for
the first quarter of 1997 from $6,575,233 for the first quarter
of 1996. The increase, along with the increase in deposits,
funded purchases of securities and loans as part of an on-going
arbitrage program that's 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 quarter of 1997, the
balance of non-interest bearing business and personal demand
(checking) deposits increased from $29,048,391 at December 31,
1996 to $31,154,918 at March 31, 1997, an increase of $2,106,527,
or 7.25%. On an average balance basis, the increase from the
first three months of 1996 to the first three months of 1997 was
$9,206,000, or 54.27%, from $16,962,000 for the first quarter of
1996 to $26,168,000 for the first quarter 1997. To the extent
the Company is successful in increasing its non-interest bearing
deposits as a percentage of total deposits, this should help
mitigate any increase in interest rates on savings accounts and
certificates of deposit acquired to fund earning assets in the
future.
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 $241,000 for the first three months of 1997 compared to
$80,000 for the first three months of 1996. The reason for the
increase in the first quarter of 1997 versus 1996 was to replace
that portion of the allowance for loan losses used to fund loan
charge-offs, net of recoveries during the first quarter of 1997
of $134,253, 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 quarter of 1997.
Non-performing assets were .90% of total assets at March 31,
1997, compared to 1.06% at December 31, 1996. Delinquencies were
3.0% of total loans at March 31, 1997, compared to 2.7% at
December 31, 1996.
Below are tabular presentations showing detail information
about the Company's non-performing loans and assets as of
March 31, 1997 and 1996 and an analysis of the Company's
allowance for loan losses and other related data for the three
months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
March 31, 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%
Installment 128 8.32% 111 9.62%
Construction 68 4.45% 68 5.84%
General Allowance 807 806
Total $2,107 $1,777
</TABLE>
(1) Loans, net of unearned income
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
3/31/97 3/31/96
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year: $ 2001 $ 1,674
Charge-offs:
Commercial 13 3
Real estate-mortgage 104 35
Consumer 35 15
Total charge-offs $ 152 $ 53
Recoveries:
Commercial 6 56
Real estate-mortgage 11 18
Consumer -- 2
Total recoveries $ 17 $ 76
Net charge-offs (Recoveries) 135 (23)
Provision for loan losses 241 80
Balance at end of year $2,107 $1,777
====== ======
Average loans outstanding(1) $199,557 $152,040
======== ========
As a percent of average loans(1):
Net charge-offs 0.07% (0.02)%
Provision for loan losses 0.12% 0.05%
Allowance for loan losses 1.06% 1.17%
Allowance as a percent of each
of the following:
Total loans, net of
unearned income 1.02% 1.15%
Total delinquent loans (past
due 30 to 89 days) 58.30% 48.43%
Total non-accrual loans 82.08% 96.11%
</TABLE>
(1) Includes non-accruing loans
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
(Dollars in thousands)
Loans accruing, but past
due 90 days or more $ 421 $ 449
Total non-accrual loans 2,567 1,849
Restructured loans 78 84
Total non-performing loans 3,066 2,382
Foreclosed real estate (1) 460 1,334
Total non-performing assets (2) 3,526 3,716
===== =====
Non-performing loans as a percentage
of total loans, net of unearned
income 1.49% 1.54%
Non-performing assets as a percentage
of total assets 1.03% 1.57%
___________________
(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).
Other Income
Non-interest income increased $69,459, or 26.34%, from
$263,696 during the first quarter 1996 to $333,155 during the
first quarter 1997. The increase was due primarily to a $71,637
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. 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 50.31% during the first quarter
of 1997 while average total deposits increased 42.82% during the
same period. Also, income from mortgage banking activities
increased $8,711, or 7.60%, from $114,641 during the first
quarter of 1996 to $123,352 during the first quarter of 1997.
Mortgage banking revenues include the gain on loans sold and
related fees.
Other Expenses
Total other expenses increased $515,209, or 35.79%, from
$1,439,359 during the first three months of 1996 to $1,954,568
during the first three months of 1997. Salaries and wages
increased $247,261, or 49.65%, from $498,054 during the first
quarter of 1996 to $745,315 for the first quarter of 1997.
