<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1997
REGISTRATION NO. 333-27873
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BCB FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6711 23-2444807
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
<TABLE>
<S> <C>
400 WASHINGTON STREET 400 WASHINGTON STREET
P.O. BOX 1097 P.O. BOX 1097
READING, PENNSYLVANIA 19603 READING, PENNSYLVANIA 19603
(610) 376-5933 (610) 376-5933
(Address of principal place of business (Address and telephone number
or intended principal place of business) of principal executive offices)
</TABLE>
NELSON R. OSWALD, CHAIRMAN AND PRESIDENT
BCB FINANCIAL SERVICES CORPORATION
400 WASHINGTON STREET
P.O. BOX 1097
READING, PENNSYLVANIA 19603
(610) 376-5933
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
JEFFREY P. WALDRON, ESQUIRE DANIEL P. WEITZEL, ESQUIRE
Stevens & Lee JEFFREY D. HAAS, ESQUIRE
111 North Sixth Street Elias, Matz, Tiernan & Herrick L.L.P.
P.O. Box 679 The Walker Building, 12th Floor
Reading, Pennsylvania 19603 734 15th Street, N.W.
Washington, DC 20005
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION FEE
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) (3)(4)
<S> <C> <C> <C> <C>
Common Stock, $2.50 par value..................... 1,380,000 $15.50 $21,390,000 $6,481.82
Total............................................. $6,481.82
</TABLE>
(1) Based upon the maximum number of shares of the Registrant's common stock
that may be issued under this registration statement, including 180,000
shares of common stock that may be issued upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee, and,
in accordance with Rule 457(c), based on the average of the high and low
price of the Registrant's common stock reported on the Nasdaq/NMS (i) on May
22, 1997 with respect to 1,150,000 shares of common stock covered under the
original registration statement filed on May 28, 1997 and (ii) on July 11,
1997 with respect to 230,000 additional shares of common stock covered under
pre-effective amendment No. 2.
(3) A filing fee of $5,402.00 was paid upon filing the original registration
statement on May 28, 1997, and the balance of $1,079.81 was paid upon filing
pre-effective amendment No. 2.
(4) The Company will incur approximately $450,000 of additional costs in
connection with the public offering for attorneys' and accountants' fees and
expenses, registration fees, printing costs and other miscellaneous items.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
1,200,000 SHARES
BCB FINANCIAL SERVICES CORPORATION
HOLDING COMPANY FOR
[LOGO]
COMMON STOCK
------------------
BCB Financial Services Corporation (the "Company") hereby offers for sale
1,200,000 shares of its common stock, par value $2.50 per share (the "Common
Stock"), at an offering price of $ per share (the "Offering"). The
Common Stock is traded on the Nasdaq National Market System under the symbol
"BCBF." On July 21, 1997, the last reported sale price of the Common Stock on
the Nasdaq National Market System was $ per share. See "UNDERWRITING" for
information relating to determination of the offering price in the Offering.
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A DEGREE OF RISK. SEE
"RISK FACTORS."
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933. See "UNDERWRITING."
(2) Before deducting expenses payable by the Company estimated to be $450,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 180,000 shares of Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments. If all of such
additional shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "UNDERWRITING."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made at the offices of Janney Montgomery Scott Inc. on or about July 25,
1997.
JANNEY MONTGOMERY SCOTT INC. WHEAT FIRST BUTCHER SINGER
THE DATE OF THIS PROSPECTUS IS JULY 22, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such documents may also be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, copies of such documents may be obtained through the Commission's
Internet address at http://www.sec.gov. The Common Stock is authorized for
quotation on the Nasdaq National Market System and, accordingly, such materials
and other information can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission under the Securities Act of 1933,
as amended (including the rules and regulations thereunder, the "Securities
Act"), a Registration Statement on Form SB-2 (No. 333-27873) (including all
amendments and exhibits thereto, the "Registration Statement") with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement, including any amendments and exhibits thereto, is
available for inspection and copying as set forth above. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company will furnish to its shareholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
2
<PAGE>
[LOGO]
[LOGO]
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS PROVIDED FOR CONVENIENCE, IT SHOULD NOT BE
CONSIDERED COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. CROSS REFERENCES IN
THIS SUMMARY ARE TO CAPTIONS APPEARING IN THE BODY OF THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
The Company is a Pennsylvania corporation headquartered in Reading,
Pennsylvania and is a registered bank holding company for Berks County Bank (the
"Bank"), a Pennsylvania-chartered commercial bank. The Bank was founded in 1987
to serve individuals and small-to-medium sized businesses that management
believed were not being adequately served by the larger competitors in its
market area. The Bank offers a full range of commercial and retail banking
services. The Bank currently maintains six full-service branches in Reading
(Berks County), Exeter (Berks County), Wyomissing (Berks County), Muhlenberg
(Berks County), Shillington (Berks County) and Pottstown (Montgomery County),
Pennsylvania, and five loan production offices in Wyomissing (Berks County),
Pottstown (Montgomery County), Schuylkill Haven (Schuylkill County), Jamison
(Bucks County), and Exton/West Chester (Chester County), Pennsylvania.
Since December 31, 1994, the Company has grown substantially. Total assets
have grown from $154.7 million at December 31, 1994 to $343.2 million at March
31, 1997. Total deposits have grown from $124.3 million at December 31, 1994 to
$292.4 million at March 31, 1997, while net loans have grown from $125.5 million
at December 31, 1994 to $203.9 million at March 31, 1997. The Company believes
its growth has been achieved by the successful execution of its operating
strategy, key elements of which include:
MAINTAINING A COMMUNITY FOCUS. Berks County and the surrounding counties
represent a stable banking market with a diversified economy. The Bank is the
largest community bank headquartered in Reading and offers individuals and small
to medium-sized businesses a wide array of banking products, informed and
friendly service, extended operating hours, consistently applied credit
policies, and local, timely decision making. All Bank customers are afforded
direct access to the Bank's President and other executive officers in attractive
and comfortable banking facilities.
AGGRESSIVELY EXPANDING ITS BRANCH NETWORK. The Company has achieved its
expansion and market penetration by expanding its branch presence into those
markets in which it has identified growth opportunities. Management's goal when
establishing a new branch is to achieve deposits of at least $50 million in
three years or less. The Bank opened its Pottstown and Wyomissing offices during
the first and second quarters of 1995, respectively. As of June 30, 1997, these
branches had $44.9 million and $73.8 million in deposits, respectively. The Bank
opened its Muhlenberg office on March 29, 1997 and its Shillington office on May
3, 1997. As of June 30, 1997, these two new branches had deposits of $14.1
million and $8.6 million, respectively. Management expects to continue to open
two branches per year for the next several years.
CAPITALIZING ON MARKET DYNAMICS. Since 1995, banking offices representing
more than 50% of the total deposits in Berks County have been acquired by large
out-of-market institutions, the most notable of which were CoreStates'
acquisition of Meridian Bank, PNC Corp.'s acquisition of Midlantic Bank and the
pending acquisition of Bank of Pennsylvania by Allied Irish Banks. The ensuing
cultural changes in these banking institutions have resulted in a change in
their product offerings and the degree of personal attention they provide to
their customers. The Company has capitalized on these dynamics by offering a
community banking alternative and tailoring its product offerings to fill voids
created as pricing of products and services are increased or are phased out by
the super-regional competition. As a result, the Company's growth in its market
area has been dramatic. The Bank's three Berks County branches had approximately
4.0% of the County's deposits as of June 30, 1996, and there remains ample
opportunity to capture market share.
5
<PAGE>
EMPHASIZING TRANSACTION ACCOUNT GENERATION. The Company seeks to attract
transaction accounts that contribute to a lower overall cost of deposits and
increase its ability to cross-sell additional products and services. The Bank
prices its money market deposit accounts above the average in the market and
offers a truly free checking account. As a result, the Company is able to
attract deposits that are less expensive than certificates of deposit. At
December 31, 1994, the percentage of the Company's time deposits to total
deposits was 64.8%; by March 31, 1997, this percentage had declined to 44.7%.
Money market savings accounts grew from 11.6% of deposits to 33.2% of deposits
over this same period.
BUILDING A SALES AND SERVICE CULTURE. The Company instills a sales and
service oriented culture in its personnel in order to build customer
relationships and maximize cross-selling opportunities. The Company extensively
screens and trains its employees and offers meaningful sales-based incentives to
all its customer contact employees. As a result, the average new customer of the
Bank has almost three account relationships.
ATTRACTING HIGHLY EXPERIENCED PERSONNEL. The Bank's executive officers have
a combined 122 years of banking experience in the Bank's market. The Bank's
commercial lenders have a combined 215 years of experience in providing
high-quality service to small and middle-market businesses in the region. In
addition, many of the Company's executive officers and other personnel have
substantial employment experience with larger banks in the region.
Financial highlights of the Company and the Bank include the following:
PROFITABILITY. The Company has been profitable during each full year of
operation since its formation in 1987. Net income increased to $1.9 million in
1996, or 111.1%, from $902,000 in 1995. Net income increased to $513,000 in the
quarter ended March 31, 1997, or 44.5%, from $355,000 in the quarter ended March
31, 1996.
LOAN GROWTH. The Company aggressively seeks to leverage deposit inflows
into new loan originations and since 1995 has opened loan production offices in
Wyomissing, Pottstown, Schuylkill Haven, Jamison, and Exton/West Chester. As a
result, the origination of both residential mortgage and commercial business
loans has increased to $83.1 million and $56.1 million, respectively, in 1996
from $61.7 million and $30.1 million, respectively, in 1994. During the quarter
ended March 31, 1997, residential mortgage and commercial business loan
originations were $15.9 million and $19.3 million, respectively, compared to
$15.1 million and $12.3 million, respectively, for the same period in 1996.
ASSET QUALITY. The Company maintains a strong credit culture and emphasizes
conservative underwriting standards. Despite the rapid loan growth, the
Company's ratio of non-performing assets to total assets declined to 1.03% at
March 31, 1997, compared to 1.96% at December 31, 1994, while the allowance for
loan losses as a percentage of net loans has remained in excess of 1.0%. At
March 31, 1997, the allowance for loan losses as a percentage of net loans,
excluding residential mortgage loans, was 1.92%.
DEPOSIT GROWTH. Deposits have grown from $124.3 million at December 31,
1994 to $292.4 million at March 31, 1997, a compound annual growth rate of
approximately 46.3%.
ASSET/LIABILITY MANAGEMENT. The Company carefully manages its asset and
liability growth and inherent interest rate risk by utilizing deposit pricing
and matched funding programs to fund loan originations and securities purchases.
As a result, the Company's securities portfolio, which consists almost entirely
of AAA rated securities, has grown from $15.8 million at December 31, 1994 to
$108.9 million at March 31, 1997. The Company believes that its investment
strategy and asset/liability modeling techniques have allowed, and will continue
to allow, it to stabilize net earnings in changing interest rate environments.
DIVIDENDS. The Company began paying cash dividends in 1993 at an annual
rate of $0.04 per share. Since that time, the Company has paid a cash dividend
each quarter, and has annually increased dividends. The current annual dividend
rate is $0.28 per share.
6
<PAGE>
The Bank is a member of the Federal Reserve System and the Bank's deposits are
insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC") to the fullest extent provided by law. The principal
executive offices of the Company and the Bank are located at 400 Washington
Street, Reading, Pennsylvania 19601 and its telephone number is (610) 376-5933.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
COMMON STOCK OFFERED BY THE 1,200,000 shares
COMPANY
COMMON STOCK OUTSTANDING PRIOR 2,078,673 shares
TO THE OFFERING
COMMON STOCK OUTSTANDING AFTER 3,278,673 shares
THE OFFERING
DIVIDENDS Currently paid quarterly at the annual rate of $0.28 per
share. Purchasers in this Offering will first be eligible to
receive dividends in October of 1997. See "MARKET FOR COMMON
STOCK AND RELATED STOCKHOLDER MATTERS--Dividends."
USE OF PROCEEDS The Company intends to contribute the majority of the net
proceeds from the Offering to the Bank. The Bank expects to
use the net proceeds to repay a portion of outstanding FHLB
advances and/or to fund growth in its loan and securities
portfolio. The capital provided by the Offering will support
the growth of the Bank, including future branch expansion.
See "USE OF PROCEEDS."
NASDAQ NATIONAL MARKET SYMBOL "BCBF"
</TABLE>
7
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following is selected consolidated financial data for the Company at and
for the three months ended March 31, 1997 and 1996 and for each of the five
years in the period ended December 31, 1996. The following financial data is
qualified by reference to the more detailed information contained in the
consolidated financial statements and notes thereto included elsewhere herein.
See the Consolidated Financial Statements. The results of operations for the
three months ended March 31, 1997 and 1996 are not audited but, in the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations of such periods
have been included. The results for the three months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full year
or for any other interim period. The data for each of the five years ended
December 31, 1996 are derived from the Company's audited, consolidated financial
statements for such periods which have been audited by Beard & Company, Inc.,
independent accountants.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income........................... $ 5,732 $ 3,838 $ 17,943 $ 13,195 $ 10,703 $ 9,578 $ 11,226
Total interest expense.......................... 3,252 2,132 9,809 7,026 5,252 5,074 5,764
--------- --------- --------- --------- --------- --------- ---------
Net interest income............................. 2,480 1,706 8,134 6,169 5,451 4,504 5,462
Provision for loan losses....................... 241 80 687 518 22 210 1,619
Other income.................................... 333 264 1,345 1,010 860 1,597 1,707
Other expenses.................................. 1,954 1,439 6,456 5,423 4,387 3,997 4,093
Federal income taxes............................ 105 96 433 336 536 577 405
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 513 $ 355 $ 1,903 $ 902 $ 1,366 $ 1,317 $ 1,052
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Earnings per share(1)(2)........................ $ 0.24 $ 0.17 $ 0.91 $ 0.43 $ 0.75 $ 0.85 $ 0.69
Cash dividends declared per share(2)............ 0.07 0.05 0.21 0.16 0.12 0.04 0.00
Book value per share(2)(3)(4)(5)................ 9.41 8.83 9.52 8.91 8.41 7.82 6.96
Average shares outstanding(2)(4)(5)............. 2,070,966 2,068,222 2,069,796 2,069,560 1,741,850 1,540,710 1,508,028
BALANCE SHEET DATA:
Total assets.................................... $ 343,217 $ 236,046 $ 324,522 $ 206,673 $ 154,698 $ 144,990 $ 130,342
Total loans, net................................ 203,852 152,883 192,148 146,291 125,534 109,053 90,594
Total securities................................ 108,907 42,912 88,554 29,566 15,765 15,706 21,173
Total deposits.................................. 292,380 203,106 264,323 179,938 124,272 109,704 100,437
FHLB advances--long term........................ 12,000 4,000 22,000 4,000 11,000 21,000 17,000
Redeemable common stock(5)...................... -- 4 -- 130 382 717 587
Total stockholders' equity...................... $ 19,489 $ 18,278 $ 19,704 $ 18,295 $ 16,987 $ 11,397 $ 10,167
PERFORMANCE RATIOS:
Return on average assets(6)..................... 0.65% 0.66% 0.77% 0.51% 0.93% 1.00% 0.84%
Return on average stockholders' equity(6)....... 10.57 7.73 10.16 5.14 9.65 12.39 10.75
Return on average stockholders' equity and
redeemable common stock(6).................... 10.57 7.71 10.15 5.05 9.23 11.62 10.33
Net interest margin(6)(7)....................... 3.60 3.57 3.72 3.84 3.97 3.71 4.23
Total other expenses as a percentage of average
assets........................................ 2.44 2.67 2.61 3.09 2.97 3.03 3.27
ASSET QUALITY RATIOS:
Allowance for loan losses as a percentage of
loans, net.................................... 1.02% 1.15% 1.03% 1.13% 1.13% 1.31% 2.09%
Allowance for loan losses as a percentage of
non-performing loans(8)....................... 68.72 74.60 69.75 94.10 47.50 74.90 97.09
Non-performing loans as a percentage of total
loans, net(8)................................. 1.49 1.54 1.48 1.20 2.38 1.75 2.15
Non-performing assets as a percentage of total
assets(8)..................................... 1.03 1.57 1.12 1.50 1.96 1.85 2.61
Net charge-offs as a percentage of average
loans, net.................................... 0.07 (0.02) 0.21 0.21 0.03 0.69 1.11
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets(10)(12)................................. 6.15% 8.57% 7.57% 9.99% 9.65% 8.07%
Tier 1 capital to risk-weighted assets(9)(10)............ 9.61 12.50 10.39 12.43 15.69 11.32
Leverage ratio(9)(10)(11)................................ 6.22 8.56 6.82 9.30 11.93 8.65
Total capital to risk-weighted assets(9)(10)............. 10.63 13.71 11.44 13.58 16.95 12.59
Dividend payout ratio.................................... 28.27 29.01 22.86 36.81 15.37 5.32
<CAPTION>
<S> <C>
1992
---------
<S> <C>
LIQUIDITY AND CAPITAL RATIOS:
Equity to assets(10)(12)................................. 7.84%
Tier 1 capital to risk-weighted assets(9)(10)............ 11.18
Leverage ratio(9)(10)(11)................................ 8.15
Total capital to risk-weighted assets(9)(10)............. 12.76
Dividend payout ratio.................................... 0.00
</TABLE>
- ------------------------
(1) Based upon average shares and common share equivalents outstanding.
(2) Average shares outstanding and per common share data are adjusted for all
stock dividends and stock splits effected through March 31, 1997.
(3) Based upon total shares issued and outstanding at the end of each respective
period, including Rescission Shares (see footnote 5 herein) classified as
redeemable common stock for the three months ended March 31, 1996 and for
each of the years in the four year period ended December 31, 1995.
(4) Including Rescission Shares (see footnote 5 herein) for the three months
ended March 31, 1996 and for each of the years in the four year period ended
December 31, 1995.
(5) In conjunction with the Company's initial public offering in 1994, the
Company completed a rescission offer (the "Rescission Offer") for shares of
Common Stock sold by the Company between October 1990 and June 1993 in
transactions that were not registered under the Securities Act (the
"Rescission Shares"). The Rescission Shares were classified as redeemable
common stock, which was stated at the amount of the redemption value of the
remaining Rescission Shares outstanding. Stockholders' equity includes
Rescission Shares for the three months ended March 31, 1996 and for each of
the years in the four year period ended December 31, 1995. At March 31, 1997
and December 31, 1996, no Rescission Shares were required to be classified
as redeemable common stock because of the expiration of the rescission
period
(6) Annualized ratios at March 31, 1997 and 1996.
(7) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.
(8) Non-performing loans are comprised of (i) loans which are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due which are
insured for credit loss, and (iii) restructured loans. Non-performing assets
are comprised of non-performing loans and foreclosed real estate (assets
acquired in foreclosure).
(9) Based on Federal Reserve Board risk-based capital guidelines, as applicable
to the Company. The Bank is subject to similar requirements imposed by the
Federal Reserve Board.
(10) Rescission Shares have been classified as redeemable common stock for the
three months ended March 31, 1996 and for each of the years in the four year
period ended December 31, 1995, and the Rescission Shares have been excluded
from this computation for such periods.
(11) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
(12) Based upon average daily balances for the respective periods.
9
<PAGE>
'
RECENT DEVELOPMENTS
The following tables set forth certain consolidated financial and other data
of the Company at or for the periods indicated. In the opinion of management,
the following operating data contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the operating data for such
periods. However, interim results are not necessarily indicative of the results
that may be expected for the entire year.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income................................................. $ 6,412 $ 4,179 $ 12,139 $ 8,017
Total interest expense................................................ 3,610 2,209 6,861 4,340
--------- --------- --------- ---------
Net interest income................................................... 2,802 1,970 5,278 3,677
Provision for loan losses............................................. 260 245 501 325
Other income.......................................................... 476 317 814 580
Other expenses........................................................ 2,170 1,533 4,125 2,972
Federal income taxes.................................................. 164 85 269 181
--------- --------- --------- ---------
Net Income............................................................ $ 684 $ 424 $ 1,197 $ 779
--------- --------- --------- ---------
--------- --------- --------- ---------
PER SHARE DATA:
Earnings per share(1)(2).............................................. $ 0.32 $ 0.20 $ 0.56 $ 0.37
Cash dividends declared per share(2).................................. 0.07 0.05 0.14 0.10
Book value per share(2)............................................... 9.91 8.96 9.91 8.96
Average shares outstanding(2)......................................... 2,076,929 2,069,304 2,073,964 2,068,763
PERFORMANCE RATIOS:
Return on average assets(3)........................................... 0.77% 0.74% 0.71% 0.70%
Return on average stockholders' equity(3)............................. 13.84 9.18 12.13 8.44
Net interest margin(3)(4)............................................. 3.57 3.75 3.59 3.71
Total other expenses as a percentage of average assets................ 2.46 2.67 2.45 2.67
ASSET QUALITY RATIOS:
Allowance for loan losses as a percentage of loans, net............... 1.03% 1.11% 1.03% 1.11%
Allowance for loan losses as a percentage of non-performing
loans(5)............................................................ 57.16 91.21 57.16 91.21
Non-performing loans as a percentage of total loans, net(5)........... 1.80 1.22 1.80 1.22
Non-performing assets as a percentage of total assets(5).............. 1.09 1.40 1.09 1.40
Net charge-offs as a percentage of average loans, net................. 0.02 0.03 0.09 0.05
LIQUIDITY AND CAPITAL RATIOS:
Dividend payout ratio................................................. 21.27% 24.42% 24.28% 26.57%
Equity to assets (6).................................................. 5.60 8.03 5.86 8.30
</TABLE>
<TABLE>
<CAPTION>
AT
JUNE 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
BALANCE SHEET DATA:
Total assets................................................................................. $ 386,275 $ 250,854
Total loans, net............................................................................. 223,425 170,742
Total securities............................................................................. 133,142 49,974
Total deposits............................................................................... 322,119 224,710
FHLB advances--long term..................................................................... 12,000 4,000
Total stockholders' equity................................................................... $ 20,590 $ 18,548
</TABLE>
10
<PAGE>
- ------------------------
(1) Based upon average shares and common share equivalents outstanding.
(2) Average shares outstanding and per common share data are adjusted for all
stock dividends and stock splits effected through June 30, 1997.
(3) Annualized ratios at June 30, 1997 and 1996.
(4) Represents net interest income as a percentage of average total
interest-earning assets, calculated on a tax-equivalent basis.
(5) Non-performing loans are comprised of (i) loans which are on a nonaccrual
basis, (ii) accruing loans that are 90 days or more past due which are
insured for credit loss, and (iii) restructured loans. Non-performing assets
are comprised of non-performing loans and foreclosed real estate (assets
acquired in foreclosure).
(6) Based upon average daily balances for the respective periods.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
Total assets increased by $61.8 million, or 19.0%, to $386.3 million at June
30, 1997 from $324.5 million at December 31, 1996. The increase in total assets
was attributable to material increases in net loans and securities.
Net loans increased by $31.3 million, or 16.3%, to $223.4 million at June
30, 1997 from $192.1 million at December 31, 1996, primarily due to continued
strong loan demand in the Company's market area. Securities increased by $44.5
million, or 50.2%, to $133.1 million at June 30, 1997 from $88.6 million at
December 31, 1996, as a result of the Company's matched funding program.
Deposits increased by $57.8 million, or 21.9%, to $322.1 million at June 30,
1997 from $264.3 million at December 31, 1996. The increase in deposits was
primarily attributable to the opening of the Muhlenberg and Shillington branches
and continued success in the marketing of the Bank's money market deposit
accounts.
Stockholders' equity increased approximately $900,000, or 4.6%, to $20.6
million at June 30, 1997 from $19.7 million at December 31, 1996.
Net income increased by $260,000, or 61.3%, to $684,000 for the three months
ended June 30, 1997 compared to net income of $424,000 for the three months
ended June 30, 1996. Net interest income increased $800,000, or 40.0%, to $2.8
million from $2.0 million for the three months ended June 30, 1997 compared to
the three months ended June 30, 1996. For the six months ended June 30, 1997 net
income increased by $421,000, or 54.0%, to $1.2 million compared to $779,000 for
the six-month period ended June 30, 1996, while net interest income increased by
$1.6 million, or 43.2%, to $5.3 million from $3.7 million for the same
comparative periods. The increase in net income and net interest income for both
the three and six month periods ended June 30, 1997 is attributable to
significant growth in average earning assets funded primarily through the 21.9%
growth in deposits.
The provision for loan losses amounted to $260,000 for the three months
ended June 30, 1997 compared to $245,000 for the three months ended June 30,
1996. The provision for loan losses amounted to $501,000 for the six months
ended June 30, 1997 compared to $325,000 for the six months ended June 30, 1996.
11
<PAGE>
RISK FACTORS
WHEN USED IN THIS PROSPECTUS, THE WORDS OR PHRASES "WILL LIKELY RESULT,"
"ARE EXPECTED TO," "WILL CONTINUE," "IS ANTICIPATED," "ESTIMATE," "PROJECT,"
"BELIEVE" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THE COMPANY WISHES TO CAUTION READERS THAT ALL FORWARD-LOOKING
STATEMENTS ARE NECESSARILY SPECULATIVE AND NOT TO PLACE UNDUE RELIANCE ON ANY
SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND TO
ADVISE READERS THAT VARIOUS RISKS AND UNCERTAINTIES, INCLUDING REGIONAL AND
NATIONAL ECONOMIC CONDITIONS, CHANGES IN MARKET INTEREST RATES, CREDIT RISKS OF
LENDING ACTIVITIES, AND COMPETITIVE AND REGULATORY FACTORS, COULD AFFECT THE
COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE COMPANY'S ACTUAL RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED. THE
RISKS HIGHLIGHTED HEREIN SHOULD NOT BE ASSUMED TO BE THE ONLY RISKS THAT COULD
AFFECT FUTURE PERFORMANCE OF THE COMPANY.
RAPID GROWTH
In the last two years, the Company has experienced rapid growth fueled by
its branch expansion and the acquisition of large local competitors by
out-of-market institutions. In the short term, the Company expects this rapid
growth to continue. To date, the Company has not experienced any material
problems as a result of this rapid growth. The Company believes it has in place
the management, systems, including data processing systems, internal controls
and a strong credit culture to support continued rapid growth. However, the
Company's continued rapid growth and profitability depends on the ability of its
officers and key employees to manage such growth effectively, to attract and
retain skilled employees and to maintain adequate internal controls and a strong
credit culture. Accordingly, there can be no assurance that the Company will be
successful in managing its expansion and the failure to do so would adversely
affect the Company's financial condition and results of operations.
A natural corollary of the Company's rapid growth during the past two years,
particularly its branch expansion program, is a significant increase in
non-interest expense. These costs are associated with branch construction and
increased staffing and equipment needs necessary to create the infrastructure to
support this growth. Because the Company expects rapid growth to continue, in
part because of its ongoing branch expansion program, purchasers of Common Stock
should expect non-interest expense to rise materially.
Finally, in order to increase earnings to offset the expected increase in
non-interest expense, the Company has employed matched funding programs that use
FHLB advances and deposit inflows from existing and new branches to fund loan
originations and securities purchases. These matched funding programs are
premised upon the management assumption that, over a finite time period,
lower-cost deposits will grow sufficiently to permit the Company to earn a
positive spread on the blended yield earned on incremental loans and securities
over the blended yield paid on deposits and FHLB borrowings. If the expected
low-cost deposit growth does not materialize, the Company may realize narrower
net interest margins on incremental growth and slower growth in future earnings.
MARKET FOR COMMON STOCK
The Common Stock is traded on the Nasdaq National Market System. Trading
volume has averaged approximately 2,500 shares per day for the first quarter of
1997. Accordingly, a regular and active market has not yet developed. Upon
completion of the Offering, the number of outstanding shares of Common Stock
will increase by at least 1.2 million shares. The Offering will materially
increase the number of shares of Common Stock held by non-affiliates. However,
no assurance can be given that an active market will develop, and the price of
the Common Stock may remain susceptible to short-term volatility caused by large
trades by one or more shareholders or otherwise. See "MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT."
12
<PAGE>
COMPETITION
The Bank still faces significant competition from many other banks, savings
institutions and other financial institutions which have branch offices or
otherwise operate in the Bank's market area, as well as many other companies now
offering a variety of financial services. Many of these competitors have
substantially greater financial resources than the Bank including a larger
capital base that allows them to attract customers seeking larger loans than the
Bank is able to make. See "BUSINESS--Competition."
ECONOMIC CONDITIONS AND RELATED UNCERTAINTIES
Commercial banking is affected, directly and indirectly, by local, domestic,
and international economic and political conditions, and by government monetary
and fiscal policies. Conditions such as inflation, recession, unemployment,
volatile interest rates, tight money supply, scarce natural resources, real
estate values, international conflicts and other factors beyond the control of
the Company and the Bank may adversely affect the potential profitability of the
Company and the Bank. Management does not expect any one particular factor to
affect the Bank's results of operations. However, a continued downtrend in
several areas, such as real estate, construction and consumer spending, could
have an adverse impact on the Bank's ability to maintain or increase
profitability.
FEDERAL AND STATE GOVERNMENT REGULATION
The operations of the Company and the Bank are heavily regulated and will be
affected by present and future legislation and by the policies established from
time to time by various federal and state regulatory authorities. In particular,
the monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of banks in the past, and are expected to continue to
do so in the future. See "BUSINESS--Supervision and Regulation."
USE OF PROCEEDS
The net proceeds from the sale of Common Stock offered hereby are estimated
to be approximately $ million after deduction of the underwriting
discount and estimated expenses (approximately $ million if the
Underwriters' over-allotment option is exercised in full). The Company presently
intends to contribute the majority of the net proceeds to the Bank. The cash
provided by the net proceeds is expected to be used to repay a portion of
outstanding FHLB advances incurred and/or to fund growth in the loan and
securities portfolio. The precise amounts and timing of the application of cash
proceeds will depend, among other things, upon the funding requirements of the
Bank and the availability of other funds. The capital provided by the net
proceeds will be used to support the growth of the Bank, including, among other
things, future branch office expansion. Pending application, the net proceeds
are expected to be invested in short-term government or investment grade
obligations.
13
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Shares of the Common Stock are traded in the over-the-counter market and are
quoted on the National Association of Securities Dealers Automated Quotation
System National Market System ("Nasdaq/NMS") under the symbol "BCBF." At May 15,
1997, the total number of holders of record of the Common Stock was
approximately 1,600.
The table below presents the high and low trade prices reported for the
Common Stock and the cash dividends declared on such Common Stock for the
periods indicated. The range of high and low prices is based on trade prices
reported on the Nasdaq/NMS. Market quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission, and may not necessarily
reflect actual transactions. All price information in the table has been
adjusted retroactively to reflect a 5% stock dividend paid on October 23, 1995
and a 6-for-5 stock split paid on November 19, 1996. On July 21, 1997, the
closing price of a share of Common Stock on the Nasdaq/NMS was $ .
<TABLE>
<CAPTION>
CASH
DIVIDENDS
YEAR QUARTER HIGH LOW PER SHARE
- ------------------ --------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
1997 2nd $ 18 $ 14 3/4 $ .07
1st 19 5/8 14 3/4 .07
1996 4th 15 3/4 12 1/16 .06
3rd 12 11/16 11 7/8 .05
2nd 12 15/16 11 7/8 .05
1st 12 15/16 10 13/16 .05
1995
4th 11 1/16 9 5/8 .04
3rd 10 1/8 9 5/16 .04
2nd 9 3/4 8 3/4 .04
1st 9 3/4 8 1/2 .04
</TABLE>
DIVIDENDS
Purchasers in the Offering will first be eligible to receive dividends in
October of 1997.
It is the Company's policy to pay cash dividends in January, April, July and
October of each year to shareholders of record on or about the fourth day of the
month in which the dividend is paid, as and if declared by the Company's Board
of Directors out of legally available funds. However, the continuation of this
policy and the timing and amount of future dividends will depend upon earnings,
capital levels, cash requirements, the financial condition of the Company and
the Bank, applicable government regulations and policies and other factors
deemed relevant by the Company's Board of Directors, including the amount of
dividends payable to the Company by the Bank.
The principal source of income and cash flow for the Company, including cash
flow to pay dividends on the Common Stock, is dividends from the Bank. Various
federal and state laws, regulations and policies limit the ability of the Bank
to pay dividends to the Company. For certain limitations on the Bank's ability
to pay dividends to the Company, see "BUSINESS--Supervision and Regulation" and
Note 18 to the Consolidated Financial Statements.
14
<PAGE>
CAPITALIZATION
The following tables present the consolidated capitalization and certain
capital ratios of the Company at March 31, 1997, and, as adjusted as of such
date to give effect to the issuance and sale of the shares of Common Stock
offered hereby (after giving effect to the estimated underwriting discount, the
payment of estimated issuance expenses and assuming no exercise of the
Underwriters' over-allotment option) at an offering price of $ per share.
This table should be read in conjunction with the historical consolidated
financial statements of the Company and the related notes thereto set forth
elsewhere herein.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................................... $ 12,000 $ 12,000
----------- -----------
----------- -----------
Stockholders' equity:
Common Stock, par value $2.50 share; 20,000,000 shares authorized, 2,071,349 shares
issued and outstanding on March 31, 1997; 3,271,349 shares as adjusted(1)............ 5,178 8,178
Surplus................................................................................ 9,880
Retained earnings (less unrealized depreciation on securities available for sale)...... 4,431 4,431
----------- -----------
Total stockholders' equity............................................................... $ 19,489 $
----------- -----------
----------- -----------
Total long-term debt and stockholders' equity............................................ $ 31,489 $
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) On June 11, 1997, the Company obtained shareholder approval to amend the
Company's Articles of Incorporation to increase the authorized number of
shares of Common Stock from 3,000,000 shares to 20,000,000 shares.
<TABLE>
<CAPTION>
CAPITAL RATIOS
---------------------------------------------
ACTUAL AT MINIMUM
MARCH 31, REGULATORY
1997 AS ADJUSTED(1) REQUIREMENT(2)
----------- -------------- --------------
<S> <C> <C> <C>
Capital Ratios:
Tier 1 capital to
risk-weighted assets...... 9.61% %(3) 4.00%(3)
Total capital to
risk-weighted assets...... 10.63 (3) 8.00 (3)
Leverage ratio (4)(5)....... 6.22 5.00
</TABLE>
- ------------------------
(1) Assumes that the Company's total assets will increase by the amount of the
estimated net proceeds from the issuance and sale of the Common Stock
offered hereby.
(2) Based on the risk-based capital guidelines of the Federal Reserve Board, a
bank holding company, such as the Company, is required to maintain a Tier 1
capital to risk-weighted assets ratio of 4.00% and a total capital to
risk-weighted assets ratio of 8.00%. The Bank is subject to similar capital
requirements also adopted by the Federal Reserve Board. At March 31, 1997,
the Company and the Bank each exceeded their respective regulatory
requirements. See "BUSINESS--Supervision and Regulation."
(3) Assumes a risk-weighting factor of 58.0% (the average risk-weighting factor
for the Company's total assets at March 31, 1997) for the net proceeds from
the issuance and sale of the Common Stock offered hereby. See
"BUSINESS--Supervision and Regulation" for a discussion of risk-based
capital guidelines and the Federal Reserve Board's minimum leverage ratio
requirement.
(4) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
(5) Based on the Federal Reserve Board's guidelines, a bank holding company,
such as the Company, generally is required to maintain a leverage ratio of
3% plus an additional amount of at least 100 to 200 basis points.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Bank opened its first office in Reading, Pennsylvania in 1987 to serve
individuals and small-to-medium sized businesses that it believed were not being
adequately served by its larger competitors in the Berks County market area. The
Bank opened its second office in Exeter in 1991.
In 1995, the Bank initiated a more aggressive branch expansion and marketing
program targeting customers of larger institutions that were recently acquired.
The Bank opened branches in Pottstown and Wyomissing in 1995, and in Muhlenberg
and Shillington on March 29 and May 3, 1997, respectively. As a result, the
Company's assets have grown from $154.7 million at December 31, 1994 to $343.2
million at March 31, 1997, a compound annual growth rate of approximately 42.5%.
In addition, the Bank aggressively has sought to leverage deposit inflows into
new loan originations and since 1995 has opened loan production offices in
Wyomissing, Pottstown, Schuylkill Haven, Jamison and Exton/West Chester. Net
loans have grown from $125.5 million at December 31, 1994 to $203.9 million at
March 31, 1997, a compound annual growth rate of approximately 24.1%.
Future growth plans include the opening of a seventh branch in late 1997 or
early 1998 and the addition of two new offices per year for the next several
years in Berks and the contiguous counties. Management's goal in establishing
any new branch is to achieve deposits of at least $50 million in three years or
less. In addition, the Company expects to open additional loan production
offices in those areas where the Company perceives market opportunities and
which may be suitable for future branch sites.
The Company's net income historically has fluctuated with the timing of new
branch openings because the Company incurs incremental non-interest expense when
opening a new branch office. Specifically, in 1995 the Company opened two new
branches within the same calendar quarter. Because the Company was much smaller
in 1995 than it is in 1997, the incremental non-interest expense as a percentage
of net income was substantially greater in 1995 than the Company expects it to
be in 1997. As the Company continues to open additional branches, it expects the
impact of incremental non-interest expense on net income to be less dramatic
than in prior years as a result of the growth in the Company's asset base.
The Company began paying cash dividends in 1993 at an annual rate of $0.04
per share. Since that time, the Company has paid a cash dividend each quarter
and has annually increased such dividend to its current annual rate of $0.28 per
share.
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements of the Company, including the related notes thereto,
included elsewhere herein.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
OVERVIEW
The Company's net income for the three months ended March 31, 1997 was
$513,000, 44.5% more than the $355,000 reported for the same period in 1996. The
earnings for the first quarter increased 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. 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
16
<PAGE>
income on a tax-equivalent basis, setting forth for the periods (i) average
assets, liabilities and stockholders' equity, (ii) interest income earned on
interest-earning assets and interest expense paid on interest-bearing
liabilities, (iii) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, and (iv) the Bank's net interest
margin (net interest income as a percentage of average total interest-earning
assets).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996
------------------------------------- ------------------------
<CAPTION>
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1)
--------- ------------- ----------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits at banks...................... $ 10,652 $ 151 5.75% $ 15,460 $ 209
--------- ------ --- --------- ------
U.S. Treasury........................................... 3,464 58 6.79 4,913 70
U.S. Government agencies................................ 50,950 912 7.26 9,554 147
State and municipal (3)................................. 34,510 673 7.91 14,487 296
Other bonds and securities.............................. 3,600 47 5.29 1,207 14
--------- ------ --- --------- ------
Total securities...................................... 92,524 1,690 7.41 30,161 527
--------- ------ --- --------- ------
Federal funds sold...................................... 1,145 15 5.31 4,954 63
--------- ------ --- --------- ------
Commercial loans (3).................................... 92,056 1,993 8.78 72,769 1,611
Mortgage loans.......................................... 90,825 1,718 7.67 64,418 1,220
Installment loans....................................... 16,676 381 9.27 14,853 299
--------- ------ --- --------- ------
Total loans(4)........................................ 199,557 4,092 8.32 152,040 3,130
--------- ------ --- --------- ------
Total interest-earning assets......................... 303,878 5,948 7.94 202,615 3,929
Unrealized appreciation (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
Savings deposits........................................ 18,930 185 3.96 9,796 71
Other time deposits..................................... 126,447 1,777 5.70 110,790 1,523
--------- ------ --- --------- ------
Total deposits.......................................... 241,982 2,874 4.82 170,787 2,060
Other borrowed funds.................................... 6,781 90 5.38 2,575 26
Long-term debt.......................................... 21,444 288 5.45 4,000 46
--------- ------ --- --------- ------
Total interest-bearing liabilities.................... 270,207 3,252 4.88 177,362 2,132
--------- ------ --- --------- ------
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%
---
---
<CAPTION>
<S> <C>
YIELD
RATE(2)
-----------
<S> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits at banks...................... 5.44%
---
U.S. Treasury........................................... 5.73
U.S. Government agencies................................ 6.19
State and municipal (3)................................. 8.21
Other bonds and securities.............................. 4.67
---
Total securities...................................... 7.02
---
Federal funds sold...................................... 5.11
---
Commercial loans (3).................................... 8.90
Mortgage loans.......................................... 7.62
Installment loans....................................... 8.10
---
Total loans(4)........................................ 8.28
---
Total interest-earning assets......................... 7.80
Unrealized appreciation (depreciation) on available for
sale securities.........................................
Allowance for loan losses.................................
Non-interest-earning assets...............................
Total assets..............................................
INTEREST-BEARING LIABILITIES:
Demand deposits, interest-bearing......................... 3.73%
Savings deposits........................................ 2.92
Other time deposits..................................... 5.53
---
Total deposits.......................................... 4.85
Other borrowed funds.................................... 4.06
Long-term debt.......................................... 4.63
---
Total interest-bearing liabilities.................... 4.83
---
Demand deposits, non-interest bearing.....................
Other non-interest-bearing liabilities....................
Total liabilities.........................................
Redeemable common stock...................................
Stockholders' equity......................................
Total liabilities, redeemable common stock and
stockholders' equity....................................
Net interest income.......................................
Net interest margin (5)................................... 3.57%
---
---
</TABLE>
- ------------------------
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized cost; all yields are
annualized.
(3) Taxable equivalent basis, using a 34% statutory tax rate as adjusted for the
disallowance of the deduction for interest expense to carry bank eligible
tax-exempt securities and loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and interest paid, divided
by average total interest-earning assets.
17
<PAGE>
RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
<S> <C> <C> <C>
1997 VS. 1996
-----------------------------------
<CAPTION>
CHANGE DUE TO
-----------------------------------
AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE)
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Interest-bearing deposits with banks....................................... $ (65) $ 7 $ (58)
Federal funds sold......................................................... (49) 1 (48)
Securities (1)............................................................. 1,159 4 1,163
Loans(1)................................................................... 866 96 962
--------- ----- -----------
Total interest income........................................................ $ 1,911 $ 108 $ 2,019
--------- ----- -----------
Interest paid on:
Interest-bearing demand and savings deposits............................... $ 497 $ 63 $ 560
Time deposits under $100,000............................................... 128 69 197
Time deposits $100,000 and above........................................... 48 9 57
Borrowed funds............................................................. 233 73 306
--------- ----- -----------
Total interest expense..................................................... $ 906 $ 214 $ 1,120
--------- ----- -----------
Net interest income........................................................ $ 1,005 $ (106) $ 899
--------- ----- -----------
--------- ----- -----------
</TABLE>
- ------------------------
(1) Interest income is reported on a tax-equivalent basis, using a 34% statutory
tax rate as adjusted for the disallowance of the deduction for interest
expense to carry bank eligible tax-exempt securities and loans.
Net interest margin increased 3 basis points to 3.60% for the three months
ended March 31, 1997 versus 3.57% for the three months ended March 31, 1996,
calculated on a tax-equivalent basis. Net interest margin increased in the first
quarter of 1997 as compared to the same period in 1996 primarily due to an
increase in the average yield on interest-earning assets. For the first quarter
of 1997, the average yield on interest-earning assets, on a tax-equivalent
basis, increased 14 basis points to 7.94% from 7.80% for the quarter ended March
31, 1996.
The Company's net interest income, calculated on a tax-equivalent basis,
increased $899,000, or 50.0%, to $2.7 million during the first quarter of 1997
from $1.8 million during the first quarter of 1996. The increase in net interest
income was primarily due to an increase in average interest-earning assets as
well as an increase in the average yield on interest-earning assets. The
Company's total interest income on a tax-equivalent basis increased by $2.0
million during the first quarter of 1997 over the first quarter of 1996, from
$3.9 million in 1996 to $5.9 million in 1997. Interest and fees on loans
increased $1.0 million, from $3.1 million at March 31, 1996 to $4.1 million at
March 31, 1997, which was largely as a result of an increase in average loan
balances, from $152.0 million at March 31, 1996 to $199.6 million at March 31,
1997. The yield on the loan portfolio was relatively constant between the
periods. Also contributing to the increase in total interest income was an
increase in interest and dividend income on securities of $1.2 million, from
$527,000 for the first quarter of 1996, to $1.7 million for the first quarter of
1997, calculated on a tax-equivalent basis. This increase in investment income
was the result of a combination of an increase in the average balance of
securities owned for the first three months of 1997 versus the first three
months of 1996, from $30.2 million to $92.5 million, and an increase in the
tax-equivalent yield on the
18
<PAGE>
average balance in securities held, from 7.0% for the first three months of 1996
to 7.4% for the first three months of 1997.
The increase in the average balance of securities is the result of matched
funding programs employed by the Company that use FHLB advances and the
significant deposit inflows at existing and new branches to fund loan
originations and securities purchases. The purpose of these programs is to
target earnings growth and net interest margin increases while managing
liquidity, credit, market and interest rate risk. From time to time, a specific
matched funding program may attempt to achieve current earnings benefits from
future growth in deposits that management is reasonably confident will occur by
funding current loan and security portfolio increases partially with short-term
FHLB advances. For example, management may elect to use short-term FHLB advances
during the quarter prior to the opening of a new branch. Once the new branch
opens, management then may elect to pay off these short-term FHLB advances with
lower cost deposit growth, or convert short-term FHLB debt to long-term debt or
rollover short-term debt if market conditions are favorable.
The increase in average yield on interest-earning assets was largely the
result of the Company's strategy to reduce its effective tax rate by increasing
its holdings in state and municipal securities located primarily in the
Commonwealth of Pennsylvania, many of which are school district obligations with
underlying insurance that carry the highest rating of Moodys or Standard and
Poor's. The Company has elected during the past several years to maintain the
bulk of its excess liquidity in an interest-bearing account at the FHLB of
Pittsburgh instead of selling it overnight as Federal Funds Sold. By doing this
during the first quarter of 1997, the Company increased its yield on its
deposits at the FHLB by 44 basis points over what it could have earned on
Federal Funds Sold, an average yield of 5.75% versus 5.31%.
The Company's total interest expense increased $1.2 million, or 57.1%, to
$3.3 million during the first quarter of 1997 compared to $2.1 million during
the first quarter of 1996. This increase was due to an increase in the volume of
average interest-bearing liabilities of $92.8 million, or 52.3%, to $270.2
million for the quarter ended March 31, 1997 versus $177.4 million for the
quarter ended March 31, 1996. The average rate paid on interest-bearing
liabilities increased 5 basis points from 4.83% for the first quarter of 1996
compared to 4.88% for the first quarter of 1997. This slight increase was as a
result of higher amounts of long-term debt and other borrowed funds in the first
quarter of 1997 versus the first quarter of 1996. The average rate paid on
deposits decreased 3 basis points from 4.85% for the first quarter of 1996
compared to 4.82% for the first quarter of 1997 due to an improved deposit mix
as described below.
In September 1996 the Company elected to increase the annual percentage
yield on money market savings deposits to 4.2%. The Company currently guarantees
this minimum yield through June 30, 1998 for all new money market savings
accounts opened and having balances of $1,000 or more. The total balance in
money market savings deposits increased $6.3 million during the first quarter of
1997, or 7.0%, from $90.6 million at December 31, 1996 to $96.9 million at March
31, 1997. This strategy contributed to the increase in the Company's interest
expense during the first three months of 1997 versus the first three months of
1996. However, the Company believes the higher rate is justified because the
Company historically had comparatively low money market deposit balances
compared to many other banks and instead relied more heavily on time deposits as
a funding source. The above market yield on the money market account product is
a conscious strategy designed to change the Company's deposit composition by
significantly increasing money market account balances while at the same time
attracting funds at a yield lower than that which would have been paid on time
deposits. At March 31, 1997, total money market savings deposits were 33.2% of
total deposits and 37.1% of total interest-bearing deposits.
Interest expense on certificates of deposit increased $254,000, or 16.9%,
from $1.5 million during the first three months of 1996 to $1.8 million during
the first three months of 1997. This increase was due to an increase in the
average volume of certificates of deposit in the amount of $15.6 million, or
14.1%, from $110.8 million for the three months ended March 31, 1996 to $126.4
million for the three months ended March 31, 1997 as well as increases in the
average rates from 5.53% to 5.70%, respectively. During the first
19
<PAGE>
quarter of 1997, the Bank initiated a program that provides a 25 basis point
premium on certificates of deposit to customers who maintain both a checking and
savings account with the Bank.
Interest expense on other borrowed funds and long-term debt increased for
the first quarter of 1997 to $378,000 from $72,000 for the first quarter of 1996
because the average balance of other borrowed funds and long-term debt increased
to $28.2 million for the first quarter of 1997 from $6.6 million for the first
quarter of 1996. The increase, along with the increase in deposits, funded
purchases of securities and origination of loans are part of an ongoing matched
funding program designed to increase earnings while also managing interest rate
risk and liquidity. Another integral part of this strategy is to aggressively
promote "free" non-interest-bearing business and personal demand (checking)
accounts. This strategy will continue throughout 1997 in an ongoing effort by
the Company to lower its cost of funds. During the first quarter of 1997, the
balance of non-interest-bearing business and personal demand (checking) deposits
increased from $29.1 million at December 31, 1996 to $31.2 million at March 31,
1997, an increase of $2.1 million, or 7.2%.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level considered appropriate by management. The
level of the allowance for loan losses is determined by management of the Bank
based upon its evaluation of the known as well as inherent risks within the
Bank's loan portfolio. Management's periodic evaluation is based upon an
examination of the portfolio, past loss experience, current economic conditions,
the results of the most recent regulatory examinations and other relevant
factors. The provision for loan losses was $241,000 for the first three months
of 1997 compared to $80,000 for the first three months of 1996. The increase in
the first quarter of 1997 compared to 1996 replaced that portion of the
allowance for loan losses used to fund loan charge-offs, net of recoveries
during the first quarter of 1997 of $134,000, as well as to increase the
allowance for loan losses to a level deemed by management to be satisfactory
given the growth in the size of the loan portfolio during the first quarter of
1997. Non-performing assets were 1.03% of total assets at March 31, 1997,
compared to 1.12% at December 31, 1996. Delinquencies were 3.0% of total loans
at March 31, 1997, compared to 2.7% at December 31, 1996. See "BUSINESS--Credit
Quality."