Employee benefits increased $57,982, or 46.64%, from $124,322
during the first quarter of 1996 to $182,304 during the first
quarter 1997. Occupancy expenses increased $10,567, or 7.62%,
from $138,720 during the first three months of 1996 to $149,287
during the same period 1997. Equipment expenses increased
$13,678, or 12.76%, from $107,173 during the first quarter of
1996 to $120,851 during the first quarter 1997. Other operating
expenses increased $185,721, or 32.52%, from $571,090 during the
first three months of 1996 to $756,811 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, 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 as compared with the first quarter of 1996 was
the growth of the Bank over that period of time. In particular,
a significant amount of the expenses related to the opening of
the new Muhlenberg and Shillington Branch offices.
Starting January 1, 1996, the FDIC insurance premiums for
all well-capitalized banks, such as Berks County Bank, were
reduced to $2,000 a year. However, beginning January 1, 1997,
banks will be required to help pay for the FICO obligation
interest payments at the rate of 1.29 cents per $100 in deposits.
The Bank estimates that the FICO assessment will be approximately
$30,000 for 1997. This will continue through the year 1999 and
then starting January 1, 2000, the interest payments will be paid
pro-rata by banks and thrifts. For the first three months of
1997, the Bank expensed $6,993 relating to the FICO assessment.
Advertising expense decreased 14.94%, from $156,115 during
the first quarter of 1996 to $132,792 during the first quarter of
1997. This discretionary expense is expected to increase during
the second quarter 1997 in conjunction with the promotion of the
opening of the Muhlenberg and Shillington offices. Office
supplies and expense increased 46.66%, from $88,433 during the
first quarter of 1996 to $129,698 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.
During the normal course of operations, it becomes necessary
for the Bank to take possession of real estate collateral
associated with non-performing loans. Until that real estate is
disposed of through a sale, the Bank often must incur
maintenance, repair, taxes and other expenses in order to protect
the value of that real estate. These costs, plus losses on the
sale of foreclosed real estate totaled $60,698 during the first
three months of 1997 versus $19,123 during the same period in
1996, an increase of $41,575, or 217.41%. EDP outsourcing and
MAC fees increased $29,612, or 38.79%, from $76,344 during the
first quarter of 1996 to $105,956 during the first quarter of
1997. The increase was due largely to the growth of the Bank and
the introduction of the BCB check card in 1996.
Provision For Income Taxes
The provision for income taxes increased $9,572, or 10.02%,
to $105,081 for the first quarter of 1997 from $95,509 in the
first quarter 1996. The effective tax rates for the first
quarters ended March 31, 1997 and 1996 were 17.01% and 21.19%
respectively. The significant decrease in these effective tax
rates from the statutory tax rate of 34.00% was due to the
significant amount of tax-exempt interest income earned on
bank-qualified municipal securities. Tax-exempt income from
municipal securities increased $262,890, or 128.27%, for the
quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996.
Asset Quality
Non-performing assets as a percentage of total assets
decreased 8.04% from 1.12% at December 31, 1996 to 1.03% at
March 31, 1997. Non-performing assets decreased 2.90% from
$3,630,587 at December 31, 1996 to $3,525,261 at March 31, 1997.
The ratio of the allowance for loan losses to non-performing
assets was 55.10% at December 31, 1996 compared to 59.78% at
March 31, 1997. Non-performing assets are comprised of loans
90 days or more past due but still accruing, non-accrual loans,
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 $2,107,360,
or 1.02%, of total loans at March 31, 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 1.87% of total loans
excluding residential mortgages at March 31, 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 March 31, 1997, 45.3% 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 regulators.
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
March 31, 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.
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.
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity at March 31, 1997(3)
(Dollars in Thousands)
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
<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 (1) 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 (2) $ 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) Maturity of securities is based on maturity date; excludes
unrealized depreciation on available for sale securities
(2) All deposits other than time deposits are included in "One
year or less" category
(3) Calculated on a beta-adjusted basis
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.
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 far 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% versus 6.82% at
December 31, 1996. The Company is categorized as "well
capitalized" under applicable Federal regulations. The Company
has been accepting voluntary cash contributions under its
dividend reinvestment program since March, 1997, to support the
future growth of the Company and maintain the Company's leverage
ratio above the regulatory requirement for well-capitalized
banks. There is no guarantee that these voluntary cash
contributions will be sufficient to support the future growth of
the Company. The Company's capital performance, as measured by
its annualized return on average equity ratio (ROAE), increased
to 10.56% for the first quarter of 1997 from 7.71% for the first
quarter of 1996. This increase was caused by the increase in
earnings from the first three months of 1996 to the first three
months of 1997.