OTHER INCOME
Total other income increased $69,000, or 26.1%, from $264,000 during the
first quarter of 1996 to $333,000 during the first quarter 1997. The increase
was due primarily to a $72,000 increase in customer service fees for services
such as merchant card fee income, overdraft and non-sufficient funds charges,
safe deposit box rentals, and other miscellaneous fees which are primarily
deposit driven. The rate of increase in customer service fees was faster than
the rate of increase in the Bank's average total deposits for the first three
months of 1997. Customer service fees increased 50.3% during the first quarter
of 1997 compared to the first quarter of 1996, while average total deposits
increased 42.8% for the same comparative periods. Also, income from mortgage
banking activities increased $9,000, or 7.9%, from $114,000 during the first
quarter of 1996 to $123,000 during the first quarter of 1997. Mortgage banking
revenues include the net loss on loans sold, which decreased $9,000, or 47.4%,
from $19,000 during the first quarter of 1996 to $10,000 during the first
quarter of 1997.
OTHER EXPENSES
Total other expenses increased $515,000, or 34.3%, from $1.5 million during
the first three months of 1996 to $2.0 million during the first three months of
1997. Salaries and wages increased $247,000, or 49.6%, from $498,000 during the
first quarter of 1996 to $745,000 for the first quarter of 1997. Employee
benefits increased $58,000, or 46.8%, from $124,000 during the first quarter of
1996 to $182,000 during the first quarter 1997. Occupancy expenses increased
$10,000, or 7.2%, from $139,000 during the first three months of 1996 to
$149,000 during the same period in 1997. Equipment expenses increased $14,000,
or
20
<PAGE>
13.1%, from $107,000 during the first quarter of 1996 to $121,000 during the
first quarter in 1997. Other operating expenses increased $186,000, or 32.6%,
from $571,000 during the first three months of 1996 to $757,000 during the same
period of 1997. Other operating expenses encompasses all expenses not otherwise
categorized, and includes items such as third-party data processing costs for
ATM machines and payroll processing, FDIC insurance premiums, professional fees,
advertising costs, office supplies, insurance and other miscellaneous expenses.
The primary reason that other expenses increased during the first quarter of
1997 compared with the first quarter of 1996 was the growth of the Bank and
increased expenses related to the opening of the new Muhlenberg and Shillington
branch offices.
Advertising expense decreased $23,000, or 14.7%, from $156,000 during the
first quarter of 1996 to $133,000 during the first quarter of 1997. This
discretionary expense is expected to increase during the second quarter of 1997
in conjunction with the promotion of the opening of the Muhlenberg and
Shillington offices. Office supplies and expense increased $42,000, or 47.7%,
from $88,000 during the first quarter of 1996 to $130,000 during the first
quarter of 1997. This increase was due to the growth of the Bank and the need to
stock the two new branches.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $9,000, or 9.4%, to $105,000 for
the first quarter of 1997 from $96,000 in the first quarter 1996. The effective
tax rates for the first quarters ended March 31, 1997 and 1996 were 17.0% and
21.2%, respectively. The significant decrease in these effective tax rates from
the statutory tax rate of 34.0% was due to the significant amount of tax-exempt
interest income earned on bank-qualified municipal securities. Tax-exempt income
from municipal securities increased $263,000, or 128.3%, for the quarter ended
March 31, 1997 compared to the quarter ended March 31, 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
OVERVIEW
The Company's net income for the year ended December 31, 1996 was $1.9
million, increasing by 111.1%, from $902,000 for 1995. The increase in net
income for 1996 compared to 1995 was largely attributable to an increase in net
interest income. This increase was a result of several matched funding
strategies implemented by the Company's asset/liability committee.
ANALYSIS OF NET INTEREST INCOME
The Company's net interest income, calculated on a tax-equivalent basis,
increased $2.3 million, or 35.9%, to $8.7 million during 1996 from $6.4 million
during 1995. The increase in net interest income was primarily due to an
increase in average interest-earning assets and a decrease in average rates paid
on average interest-bearing liabilities. Interest income, on a tax-equivalent
basis, increased $5.1 million, or 38.1%, from $13.4 million in 1995 to $18.5
million in 1996, while interest expense increased $2.8 million, or 40.0%, from
$7.0 million in 1995 to $9.8 million in 1996.
The following table presents the Company's average balances, yields, cost of
funds and net interest margin for the periods indicated:
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1) RATE(2) BALANCE EXPENSE(1) RATE(2)
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits at
banks..................... $ 8,095 $ 431 5.32% $ 9,716 $ 560 5.76% $ 5,215 $ 208 3.99%
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
U.S. Treasury............... 4,168 261 6.26 5,891 382 6.48 5,719 277 4.84
U.S. Government agencies.... 25,237 1,770 7.01 6,239 397 6.36 3,787 193 5.10
State and municipal(3)...... 22,003 1,773 8.06 7,336 591 8.06 4,556 363 7.97
Other bonds and
securities................ 1,920 119 6.20 1,177 78 6.63 1,604 95 5.92
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total securities............ 53,328 3,923 7.36 20,643 1,448 7.01 15,666 928 5.92
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Federal funds sold.......... 2,319 121 5.22 1,290 73 5.66 751 31 4.13
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Commercial loans(3)......... 76,196 6,758 8.87 57,443 5,307 9.24 51,538 4,561 8.85
Mortgage loans.............. 78,745 5,952 7.56 66,832 5,124 7.67 60,074 4,510 7.51
Installment loans........... 15,194 1,324 8.71 9,585 864 9.01 6,823 577 8.46
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total loans(4).......... 170,135 14,034 8.25 133,860 11,295 8.44 118,435 9,648 8.15
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total interest-earning
assets................ 233,877 18,509 7.91 165,509 13,376 8.08 140,067 10,815 7.72
Unrealized depreciation on
available for sale
securities.................. (227) (172) (188)
Allowance for loan losses..... (1,849) (1,492) (1,461)
Non-interest-earning assets... 15,479 11,821 8,362
-------- -------- --------
Total assets.................. $247,280 $175,666 $146,780
-------- -------- --------
-------- -------- --------
INTEREST-BEARING LIABILITIES:
Demand deposits, interest
bearing................... $ 68,642 $2,582 3.76% $ 28,455 $ 937 3.29% $ 25,546 $ 600 2.35%
Savings deposits............ 11,010 343 3.12 10,162 272 2.68 12,572 306 2.43
Other time deposits......... 112,498 6,210 5.52 96,129 5,391 5.61 67,110 3,443 5.13
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total deposits.......... 192,150 9,135 4.75 134,746 6,600 4.90 105,228 4,349 4.13
Other borrowed funds........ 5,803 303 5.22 2,736 141 5.15 2,659 143 5.38
Long-term borrowings........ 6,742 371 5.50 5,488 285 5.19 12,978 760 5.86
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total interest-bearing
liabilities........... 204,695 9,809 4.79 142,970 7,026 4.91 120,865 5,252 4.35
---------- ------- ---------- ------- ---------- -------
Demand deposits, non-interest-
bearing..................... 21,127 12,960 9,735
Other non-interest-bearing
liabilities................. 2,718 1,870 1,381
-------- -------- --------
Total liabilities........... 228,540 157,800 131,981
Redeemable common stock....... 14 315 639
Stockholders' equity.......... 18,726 17,551 14,160
-------- -------- --------
Total liabilities, redeemable
common stock and
stockholders' equity........ $247,280 $175,666 $146,780
-------- -------- --------
-------- -------- --------
Net interest income........... $8,700 $6,350 $5,563
---------- ---------- ----------
---------- ---------- ----------
Net interest margin(5)........ 3.72% 3.84% 3.97%
------- ------- -------
------- ------- -------
</TABLE>
- ------------------------------
(1) Includes loan fee income.
(2) Yields on investments are calculated based on amortized cost.
(3) Taxable equivalent basis, using a 34% statutory tax rate for 1996, 1995 and
1994 and adjusted for the disallowance of the deduction for interest expense
to carry bank eligible tax-exempt securities and loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and interest paid, divided
by average total interest-earning assets.
22
<PAGE>
RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table sets forth an analysis of volume and rate changes in net
interest income for the periods indicated:
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
CHANGE DUE TO CHANGE DUE TO
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
--------- --------- ----------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits with banks..................... $ 428 $ (557) $ (129) $ 330 $ 22 $ 352
Federal funds sold....................................... (42) 90 48 22 20 42
Securities (1)........................................... 2,941 (466) 2,475 377 143 520
Loans (1)................................................ 3,415 (676) 2,739 1,287 360 1,647
--------- --------- ----------- --------- ----- -----------
Total interest income................................ $ 6,742 $ (1,609) $ 5,133 $ 2,016 $ 545 $ 2,561
--------- --------- ----------- --------- ----- -----------
Interest paid on:
Interest-bearing demand and savings deposits............. $ 1,097 $ 619 $ 1,716 $ 35 $ 268 $ 303
Time deposits under $100,000............................. 724 68 792 1,365 361 1,726
Time deposits $100,000 and above......................... 193 (166) 27 124 98 222
Borrowed funds........................................... 2,009 (1,761) 248 (434) (43) (477)
--------- --------- ----------- --------- ----- -----------
Total interest expense................................... $ 4,023 $ (1,240) $ 2,783 $ 1,090 $ 684 $ 1,774
--------- --------- ----------- --------- ----- -----------
Net interest income...................................... $ 2,719 $ (369) $ 2,350 $ 926 $ (139) $ 787
--------- --------- ----------- --------- ----- -----------
--------- --------- ----------- --------- ----- -----------
</TABLE>
- ------------------------
(1) Interest income is reported on a tax-equivalent basis, using a 34% statutory
tax rate as adjusted for the disallowance of the deduction for interest
expense to carry bank eligible tax-exempt securities and loans.
Net interest margin decreased 12 basis points to 3.72% for the year ended
December 31, 1996 compared to 3.84% for the year ended December 31, 1995,
calculated on a tax-equivalent basis. Net interest margin decreased in 1996 due
primarily to a decrease in the average yield on interest-earning assets
(specifically loans). This was due in large part to the prime rate decreasing 25
basis points in February 1996 from 8.50% to 8.25% and increased competition for
small business and personal loans. In 1996, the average yield on
interest-earning assets, on a tax-equivalent basis, decreased 17 basis points,
or 2.1%, to 7.91% compared to 8.08% for the prior year ended December 31, 1995.
The Company's total interest income on a tax-equivalent basis increased by
$5.1 million during 1996 over the previous year from $13.4 million in 1995 to
$18.5 million in 1996. Interest and fees on loans increased $2.7 million, from
$11.3 million for the year ended December 31, 1995 to $14.0 million for the year
ended December 31, 1996, which was a result of an increase in average loan
volume, from $133.9 million for the year ended December 31, 1995, to $170.1
million for the year ended December 31, 1996. Also contributing to the increase
in total interest income was an increase in interest and dividend income on
securities of $2.5 million, from $1.4 million in 1995, to $3.9 million in 1996.
This increase in investment income was the result of a combination of an
increase in the average balance of securities in 1996 versus 1995, from $20.6
million to $53.3 million as a result of the Company's matched funding program,
and an increase in the tax-equivalent yield on the average balance in securities
held, from 7.0% in 1995 to 7.4% in 1996. The increase in yield was largely the
result of the Company's strategy to increase its holdings in state and municipal
securities that produce a higher yield on a tax-equivalent basis.
The Company's total interest expense increased $2.8 million, or 40.0%, to
$9.8 million in 1996 from $7.0 million in 1995. This increase was due to an
increase in the volume of average interest-bearing liabilities of $61.7 million,
or 43.2%, to $204.7 million for the year ended December 31, 1996 versus $143.0
23
<PAGE>
million for the year ended December 31, 1995. The average rate paid on
interest-bearing liabilities decreased 12 basis points, or 2.4%, from 4.91% for
1995 compared to 4.79% for 1996. This decrease reflected a shift of the Bank's
customer deposit mix from higher cost certificates of deposit to lower yielding
money market savings and checking accounts in 1996 versus 1995.
The total balance in money market savings deposits increased $48.3 million
during 1996, or 114.2%, from $42.3 million at December 31, 1995 to $90.6 million
at December 31, 1996. The increase was due to the Bank increasing the annual
percentage yield on money market savings deposits to 4.2% as discussed above. At
December 31, 1995, total money market savings deposits were 23.5% of total
deposits and 26.2% of total interest-bearing deposits. At December 31, 1996, the
percentage that total money market savings deposits were of total deposits and
total interest-bearing deposits increased to 34.3% and 38.5%, respectively.
Interest expense on certificates of deposit increased $800,000, or 14.8%,
from $5.4 million during 1995 to $6.2 million in 1996. This increase was due to
an increase in the average volume of certificates of deposit in the amount of
$16.4 million, or 17.1%, from $96.1 million in 1995 to $112.5 million in 1996.
Interest expense on other borrowed funds and long-term borrowings increased
in 1996 to $674,000 from $426,000 because the average balance increased to $12.5
million in 1996 from $8.2 million in 1995. The increase, along with the increase
in deposits and other borrowed funds, funded purchases of securities and
origination of loans as part of the Company's ongoing matched funding program.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $687,000 for 1996 compared to $518,000 for
1995. The increase in 1996 replaced that portion of the allowance for loan
losses used to fund loan charge-offs, net of recoveries, in 1996 of $360,000 as
well as to increase the allowance for loan losses to a level deemed to be
satisfactory given the growth in the size of the loan portfolio during 1996.
Non-performing assets were 1.12% of total assets at December 31, 1996, compared
to 1.50% at December 31, 1995. Delinquencies decreased to 2.70% at December 31,
1996, from 3.20% at December 31, 1995. See "BUSINESS--Credit Quality."
OTHER INCOME
Total other income increased $334,000, or 33.4%, from $1.0 million in 1995
to $1.3 million in 1996. The increase was due primarily to a $210,000 increase
in customer service fees for services such as merchant card fee income,
overdraft and non-sufficient funds charges, safe deposit box rentals, and other
miscellaneous fees that are primarily deposit driven. The increase in customer
service fees was nearly proportional to the increase in the Bank's average total
deposits. Also, income from mortgage banking activities increased $100,000, or
18.7%, from $534,000 in 1995 to $634,000 in 1996, due to an increase in
investors' mortgage commitments in 1996. Effective January 1, 1996, the Company
was required to adopt Statement of Financial Accounting Standards ("SFAS") No.
122 "Accounting for Mortgage Servicing Rights." The effect of SFAS No. 122 did
not have a material impact on the Company's financial position and results of
operations in 1996. See "--New Financial Accounting Standards" herein.
OTHER EXPENSES
Total other expenses increased $1.0 million, or 18.5%, from $5.4 million in
1995 to $6.4 million in 1996 primarily because of increased staffing needs
resulting from the growth of the Company. Salaries, wages and employee benefits
increased $481,000, or 20.0%, from $2.4 million in 1995 to $2.9 million in 1996.
Occupancy expenses increased $90,000, or 18.8%, from $480,000 in 1995 to
$570,000 in 1996. Equipment expenses increased $37,000, or 9.7%, from $382,000
in 1995 to $419,000 in 1996. Other operating expenses increased $425,000, or
19.3%, from $2.2 million in 1995 to $2.6 million in 1996.
Costs to maintain foreclosed real estate, plus losses on the sale of such
foreclosed real estate, totaled $301,000 in 1996 versus $222,000 in 1995, an
increase of $79,000, or 35.6%. EDP outsourcing and MAC
24
<PAGE>
fees increased $114,000, or 45.1%, from $253,000 in 1995 to $367,000 in 1996.
The increase was due largely to the growth of the Bank and the introduction of
the Bank's Visa Check card in January 1996.
Advertising expense increased $274,000, or 85.6%, from $320,000 in 1995 to
$594,000 in 1996. The Company elected to increase its advertising expenses in
order to increase its market share in response to opportunities resulting from
the large number of mergers and bank name changes, the most notable of which
were CoreStates' acquisition of Meridian Bank, PNC Corp.'s acquisition of
Midlantic Bank and the pending acquisition of Bank of Pennsylvania by Allied
Irish Banks, and also to place greater marketing emphasis upon certain products
(free business checking, free personal checking and money market savings
deposits).
Professional fees decreased $100,000, or 38.3%, from $261,000 at December
31, 1995 to $161,000 at December 31, 1996. The reason for the decrease was due
in large part to the Company accruing for anticipated legal fees on foreclosed
assets in 1995 that settled in 1996.
Office supplies and expense increased $30,000, or 8.8%, from $342,000 in
1995 to $372,000 in 1996. This increase was attributable to the growth of the
Company in 1996.
PROVISION FOR INCOME TAXES
The provision for federal income taxes increased $96,000, or 28.5%, to
$433,000 in 1996 from $337,000 in 1995. The effective tax rates for the years
ended December 31, 1996 and 1995 were 18.5% and 27.1%, respectively. The
significant decrease in the effective tax rate for 1996 from the statutory tax
rate of 34% and the effective tax rate for 1995 was due to the significant
increase in tax-exempt interest income earned on bank-qualified municipal
securities. Tax-exempt income increased $820,000, or 200.0%, for the year ended
December 31, 1996 compared to the year ended December 31, 1995.
FINANCIAL CONDITION
MARCH 31, 1997 COMPARED TO DECEMBER 31, 1996
Total assets increased to $343.2 million at March 31, 1997, an increase of
$18.7 million, or 5.8%, from $324.5 million at December 31, 1996. The increase
in assets is the result of higher levels of loans and securities, which were
funded by the increase in deposits in the first quarter of 1997. Net loans
increased to $203.9 million at March 31, 1997 from $192.1 million at December
31, 1996, or 6.1%. Securities increased to $108.9 million at March 31, 1997 from
$88.6 million at December 31, 1996. The increase of $20.3 million, or 22.9%, was
due primarily to the purchase of approximately $17.0 million in securities as
part of the Company's matched funding strategy which is intended to increase
earnings by anticipating future deposit growth that management is reasonably
confident will occur. See "--Analysis of Net Interest Income" herein.
Cash and due from banks, interest-bearing deposits, which are held at the
FHLB of Pittsburgh, and federal funds sold are all liquid funds. The aggregate
amount in these three categories decreased by $17.6 million to $14.1 million at
March 31, 1997, from $31.7 million at December 31, 1996 because the Company
redeployed these funds into higher yielding loans and securities. This
redeployment of liquid assets was done in anticipation of a significant increase
in liquid assets resulting from deposit inflows from the Bank's two newest
branches in Muhlenberg and Shillington. These two branches opened at the end of
the first quarter and early in the second quarter of 1997, respectively.
Bank premises and equipment, net of accumulated depreciation, increased from
$4.4 million at year end 1996 to $5.5 million at March 31, 1997. The increase of
$1.1 million was mainly attributable to the construction of the Muhlenberg and
Shillington offices.
Total liabilities increased by $18.9 million, or 6.2%, from $304.8 million
at year end 1996 to $323.7 million at March 31, 1997. During this period,
deposits, the Company's primary source of funds, increased by 10.6% from $264.3
million at year-end 1996 to $292.4 million at March 31, 1997. The deposit mix
25
<PAGE>
changed considerably during 1996 and that trend continued during the first
quarter of 1997. The change in the deposit mix occurred because the Bank placed
greater emphasis upon the generation of money market savings deposits,
accomplished by offering an above-market annual percentage yield of 4.2% for
balances of $1,000 or more. See "--Analysis of Net Interest Income" herein. The
Bank also changed its deposit mix by offering no-fee, "free" personal and
business checking while many competitors charged fees for these products. The
aggregate amount of demand and savings deposits, which are lower in rate than
time deposits, increased $19.8 million, or 13.9%, from $142.0 million at
December 31, 1996 to $161.8 million at March 31, 1997. As a percentage of total
deposits, aggregate demand and savings deposits increased from 53.7% at December
31, 1996 to 55.3% at March 31, 1997. Aggregate demand deposits include non-
interest-bearing demand, interest checking (NOW) and money market savings
deposits. Certificates of deposit increased $8.3 million, or 6.8%, from $122.3
million at year end 1996 to $130.6 million at March 31, 1997. As a percentage of
total deposits, certificates of deposit decreased from 46.3% at December 31,
1996 to 44.7% at March 31, 1997. The proceeds from the net increase in deposits
were used to fund new loans, new securities purchases, additions to bank
premises and equipment, and to reduce long-term debt and other borrowed funds.
Other borrowed funds and long term debt decreased $17.6 million from $35.7
million at year end 1996 to $18.1 million at March 31, 1997. The decrease was
primarily the result of paying off approximately $18.0 million in short-term and
long-term FHLB advances with proceeds from the growth in deposits.
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The Company's total assets increased 57.0% from $206.7 million at December
31, 1995 to $324.5 million at year end 1996. During the same period, net loans
increased by 31.3% to $192.1 million, and securities increased by 199.5% to
$88.6 million as a result of the Company's matched funding strategy.
Cash and amounts due from banks, interest-bearing deposits, and federal
funds sold increased, in the aggregate, by $11.0 million to $31.7 million at
December 31, 1996 from $20.7 million at December 31, 1995, primarily due to a
greater amount of growth in deposits during 1996 than the amount of growth in
loans and securities.
Bank premises and equipment, net of accumulated depreciation, increased from
$3.5 million at year end 1995 to $4.4 million at year end 1996. The increase of
$900,000 was mainly attributable to the capitalized costs associated with
long-term leases on land on which the Muhlenberg and Shillington branches were
built. See "BUSINESS--Property."
Total liabilities increased by $116.6 million, or 62.0%, from $188.2 million
at year-end 1995 to $304.8 million at December 31, 1996. During this period,
deposits increased by 46.9% from $179.9 million at year-end 1995 to $264.3
million at December 31, 1996. As a result of the Company's promotion of its
money market savings account, the aggregate amount of demand and savings
deposits increased $66.1 million, or 87.1%, from $75.9 million at December 31,
1995 to $142.0 million at December 31, 1996. As a percentage of total deposits,
aggregate demand and savings deposits increased from 42.2% at December 31, 1995
to 53.7% at December 31, 1996. Aggregate demand deposits include
non-interest-bearing demand, interest checking (NOW) and money market deposits.
Certificates of deposit increased $18.2 million, or 17.5%, from $104.1 million
at year end 1995 to $122.3 million at December 31, 1996. As a percentage of
total deposits, certificates of deposit decreased from 57.8% at December 31,
1995 to 46.3% at December 31, 1996.
Other borrowed funds increased $11.4 million from $2.3 million at year end
1995 to $13.7 million at year end 1996. The increase was primarily the result of
$11.0 million in net new FHLB advances with a maturity date of less than one
year. Long-term borrowed funds increased $18.0 million from $4.0 million at year
end 1995 to $22.0 million at year end 1996. This increase was as a result of
$18.0 million in new FHLB advances with a maturity date greater than one year.
The Company increased its FHLB borrowings as part of its ongoing matched funding
programs to increase earnings, while also managing interest rate risk and
liquidity.
26
<PAGE>
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 provide dependable and steady growth in net
interest income regardless of the behavior of interest rates.
The following table presents a summary of the Bank's interest rate
sensitivity at March 31, 1997 calculated on a beta-adjusted basis. For purposes
of this table, the Bank has used assumptions based on industry data and
historical experience to calculate the expected maturity of loans because,
statistically, certain categories of loans are prepaid before their maturity
date, even without regard to interest rate fluctuations.
INTEREST SENSITIVITY AT MARCH 31, 1997 (1)
<TABLE>
<CAPTION>
0 DAYS 31 DAYS 61 DAYS 91 DAYS 181 DAYS 1 YEAR
THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH OVER 5
30 DAYS 60 DAYS 90 DAYS 180 DAYS 1 YEAR 5 YEARS YEARS
----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans......................... $ 41,609 $ 4,062 $ 4,582 $ 10,125 $ 26,361 $ 88,275 $ 30,945
Securities (2)................ 2,773 -- 45 355 2,489 13,686 90,524
Interest-bearing deposits &
Federal Funds sold.......... 1,887 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total......................... $ 46,269 $ 4,062 $ 4,627 $ 10,480 $ 28,850 $ 101,961 $ 121,469
----------- ----------- ----------- ----------- ----------- ----------- ----------
Interest-bearing liabilities:
Interest-bearing deposits..... $ 75,090 $ 8,295 $ 5,797 $ 24,273 $ 13,374 $ 67,426 $ 66,970
Borrowed funds................ 4,095 -- -- 2,000 -- 2,000 10,000
Non-interest-bearing
deposits.................... 5,254 -- -- -- -- -- 25,901
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total......................... $ 84,439 $ 8,295 $ 5,797 $ 26,273 $ 13,374 $ 69,426 $ 102,871
----------- ----------- ----------- ----------- ----------- ----------- ----------
Interest-rate sensitivity gap:
Interval...................... $ (38,170) $ (4,233) $ (1,170) $(15,793) $ 15,476 $ 32,535 $ 18,598
----------- ----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------- ----------
Cumulative.................... $ (38,170) $ (42,403) $ (43,573) $(59,366) $(43,890) $ (11,355) $ 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%
----------- ----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------- ----------
<CAPTION>
TOTAL
----------
<S> <C>
Interest-earning assets:
Loans......................... $ 205,959
Securities (2)................ 109,872
Interest-bearing deposits &
Federal Funds sold.......... 1,887
----------
Total......................... $ 317,718
----------
Interest-bearing liabilities:
Interest-bearing deposits..... $ 261,225
Borrowed funds................ 18,095
Non-interest-bearing
deposits.................... 31,155
----------
Total......................... $ 310,475
----------
Interest-rate sensitivity gap:
Interval...................... $ 7,243
----------
----------
Cumulative.................... $ 7,243
----------
----------
Ratio of cumulative gap to
total rate-sensitive
assets...................... 2.28%
----------
----------
</TABLE>
- ------------------------------
(1) Calculated on a beta-adjusted basis.
(2) Maturity of securities is based on maturity date; excludes unrealized
depreciation on available for sale securities.
27
<PAGE>
Shortcomings are inherent in a simplified and static GAP analysis that may
result in an institution with a negative GAP having interest rate behavior
associated with an asset-sensitive balance sheet. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Furthermore,
repricing characteristics of certain assets and liabilities may vary
substantially within a given time period. In the event of a change in interest
rates, prepayment and early withdrawal levels could also deviate significantly
from those assumed in calculating GAP in the manner presented in the table.
The traditional static GAP analysis implicitly assumes that the interest
rates on all assets and liabilities that reprice within a given repricing period
change by the same amount as the change in the market interest rate of the same
duration. For example, if the Federal funds rate increased by 100 basis points,
a static GAP model assumes that the prime rate and the rate paid on money market
deposits will each change by 100 basis points. However, experience suggests that
such an analysis is not accurate. For example, if the Federal funds rate changes
by 100 basis points, the prime rate may only change by 90 basis points and the
rate paid on money market accounts may only change by 40 basis points. More
sophisticated asset/liability management models attempt to adjust for this
defect in the static GAP model. Accordingly, the Bank measures its interest-rate
risk by conducting various analyses in addition to the traditional static GAP
report, including repricing matrices, beta-adjusted GAP reports, simulation
modeling and duration analyses.
Beta is the measure of the relative sensitivity of the amount of change in
the interest rate on a given asset or liability with the amount of change in
another independent financial instrument. For example, an asset or liability
with a beta of .75 means that a 100 basis point change in the independent
variable (e.g. Federal funds) will result in a 75 basis point change in the rate
of the asset or liability. A beta is assigned to each key rate for each asset
and liability account, and the volume of assets and liabilities that reprice
within a repricing period are adjusted by this beta factor. The result is a
beta-adjusted GAP position. This data is also organized into a repricing matrix
to give a graphical presentation of the GAP position. Results of these analyses
as of March 31, 1997 indicate that despite the negative GAP balance shown in the
table, the Bank does not have material interest-rate risk in the event that
interest rates rise or fall as much as 200 basis points over the next twelve
months. This is principally because the Bank's $96.9 million in money market
savings deposits were assigned a beta assuming that these deposits carry a
market interest rate. In fact, these deposits carry a rate approximately 200
basis points above the market rate and therefore are far less susceptible to
repricing in a rising rate environment.
CAPITAL
The Company's Tier 1 capital to risk-weighted assets ratio at March 31, 1997
was 9.61% compared to 10.39% at December 31, 1996. These ratios exceeded the
Tier 1 regulatory capital requirement of 4.00%. The Company's total capital to
risk-weighted assets ratio at March 31, 1997 was 10.63% compared to 11.44% at
December 31, 1996. These ratios exceeded the total risk-based capital regulatory
requirement of 8.00%. At March 31, 1997, the Company's leverage ratio was 6.22%
compared to 6.82% at December 31, 1996 and 9.30% at December 31, 1995. The
decline in the Company's leverage ratio is due to the rapid growth of the Bank
in the last two years. The Company remains categorized as "well capitalized"
under applicable Federal regulations. The Bank is subject to similar capital
requirements adopted by the Federal Reserve Board. At March 31, 1997, the Bank's
capital exceeded all regulatory requirements and the Bank remains categorized as
"well capitalized" under applicable federal regulations.
LIQUIDITY
Financial institutions must maintain liquidity to meet day-to-day
requirements of depositors and borrowers, take advantage of market
opportunities, and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities. Sources of asset
liquidity are
28
<PAGE>
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 FHLB 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 the first quarter of 1996 to the
first quarter of 1997 was due primarily to an increase in other assets. Other
assets increased due to the recording of $3.9 million in securities traded but
not yet delivered at March 31, 1997. The Company's cash flows from financing
activities decreased from $23.9 million at March 31, 1996 to $10.3 million at
March 31, 1997 due primarily to the repayment of other borrowed funds and long
term debt. Repayment of other borrowed funds was $7.6 million at March 31, 1997
and principal payments on long-term debt amounted to $10.0 million. The Company
utilized $5.5 million in cash for investing activities through March 31, 1997
versus $24.6 million through March 31, 1996. The decrease in cash utilized for
investing activities was primarily due to a decrease in the interest-bearing
deposits with banks in the amount of $20.6 million at March 31, 1997. The
changes in cash flows resulted in a net increase of internally generated cash of
$3.2 million during the quarter ended March 31, 1997 compared to a net increase
of $1.3 million for the quarter ended March 31, 1996.
At March 31, 1997, the Company had outstanding commitments (including unused
lines of credit and letters of credit) of $35.6 million. Certificates of deposit
which are scheduled to mature within one year totaled $61.5 million at March 31,
1997, and borrowings that are scheduled to mature within the same period
amounted to $6.1 million. The Company anticipates that it will have sufficient
funds available to meet its current commitments.
As of March 31, 1997, capital expenditures that were anticipated for the
remainder of 1997 included approximately $200,000 expended to complete the site
improvement and construction of a full service branch facility in Shillington,
Pennsylvania, and approximately $1.0 million for site improvement and
construction of a full service facility in the fourth quarter of 1997 or the
first quarter of 1998 at a location to be determined. These cost estimates also
include furniture, fixtures and equipment costs necessary to operate these
offices.
EFFECTS OF INFLATION
The Company's asset and liability structure is primarily monetary in nature.
As such, the Company'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.
29
<PAGE>
NEW FINANCIAL ACCOUNTING STANDARDS
MORTGAGE SERVICING RIGHTS
In 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which amends Statement No. 65, "Accounting for Certain Mortgage Banking
Activities." The Statement applies to all mortgage banking activities in which a
mortgage loan is originated or purchased and then sold or securitized with the
right to service the loan retained by the seller. The total cost of the mortgage
loans is allocated between the mortgage servicing rights and the mortgage loans
based on their relative fair values. The mortgage servicing rights are
capitalized as assets and amortized over the period of estimated net servicing
income. Additionally, they are subject to an impairment analysis based on their
fair value in future periods. The Statement was effective for transactions in
which mortgage loans are sold or securitized beginning January 1, 1996. The
impact on the Bank's financial position and results of operations will be
dependent upon the future volume of mortgage loans sold with servicing rights
retained. In 1996, the impact was immaterial.
STOCK-BASED COMPENSATION
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard provides the Company with a choice of how to
account for the issuance of stock options and other stock grants. The Statement
encourages companies to account for stock options at their fair value and
recognize the expense as compensation over the service period, but also permits
companies to follow existing accounting rules under Accounting Principles Board
("APB") Opinion No. 25. Companies electing to follow APB Opinion No. 25 rules
will be required to disclose pro forma net income and earnings per share
information as if the new fair value approach had been adopted. The Company is
continuing to follow existing accounting rules under APB Opinion No. 25 for
options granted, with pro forma disclosure in the footnotes to the consolidated
financial statements.
EARNINGS PER SHARE AND CAPITAL STRUCTURE
In 1997, the FASB issued Statement No. 128, "Earnings Per Share" and
Statement No. 129, "Disclosure of Information about Capital Structure." Both
Statements are effective for periods ending after December 15, 1997. Statement
No. 128 is designed to simplify the computation of earnings per share and will
require disclosure of "basic earnings per share" and, if applicable, "diluted
earnings per share." Earlier application is not permitted for Statement No. 128
and it will require restatement of all prior period earnings per share data when
adopted. The Statement is not expected to materially impact the reported
earnings per share of the Company. The adoption of Statement No. 129 will have
no impact on the Company.
30
<PAGE>
BUSINESS
GENERAL
The Company is a Pennsylvania corporation headquartered in Reading,
Pennsylvania and is a registered bank holding company for the Bank, a
Pennsylvania-chartered commercial bank. The Bank is a member of the Federal
Reserve System and the Bank's deposits are insured by the FDIC to the fullest
extent provided by law. The Bank was founded in 1987 to serve individuals and
small-to-medium sized businesses that management believed were not being
adequately served by the larger competitors in its market area. The Bank
currently maintains six full-service branches in Reading, Exeter, Wyomissing,
Muhlenberg, Shillington and Pottstown, Pennsylvania, and five loan production
offices in Wyomissing, Pottstown, Schuylkill Haven, Jamison and Exton/West
Chester, Pennsylvania. At March 31, 1997, the Company had total consolidated
assets, deposits, net loans and stockholders' equity of $343.2 million, $292.4
million, $203.9 million and $19.5 million, respectively.
MARKET OVERVIEW
The Bank's primary market area consists of Berks County, the central western
portion of Montgomery County, the southern half of Schuylkill County, central
Bucks County and eastern Chester County. Berks County, with a population of
350,000, includes the City of Reading, the county's largest municipality with a
population of 78,000. The central western portion of Montgomery County includes
the Borough of Pottstown and six contiguous townships, which together have a
population of approximately 82,000. The Bank's extended market area consists of
the remainder of the foregoing counties and Lehigh, Lancaster and Lebanon
counties.
As of June 30, 1996, there were 19 different banking institutions operating
approximately 118 branch offices and having total deposits of approximately $4.6
billion in Berks County. The six largest of these institutions with respect to
total deposits operated over 70% of the County's branch offices and had over 78%
of the County's deposits. The Bank's three Berks County branches had
approximately 4.0% of the County's deposits at June 30, 1996, versus 3.3% and
2.6% of the County's deposits at June 30, 1995 and 1994, respectively, and was
the County's seventh largest banking institution with respect to total deposits
at December 31, 1996.
OPERATING STRATEGY
Since December 31, 1994, the Company has grown substantially. Total assets
have grown from $154.7 million at December 31, 1994 to $343.2 million at March
31, 1997. Total deposits have grown from $124.3 million at December 31, 1994 to
$292.4 million at March 31, 1997, while net loans have grown from $125.5 million
at December 31, 1994 to $203.9 million at March 31, 1997. The Company believes
its growth has been driven by the successful execution of its operating
strategy, key elements of which include:
MAINTAINING A COMMUNITY FOCUS. Berks County and the surrounding counties
represent a stable banking market with a diversified economy. The Bank is the
largest community bank headquartered in Reading and offers individuals and small
to medium-sized businesses a wide array of banking products, informed and
friendly service, extended operating hours, consistently applied credit
policies, and local, timely decision making. All Bank customers are afforded
direct access to the Bank's President and other executive officers in attractive
and comfortable banking facilities.
CAPITALIZING ON MARKET DYNAMICS. Since 1995, banking offices representing
more than 50% of the total deposits in Berks County have been acquired by large
out-of-market institutions. The ensuing cultural changes in these banking
institutions have resulted in a change in their product offerings and the degree
of personal attention they provide to their customers. The Company has
capitalized on these dynamics by offering a community banking alternative and
tailoring its product offering to fill voids created as pricing of products and
services are increased or are phased out by the super-regional competition. As a
result, the
31
<PAGE>
Company's growth in its market area has been dramatic. The Bank's three Berks
County branches had approximately 4.0% of the County's deposits as of June 30,
1996, and there remains ample opportunity to capture market share.
BUILDING A SALES AND SERVICE CULTURE. The Company instills a sales and
service oriented culture in its personnel in order to build customer
relationships and maximize cross-selling opportunities. The Company extensively
screens and trains its employees and offers meaningful sales-based incentives to
all its customer contact employees. As a result, the average new customer of the
Bank has almost three account relationships.
EMPHASIZING TRANSACTION ACCOUNT GENERATION. The Company seeks to attract
transaction accounts that contribute to a lower overall cost of deposits and
increase its ability to cross-sell additional products and services. The Bank
prices its money market deposit accounts above the average in the market and
offers a truly free checking account. As a result, the Company is able to
attract deposits that are less expensive than certificates of deposit. At
December 31, 1994, the percentage of the Company's time deposits to total
deposits was 64.8%; by March 31, 1997, this percentage had declined to 44.7%.
Money market savings accounts grew from 11.6% of deposits to 33.2% of deposits
over this same period.
ATTRACTING HIGHLY EXPERIENCED PERSONNEL. The Bank's executive officers have
a combined 122 years of banking experience in the market. The Bank's commercial
lenders have a combined 215 years of experience in providing high-quality
service to small and middle-market businesses in the region. In addition, many
of the Bank's executive officers and other personnel have substantial employment
experience with larger banks in the region.
PRODUCTS AND SERVICES
The Bank offers a range of commercial and retail banking services to its
customers, including personal and business checking and savings accounts,
certificates of deposit, residential mortgage, consumer and commercial loans,
and trust and private banking services. While the Bank's customers typically
borrow between $25,000 and $1.5 million, if a customer's loan request exceed the
Bank's $3.1 million legal lending limit, the Bank seeks to arrange such loans on
a participation basis with other financial institutions. In addition, the Bank
provides safe deposit boxes, traveler's checks, wire transfer of funds, ACH
(Automated Clearing House) origination and other typical banking services. The
Bank is a member of the MAC/Plus network, provides clients with access to
automated teller machines worldwide, and makes credit cards available to its
customers through correspondent banking institutions.
The Company continues to update its product offering in order to remain
competitive. In the past twelve months, the Company has introduced a number of
new products and services such as a VISA CheckCard for point-of-sale purchases,
trust services, a private banking group to service high net worth individuals,
home equity conversion mortgages to aide homeowners age 62 and older, and
leasing services through an affiliation with Business Lease Consultants.
BRANCH EXPANSION PLANS AND GROWTH STRATEGY
The Company has achieved its expansion and market penetration by expanding
its branch presence into those markets in which it has identified growth
opportunities. Management's goal when establishing a new branch is to achieve
deposits of at least $50 million in three years or less. The Bank opened its
Pottstown and Wyomissing offices during the first and second quarters of 1995,
respectively. As of June 30, 1997, these branches had $44.9 million and $73.8
million in deposits, respectively. Similarly, the Bank opened its Muhlenberg
office on March 29, 1997 and its Shillington office on May 3, 1997. As of June
30, 1997, these two new branches had deposits of $14.1 million and $8.6 million,
respectively. Management expects to continue to open two branches per year for
the next several years and is currently considering several sites.
32
<PAGE>
The Company currently is opening approximately 200 new accounts per day and
seeks to acquire new customers by actively marketing its attractive product
offering and personalized approach to community banking. However, no assurance
can be given that the Company will continue to open as many as 200 new accounts
per day. The Company believes that its product offering, which features
competitive interest rates on selected products, low minimum balance
requirements and free checking, coupled with its continued introduction of new
products, such as its VISA CheckCard, will continue to contribute to account and
deposit growth. The Bank aggressively seeks to leverage deposit inflows into new
loan originations and since 1995 has opened loan production offices in
Wyomissing, Pottstown, Schuylkill Haven, Jamison and Exton/West Chester. In
addition, the Company expects to open additional loan production offices in
those areas where the Company perceives market opportunities and that may be
suitable for future branch sites.
LOAN PORTFOLIO
The Company's loan portfolio consists of commercial loans, residential
one-to-four-family mortgage loans and consumer loans. Commercial loans are
primarily made to small businesses and professionals in the form of term loans
and for working capital purposes with maturities generally between one and five
years. The majority of these commercial loans are collateralized by real estate
and further secured by personal guarantees. In 1996, the Company originated
$56.1 million in commercial loans.
The Company is the largest originator of residential mortgage loans in Berks
County. In 1996, the Company originated $83.1 million in residential mortgage
loans. Substantially all thirty year fixed rate mortgages are resold in the
secondary market. The Company does not retain servicing rights on those loans
sold in the secondary market. The Company's consumer loans consist principally
of home equity lines of credit.
The Company's net loans at March 31, 1997 totaled $203.9 million, an
increase of $11.8 million, or 6.1%, compared to net loans at December 31, 1996
of $192.1 million. This follows an increase of $45.8 million, or 31.3%, from the
$146.3 million amount of net loans at December 31, 1995. These increases
reflects continued loan demand from the Company's target customers.
The following tables set forth (i) the Company's loans by major categories
as of the dates indicated and (ii) the Company's loan origination activity by
major categories for the periods indicated:
33
<PAGE>
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Real estate secured................................. $ 59,663 $ 44,578 $ 55,732 $ 43,057 $ 38,003 $ 33,066 $ 30,935
Non-real estate secured\ unsecured.................. 31,013 19,939 27,154 18,159 14,826 13,635 14,131
Construction........................................ 4,450 3,251 5,006 3,004 2,577 1,294 2,725
--------- --------- --------- --------- --------- --------- ---------
95,126 67,768 87,892 64,220 55,406 47,995 47,791
Less deferred loan fees (costs)..................... (512) (250) (431) (207) (166) (94) (105)
--------- --------- --------- --------- --------- --------- ---------
Total commercial.................................. $ 95,638 $ 68,018 $ 88,323 $ 64,427 $ 55,572 $ 48,089 $ 47,896
--------- --------- --------- --------- --------- --------- ---------
Residential:
Mortgages........................................... $ 88,654 $ 66,142 $ 85,027 $ 63,538 $ 58,497 $ 50,155 $ 33,321
Construction........................................ 4,719 5,788 4,666 5,502 5,690 5,556 4,926
--------- --------- --------- --------- --------- --------- ---------
93,373 71,930 89,693 69,040 64,187 55,711 38,247
Less deferred loan fees (costs)..................... 180 166 184 185 105 43 146
--------- --------- --------- --------- --------- --------- ---------
Total residential................................. $ 93,193 $ 71,764 $ 89,509 $ 68,855 $ 64,082 $ 55,668 $ 38,101
--------- --------- --------- --------- --------- --------- ---------
Consumer:
Installment......................................... $ 3,781 $ 2,584 $ 3,590 $ 2,468 $ 1,732 $ 1,535 $ 1,317
Home equity lines-secured........................... 12,230 11,578 11,832 11,512 5,030 4,627 4,716
Lines of credit-unsecured........................... 1,062 677 840 666 529 559 475
--------- --------- --------- --------- --------- --------- ---------
17,073 14,839 16,262 14,646 7,291 6,721 6,508
Less deferred loan fees............................. (55) (39) (54) (37) (26) (22) (21)
--------- --------- --------- --------- --------- --------- ---------
Total consumer.................................... $ 17,128 $ 14,878 $ 16,316 $ 14,683 $ 7,317 $ 6,743 $ 6,529
--------- --------- --------- --------- --------- --------- ---------
Loans, net of deferred loan fees...................... $ 205,959 $ 154,660 $ 194,148 $ 147,965 $ 126,971 $ 110,500 $ 92,526
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
LOAN ORIGINATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial:
Real estate secured.............................................. $ 11,101 $ 6,895 $ 34,883 $ 20,390 $ 17,343
Non-real estate secured/ unsecured............................... 4,024 2,519 13,738 9,976 8,958
Construction..................................................... 4,213 2,879 7,514 3,742 3,772
--------- --------- --------- --------- ---------
Total commercial............................................... $ 19,338 $ 12,293 $ 56,135 $ 34,108 $ 30,073
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Residential:
Mortgages........................................................ $ 13,500 $ 13,200 $ 69,100 $ 47,700 $ 44,400
Construction..................................................... 2,428 1,949 13,970 14,020 17,251
--------- --------- --------- --------- ---------
Total residential.............................................. $ 15,928 $ 15,149 $ 83,070 $ 61,720 $ 61,651
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Consumer:
Installment...................................................... $ 777 $ 522 $ 2,922 $ 2,009 $ 1,200
Home equity lines-secured........................................ 2,123 801 6,331 14,193 2,709
Lines of credit-unsecured........................................ 130 51 536 772 149
--------- --------- --------- --------- ---------
Total consumer................................................. $ 3,030 $ 1,374 $ 9,789 $ 16,974 $ 4,058
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
34
<PAGE>
LOAN MATURITY AND INTEREST RATE SENSITIVITY
The amount of loans outstanding by category as of the dates indicated, which
are due in (i) one year or less, (ii) more than one year through five years and
(iii) over five years, is shown in the following table. Loan balances are also
categorized according to their sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
---------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MORE THAN MORE THAN
ONE YEAR ONE YEAR
THROUGH OVER THROUGH OVER
ONE YEAR FIVE FIVE TOTAL ONE YEAR FIVE FIVE
OR LESS YEARS YEARS LOANS OR LESS YEARS YEARS
----------- ----------- --------- --------- ----------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, construction, other........ $ 48,298 $ 37,462 $ 9,878 $ 95,638 $ 46,140 $ 34,631 $ 7,592
Mortgage............................... 24,990 47,211 20,992 93,193 22,969 45,813 20,729
Consumer............................... 13,451 3,602 75 17,128 12,761 3,394 119
----------- ----------- --------- --------- ----------- ----------- ---------
Total(1)............................. $ 86,739 $ 88,275 $ 30,945 $ 205,959 $ 81,870 $ 83,838 $ 28,440
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Loans with fixed rate.................. $ 37,790 $ 68,627 $ 29,169 $ 135,586 $ 36,131 $ 67,502 $ 26,499
Loans with floating rate............... 48,949 19,648 1,776 70,373 45,739 16,336 1,941
----------- ----------- --------- --------- ----------- ----------- ---------
Total(1)............................. $ 86,739 $ 88,275 $ 30,945 $ 205,959 $ 81,870 $ 83,838 $ 28,440
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Percent composition by maturity........ 42.11% 42.86% 15.03% 100.00% 42.17% 43.18% 14.65%
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Fixed rate loans as a percentage of
total loans maturing................. 18.35% 33.32% 14.16% 65.83% 18.61% 34.77% 13.65%
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
Floating rate loans as a percentage of
total loans maturing................. 23.77% 9.54% 0.86% 34.17% 23.56% 8.41% 1.00%
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
<CAPTION>
<S> <C>
TOTAL
LOANS
---------
<S> <C>
Commercial, construction, other........ $ 88,363
Mortgage............................... 89,511
Consumer............................... 16,274
---------
Total(1)............................. $ 194,148
---------
---------
Loans with fixed rate.................. $ 130,132
Loans with floating rate............... 64,016
---------
Total(1)............................. $ 194,148
---------
---------
Percent composition by maturity........ 100.00%
---------
---------
Fixed rate loans as a percentage of
total loans maturing................. 67.03%
---------
---------
Floating rate loans as a percentage of
total loans maturing................. 32.97%
---------
---------
</TABLE>
- ------------------------------
(1) Includes deferred loan fees
In the ordinary course of business, loans maturing within one year may be
renewed, in whole or in part, as to principal amount, at interest rates
prevailing at the date of renewal.
At March 31, 1997, 65.8% of total loans were fixed rate compared to 67.0% at
December 31, 1996. For additional information regarding interest rate
sensitivity, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Interest Rate Risk Management."
CREDIT QUALITY
The Company's written lending policies require underwriting, loan
documentation and credit analysis standards to be met prior to funding any loan.
After the loan has been approved and funded, continued periodic review is
required. In addition, due to the secured nature of residential mortgages and
the smaller balances of individual installment loans, sampling techniques are
used on a continuing basis for credit reviews in these loan areas. The Bank has
a policy to discontinue accrual of interest income within ten days following the
month end in which a loan becomes 90 days past due in either principal or
interest, except for those insured for credit loss. In addition, if
circumstances warrant, accrual of interest may be discontinued prior to 90 days.
In all cases, any payments received on non-accrual loans are credited to
principal until full recovery of past due payments has been recognized, and the
loan is not restored to accrual status until the customer becomes and remains
current for six consecutive payments. Loans are charged off, in whole or in
part, upon determination that a loss is anticipated. Non-accrual and large
delinquent loans are reviewed monthly to determine potential losses.
35
<PAGE>
The following summary shows information concerning loan delinquency and
other non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans accruing, but past due 90 days or more............ $ 421 $ 449 $ 187 $ 231 $ 41 $ 39
Total non-accrual loans................................. 2,567 1,849 2,603 1,463 2,893 1,893
Restructured loans...................................... 78 84 79 85 91 --
--------- --------- --------- --------- --------- ---------
Total non-performing loans.............................. 3,066 2,382 2,869 1,779 3,025 1,932
Foreclosed real estate (1).............................. 460 1,334 762 1,316 -- 754
--------- --------- --------- --------- --------- ---------
Total non-performing assets (2)......................... $ 3,526 $ 3,716 $ 3,631 $ 3,095 $ 3,025 $ 2,686
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Non-performing loans as a percentage of total loans, net
of unearned income.................................... 1.49% 1.54% 1.48% 1.20% 2.38% 1.75%
Non-performing assets as a percentage of total assets... 1.03% 1.57% 1.12% 1.50% 1.96% 1.85%
<CAPTION>
<S> <C>
1992
---------
<S> <C>
Loans accruing, but past due 90 days or more............ $ 182
Total non-accrual loans................................. 1,808
Restructured loans...................................... --
---------
Total non-performing loans.............................. 1,990
Foreclosed real estate (1).............................. 1,418
---------
Total non-performing assets (2)......................... $ 3,408
---------
---------
Non-performing loans as a percentage of total loans, net
of unearned income.................................... 2.15%
Non-performing assets as a percentage of total assets... 2.61%
</TABLE>
- ------------------------
(1) Foreclosed real estate having a carrying value of $446,000 was sold on April
7, 1997 for a gain of $57,000.