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 March 1997, the
Company declared a $ .07 per share cash dividend to stockholders
of record on April 14, 1997, payable April 21, 1997.
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 to sell 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.
Capital expenditures that are anticipated for the remainder
of 1997 include approximately an additional $200,000 to complete
the site improvement and construction of a full service branch
facility in Shillington, Pennsylvania, and approximately
$1,000,000 for site improvement and construction of a full
service facility in the fourth quarter 1997 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.
Future Outlook
During the remainder of 1997, the Bank will continue to
offer basic banking products and services through its six full
service offices in Berks and Montgomery counties. The Bank plans
to open a seventh full service office at an as-yet determined
site perhaps as early as the fourth quarter of 1997. The Bank
also plans to increase loan volume at four loan production
offices in Berks, Montgomery, Schuylkill, and Bucks Counties. In
the past year, the Bank has experienced unprecedented growth
opportunities due, in large part to the announced or completed
acquisition of several dominant banks in its market area such as
Bank of Pennsylvania/Dauphin Deposit, Meridian and Midlantic by
foreign or super regional out-of-area banks - Allied Irish,
CoreStates and PNC, respectively. The growth was aberrational
and the Bank should return to a somewhat slower and more normal
growth pattern. Future growth plans include the opening of the
Shillington office in May 1997, a seventh branch office in late
1997 at a location yet to be determined, and the addition of one
or two new offices a year thereafter in Berks or the contiguous
counties of Chester, Lancaster, Lebanon, Lehigh, Montgomery and
Schuylkill.
<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 -
None
Item 5. OTHER INFORMATION - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Amended Statement regarding computation of per
share earnings
27. Amended 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.
May 22, 1997 BCB FINANCIAL SERVICES CORPORATION
(Registrant)
By /s/ Robert D. McHugh, Jr.
Robert D. McHugh, Jr.,
Senior Vice President and
Treasurer (Authorized Officer
and Principal Financial
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11 - Amended Statement regarding computation of
per share earnings.
27 - Amended Financial Data Schedule.
Exhibit (11) - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
Primary:
Average shares outstanding 2,070,966 2,068,222
Net effect of dilutive stock options - based on the
treasury stock method using average market price 53,979 14,246
Totals 2,124,945 2,082,468
========== ==========
Net income $ 512,518 $ 355,157
========== ==========
Per share amount $0.24 $0.17
===== =====
Fully diluted:
Average shares outstanding 2,070,966 2,068,222
Net effect of dilutive stock options - based on the
treasury stock method using average market price which
is greater than quarter-end market price 54,924 15,774
Totals 2,125,890 2,083,996
========= =========
Net income $ 512,518 $ 355,157
========== ==========
Per share amount $0.24 $0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,172
<INT-BEARING-DEPOSITS> 847
<FED-FUNDS-SOLD> 1,040
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,590
<INVESTMENTS-CARRYING> 39,317
<INVESTMENTS-MARKET> 38,904
<LOANS> 205,959
<ALLOWANCE> 2,107
<TOTAL-ASSETS> 343,217
<DEPOSITS> 292,380
<SHORT-TERM> 6,095
<LIABILITIES-OTHER> 13,253
<LONG-TERM> 12,000
0
0
<COMMON> 5,178
<OTHER-SE> 14,311
<TOTAL-LIABILITIES-AND-EQUITY> 343,217
<INTEREST-LOAN> 4,081
<INTEREST-INVEST> 1,485
<INTEREST-OTHER> 166
<INTEREST-TOTAL> 5,732
<INTEREST-DEPOSIT> 2,874
<INTEREST-EXPENSE> 3,252
<INTEREST-INCOME-NET> 2,480
<LOAN-LOSSES> 241
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 1,955
<INCOME-PRETAX> 618
<INCOME-PRE-EXTRAORDINARY> 513
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 3.31
<LOANS-NON> 2,567
<LOANS-PAST> 421
<LOANS-TROUBLED> 78
<LOANS-PROBLEM> 1,740
<ALLOWANCE-OPEN> 2,001
<CHARGE-OFFS> 152
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 2,107
<ALLOWANCE-DOMESTIC> 2,107
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