(2) Non-performing loans are comprised of (i) loans that are on a non-accrual
basis, (ii) accruing loans that are 90 days or more past due which are
insured for credit loss, and (iii) restructured loans. Non-performing assets
are composed of non-performing loans and foreclosed real estate (assets
acquired in foreclosure).
The following summary shows the impact on interest income on nonaccrual and
restructured loans for the periods indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Interest income that would have been recorded had the loans been in accordance
with their original terms..................................................... $ 64 $ 41 $ 221 $ 122
Interest income included in net income.......................................... 0 0 41 24
</TABLE>
Restructured loans are loans whose terms have been modified, because of a
deterioration in the financial position of the borrower, to provide for a
reduction of either interest or principal. At March 31, 1997, there was one
restructured loan in the amount of $78,000.
At March 31, 1997, the Company had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in the table "Loan
Portfolio Composition." Loan concentrations are considered to exist when there
are amounts loaned to a multiple number of borrowers engaged in similar
activities that would cause them to be similarly impacted by economic or other
conditions.
Foreclosed real estate is initially recorded at fair value, net of estimated
selling costs at the date of foreclosure, thereby establishing a new cost basis.
After foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less estimated costs to
sell. Revenues and expenses from operations and changes in the valuation
allowance are included in other expenses.
Potential problem loans consist of loans that are included in performing
loans, but for which potential credit problems of the borrowers have caused
management to have serious doubts as to the ability of such borrowers to
continue to comply with present repayment terms. At March 31, 1997, all
identified potential
36
<PAGE>
problem loans were included in the preceding table except for $1.7 million of
loans included on the Bank's internal watch list.
The bank had no credit exposure to "highly leveraged transactions" at March
31, 1997, as defined by the Federal Reserve Board.
ALLOWANCE FOR LOAN LOSSES
A detailed analysis of the Company's allowance for loan losses for the three
month periods ended March 31, 1997 and 1996 and for each of the years in the
five year period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.... $ 2,001 $ 1,674 $ 1,674 $ 1,437 $ 1,447 $ 1,932 $ 1,414
Charge-offs:
Commercial.................... 13 3 90 222 56 579 784
Real estate-mortgage.......... 104 35 329 173 49 267 348
Consumer...................... 35 15 29 10 3 24 16
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total charge-offs........... $ 152 $ 53 $ 448 $ 405 $ 108 $ 870 $ 1,148
---------- ---------- ---------- ---------- ---------- ---------- -----------
Recoveries:
Commercial.................... 6 56 62 102 39 65 33
Real estate-mortgage.......... 11 18 24 20 32 107 11
Consumer...................... -- 2 2 2 5 3 3
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total recoveries............ $ 17 $ 76 $ 88 $ 124 $ 76 $ 175 $ 47
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net charge-offs (recoveries)...... 135 (23) 360 281 32 695 1,101
Provision for loan losses......... 241 80 687 518 22 210 1,619
---------- ---------- ---------- ---------- ---------- ---------- -----------
Balance at end of period.......... $ 2,107 $ 1,777 $ 2,001 $ 1,674 $ 1,437 $ 1,447 $ 1,932
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Average loans outstanding(1)...... $ 199,557 $ 152,040 $ 170,135 $ 133,860 $ 118,435 $ 100,235 $ 99,273
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
As a percent of average loans(1):
Net charge-offs................. 0.07% (0.02)% 0.21% 0.21% 0.03% 0.69% 1.11%
Provision for loan losses....... 0.12 0.05 0.40 0.39 0.02 0.21 1.63
Allowance for loan losses....... 1.06 1.17 1.18 1.25 1.21 1.44 1.95
Allowance as a percent of each of
the following:
Total loans, net of unearned
income........................ 1.02% 1.15% 1.03% 1.13% 1.13% 1.31% 2.09%
Total delinquent loans (past due
30 to 89 days)................ 58.30 48.43 68.69 52.08 244.80 215.33 167.71
Total non-performing loans...... 68.72 74.60 69.75 94.10 47.50 74.90 97.09
</TABLE>
- ------------------------
(1) Includes non-accruing loans.
37
<PAGE>
Management makes a monthly determination as to an appropriate provision from
earnings necessary to maintain an allowance for loan losses that is adequate for
potential yet undetermined losses. This determination necessarily includes a
review of loans that are current, but for which management has determined for a
variety of reasons require more careful monitoring going forward. The dollar
amount charged to earnings is determined based upon several factors including: a
continuing review of delinquent, classified and non-accrual loans, large loans,
and overall portfolio quality; regular examination and review of the loan
portfolio by regulatory authorities; analytical review of loan charge-off
experience, delinquency rates, other relevant historical and peer statistical
ratios; and management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
Determining the appropriate level of the allowance for loan losses at any
given date is difficult, particularly in a continually changing economy. In
management's opinion, the allowance for loan losses was adequate at March 31,
1997. However, there can be no assurance that, if asset quality deteriorates in
future periods, additions to the allowance for loan losses will not be required.
The Bank's management is unable to determine in what loan category future
charge-offs and recoveries may occur. The following schedule sets forth the
allocation of the allowance for loan losses among various categories. At March
31, 1997, approximately 38.3% of the allowance for loan losses is allocated to
general risk to protect the Bank against potential yet undetermined losses. The
allocation is based upon historical experience. The entire allowance for loan
losses is available to absorb future loan losses in any loan category.
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
------------------------ ------------------------
<CAPTION>
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
AMOUNT TO LOANS(1) AMOUNT TO LOANS(1)
--------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allocation of allowance for loan losses:
Commercial........................................................ $ 658 44.27% $ 449 41.88%
Mortgage.......................................................... 446 42.96 343 42.66
Consumer.......................................................... 128 8.32 111 9.62
Construction...................................................... 68 4.45 68 5.84
General allowance................................................. 807 806
--------- ---------
Total........................................................... $ 2,107 $ 1,777
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993
------------------------ ------------------------ ------------------------ ------------------------
<CAPTION>
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
AMOUNT TO LOANS(1) AMOUNT TO LOANS(1) AMOUNT TO LOANS(1) AMOUNT TO LOANS(1)
--------- ------------- --------- ------------- --------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of
allowance for loan
losses:
Commercial........ $ 652 42.91% $ 420 41.51% $ 692 41.59% $ 806 42.35%
Mortgage.......... 434 43.70 336 42.82 298 46.11 265 45.35
Consumer.......... 122 8.40 110 9.92 55 5.78 50 6.10
Construction...... 73 4.99 64 5.75 62 6.52 57 6.20
General
allowance....... 720 744 330 269
--------- --------- --------- ---------
Total................. $ 2,001 $ 1,674 $ 1,437 $ 1,447
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
<S> <C> <C>
1992
------------------------
PERCENT
OF LOANS
IN EACH
CATEGORY
AMOUNT TO LOANS(1)
--------- -------------
<S> <C> <C>
Allocation of
allowance for loan
losses:
Commercial........ $ 1,009 48.82%
Mortgage.......... 172 35.85
Consumer.......... 49 7.06
Construction...... 57 8.27
General
allowance....... 645
---------
Total................. $ 1,932
---------
---------
</TABLE>
- ------------------------
(1) Loans, net of unearned income.
38
<PAGE>
SECURITIES PORTFOLIO
The Company's securities portfolio is intended to provide liquidity, reduce
interest rate risk and contribute to earnings while exposing the Company to
reduced credit risk. As a result of the Company's recent growth, the securities
portfolio has also grown significantly from $29.6 million at December 31, 1995
to $88.6 million at December 31, 1996, and $108.9 million at March 31, 1997.
This significant increase is due in large part to matched funding programs
employed by the Company that use FHLB advances and the significant deposit
inflows at existing and new branches to fund both loan originations and
securities purchases. The purpose of these matched funding programs is to target
earnings growth and net interest margin increases while managing liquidity,
credit, market and interest rate risk. From time to time a specific matched
funding program may attempt to achieve current earnings benefits from future
growth in deposits that management is reasonably confident will occur. See "RISK
FACTORS--Rapid Growth."
A summary of securities available for sale and securities held to maturity
at March 31, 1997 and 1996 and at December 31, 1996, 1995, and 1994 follows.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
AT MARCH 31, AT MARCH 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury......................................................... $ 3,221 $ 4,446 $ -- $ --
U.S. Government Agencies.............................................. 30,741 2,500 28,748 9,771
State and municipal................................................... 21,435 16,382 10,544 6,250
Mortgage-backed and asset-backed securities (1)....................... 12,436 2,623 -- --
Other securities (2).................................................. 2,723 1,321 25 --
--------- --------- --------- ---------
Total amortized cost of securities.................................... $ 70,556 $ 27,272 $ 39,317 $ 16,021
--------- --------- --------- ---------
--------- --------- --------- ---------
Total fair value of securities........................................ $ 69,590 $ 26,892 $ 38,904 $ 15,968
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
AT DECEMBER 31, AT DECEMBER 31,
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury.............................................. $ 3,465 $ 5,450 $ 6,468 $ -- $ -- $ --
U.S. Government Agencies................................... 18,000 3,757 3,856 24,253 3,002 --
State and Municipal........................................ 23,275 6,978 -- 10,787 6,205 4,070
Mortgage-backed and asset backed securities(1)............. 4,357 2,807 635 -- -- --
Other securities(2)........................................ 4,467 1,134 1,205 25 -- --
--------- --------- --------- --------- --------- ---------
Total amortized cost of securities......................... $ 53,564 $ 20,126 $ 12,164 $ 35,065 $ 9,207 $ 4,070
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Total fair value of securities............................. $ 53,489 $ 20,359 $ 11,695 $ 35,147 $ 9,367 $ 3,979
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) All of these obligations consist of U.S. Government Agency issued
securities.
(2) Comprised mostly of FHLB stock, Federal Reserve Bank stock and a
Pennsylvania community bank stock.
39
<PAGE>
The following table presents the maturity distribution and weighted average
yield of the securities portfolio of the Company at March 31, 1997 and December
31, 1996. Weighted average yields on tax-exempt obligations have been computed
on a taxable equivalent basis.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE MARCH 31, 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
AFTER 1 YEAR BUT AFTER 5 YEARS BUT AFTER 10 YEARS OR
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS NO MATURITY (1) TOTAL
-------------------- -------------------- -------------------- -------------------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury
Securities............. $ 2,489 6.631% $ 732 7.682% $ -- --% $ -- --% $ 3,221
U.S. Government
Agencies............... 750 6.856 11,000 6.802 13,991 7.405 5,000 7.577 30,741
State and municipal...... -- -- -- -- -- -- 21,435 7.840 21,435
Mortgage-backed and
asset-backed
securities............. -- -- -- -- -- -- 12,436 5.798 12,436
Other securities......... 2,273 6.380 -- -- -- -- 450 3.955 2,723
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total securities
available for sale..... $ 5,512 6.558% $ 11,732 6.857% $ 13,991 7.405% $ 39,321 7.116% $ 70,556
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
YIELD
---------
<S> <C>
Amortized cost:
U.S. Treasury
Securities............. 6.870%
U.S. Government
Agencies............... 7.204
State and municipal...... 7.840
Mortgage-backed and
asset-backed
securities............. 5.798
Other securities......... 5.979
---------
Total securities
available for sale..... 7.087%
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
AFTER 1 YEAR BUT AFTER 5 YEARS BUT AFTER 10 YEARS OR
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS NO MATURITY (1) TOTAL
-------------------- -------------------- -------------------- -------------------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury
Securities............. $ 1,992 6.647% $ 1,473 7.083% $ -- --% $ -- --% $ 3,465
U.S. Government
Agencies............... 1,000 6.840 11,000 6.809 5,500 7.464 500 7.070 18,000
State and municipal...... -- -- -- -- -- -- 23,275 7.825 23,275
Mortgage-backed and
asset-backed
securities............. -- -- -- -- -- -- 4,357 5.873 4,357
Other securities......... 3,804 6.250 -- -- -- -- 663 3.938 4,467
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total securities
available for sale..... $ 6,796 6.453% $ 12,473 6.841% $ 5,500 7.464% $ 28,795 7.427% $ 53,564
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
YIELD
---------
<S> <C>
Amortized cost:
U.S. Treasury
Securities............. 6.833%
U.S. Government
Agencies............... 7.018
State and municipal...... 7.825
Mortgage-backed and
asset-backed
securities............. 5.873
Other securities......... 5.907
---------
Total securities
available for sale..... 7.171%
---------
---------
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY MARCH 31, 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
AFTER 1 YEAR BUT AFTER 5 YEARS BUT AFTER 10 YEARS OR
WITHIN 5 YEARS WITHIN 10 YEARS NO MATURITY (1) TOTAL
-------------------- -------------------- -------------------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury
Securities............. $ -- --% $ -- --% $ -- --% $ -- --% $ --
U.S. Government
Agencies............... -- -- -- -- 16,481 7.475 12,267 7.603 28,748
State and municipal...... 150 8.487 1,954 7.003 746 8.099 7,694 8.085 10,544
Mortgage-backed and
asset-backed
securities............. -- -- -- -- -- -- -- -- --
Other securities......... -- -- -- -- 25 7.500 -- -- 25
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total securities held to
maturity............... $ 150 8.487% $ 1,954 7.003% $ 17,252 7.502% $ 19,961 7.789% $ 39,317
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
YIELD
---------
<S> <C>
Amortized cost:
U.S. Treasury
Securities............. --%
U.S. Government
Agencies............... 7.530
State and municipal...... 7.891
Mortgage-backed and
asset-backed
securities............. --
Other securities......... 7.500
---------
Total securities held to
maturity............... 7.627
---------
---------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
HELD TO MATURITY DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
AFTER 1 YEAR BUT AFTER 5 YEARS BUT AFTER 10 YEARS OR
WITHIN 5 YEARS WITHIN 10 YEARS NO MATURITY (1) TOTAL
-------------------- -------------------- -------------------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury
Securities............. $ -- --% $ -- --% $ -- --% $ -- --% $ --
U.S. Government
Agencies............... -- -- -- -- 14,981 7.488 9,272 7.576 24,253
State & municipal........ 299 8.488 1,959 7.103 736 7.793 7,793 8.092 10,787
Mortgage-backed and asset
backed securities
Other securities......... -- -- -- -- 25 7.500 -- -- 25
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total securities held to
maturity............... $ 299 8.488% $ 1,959 7.103% $ 15,742 7.502% $ 17,065 7.812% $ 35,065
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
YIELD
---------
<S> <C>
Amortized cost:
U.S. Treasury
Securities............. --%
U.S. Government
Agencies............... 7.522
State & municipal........ 7.903
Mortgage-backed and asset
backed securities
Other securities......... 7.500
---------
Total securities held to
maturity............... 7.639%
---------
---------
</TABLE>
- ------------------------
(1) The majority of the securities listed in this category are callable or
likely to repay within five years.
The Bank maintains a securities portfolio for the secondary application of
funds as well as a secondary source of liquidity.
At March 31, 1997, securities having an amortized cost of $13.0 million were
pledged as collateral for public funds and other purposes as required or
permitted by law.
Neither the Company nor the Bank hold securities of any one issuer,
excluding U.S. treasury and U.S. agencies, that exceeded 10% of stockholders'
equity at March 31, 1997 or any prior period end.
DEPOSIT STRUCTURE
The following is a distribution of the average balances of the Bank's
deposits and the average rates paid thereon for the three months ended March 31,
1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------------------------------- ---------------------------------
1997 1996 1996 1995
---------------------- ---------------------- ---------------------- ---------
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT
--------- ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Demand--non-interest bearing............. $ 26,168 --% $ 16,962 --% $ 21,127 --% $ 12,960
Demand--interest-bearing................. 96,605 3.83 50,201 3.73 68,642 3.76 28,455
Savings.................................. 18,930 3.96 9,796 2.92 11,010 3.12 10,162
Time, $100,000 and over.................. 12,780 5.84 9,023 5.57 9,965 5.52 9,221
Time, other.............................. 113,667 5.69 101,767 5.53 102,533 5.52 86,908
--------- --- --------- --- --------- --- ---------
Total deposits....................... $ 268,150 4.35% $ 187,749 4.41% $ 213,277 4.28% $ 147,706
--------- --- --------- --- --------- --- ---------
--------- --- --------- --- --------- --- ---------
<CAPTION>
1994
----------------------
RATE AMOUNT RATE
----- --------- -----
<S> <C> <C> <C>
Demand--non-interest bearing............. --% $ 9,735 --%
Demand--interest-bearing................. 3.29 25,546 2.35
Savings.................................. 2.68 12,572 2.43
Time, $100,000 and over.................. 5.77 6,428 4.82
Time, other.............................. 5.59 60,682 5.16
--- --------- ---
Total deposits....................... 4.47% $ 114,963 3.78%
--- --------- ---
--- --------- ---
</TABLE>
The following is a breakdown, by maturities, of the Company's time
certificates of deposit issued in denominations of $100,000 or more as of March
31, 1997 and 1996 and December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
CERTIFICATE OF $100,000 OR MORE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
AT MARCH 31, AT DECEMBER 31,
-------------------- -------------------------------
<CAPTION>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Maturing in:
Three months or less..................................................... $ 3,509 $ 2,655 $ 2,866 $ 3,915 $ 812
Over three through six months............................................ 3,243 2,046 2,416 1,120 1,301
Over six through twelve months........................................... 1,218 1,749 2,539 976 1,865
Over twelve months....................................................... 5,764 4,180 4,550 2,367 2,632
--------- --------- --------- --------- ---------
Total................................................................ $ 13,734 $ 10,630 $ 12,371 $ 8,378 $ 6,610
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
41
<PAGE>
LONG-TERM DEBT AND OTHER BORROWINGS
The Bank maintains a U.S. Treasury tax and loan note option account for the
deposit of withholding taxes, corporate income taxes and certain other payments
to the federal government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this note option
account were approximately $1.1 million at March 31, 1997 and 1996,
respectively.
The Bank has a flexible line of credit commitment available from the FHLB
for borrowings of up to approximately $9.8 million, expiring September 11, 1997.
There were no borrowings under this line of credit at March 31, 1997 and 1996.
The Bank had other short-term borrowings from the FHLB at March 31, 1997 and
March 31, 1996 in the amount of $5.0 million and $2.0 million, respectively. The
March 31, 1997 balance outstanding was partly due in April with the balance due
in August 1997. The March 31, 1997 balance had an average interest rate of 6.1%.
The following table sets forth information regarding short-term borrowings
at and for the periods ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Short-term advances from the FHLB bearing interest at a weighted average rate of 6.1% and 4.9%
as of March 31, 1997 and 1996, respectively:................................................. $ 5,000,000 2,000,000
Treasury, tax and loan note option............................................................. 1,095,000 1,088,000
------------- -------------
$ 6,095,000 $ 3,088,000
-------------
------------- -------------
-------------
Maximum amount of short-term advances from the FHLB outstanding at any month-end during the
quarter ended March 31, 1997 and 1996........................................................ $ 10,000,000 $ 2,000,000
Maximum amount of Treasury, tax and loan note option outstanding............................... 1,121,000 1,362,000
------------- -------------
$ 11,121,000 $ 3,362,000
-------------
------------- -------------
-------------
Average amount of short-term advances outstanding during the quarter ended March 31, 1997 and
1996, at weighted average interest rates of 5.5% and 4.2%, respectively...................... $ 6,022,000 $ 2,000,000
Average amount of Treasury, tax and loan note option outstanding............................... 759,000 575,000
------------- -------------
$ 6,781,000 $ 2,575,000
-------------
------------- -------------
-------------
</TABLE>
Long-term debt consisted of the following at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Advances from the FHLB bearing interest at a weighted average rate of 5.81%
and 4.89% as of March 31, 1997 and 1996, respectively...................... $ 12,000,000 $ 4,000,000
------------- ------------
------------- ------------
</TABLE>
Maturities of long-term debt at March 31, 1997 are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ --
1998..................................................................... 2,000,000
1999..................................................................... 5,000,000
2000..................................................................... --
2001..................................................................... 5,000,000
----------
$12,000,000
----------
----------
</TABLE>
The Bank has maximum borrowing capacity with the FHLB of approximately
$130.8 million. Advances from the FHLB are secured by qualifying assets of the
Bank.
42
<PAGE>
BERKS MORTGAGE COMPANY
The Bank owns a 70% interest in Berks Mortgage Company, a Pennsylvania
business trust. The remaining 30% is owned by a mortgage banking affiliate of
the local Coldwell Banker real estate franchise. As a majority-owned subsidiary
of the Bank, Berks Mortgage Company is authorized to engage in full service
mortgage banking in Pennsylvania. At the present time, Berks Mortgage Company
originates loans that are separately underwritten and funded by the Bank. Berks
Mortgage Company commenced operations in 1995. The overall activity of Berks
Mortgage Company in 1995, 1996 and the first quarter of 1997 was immaterial in
relation to the Company taken as a whole.
COMPETITION
The Bank faces significant competition from other commercial banks, savings
banks, savings and loan associations and several other financial or investment
service institutions in the communities it serves. Several of these institutions
are affiliated with major banking and financial institutions which are
substantially larger and have greater financial resources than the Company and
the Bank. As the financial services industry continues to consolidate,
competition affecting the Bank may increase. For most of the services that the
Bank performs there is also competition from credit unions and issuers of
commercial paper and money market funds. Such institutions, as well as brokerage
firms, consumer finance companies, insurance companies and pension trusts, are
important competitors for various types of financial services.
PROPERTY
All property is owned or leased by the Bank. The Company does not own or
lease any property. As of March 31, 1997, the Bank owned one property, the land
and building at the site of its branch location at High and Wilson Streets,
Pottstown, Montgomery County, Pennsylvania.
The Bank leases the land upon which it constructed the branch office it owns
in Exeter Township, Berks County, Pennsylvania. This lease expires in June 1999
and has renewal options for twenty years thereafter. The lease expense for this
land was $43,000 and $44,000 in 1995 and 1996, respectively. The lease expense
for 1997 will be $45,000. The Bank also leases land located in Wyomissing Hills,
Berks County, Pennsylvania, upon which it constructed its Wyomissing branch. The
total term of this lease is twenty-nine years, eleven months, expiring November
2024. The lease expense for 1995 and 1996 was $37,000 and $41,000, respectively.
The lease expense for 1997 will be $42,000.
The Bank also leases the land upon which it constructed its Muhlenberg
Township branch. The branch opened on March 29, 1997. The term of the lease is
three years, expiring November 1999. At the conclusion of the lease, the Bank
will purchase the land for $375,000. The monthly lease payments are fixed at
$4,000 per month until the end of the lease. The Bank also leases the land upon
which it constructed its Shillington (Cumru Township) branch. The branch opened
May 3, 1997. The term of the lease is ten years, expiring in January 2007. At
the conclusion of the lease, the Bank will purchase the land for $400,000. The
monthly lease payments are fixed at $4,000 until the end of the lease.
The Bank also leases space for its main branch and executive/administrative
offices at 400 Washington Street, Reading, Pennsylvania. The space consists of a
first floor location for the Bank branch and office space on the second, eighth,
ninth and twelfth floors for lending and operations staff. The space is leased
under separate leases that, in the aggregate, required annual lease payments of
$159,000 and $164,000 in 1995 and 1996, respectively, and will require lease
payments of $145,000 in 1997. The leases expire at various dates through 1998.
The Bank has options to renew the terms of the leases for additional periods.
The Bank leases space for its mortgage center and loan office at Two
Woodland Road in Wyomissing, Pennsylvania. The lease expires in February 1998
and has three renewal options of one year each. The annual lease expense in 1995
and 1996 was $33,000 and $39,000, respectively. The lease expense for 1997 will
be $40,000.
43
<PAGE>
The Bank also leases space for a mortgage center and loan office at 108 East
Main Street, Schuylkill Haven, Schuylkill County, Pennsylvania. The lease
expires in November 1997 and has four additional extensions of six months each.
The lease expense in 1996 was $450. The lease expense for 1997 will be $5,000.
The Bank leases space for a mortgage center and loan office in Jamison,
Bucks County, Pennsylvania. The lease expires in March 1998. The annual lease
expense for 1997 will be $6,000. The Bank leases space for its new Exton/West
Chester loan production office in Chester County, Pennsylvania. The lease
expires in June 1998. The annual lease expense for 1997 will be $7,000.
In addition to its branches and offices, the Bank operates an automated
teller machine at a location owned by St. Joseph's Hospital, Reading,
Pennsylvania.
LEGAL PROCEEDINGS
The Company and the Bank are from time to time a party (plaintiff or
defendant) to lawsuits that are in the normal course of the Company's and the
Bank's business. While any litigation involves an element of uncertainty,
management, after reviewing pending actions with its legal counsel, is of the
opinion that the liability of the Company and the Bank, if any, resulting from
such actions will not have a material effect on the financial condition or
results of operations of the Company and the Bank.
SUPERVISION AND REGULATION
Various requirements and restrictions under the laws of the United States
and the Commonwealth of Pennsylvania affect the Company and the Bank.
GENERAL
The Company is a bank holding company subject to supervision and regulation
by the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended. As a bank holding company, the Company's activities and those of its
subsidiary are limited to the business of banking and activities closely related
or incidental to banking, and the Company may not directly or indirectly acquire
the ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board.
The Bank is subject to supervision and examination by applicable federal and
state banking agencies. The Bank is a member of the Federal Reserve System, and
therefore, subject to the regulations of the Federal Reserve Board. The Bank is
also a Pennsylvania-chartered bank subject to supervision and regulation by the
Pennsylvania Department of Banking.
In addition, because the deposits of the Bank are insured by the FDIC, the
Bank is subject to regulation by the FDIC. The Bank is also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the Federal
Reserve Board in attempting to control the money supply and credit availability
in order to influence the economy.
HOLDING COMPANY STRUCTURE
The Bank is subject to restrictions under federal law which limit its
ability to transfer funds to the Company, whether in the form of loans, other
extensions of credit, investments or asset purchases. Such transfers by the Bank
to the Company are generally limited in amount to 10% of the Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specific amounts,
44
<PAGE>
and all transactions are required to be on an arm's length basis. The Bank has
never made any loan or extension of credit to the Company nor has it purchased
any assets from the Company.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank, i.e., to downstream funds to the Bank. This support may be
required at times when, absent such policy, the bank holding company might not
otherwise provide such support. Any capital loans by a bank holding company to
the Bank are subordinate in right of payment to deposits and to certain other
indebtedness of the Bank. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of the Bank will be assumed by the bankruptcy trustee
and entitled to a priority of payment.
REGULATORY RESTRICTIONS ON DIVIDENDS
Dividend payments by the Bank to the Company are subject to the Pennsylvania
Banking Code of 1965 (the "Banking Code"), the Federal Reserve Act, and the
Federal Deposit Insurance Act (the "FDIA"). Under the Banking Code, no dividends
may be paid except from "accumulated net earnings" (generally, undivided
profits). Under the Federal Reserve Board's regulations, the Bank cannot pay
dividends that exceed its net income from the current year and the preceding two
years. Under the FDIA, no dividends may be paid by an insured bank if the bank
is in arrears in the payment of any insurance assessment due to the FDIC. Under
current banking laws, the Bank would be limited to approximately $2.9 million of
dividends in 1997 plus an additional amount equal to the Bank's net profit for
1997, up to the date of any such dividend declaration.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Bank to pay dividends to the Company.
The payment of dividends to the Company by the Bank may also be affected by
other regulatory requirements and policies. If, in the opinion of the Federal
Reserve Board, the Bank is engaged in, or is about to engage in, an unsafe or
unsound practice (which, depending on the financial condition of the Bank, could
include the payment of dividends), the Federal Reserve Board may require, after
notice and hearing, that the Bank cease and desist from such practice. The
Federal Reserve Board has formal and informal policies providing that insured
banks and bank holding companies should generally pay dividends only out of
current operating earnings.
FDIC INSURANCE ASSESSMENTS
The FDIC has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on
capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a semiannual basis,
assigns each institution to one of three capital groups (well capitalized,
adequately capitalized or under capitalized) and further assigns such
institution to one of three subgroups within a capital group corresponding to
the FDIC's judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis and other
information relevant to gauging the risk posed by the institution. Only
institutions with a total capital to risk-adjusted assets ratio of 10.00% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0% or greater and a
Tier 1 leverage ratio of 5.0% or greater, are assigned to the well-capitalized
group.
Over the last two years, FDIC insurance assessments have seen several
changes for both BIF and SAIF institutions. The most recent change occurred on
September 30, 1996, when the President signed into law a bill designed to remedy
the disparity between BIF and SAIF deposit premiums. The first part of the bill
called for the SAIF to be capitalized by a one-time assessment on all SAIF
insured deposits held as
45
<PAGE>
of March 31, 1995. This assessment, which was 65.7 cents per $100 in deposits,
raised approximately $4.7 billion to bring the SAIF up to its required 1.25
reserve ratio. This special assessment, paid on November 30, 1996, had no effect
on the Bank. The second part of the bill remedied the future anticipated
shortfall with respect to the payment of FICO interest. For 1997 through 1999,
the banking industry will help pay the FICO interest payments at an assessment
rate that is 1/5 the rate paid by thrifts. The FICO assessment on BIF insured
deposits is 1.29 cents per $100 in deposits; for SAIF insured deposits it is
6.44 cents per $100 in deposits. Beginning January 1, 2000, the FICO interest
payments will be paid pro-rata by banks and thrifts based on deposits. At
December 31, 1996, the Company estimated the FICO interest assessment to be
approximately $30,000 for 1997. For the three month period ended March 31, 1997,
the Company paid FICO expenses of approximately $7,000. The Bank has not been
required to pay any FDIC insurance assessments since the fourth quarter of 1996
because BIF has met its statutorily required ratios and the Bank is categorized
as "well capitalized."
CAPITAL ADEQUACY
The Federal Reserve Board adopted risk-based capital guidelines for bank
holding companies, such as the Company. The required minimum ratio of total
capital to risk-weighted assets (including off-balance sheet activities, such as
standby letters of credit) is 8.0%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less goodwill. The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance.
In addition to the risk-based capital guidelines, the Federal Reserve Board
established minimum leverage ratio (Tier 1 capital to average total assets)
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of 3% for those bank holding companies which have the highest
regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies are required
to maintain a leverage ratio of at least 1% to 2% above the 3% stated minimum.
The Company is in compliance with these guidelines. The Bank is subject to
similar capital requirements also adopted by the Federal Reserve Board.
The risk-based capital standards are required to take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities.
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), amended various federal banking laws to provide for
nationwide interstate banking, interstate bank mergers and interstate branching.
The interstate banking provisions allow for the acquisition by a bank holding
company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption transactions were
allowed effective June 1, 1997; however, states may "opt-out" of the merger and
purchase and assumption provisions by enacting a law which specifically
prohibits such interstate transactions. States could, in the alternative, enact
legislation to allow interstate merger and purchase and assumption transactions
prior to June 1, 1997. States could also enact legislation to allow for de novo
interstate branching by out of state banks. In July 1995, Pennsylvania adopted
"opt-in" legislation which allows such transactions.
46
<PAGE>
MANAGEMENT
The following sets forth information concerning the Company's executive
officers.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Nelson R. Oswald..................................... 51 Chairman of the Board, President and Chief Executive
Officer of the Company and the Bank.
Robert D. McHugh, Jr................................. 42 Senior Vice President and Treasurer of the Company
and the Bank.
Norman E. Heilenman.................................. 49 Vice President of Residential Mortgage Lending of the
Company and the Bank.
Steven A. Ehrlich.................................... 35 Vice President of Commercial and Consumer Lending of
the Company and the Bank.
Donna L. Rickert, CPA................................ 30 Vice President and Controller of the Company and the
Bank.
Sherelyn A. Ammon.................................... 39 Vice President of Operations of the Company and the
Bank.
</TABLE>
NELSON R. OSWALD. Mr. Oswald has been Chairman of the Board, President,
Chief Executive Officer and Director of the Company and the Bank since their
formation in February 1987. Senior Vice President of Lending and Credit of Bank
of Pennsylvania from October 1982 to January 1987. Senior Real Estate Lender of
Meridian Bank from 1978 to 1982 and Vice President of Lending of Meridian Bank
from 1974 to 1978.
ROBERT D. MCHUGH, JR. Mr. McHugh has been Senior Vice President and
Treasurer of the Company and the Bank since July 1987. Consultant for the
accounting firm of Grant Thornton, from 1986 to 1987. Vice President/Finance,
Auditor of National Bank of Boyertown from 1978 to 1986.
NORMAN E. HEILENMAN. Mr. Heilenman has been Vice President of Residential
Mortgage Lending of the Company and the Bank since September 1992. Department
Head of the Bank's Mortgage Department since September 1992. Chief Financial
Officer and Vice President of Finance and Administration of Robertson Brothers
Company (real estate development firm) from October 1989 to August 1992. Chief
Financial Officer and Vice President of The Mallard Group (real estate
development firm) from June 1984 to September 1989. Vice President and
Department Head of Residential Mortgage Lending/Servicing of Germantown Savings
Bank from 1969 to 1984.
STEVEN A. EHRLICH. Mr. Ehrlich has been Vice President of Commercial and
Consumer Lending of the Company and the Bank since November 1990 and Senior
Commercial Lender since August 1994. Assistant Vice President of the Company and
the Bank from September 1989 to November 1990. Commercial loan officer of the
Bank from October 1988 to September 1989. Prior thereto, credit analyst for
Meridian Bank from April 1988 to October 1988. Credit analyst and commercial
real estate lender for Sovereign Bank from July 1985 to April 1988.
DONNA L. RICKERT, CPA. Ms. Rickert has been Vice President of the Company
and the Bank since June 1997, and has been Controller of the Company and the
Bank since March 1994. Prior thereto, Senior Accountant, Beard and Company,
Inc., from 1989 to 1994, specializing in audits of financial institutions.
SHERELYN A. AMMON. Ms. Ammon has been Vice President of Operations of the
Company and the Bank since August 1987. Operations Officer for Meridian Bank
from 1981 to 1987. Quality Control Specialist for Meridian Bank from 1979 to
1981.
47
<PAGE>
The following table sets forth information concerning the Company's
directors.
<TABLE>
<CAPTION>
DIRECTOR OR
PRINCIPAL OCCUPATION EXECUTIVE
FOR PAST FIVE YEARS AND OFFICER
POSITION HELD WITH THE OF COMPANY/
NAME AGE COMPANY AND THE BANK BANK SINCE
- -------------------------------------------- --- -------------------------------------------- ---------------
<S> <C> <C> <C>
Harold C. Bossard (1)(2).................... 79 Retired President of Bernville Bank, N.A.; 1987/1987
Secretary of the Company and the Bank
Edward J. Edwards (2)(3)(4)................. 70 Real Estate Sales and Appraisals, E. J. 1987/1987
Edwards Real Estate
Lewis R. Frame, Jr. (4)(5).................. 38 Vice President, Frame Group, Ltd. 1988/1988
Ivan H. Gordon (1)(4)....................... 63 Chairman, Gloray Company 1987/1987
Jeffrey W. Hayes (3)(5)..................... 50 President, Hayes Construction, Inc. 1988/1988
Alfred B. Mast (2).......................... 53 President, Mast and Moyer, Inc. 1987/1987
Nelson R. Oswald (2)(3)(5)(6)............... 51 President, Chief Executive Officer and 1987/1987
Chairman of the Board of Directors of the
Company and the Bank
Wesley R. Pace (1)(3)(4)(6)................. 48 Chairman of the Board, Air Compressor 1987/1987
Services Co.; President, Wesrock Capital
Co.; Consultant
Floyd S. Weber (1)(3)(4)(5)................. 64 Partner, King's Potato Chip Co. & King 1987/1987
Distributing Co.
Randall S. Weeber (2)....................... 41 President, Weeber Realtors; Realtor Sales 1987/1987
Associate, Berkshire Real Estate Network
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Loan Committee.
(3) Member of the Executive Committee.
(4) Member of the Compensation Committee.
(5) Member of the Property Committee.
(6) Member of the Insurance Committee.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 15, 1997, the amount and
percentage of the Common Stock beneficially owned by each person who is known to
the Company to own more than five percent of the Common Stock, each director,
each named executive officer, and all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
BENEFICIAL OWNER(1) OWNERSHIP(2)(3) OF CLASS
- ---------------------------------------------------------------------------------- ------------------ ----------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS:
National Properties, Inc. and RPI Company(4)...................................... 149,627 7.20%
150 East Swedesford Road
Wayne, PA 19087
DIRECTORS:
Harold C. Bossard (6)(7).......................................................... 19,635 0.94%
Edward J. Edwards (6)(8).......................................................... 28,569 1.30%
Lewis R. Frame, Jr. (9)(10)....................................................... 75,919 3.64%
Ivan H. Gordon (11)(12)........................................................... 15,276 0.73%
Jeffrey W. Hayes(11)(13).......................................................... 54,830 2.63%
Alfred B. Mast (11)(14)........................................................... 33,334 1.59%
Nelson R. Oswald (5)(6)........................................................... 116,087 5.46%
Wesley R. Pace (6)(15)............................................................ 35,143 1.69%
Floyd S. Weber (9)(16)............................................................ 35,842 1.72%
Randall S. Weeber (9)(17)......................................................... 15,861 0.76%
OTHER NAMED EXECUTIVE OFFICERS:
Robert D. McHugh, Jr. (18)........................................................ 29,835 1.42%
All directors and executive officers as a group (15 persons)...................... 483,040 21.74%(19)
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address of each beneficial owner is Berks
County Bank, 400 Washington Street, Reading, Pennsylvania 19603.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as securities
to which the individual has or shares voting or investment power or has the
right to acquire beneficial ownership within sixty (60) days after May 15,
1997. Beneficial ownership may be disclaimed as to certain of the
securities. Shares of Common Stock held in the 401(k) Retirement Savings
Plan are not included in ownership amounts above. These shares are voted by
the Plan Administrators.
(3) Information furnished by the directors, executive officers and the Company.
(4) Includes (i) 148,995 shares of Common Stock held by National Properties,
Inc. and RPI Company which are entities controlled by or under the control
of Mr. Jeffery L. King and (ii) 632 shares of Common Stock held by Mr.
King's children and wife.
(5) Includes (i) 69,931 shares of Common Stock held jointly by Mr. Oswald and
his spouse, (ii) 218 shares of Common Stock held by Mr. Oswald's son and
(iii) 45,938 shares of Common Stock subject to stock options granted to Mr.
Oswald which are currently exercisable.
(6) A current Class C Director whose term expires in 2000.
49
<PAGE>
(7) Includes 13,635 shares of Common Stock held jointly by Mr. Bossard and his
spouse and 6,000 shares subject to stock options granted to Mr. Bossard
which are currently exercisable.
(8) Includes 22,569 shares of Common Stock held jointly by Mr. Edwards and his
spouse and 6,000 shares subject to stock options granted to Mr. Edwards
which are currently exercisable.
(9) A Class B Director whose term expires in 1999.
(10) Includes 69,919 shares of Common Stock held individually by Mr. Frame and
6,000 shares subject to stock options granted to Mr. Frame which are
currently exercisable.
(11) A Class A Director whose term expires in 1998.
(12) Includes 5,166 shares of Common Stock held individually by Mr. Gordon,
4,110 shares of Common Stock held jointly by Mr. Gordon and his spouse and
6,000 shares subject to stock options granted to Mr. Gordon which are
currently exercisable.
(13) Includes 31,502 shares of Common Stock held individually by Mr. Hayes,
14,684 shares of Common Stock held by Irene D. Hayes, his spouse, 2,644
shares of Common Stock held by Irene D. Hayes, custodian for their daughter
and 6,000 shares subject to stock options granted to Mr. Hayes which are
currently exercisable.
(14) Includes 27,010 shares of Common Stock held individually by Mr. Mast, 324
shares of Common Stock held by Mr. Mast's children and 6,000 shares subject
to stock options granted to Mr. Mast which are currently exercisable.
(15) Includes 29,008 shares of Common Stock held jointly by Mr. Pace and his
spouse, 135 shares of Common Stock held by Mr. Pace's son and 6,000 shares
subject to stock options granted to Mr. Pace which are currently
exercisable.
(16) Includes 29,842 shares of Common Stock held jointly by Mr. Weber and his
spouse and 6,000 shares subject to stock options granted to Mr. Weber which
are currently exercisable.
(17) Includes 238 shares of Common Stock held individually by Mr. Weeber, 6,493
shares of Common Stock held by Randall S. Weeber Profit Sharing Keough Plan,
3,117 shares held by Weeber Realtors and 6,000 shares subject to stock
options granted to Mr. Weeber which are currently exercisable.
(18) Includes 7,657 shares of Common Stock held individually by Mr. McHugh and
22,178 shares subject to stock options granted to Mr. McHugh which are
currently exercisable.
(19) The percent of class assumes all outstanding stock options issued to the
executive officers and non-employee directors have been exercised and,
therefore, on a pro forma basis, 2,221,965 shares of Common Stock would be
outstanding.
50
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION PAID TO EXECUTIVE OFFICERS
Set forth below is information concerning the annual compensation for
services in all capacities to the Company and the Bank for the fiscal years
ended December 31, 1996, 1995, and 1994 of those persons who were, at December
31, 1996, (i) chief executive officer or (ii) executive officers of the Company
and the Bank to the extent such executive officers' total annual salary and
bonus exceeded $100,000. There were no other executive officers for whom
disclosure would have been provided but for the fact that such individuals were
not serving at the end of the 1996 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS
ANNUAL COMPENSATION --------------------
-------------------------------------------------- SECURITIES PAYOUTS
OTHER RESTRICTED UNDER- ------ ALL OTHER
ANNUAL STOCK LYING LTIP COMPEN-
NAME AND SALARY BONUS COMPEN- AWARD(S) OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) SATION ($) SARS(#) ($) ($)(3)
- -------------------------- ----- ------------- ------- ------- ------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson R. Oswald,......... 1996 192,948(1) 50,000 0 0 -- 0 6,138
Chairman of the Board,.... 1995 180,000 38,048 0 0 -- 0 6,231
President and CEO......... 1994 168,000 56,821 0 0 14,467 0 6,930
Robert D. McHugh, Jr.,.... 1996 112,000 35,294(2) 0 0 -- 0 6,164
Senior Vice President..... 1995 100,000 28,474 0 0 -- 0 3,863
and Treasurer............. 1994 93,000 38,161 0 0 6,201 0 3,649
</TABLE>
- ------------------------
(1) 1996 salary includes deferred compensation of $2,948.
(2) 1996 bonus includes the fair value of 992 shares of Common Stock granted to
Mr. McHugh which equalled $10,945 at January 2, 1996.
(3) Amounts shown represent contributions by the Company on behalf of the named
individuals to the Company's 401(k) Retirement Savings Plan.
The following table sets forth certain information concerning stock options
granted during the fiscal year ended December 31, 1996 to the named executives:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE
- ---------------------------------------- ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Nelson R. Oswald........................ 9,600 31.37% 12.40 October 22, 2006
Robert D. McHugh, Jr.................... 9,000 29.41% 12.40 October 22, 2006
</TABLE>
- ------------------------
(1) All amounts represent incentive stock options; no SARs or SARs granted in
tandem with options were granted during 1996. Terms of outstanding options
are for a period of ten years from the date the option is granted. Options
are not exercisable following an optionee's voluntary termination of
employment other than by reason of retirement or disability.
51
<PAGE>
(2) Under the terms of the 1996 Stock Option Plan, the exercise price per share
must equal the fair market value on the date the option is granted. The
exercise price may be paid in cash, in shares of Common Stock valued at fair
market value on the date of exercise or pursuant to a cashless exercise
procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the Company, out
of the sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes.
The following table sets forth information concerning the exercise of
options to purchase Common Stock by the named executive officers during the
fiscal year ended December 31, 1996 as well as the number of securities
underlying unexercised options and the potential value of unexercised options as
of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL OPTIONS/SARS
SHARES YEAR-END (#) AT FISCAL
ACQUIRED ON VALUE EXERCISABLE/ YEAR-END ($)
EXERCISE REALIZED UNEXERCISABLE EXERCISABLE/
NAME (#) ($) (2) (3) UNEXERCISABLE (4)
- --------------------------------------------------- ------------- ----------- ---------------- -------------------
<S> <C> <C> <C> <C>
Nelson R. Oswald................................... 1,250 $ 7,530 37,638/9,600 $ 260,287/$27,360
Robert D. McHugh, Jr............................... -- -- 13,178/9,000 $ 86,983/$25,650
</TABLE>
- ------------------------
(1) All amounts represent stock options. No SARs or SARs granted in tandem with
stock options were either exercised during 1996 or outstanding at year-end
1996.
(2) Represents the aggregate market value of the underlying shares of Common
Stock at the date of exercise minus the aggregate exercise prices for
options exercised.
(3) Unexercisable stock options represent options granted under the 1996 Stock
Option Plan. Options became exercisable on April 22, 1997.
(4) "In-the-money options" are stock options with respect to which the market
value of the underlying shares of Common Stock exceeded the exercise price
at December 31, 1996. The value of such options is determined by subtracting
the aggregate exercise price for such options from the aggregate fair market
value of the underlying shares of Common Stock on December 31, 1996.
COMPENSATION PAID TO DIRECTORS
All directors of the Company are also directors of the Bank. During 1996,
the Company and the Bank held 12 joint Board of Directors meetings and 16 joint
committee meetings. In 1996, non-employee directors received $300 prior to July
1, 1996 and $350 after July 1, 1996 for each jointly held Board of Directors and
committee meeting attended. Beginning July 1, 1997, the directors are paid an
annual retainer of $1,500. Harold C. Bossard, Director and Secretary of the
Company, received $100 per month for additional services provided to the Company
and the Bank. Each non-employee director of the Company was granted an option to
purchase 6,000 shares of Common Stock at an exercise price per share equal to
the fair value of the Common Stock on the date of grant.
The Board of Directors has established the following committees:
EXECUTIVE COMMITTEE. This committee meets on an as-needed basis between
meetings of the Board of Directors to decide and take action on any issues that
require attention between Board meetings. This
52
<PAGE>
committee also performs the functions of the Nominating Committee. Messrs.
Edwards, Hayes, Oswald, Pace and Weber are members of the Executive Committee.
AUDIT COMMITTEE. This committee recommends an outside auditor for the year
and reviews the financial statements and progress of the Company and the Bank.
Messrs. Bossard, Gordon, Pace and Weber are members of the Audit Committee.
PROPERTY COMMITTEE. This committee makes recommendations concerning
building projects and space needs for the Company and the Bank. Messrs. Frame,
Hayes, Oswald and Pace are members of the Property Committee.
LOAN COMMITTEE. This committee meets the second Thursday of each month to
review loan asset quality and credit related matters. Messrs. Bossard, Edwards,
Mast, Oswald and Weeber are members of the Loan Committee.
INSURANCE COMMITTEE. This committee meets to review insurance policies
regarding the Company and the Bank. Messrs. Oswald and Weber are members of the
Insurance Committee.
COMPENSATION COMMITTEE. This Committee was formed in 1994 and meets on an
as-needed basis between meetings of the Board of Directors to discuss
compensation related matters. Messrs. Edwards, Frame, Gordon, Pace and Weber are
members of the Compensation Committee.
EXECUTIVE EMPLOYMENT AGREEMENTS
Nelson R. Oswald and Robert D. McHugh, Jr. each have Executive Employment
Agreements with the Company and the Bank. Mr. Oswald's Executive Employment
Agreement originally dated July 14, 1987, as amended, has been extended through
December 31, 2000. Mr. McHugh's Executive Employment Agreement originally dated
December 31, 1991, has been renewed thru December 31, 1998. The Executive
Employment Agreements specify: term; the Executive's position and duties;
compensation; benefits; indemnification; and termination rights. Each of the
Executive Employment Agreements also contain a noncompetition clause and a
confidentiality provision which inure to the benefit of the Company and the
Bank.
Each of the Executive Employment Agreements contain a "Change of Control"
provision which provides, among other things, that when any "person" as defined
therein, obtains the beneficial ownership of a specified percentage of Common
Stock, the Executive is entitled to certain payments and benefits from the
Company and the Bank. Mr. Oswald's and Mr. McHugh's Agreements also contain
provisions allowing the Company and the Bank to terminate Mr. Oswald's or Mr.
McHugh's employment for "Cause" (as defined).
Under the terms of his Executive Employment Agreement, Mr. Oswald is a
member of the Bank's Board of Directors and was entitled to an annual salary
during 1996 of $190,000. The Executive Employment Agreement provides that this
amount will be increased by not less than five percent (5%) per year. Mr. Oswald
also receives certain employee benefits: including life insurance, disability
and health insurance, vacation days and a supplemental retirement plan. The Bank
provides an automobile for Mr. Oswald.
Under the terms of his Executive Employment Agreement, Mr. McHugh was
entitled to an annual salary during 1996 of $112,000 plus a grant of 992 shares
of Common Stock at the end of each twelve months of employment. Mr. McHugh's
Executive Employment Agreement also provides that this amount will be increased
by not less than five percent (5%) per year. Mr. McHugh also receives certain
employee benefits including life insurance, disability and health insurance and
vacation days. The Bank also provides Mr. McHugh with an automobile.
53
<PAGE>
Each of the Executive Employment Agreements provide that if the Executive's
employment is terminated by the Bank other than for "Cause" as defined therein,
or if the Executive terminates his employment for "Good Reason", as defined
therein, the Executive is entitled to receive certain monetary benefits. Mr.
Oswald is entitled to his full Annual Direct Salary (as defined) from the date
of termination through December 31, 1999, or an amount equal to one and one-half
(1 1/2) of his Annual Direct Salary, whichever is greater, or to three (3) times
his Annual Direct Salary upon the occurrence of certain merger or acquisition
events. The Bank shall also maintain in full force and effect certain employee
benefits. Mr. McHugh is entitled to a severance allowance equal to his then
Annual Direct Salary from the date of termination through the following six (6)
calendar months, or to one (1) time his Annual Direct Salary upon the occurrence
of certain merger or acquisition events.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors, executive officers of the Company, beneficial owners of
5% or more of the Common Stock and their affiliates were customers of and had
transactions with the Bank in the ordinary course of business during the Bank's
fiscal year ended December 31, 1996. Similar transactions may be expected to
take place in the future. It is expected that any other transactions with
directors and officers and their associates in the future will be conducted on
the same basis.
Hayes Construction, Inc., a construction company of which Jeffrey W. Hayes,
a director of the Company and the Bank, is President, received payments of
approximately $49,000 in 1996 in connection with the ongoing construction of the
Bank's Muhlenberg Branch Office and $8,800 in 1996 in connection with the
ongoing construction of the Bank's Shillington branch; also $425,000 in 1995 in
connection with the construction of the Bank's Pottstown branch office and
$480,000 in 1995 in connection with the construction of the Bank's Wyomissing
branch office. In the first quarter of 1997 Hayes Construction received payments
of $554,000 and $629,000 relating to the construction of the Bank's Muhlenberg
and Shillington branch offices, respectively. Such payments were in amounts and
on substantially the same terms and conditions as would have been available to
the Company from an unaffiliated party.
Mast and Moyer, Inc. an insurance agency of which Alfred G. Mast, a director
of the Company and the Bank, is President, received payments in the form of
gross insurance premiums of approximately $141,000 and $74,000 in 1996 and 1995,
respectively, in connection with various insurance policies the Bank has
purchased through the insurance agency. In the first quarter of 1997, Mast and
Moyer, Inc. received payments of $2,000. Such payments were in amounts and on
substantially the same terms and conditions as would have been available to the
Company from an unaffiliated party.
At December 31, 1996, the Bank had total loans outstanding and commitments
to loan to directors, executive officers, beneficial owners of 5% or more of the
Common Stock and their affiliates of $3.8 million, or approximately 19.2% of the
total consolidated equity capital as of that date. Loans to such persons were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons. The loans did not involve more
than the normal risk of collectibility or present other unfavorable features.
DESCRIPTION OF COMMON STOCK
The following is a summary of the material provisions of the Company's
Articles of Incorporation and Bylaws. This summary does not purport to be
complete and is qualified in its entirety by reference to such instruments, each
of which is an exhibit to the Registration Statement of which this Prospectus
forms a part.
54
<PAGE>
AUTHORIZED COMMON STOCK
The Company has 20,000,000 shares of authorized Common Stock and no
authorized shares of Preferred Stock. As of May 15, 1997, 2,078,673 shares of
Common Stock were outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote at a meeting of shareholders. Each
share of Common Stock is entitled to share, pro rata, in dividends and in the
Company's assets in the event of dissolution or liquidation of the Company.
Holders of shares of Common Stock do not possess any preemptive rights and are
not entitled to cumulate votes in elections of directors. The outstanding shares
of Common Stock are fully paid and nonassessable. No option, warrant, privilege
or right has been issued or is outstanding other than the options granted under
the Company's stock option plans. See "EXECUTIVE COMPENSATION."
DIVIDENDS
For information relating to the Company's dividend policy, see "MARKET FOR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS--Dividends."
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
During 1995, the Company established a dividend reinvestment and stock
purchase plan available to shareholders who elect to (i) reinvest their cash
dividends and, (ii) from time to time, as the Board of Directors of the Company
may in its discretion determine, make voluntary cash payments for the purchase
of additional shares of Common Stock. The Common Stock may be purchased in the
open market or from authorized but unissued shares, substantially at prevailing
market prices. The Company has reserved 200,000 shares of Common Stock for
possible issuance under the plan. Stock purchases under the plan totaled 10,538
shares in the six months ended June 30, 1997, and 6,486 and 1,434 shares in 1996
and 1995, respectively.
SPECIAL CHARTER AND PENNSYLVANIA CORPORATE LAW PROVISIONS
The Company's Articles of Incorporation and Bylaws contain certain
provisions that may have the effect of deterring or discouraging, among other
things, a nonnegotiated tender or exchange offer for the Common Stock, a proxy
contest for control of the Company, the assumption of control of the Company by
a holder of a large block of the Common Stock and the removal of the Company's
management. These provisions: (1) divide the Board of Directors into three
classes serving staggered three-year terms; (2) require that shares with at
least 75% of total voting power approve any merger, consolidation, dissolution,
liquidation and other similar transactions; (3) require that shares with at
least 75% of total voting power approve any amendment of those provisions of the
Articles of Incorporation pertaining to shareholder approval of any merger,
consolidation, dissolution or liquidation; (4) permit the Board of Directors to
oppose a tender offer or other offer for the Company's securities on the basis
of factors other than the economic benefit to shareholders; (5) permit the
Company to issue warrants for the purchase of Common Stock at below market
prices in the event any person or entity acquires 25% or more of the Common
Stock; (6) eliminate cumulative voting in elections of directors; (7) require
that shares with at least 66-2/3% of total voting power approve any substantive
amendment of the Bylaws; and (8) require advance notice of nominations for the
election of directors.
The Pennsylvania Business Corporation Law contains certain provisions that
will become applicable to the Company that may have similar effects. These
provisions, among other things: (1) require that, following any acquisition by
any person or group of 20% of a public corporation's voting power, the remaining
shareholders have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of the shares,
including an increment representing a proportion of any value payable for
control of the corporation; and (2) prohibit for five years, subject to certain
exceptions, a "business combination" (which includes a merger or consolidation
of the corporation
55
<PAGE>
or a sale, lease or exchange of assets) with a shareholder or group of
shareholders beneficially owning 20% or more of a public corporation's voting
power.
In April 1990, Pennsylvania adopted legislation further amending the
Pennsylvania Business Corporation Law. To the extent applicable to the Company
at the present time, this legislation generally (1) expands the factors and
groups (including shareholders) that the Board of Directors can consider in
determining whether a certain action is in the best interests of the
corporation; (2) provides that the Board need not consider the interests of any
particular group as dominant or controlling; (3) provides that directors, in
order to satisfy the presumption that they have acted in the best interests of
the corporation, need not satisfy any greater obligation or higher burden of
proof with respect to actions relating to an acquisition or potential
acquisition of control; (4) provides that actions relating to acquisitions of
control that are approved by a majority of "disinterested directors" are
presumed to satisfy the directors' standard of care unless it is proven by clear
and convincing evidence that the directors did not assent to such action in good
faith after reasonable investigation; and (5) provides that the fiduciary duty
of directors is solely to the corporation and may be enforced by the corporation
or by a shareholder in a derivative action, but not by a shareholder directly.
One of the effects of these fiduciary duty provisions may be to make it more
difficult for a shareholder to successfully challenge the actions of the Board
of Directors in a potential change in control context.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the form of which is filed as an Exhibit to the Registration Statement of which
this Prospectus is a part), the Company has agreed to sell to the Underwriters
named below (the "Underwriters"), and the Underwriters have severally agreed to
purchase from the Company, the number of shares of Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Janney Montgomery Scott Inc......................................................
Wheat, First Securities, Inc.....................................................
----------
Total............................................................................ 1,200,000
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the shares of the
Common Stock offered hereby (other than those subject to the over-allotment
option described below) if any shares are purchased. In the event of default by
an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting Underwriters may
be increased or the Underwriting Agreement may be terminated. The Underwriters
have advised the Company that they propose initially to offer the shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow and such
dealers may reallow a concession not in excess of $ per share to other
dealers. After the initial public offering, the public offering price and such
concessions maybe changed.
The Company has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 180,000 additional shares
of Common Stock from the Company at the same price per share as the initial
1,200,000 shares of Common Stock to be purchased by the Underwriters. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the shares of Common Stock that the Underwriters have agreed to purchase. To
the extent that the Underwriters exercise such option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase the same
percentage of the option shares of Common Stock as the number of shares of
Common Stock to be purchased by such Underwriter in the above table bears to the
total shares of Common Stock offered.
The Company and its directors and executive officers have agreed that they
will not, with certain exceptions, publicly sell or otherwise dispose of any
shares of Common Stock, except the shares of the Common Stock offered hereby,
for 180 days from the date of this Prospectus without the prior written consent
of the Underwriters.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The public offering price of the Common Stock offered hereby was determined
by negotiation between the Company and the Underwriters. Among the factors
considered in determining the public offering price, in addition to the lack of
a regular and active market for the Common Stock, are certain financial
information of the Company, an assessment of the Company's prospects and factors
relating to the market value of the Company and other publicly traded financial
institutions.
57
<PAGE>
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a Bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of the Company provide for (1) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (2)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers also are insured against certain liabilities for
their actions, as such, by an insurance policy obtained by the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to the directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Stevens & Lee, Reading, Pennsylvania. Certain legal matters will be
passed upon for the Underwriters by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, D.C.
EXPERTS
The consolidated financial statements appearing in this Prospectus have been
audited by Beard & Company, Inc., independent accountants, to the extent and for
the periods indicated in their report appearing elsewhere herein, and are
included in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
58
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BCB Financial Services Corporation and Berks County Bank:
<TABLE>
<S> <C>
Financial Statements (Unaudited)
Consolidated Balance Sheets--As of March 31, 1997 and December 31, 1996............ F-2
Consolidated Statements of Income--For the three months ended March 31, 1997 and
1996............................................................................. F-3
Consolidated Statement of Stockholders' Equity--For the three months ended March
31, 1997......................................................................... F-4
Consolidated Statements of Cash Flows--For the three months ended March 31, 1997
and 1996......................................................................... F-5
Notes to Consolidated Financial Statements......................................... F-6
Financial Statements (Audited)
Independent Auditor's Report....................................................... F-8
Consolidated Balance Sheets--As of December 31, 1996 and 1995...................... F-9
Consolidated Statements of Income--For the years ended December 31, 1996 and
1995............................................................................. F-10
Consolidated Statements of Stockholders' Equity--For the years ended December 31,
1996 and 1995.................................................................... F-11
Consolidated Statements of Cash Flows--For the years ended December 31, 1996 and
1995............................................................................. F-12
Notes to Consolidated Financial Statements......................................... F-13
</TABLE>
F-1
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
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 3$24,522,302
----------- ------------
----------- ------------
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 3$24,522,302
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
F-2
<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,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Interest income:
Loans receivable, including fees............................................... $ 4,080,754 $ 3,129,207
Interest and dividends on securities:
U.S. Treasury................................................................ 58,369 69,882
U.S. Government agencies and corporations.................................... 912,364 147,312
State and political subdivisions, tax exempt................................. 467,834 204,944
Dividends.................................................................... 46,654 14,416
Interest-bearing deposits with banks........................................... 151,018 209,174
Interest on federal funds sold................................................. 14,603 63,097
------------ ------------
Total interest income...................................................... 5,731,596 3,838,032
------------ ------------
Interest expense:
Deposits....................................................................... 2,873,784 2,060,105
Other borrowed funds........................................................... 90,197 25,932
Long-term debt................................................................. 287,603 45,666
------------ ------------
Total interest expense..................................................... 3,251,584 2,131,703
------------ ------------
Net interest income...................................................... 2,480,012 1,706,329
Provision for loan losses........................................................ 241,000 80,000
------------ ------------
Net interest income after provision for loan losses...................... 2,239,012 1,626,329
------------ ------------
Other income:
Customer service fees.......................................................... 214,019 142,382
Mortgage banking activities.................................................... 123,352 114,641
Net realized loss on sale of securities........................................ (5,574) (682)
Other.......................................................................... 1,358 7,355
------------ ------------
Total other income......................................................... 333,155 263,696
------------ ------------
Other expenses:
Salaries and wages............................................................. 745,315 498,054
Employee benefits.............................................................. 182,304 124,322
Occupancy...................................................................... 149,287 138,720
Equipment depreciation and maintenance......................................... 120,851 107,173
Other operating expenses....................................................... 756,811 571,090
------------ ------------
Total other expenses....................................................... 1,954,568 1,439,359
------------ ------------
Income before income taxes................................................... 617,599 450,666
Federal income taxes............................................................. 105,081 95,509
------------ ------------
Net income............................................................... $ 512,518 $ 355,157
------------ ------------
------------ ------------
Earnings per common and common equivalent share.................................. $ 0.24 $ 0.17
------------ ------------
------------ ------------
Weighted average common and common equivalent shares outstanding................. 2,124,945 2,082,468
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
F-3
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
(DEPRECIATION)
ON SECURITIES
COMMON RETAINED AVAILABLE FOR
STOCK SURPLUS EARNINGS SALE TOTAL
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. $ 5,175,963 $ 9,876,483 $ 4,700,631 ($ 49,408) $ 19,703,669
Issuance of 964 shares of common stock
upon exercise of stock options........ 2,410 3,476 -- -- 5,886
Net change in unrealized depreciation on
securities available for sale, net of
taxes................................. -- -- -- (588,325) (588,325)
Cash dividends declared ($.07 per
share)................................ -- -- (144,995) -- (144,995)
Net income.............................. -- -- 512,518 -- 512,518
------------ ------------ ------------ -------------- -------------
Balance, March 31, 1997................. $ 5,178,373 $ 9,879,959 $ 5,068,154 ($ 637,733) $ 19,488,753
------------ ------------ ------------ -------------- -------------
------------ ------------ ------------ -------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
F-4
<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,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
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 FLOWS FROM INVESTING ACTIVITIES
Proceeds from 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)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits............................................................. 28,056,383 23,167,667
Proceeds from (repayment of) other borrowed funds.................................... (7,623,030) 797,739
Principal payments of long-term borrowings........................................... (10,000,000) --
Proceeds from exercise of stock options.............................................. 5,886 13,448
Cash dividends....................................................................... (124,224) (86,146)
---------- ----------
Net cash provided by financing activities........................................ 10,315,015 23,892,708
---------- ----------
Increase in cash and due from banks.............................................. 3,186,769 1,320,538
Cash and due from banks:
Beginning............................................................................ 8,984,814 7,656,846
---------- ----------
Ending............................................................................... $12,171,583 $8,977,384
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest............................................................................. $3,262,712 $2,170,393
---------- ----------
---------- ----------
Income taxes......................................................................... -- $ 15,000
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed real estate acquired in settlement of loans................................. $ 159,782 $ 31,113
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited)
F-5
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997
NOTE A. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of the
BCB Financial Services Corporation and its wholly-owned subsidiary, Berks County
Bank. All significant intercompany accounts and transactions have been
eliminated. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
of the three-month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
NOTE B. EARNINGS PER SHARE
Earnings per common and common equivalent share are computed based on the
weighted average number of common shares and common equivalent shares
outstanding during the period. Common share equivalents included in the
computations represent shares issuable upon the assumed exercise of outstanding
stock option and grants that have an exercise price less than market price.
These common stock equivalents had a dilutive effect for the three months ended
March 31, 1997 and 1996. The number of common shares outstanding was increased
by the number of shares issuable under the common stock options and grants and
was reduced by the number of common shares which are assumed to have been
repurchased with the proceeds from the exercise of the options. Weighted average
number of common shares and common equivalent shares outstanding have been
adjusted for all stock dividends and stock splits effected through March 31,
1997.
NOTE C. OTHER OPERATING EXPENSES
The following represents the most significant categories of other operating
expenses for the three month period ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Advertising........................................................... $ 132,792 $ 156,115
EDP outsourcing and MAC fees.......................................... 105,956 76,344
Office supplies and expense........................................... 129,698 88,433
Other real estate owned expenses...................................... 60,698 19,123
All other expenses.................................................... 327,667 231,075
---------- ----------
$ 756,811 $ 571,090
---------- ----------
---------- ----------
</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.
F-6
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997
(CONTINUED)
NOTE E. RECENTLY ISSUED FASB STATEMENTS
In 1997, the FASB issued Statement No. 128, "Earnings Per Share" and
Statement No. 129, "Disclosure of Information about Capital Structure". Both
Statements are effective for periods ending after December 15, 1997. Statement
No. 128 is designed to simplify the computation of earnings per share and will
require disclosure of "basic earnings per share" and, if applicable, "diluted
earnings per share". Earlier application is not permitted for Statement No. 128
and it will require restatement of all prior period earnings per share data when
adopted. The Statement is not expected to materially impact the reported
earnings per share of the Company. The adoption of Statement No. 129 will have
no impact on the Company.
NOTE F. SUBSEQUENT EVENTS
On May 1, 1997, the Company's Board of Directors approved an amendment to
the articles of incorporation to increase the number of authorized shares of the
Company's common stock from 3,000,000 shares to 20,000,000 shares. The amendment
is contingent upon shareholder approval, at a special meeting of shareholders to
be held on June 11, 1997. The Company's Board of Directors also approved a
public offering of up to 1,380,000 shares of the Company's common stock. The
public offering is expected to be completed in the third quarter of 1997.
F-7
<PAGE>
To the Board of Directors
BCB Financial Services Corporation
Reading, Pennsylvania
We have audited the accompanying consolidated balance sheets of BCB
Financial Services Corporation and its wholly-owned subsidiary, Berks County
Bank, as of December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BCB
Financial Services Corporation and its wholly-owned subsidiary, Berks County
Bank, as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 31, 1997
F-8
<PAGE>
BCB FINANCIAL SERVICES CORPORATION AND
ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1996 1995
-------------- --------------
ASSETS
Cash and due from banks.......................................................... $ 8,984,814 $ 7,656,846
Interest-bearing deposits with banks............................................. 21,407,097 10,043,324
Federal funds sold............................................................... 1,290,000 3,045,000
Securities available for sale.................................................... 53,488,975 20,359,157
Securities held to maturity, fair value 1996 $35,147,354; 1995 $9,366,552........ 35,065,480 9,207,069
Loans receivable, net of allowance for loan losses 1996 $2,000,612; 1995
$1,674,057..................................................................... 192,147,673 146,290,946
Mortgage loans held for sale..................................................... 609,397 452,900
Due from mortgage investors...................................................... 3,478,353 3,204,383
Premises and equipment, net...................................................... 4,394,797 3,494,618
Accrued interest receivable...................................................... 2,129,185 1,226,026
Foreclosed real estate........................................................... 761,500 1,315,532
Deferred income taxes............................................................ 245,935 208,712
Prepaid expenses and other assets................................................ 519,096 168,752
-------------- --------------
Total assets............................................................. $ 324,522,302 $ 206,673,265
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing................................................. $ 29,048,391 $ 18,421,557
Demand, interest bearing..................................................... 100,846,581 48,024,548
Savings...................................................................... 12,123,061 9,418,076
Time deposits................................................................ 122,305,298 104,073,689
-------------- --------------
Total deposits........................................................... 264,323,331 179,937,870
Accrued interest payable and other liabilities................................. 4,776,903 2,020,915
Other borrowed funds........................................................... 13,718,399 2,289,940
Long-term debt................................................................. 22,000,000 4,000,000
-------------- --------------
Total liabilities........................................................ 304,818,633 188,248,725
-------------- --------------
Redeemable common stock, issued and outstanding 1995 12,539 shares............... -- 129,969
-------------- --------------
Stockholders' equity:
Common stock, par value $2.50 per share; authorized 3,000,000 shares; issued
and outstanding 1996 2,070,385 shares; 1995 1,710,389 shares................. 5,175,963 4,275,973
Surplus........................................................................ 9,876,483 10,628,354
Retained earnings.............................................................. 4,700,631 3,233,574
Net unrealized appreciation (depreciation) on securities available for sale,
net of taxes................................................................. (49,408) 156,670
-------------- --------------
Total stockholders' equity............................................... 19,703,669 18,294,571
-------------- --------------
Total liabilities and stockholders' equity............................... $ 324,522,302 $ 206,673,265
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE>
BCB FINANCIAL SERVICES CORPORATION AND
ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Interest income:
Loans receivable, including fees................................................. $ 14,011,402 $ 11,294,430
Interest and dividends on securities:
U.S. Treasury.................................................................. 261,188 382,213
U.S. Government agencies and corporations...................................... 1,769,959 397,286
State and political subdivisions, tax-exempt................................... 1,229,519 409,753
Dividends...................................................................... 118,561 77,520
Interest-bearing deposits with banks............................................. 430,748 560,385
Interest on federal funds sold................................................... 121,305 72,995
------------- -------------
Total interest income.................................................... 17,942,682 13,194,582
------------- -------------
Interest expense:
Deposits......................................................................... 9,134,770 6,599,633
Other borrowed funds............................................................. 302,888 140,961
Long-term debt................................................................... 370,766 284,867
------------- -------------
Total interest expense................................................... 9,808,424 7,025,461
------------- -------------
Net interest income...................................................... 8,134,258 6,169,121
Provision for loan losses.......................................................... 687,000 517,500
------------- -------------
Net interest income after provision for loan losses...................... 7,447,258 5,651,621
------------- -------------
Other income:
Customer service fees............................................................ 696,872 486,412
Mortgage banking activities...................................................... 633,761 533,704
Net realized loss on sale of securities.......................................... (682) (24,020)
Other............................................................................ 14,668 14,100
------------- -------------
Total other income....................................................... 1,344,619 1,010,196
------------- -------------
Other expenses:
Salaries and wages............................................................... 2,264,875 1,895,971
Employee benefits................................................................ 579,596 467,272
Occupancy........................................................................ 570,025 480,156
Equipment depreciation and maintenance........................................... 419,437 382,289
Other............................................................................ 2,622,293 2,197,400
------------- -------------
Total other expenses..................................................... 6,456,226 5,423,088
------------- -------------
Income before income taxes............................................... 2,335,651 1,238,729
Federal income taxes............................................................... 432,566 336,351
------------- -------------
Net income............................................................... $ 1,903,085 $ 902,378
------------- -------------
------------- -------------
Earnings per common and common equivalent share.................................... $ 0.91 $ 0.43
------------- -------------
------------- -------------
Weighted average common and common equivalent shares outstanding................... 2,089,626 2,074,794
------------- -------------
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE>
BCB FINANCIAL SERVICES CORPORATION AND
ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON SECURITIES
COMMON RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. $ 4,001,848 $ 9,606,234 $ 3,688,970 $ (309,748) $ 16,987,304
Issuance of 2,325 shares of common
stock upon exercise of stock
options............................ 5,812 15,892 -- -- 21,704
Net change in unrealized appreciation
(depreciation) on securities
available for sale, net of taxes... -- -- -- 466,418 466,418
Transfer of 25,557 shares from
redeemable common stock............ 63,893 188,548 -- -- 252,441
Issuance of 81,768 shares of common
stock in connection with a 5% stock
dividend........................... 204,420 817,680 (1,025,603) -- (3,503)
Cash dividends....................... -- -- (332,171) -- (332,171)
Net income........................... -- -- 902,378 -- 902,378
------------ ------------- ------------ -------------- -------------
Balance, December 31, 1995............. $ 4,275,973 $ 10,628,354 $ 3,233,574 $ 156,670 $ 18,294,571
Issuance of 2,584 shares of common
stock upon exercise of stock
options............................ 6,460 11,690 -- -- 18,150
Net change in unrealized appreciation
(depreciation) on securities
available for sale, net of taxes... -- -- -- (206,078) (206,078)
Transfer of 12,539 shares from
redeemable common stock............ 31,347 98,622 -- -- 129,969
Issuance of 344,873 shares of common
stock in connection with a 6 for 5
stock split, effectuated as a 20%
stock dividend..................... 862,183 (862,183) (1,381) -- (1,381)
Cash dividends....................... -- -- (434,647) -- (434,647)
Net income........................... -- -- 1,903,085 -- 1,903,085
------------ ------------- ------------ -------------- -------------
Balance, December 31, 1996............. $ 5,175,963 $ 9,876,483 $ 4,700,631 $ (49,408) $ 19,703,669
------------ ------------- ------------ -------------- -------------
------------ ------------- ------------ -------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
F-11
<PAGE>
BCB FINANCIAL SERVICES CORPORATION AND
ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
<S> <C> <C>
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................ $ 1,903,085 $ 902,378
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan and foreclosed real estate losses................................ 919,613 750,744
Provision for depreciation and amortization......................................... 376,616 337,790
Loss on sale of equipment........................................................... 1,689 26,855
Net realized loss on sales of securities............................................ 682 24,020
Proceeds from sale of mortgage loans................................................ 34,709,663 33,431,124
Net (gain) loss on sale of mortgage loans........................................... 11,587 (4,111)
Mortgage loans originated for sale.................................................. (34,877,747) (33,704,925)
Net amortization of securities premiums and discounts............................... (74,449) (61,812)
(Increase) decrease in:
Due from mortgage investors....................................................... (273,970) (2,232,348)
Accrued interest receivable....................................................... (903,159) (378,138)
Deferred income taxes............................................................. 68,938 (73,734)
Prepaid expenses and other assets................................................. (350,344) (31,100)
Increase in accrued interest payable and other liabilities.......................... 1,523,267 304,422
----------- ----------
Net cash provided by (used in) operating activities............................. 3,035,471 (708,835)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale.................................. 2,882,065 1,502,786
Proceeds from maturities of and principal repayments on securities available for
sale............................................................................... 1,822,376 1,566,130
Proceeds from maturities of securities held to maturity............................... 1,610,000 1,200,000
Purchases of securities available for sale............................................ (36,916,098) (11,543,345)
Purchases of securities held to maturity.............................................. (27,430,400) (5,782,475)
Increase in interest-bearing deposits with banks...................................... (11,363,773) (7,530,281)
Net (increase) decrease in federal funds sold......................................... 1,755,000 (2,245,000)
Loans made to customers, net of principal collected................................... (46,797,198) (22,971,971)
Proceeds from sales of foreclosed real estate......................................... 574,890 148,869
Proceeds from sale of premises and equipment.......................................... 3,245 --
Purchases of premises and equipment................................................... (1,281,729) (1,599,364)
----------- ----------
Net cash used in investing activities........................................... (115,141,622) (47,254,651)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits.............................................................. 84,385,461 55,665,417
Proceeds from (repayment of) other borrowed funds..................................... 11,428,459 (70,428)
Proceeds from long-term debt.......................................................... 22,000,000 9,000,000
Principal payments of long-term borrowings............................................ (4,000,000) (14,000,000)
Proceeds from exercise of stock options............................................... 18,150 21,704
Cash payments for fractional shares in connection with stock dividend................. (1,381) (3,503)
Cash dividends........................................................................ (396,570) (311,578)
----------- ----------
Net cash provided by financing activities....................................... 113,434,119 50,301,612
----------- ----------
Increase in cash and due from banks............................................. 1,327,968 2,338,126
Cash and due from banks:
January 1............................................................................. 7,656,846 5,318,720
----------- ----------
December 31........................................................................... $ 8,984,814 $7,656,846
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest............................................................................ $ 9,511,976 $6,755,798
----------- ----------
----------- ----------
Income taxes........................................................................ $ 490,000 $ 390,091
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans................................... $ 245,282 $1,639,618
----------- ----------
----------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-12
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of BCB Financial
Services Corporation ("the Company"), a bank holding company, and its
wholly-owned subsidiary, Berks County Bank ("the Bank"). All significant
intercompany accounts and transactions have been eliminated.
NATURE OF OPERATIONS:
The Bank operates under a state bank charter and provides full banking
services. The bank holding company and the Bank are subject to regulation of the
Pennsylvania Department of Banking and the Federal Reserve Bank. The area served
by the Bank is principally Berks, Montgomery and Schuylkill Counties in
Pennsylvania.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRESENTATION OF CASH FLOWS:
For purposes of reporting cash flows, cash and due from banks includes cash
on hand and amounts due from banks.
SECURITIES:
Securities that management has both the positive intent and ability to hold
to maturity are classified as securities held to maturity and are carried at
cost, adjusted for amortization of premium or accretion of discount using the
interest method. Securities that may be sold prior to maturity for
asset/liability management purposes, or that may be sold in response to changes
in interest rates, changes in prepayment risk, to increase regulatory capital or
other similar factors, are classified as securities available for sale and
carried at fair value with adjustments to fair value, after tax, reported as a
separate component of stockholders' equity. Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation at each balance sheet date.
Interest and dividends on securities, including the amortization of premiums
and the accretion of discounts, are reported in interest and dividends on
securities using the interest method. Gains and losses on the sale of securities
are recorded on the trade date and are calculated using the specific
identification method.
LOANS RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at their outstanding
unpaid principal balances, net of an allowance for loan losses and any deferred
fees or costs. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the yield (interest income) of the related loans.
The Bank is generally amortizing these amounts over the contractual life of the
loan.
A loan is generally considered impaired when it is probable the Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The
F-13
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accrual of interest is generally discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a loan
is placed on nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as interest income,
according to management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that are identified
for evaluation is based on discounted cash flows using the loan's initial
effective interest rate or the fair value, less selling costs, of the collateral
for collateral dependent loans. By the time a loan becomes probable of
foreclosure it has been charged down to fair value, less estimated cost to sell.
The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows expected to be received on
impaired loans.
MORTGAGE LOANS HELD FOR SALE:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value. Net unrealized losses are
recognized through a valuation allowance by corresponding charges in the
statements of income. All sales are made without recourse.
DUE FROM MORTGAGE INVESTORS:
A division of the Bank performs underwriting and origination services for
various mortgage investors. As part of this program, the Bank will temporarily
fund the investors' mortgage commitments for periods generally ranging from
three to twenty-one days.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line and accelerated depreciation
methods over their estimated useful lives.
FORECLOSED REAL ESTATE:
Foreclosed real estate is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure.
F-14
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreclosed real estate is initially recorded at fair value, net of estimated
selling costs at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of cost or fair value, less estimated costs to sell.
Revenues and expenses from operations and changes in the valuation allowance are
included in other expenses.
ADVERTISING COSTS:
The Bank follows the policy of charging the production costs of advertising
to expense as incurred.
INCOME TAXES:
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. The Company and the Bank file a consolidated
federal income tax return.
EARNINGS PER SHARE:
Earnings per common and common equivalent share are computed based on the
weighted average number of common shares and common equivalent shares
outstanding during the year. Stock options are included as share equivalents,
when dilutive, using the treasury stock method. These common stock equivalents
had a dilutive effect for the years ended December 31, 1996 and 1995.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business, the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit, letters
of credit and commitments to sell loans. Such financial instruments are recorded
in the consolidated balance sheets when they are funded.
RECLASSIFICATIONS:
Certain items in the 1995 financial statements have been reclassified to
conform to the 1996 financial statement presentation format. These
reclassifications had no effect on net income.
2. RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank or in vault cash. The total of those reserve balances was
approximately $1,000,000 and $700,000 at December 31, 1996 and 1995
respectively.
F-15
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. SECURITIES
The amortized cost and approximate fair value of securities at December 31
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Available for sale securities:
December 31, 1996:
U.S. Treasury securities.............................. $ 3,464,778 $ 44,167 $ -- $ 3,508,945
U.S. Government agencies and corporations............. 18,000,000 57,606 (75,149) 17,982,457
States and political subdivisions..................... 23,275,073 141,312 (219,000) 23,197,385
Mortgage-backed and asset-backed securities........... 4,356,515 10,941 (35,062) 4,332,394
Equity securities..................................... 4,467,470 324 -- 4,467,794
------------- ----------- ----------- -------------
$ 53,563,836 $ 254,350 $ (329,211) $ 53,488,975
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
December 31, 1995:
U.S. Treasury securities.............................. $ 5,449,850 $ 112,759 $ (3,546) $ 5,559,063
U.S. Government agencies and corporations............. 3,757,021 27,813 (46,865) 3,737,969
States and political subdivisions..................... 6,977,585 176,908 -- 7,154,493
Mortgage-backed and asset-backed securities........... 2,806,806 2,860 (36,484) 2,773,182
Equity securities..................................... 1,134,450 -- -- 1,134,450
------------- ----------- ----------- -------------
$ 20,125,712 $ 320,340 $ (86,895) $ 20,359,157
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Held to maturity securities:
December 31, 1996:
U.S. Government agencies and corporations............. $ 24,253,220 $ 138,307 $ (217,406) $ 24,174,121
States and political subdivisions..................... 10,787,260 173,026 (12,053) 10,948,233
Other................................................. 25,000 -- -- 25,000
------------- ----------- ----------- -------------
$ 35,065,480 $ 311,333 $ (229,459) $ 35,147,354
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
December 31, 1995:
U.S. Government agencies and corporations............. $ 3,002,260 $ 31,353 $ -- $ 3,033,613
States and political subdivisions..................... 6,204,809 142,378 (14,248) 6,332,939
------------- ----------- ----------- -------------
$ 9,207,069 $ 173,731 $ (14,248) $ 9,366,552
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
Equity securities are principally comprised of a Pennsylvania community
bank, Federal Home Loan Bank and Federal Reserve Bank stock.
During 1995, the Bank transferred $500,000 of securities from securities
available for sale to securities held to maturity. The securities were
transferred at their fair value on the date of transfer which was $4,122 more
than the amortized cost of the securities. This difference, net of taxes of
$1,401, was reflected as unrealized appreciation in stockholders' equity and is
being amortized over the period to maturity of the respective securities.
F-16
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1996 , by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because the securities may be called or prepaid with or
without any penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
-------------- ------------- -------------- -------------
Due in one year or less........................... $ 2,991,908 $ 3,017,057 $ 298,906 $ 301,748
Due after one year through five years............. 12,472,870 12,445,200 1,958,754 1,972,745
Due after five years through ten years............ 5,500,000 5,546,721 15,741,656 15,854,476
Due after ten years............................... 23,775,073 23,679,809 17,066,164 17,018,385
Mortgage-backed and asset-backed securities....... 4,356,515 4,332,394 -- --
Equity securities................................. 4,467,470 4,467,794 -- --
-------------- ------------- -------------- -------------
$ 53,563,836 $ 53,488,975 $ 35,065,480 $ 35,147,354
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
</TABLE>
Gross gains of $1,757 and gross losses of $2,439 were realized on sales of
available for sale securities in 1996. Gross gains of $-0- and gross losses of
$24,020 were realized on sales of available for sale securities in 1995.
Securities with an amortized cost of $4,963,000 and $3,205,000 at December
31, 1996 and 1995 respectively were pledged as collateral on public deposits and
for other purposes as required or permitted by law.
4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Commercial....................................................................... $ 82,885,968 $ 61,215,823
Installment...................................................................... 16,261,387 14,646,121
Mortgage......................................................................... 85,027,169 63,538,149
Construction..................................................................... 9,672,254 8,506,396
-------------- --------------
193,846,778 147,906,489
-------------- --------------
Less:
Allowance for loan losses...................................................... 2,000,612 1,674,057
Net deferred loan fees and costs............................................... (301,507) (58,514)
-------------- --------------
1,699,105 1,615,543
-------------- --------------
$ 192,147,673 $ 146,290,946
-------------- --------------
-------------- --------------
</TABLE>
F-17
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses for the years ended December 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning................................................ $ 1,674,057 $ 1,436,945
Provision for loan losses......................................... 687,000 517,500
Loans charged off................................................. (447,883) (404,827)
Recoveries........................................................ 87,438 124,439
------------ ------------
Balance, ending................................................... $ 2,000,612 $ 1,674,057
------------ ------------
------------ ------------
</TABLE>
The recorded investment in impaired loans, not requiring an allowance for
loan losses, was $587,483 and $527,198 at December 31, 1996 and 1995
respectively. The recorded investment in impaired loans requiring an allowance
for loan losses was $711,861 and $102,824 at December 31, 1996 and 1995
respectively. At December 31, 1996 and 1995, the related allowance for loan
losses associated with those loans was $252,321 and $18,456 respectively. For
the years ended December 31, 1996 and 1995, the average recorded investment in
these impaired loans was $1,425,975 and $694,318 respectively. There was no
interest income recognized on impaired loans in 1996 or 1995.
5. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land.............................................................. $ 1,487,371 $ 523,989
Building and improvements......................................... 2,255,892 2,227,808
Leasehold improvements............................................ 63,393 63,393
Equipment......................................................... 1,424,062 1,297,975
Furniture and fixtures............................................ 420,529 377,996
Construction in progress.......................................... 103,969 --
------------ ------------
5,755,216 4,491,161
Less accumulated depreciation..................................... 1,360,419 996,543
------------ ------------
$ 4,394,797 $ 3,494,618
------------ ------------
------------ ------------
</TABLE>
F-18
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DEPOSITS
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $12,371,561 and $8,377,643 at December 31, 1996 and 1995
respectively. At December 31, 1996, the scheduled maturities of time deposits
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997.......................................................................... $ 61,206,664
1998.......................................................................... 13,993,668
1999.......................................................................... 31,096,140
2000.......................................................................... 6,766,233
2001 and thereafter........................................................... 9,242,593
--------------
$ 122,305,298
--------------
--------------
</TABLE>
7. OTHER BORROWED FUNDS AND LONG-TERM DEBT
The Bank maintains a U.S. Treasury tax and loan note option account for the
deposit of withholding taxes, corporate income taxes and certain other payments
to the federal government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this note option
account were $718,399 and $289,940 at December 31, 1996 and 1995 respectively.
The Bank has a flexible line of credit commitment available from the Federal
Home Loan Bank for borrowings of up to approximately $9,800,000, expiring
September 11, 1997. There were no borrowings under this line of credit at
December 31, 1996 and 1995. The line of credit interest rate at December 31,
1996 was 7.23%.
The Bank has other short-term borrowings from the Federal Home Loan Bank at
December 31, 1996 and 1995 in the amount of $13,000,000 and $2,000,000
respectively. The December 31, 1996 balance outstanding is due in 1997, at an
average interest rate of 5.41%.
Long-term debt consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Advances from the Federal Home Loan Bank bearing interest at a
weighted average rate of 5.49% and 4.89% as of December 31,
1996 and 1995 respectively..................................... $ 22,000,000 $ 4,000,000
------------- ------------
------------- ------------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1997........................................................... $ --
<S> <C>
1998........................................................... 2,000,000
1999........................................................... 5,000,000
2000........................................................... --
2001........................................................... 15,000,000
----------
$22,000,000
----------
----------
</TABLE>
The Bank has maximum borrowing capacity with the Federal Home Loan Bank of
approximately $122,490,000. Advances from the Federal Home Loan Bank are secured
by qualifying assets of the Bank.
F-19
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision for federal income taxes for the years ended December 31, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current............................................................... $ 363,628 $ 410,085
Deferred.............................................................. 68,938 (73,734)
---------- ----------
$ 432,566 $ 336,351
---------- ----------
---------- ----------
</TABLE>
A reconciliation of the statutory income tax at a rate of 34% to the income
tax expense in the consolidated statements of income for the years ended
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Federal income tax at statutory rate.................................. $ 794,121 $ 421,168
Tax-exempt interest................................................... (435,726) (139,316)
Disallowance of interest expense...................................... 61,682 19,952
Other................................................................. 12,489 34,547
---------- ----------
$ 432,566 $ 336,351
---------- ----------
---------- ----------
</TABLE>
The income tax provision includes $232 in 1996 and $8,167 in 1995 of income
tax benefit related to net realized securities losses.
Net deferred tax assets consisted of the following components as of December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................................... $ 333,176 $ 299,163
Interest on non-accrual loans....................................... 67,821 44,391
Unrealized depreciation on securities available for sale............ 25,453 --
Foreclosed real estate.............................................. 34,636 60,136
Other............................................................... 16,096 18,338
---------- ----------
477,182 422,028
---------- ----------
Deferred tax liabilities:
Premises and equipment.............................................. 116,843 104,537
Supplies inventory.................................................. 11,891 8,175
Loan origination fees and costs..................................... 102,513 19,895
Unrealized appreciation on securities available for sale............ -- 80,709
---------- ----------
Total deferred tax liabilities.................................... 231,247 213,316
---------- ----------
Net deferred tax assets........................................... $ 245,935 $ 208,712
---------- ----------
---------- ----------
</TABLE>
F-20
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REDEEMABLE COMMON STOCK
In conjunction with an SEC registration and stock offering in the Spring of
1994, the Company effected a rescission offer to past purchasers of treasury
stock. Under the terms of the rescission offer, past purchasers of selected
treasury stock had the right to sell their shares back to the Company at their
cost plus a nominal interest amount from the date of purchase. The redeemable
common stock was stated at the amount of the redemption value of the remaining
rescission shares outstanding.
10. RETIREMENT SAVINGS PLAN--401(K)
The Bank has adopted a 401(k) plan which covers employees who meet the
eligibility requirements of having worked 1,000 hours in a plan year and have
attained the age of 21. Participants are permitted to contribute from 1% to 15%
of compensation. The Bank will match 75% of the participant's contributions up
to a maximum match of 4.5%. The expense related to the Bank's 401(k) plan was
$80,851 and $56,642 for the years ended December 31, 1996 and 1995 respectively.
11. OTHER EXPENSES
The following represents the most significant categories of other expenses
for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Advertising....................................................... $ 593,925 $ 319,672
EDP outsourcing and MAC fees...................................... 367,242 252,794
Office supplies and expenses...................................... 372,149 342,358
Professional fees................................................. 160,806 260,732
Foreclosed real estate expenses................................... 300,892 222,064
All other expenses................................................ 827,279 799,780
------------ ------------
$ 2,622,293 $ 2,197,400
------------ ------------
------------ ------------
</TABLE>
12. STOCK OPTIONS AND GRANTS
The Company has adopted various qualified and non-qualified stock option
plans during 1989, 1994 and 1996 with approximately 200,000 shares of common
stock reserved for options to key employees and non-employee directors. The
option prices under the plans are the fair market value of the common stock on
the date the options are granted and an option's maximum term is generally ten
years.
The 1996 stock option plan (the "Plan") includes provisions for Non-employee
Director Stock Options and Incentive Stock Options for officers and key
employees. Under the Plan, Incentive Stock Options are granted at the discretion
of the Board of Directors.
On October 22, 1996, a one-time grant of options to purchase 54,000 shares
of common stock was granted to non-employee directors and options to purchase
30,600 shares were granted to officers and key employees, subject to stockholder
approval, at the fair value of the common stock on the date of grant. All
options are exercisable six months after the date of grant.
F-21
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND GRANTS (CONTINUED)
Stock option transactions under these plans were as follows for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Options outstanding, beginning........................................... 62,321 65,239
Options granted.......................................................... 84,600 --
Options exercised, at prices ranging from $6.93 to $11.79 per share...... (2,964) (2,918)
--------- ---------
Options outstanding, ending.............................................. 143,957 62,321
--------- ---------
--------- ---------
Options exercisable...................................................... 59,357 62,321
--------- ---------
--------- ---------
</TABLE>
Stock options outstanding at December 31, 1996 are exercisable at prices
ranging from $6.93 to $12.40 a share.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for options
granted in 1996. Had compensation cost for stock options granted in 1996 been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net income, as reported......................................... $1,903,085
---------
---------
Net income, pro forma........................................... $1,744,844
---------
---------
Earnings per share, as reported................................. $ 0.91
---------
---------
Earnings per share, pro forma................................... $ 0.84
---------
---------
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions: risk-free
interest rate of 6.2%, 10.48% volatility, and an expected life of five years.
The weighted-average fair value of options granted was $2.52 per share for both
the Non-employee Directors and Incentive Stock Options.
One of the Company's officers is entitled to receive a grant of 992 shares
of the Company's common stock at the end of each 12 months of employment under
his employment agreement. The fair value of the stock grant is recorded each
year as compensation expense.
13. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense:
The Bank rents facilities under lease agreements which expire between 1997
and 2009, and require various minimum annual rentals.
F-22
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The total minimum rental commitment at December 31, 1996 is approximately
$980,000 which is due as follows:
During the year ending December 31:
<TABLE>
<S> <C>
1997.............................................................. $ 225,000
1998.............................................................. 165,000
1999.............................................................. 68,000
2000.............................................................. 46,000
2001.............................................................. 47,000
Later years....................................................... 429,000
---------
$ 980,000
---------
---------
</TABLE>
The total rental expense included in the income statements for the years
ended December 31, 1996 and 1995 is $336,760 and $320,143 respectively.
Contingencies:
The Company is a defendant in various lawsuits wherein various amounts are
claimed. In the opinion of the Company's management, these suits are without
merit and should not result in judgments which, in the aggregate, would have a
material adverse effect on the Company's consolidated financial statements.
Construction in progress:
At December 31, 1996, the Bank has construction projects in progress to
build two branch offices on land owned in Muhlenberg and Shillington. Costs
incurred through December 31, 1996 on these projects are included in premises
and equipment as construction in progress. The estimated cost to complete these
projects is approximately $1,200,000 at December 31, 1996.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, letters of
credit and commitments to sell loans. Those instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the amount
recognized in the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
F-23
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
A summary of the contractual amount of the Bank's financial instrument
commitments at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Commitments to extend credit................................... $ 31,141,000 $ 23,850,000
Outstanding letters of credit.................................. 1,102,000 1,215,000
Commitments to sell loans...................................... -- --
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or commercial real
estate, accounts receivable, inventory and equipment.
Outstanding letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
Commitments to sell loans are to the Federal National Mortgage Association
and other mortgage investors. These commitments are generally met through
mortgage originations in the normal course of business.
15. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Berks, Montgomery and Schuylkill Counties in Pennsylvania.
The concentrations of credit by type of loan are set forth in Note 4. Although
the Bank has a diversified loan portfolio, its debtors' ability to honor their
contracts is influenced by the region's economy.
16. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its executive officers and
directors and their related interests on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1996 and 1995, these persons were
indebted to the Bank for loans totaling $2,898,000 and $2,684,000 respectively.
During 1996, $2,670,000 of new loans were made; repayments totaled $1,194,000.
Other changes decreased the loans outstanding by $1,262,000.
17. STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
During 1995, the Company established a dividend reinvestment and stock
purchase plan available to stockholders who elect to reinvest their cash
dividends and, from time to time, as the Board of Directors of the Company may
in its discretion determine, voluntary cash payments for the purchase of
additional
F-24
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN (CONTINUED)
shares of the Company's common stock. The common stock may be purchased in the
open market or from authorized but unissued shares, substantially at prevailing
market prices. The Company has reserved 200,000 shares of common stock for
possible issuance under the plan. Stock purchases under the plan totaled 6,486
and 1,434 shares in 1996 and 1995 respectively. All purchases were made in the
open market.
18. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth below) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and
of Tier 1 capital to average assets. Management believes, as of December 31,
1996, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank's category.
F-25
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY (CONTINUED)
The actual capital amounts and ratios are also presented in the table below:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- -------------------------- ------------------------
MINIMUM MINIMUM MINIMUM MINIMUM
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
As of December 31, 1996:
Total capital (to risk weighted assets)
Company..................................... $ 21,752 11.44% $ 15,208 8.00% N/A N/A
Bank........................................ 19,873 10.46 15,205 8.00 $ 19,006 10.00%
Tier I capital (to risk weighted assets)
Company..................................... 19,751 10.39 7,604 4.00 N/A N/A
Bank........................................ 17,872 9.40 7,602 4.00 11,403 6.00
Tier I capital (to average assets)
Company..................................... 19,751 6.82 11,579 4.00 N/A N/A
Bank........................................ 17,872 6.18 11,572 4.00 14,465 5.00
As of December 31, 1995:
Total capital (to risk weighted assets)
Company..................................... $ 19,753 13.58% $ 11,637 8.00% N/A N/A
Bank........................................ 17,543 12.06 11,637 8.00 $ 14,546 10.00%
Tier I capital (to risk weighted assets)
Company..................................... 18,079 12.43 5,818 4.00 N/A N/A
Bank........................................ 15,869 10.91 5,818 4.00 8,728 6.00
Tier I capital (to average assets)
Company..................................... 18,079 9.30 7,772 4.00 N/A N/A
Bank........................................ 15,869 8.17 7,772 4.00 9,715 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid.
Under current banking laws, the Bank would be limited to approximately
$2,886,000 of dividends in 1997 plus an additional amount equal to the Bank's
net profit for 1997, up to the date of any such dividend declaration.
In October 1996, the Board of Directors declared a 6 for 5 stock split, to
be effectuated as a 20% stock dividend, with a record date of November 5, 1996,
payable on November 19, 1996. All per share amounts, weighted average shares
outstanding and stock options in the accompanying consolidated financial
statements have been adjusted to give retroactive effect to the stock dividend.
In December 1996, the Company declared a $.06 per share cash dividend to
stockholders of record on January 2, 1997, payable January 20, 1997.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the
F-26
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Company could have realized in a sales transaction on the dates indicated. The
estimated fair value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes of these
consolidated financial statements subsequent to those respective dates. As such,
the estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each
year end.
The following information should not be interpreted as an estimate of the
fair value of the entire Company since a fair value calculation is only provided
for a limited portion of the Company's assets. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Company's disclosures and those of other companies may
not be meaningful. The following methods and assumptions were used to estimate
the fair values of the Company's financial instruments at December 31, 1996 and
1995:
Cash, federal funds sold and interest-bearing deposits with banks: The
carrying amounts reported in the balance sheet for cash and short-term
instruments approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable securities.
Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair values for fixed rate loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Mortgage loans held for sale: The fair values of the Bank's mortgages held
for sale are based on quoted market prices of similar loans sold.
Due from mortgage investors: The carrying amounts of due from mortgage
investors approximate their fair values.
Accrued interest receivable: The carrying amounts of accrued interest
receivable approximate their fair values.
Deposit liabilities: The fair value of demand deposits, savings accounts and
certain money market accounts is the amount payable on demand at the reporting
date. The carrying amounts for variable-rate fixed-term money market accounts
and certificates of deposits approximate their fair values at the reporting
date. The fair value of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered for deposits of similar remaining maturities.
Accrued interest payable: The carrying amounts of accrued interest payable
approximate their fair values.
Other borrowed funds: The carrying amounts of short-term borrowings
approximate their fair values.
Long-term debt: The fair values of the Bank's long-term debt are estimated
using discounted cash flow analyses, based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
F-27
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-balance sheet instruments: The fair values of the Bank's commitments to
extend credit and outstanding letters of credit are estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
The estimated fair value of the Company's financial instruments at December
31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ----------- --------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks........................................... $ 8,985 $ 8,985 $ 7,657 $ 7,657
Interest-bearing deposits with banks.............................. 21,407 21,407 10,043 10,043
Federal funds sold................................................ 1,290 1,290 3,045 3,045
Securities........................................................ 88,554 88,636 29,566 29,726
Loans receivable, net............................................. 192,148 193,674 146,291 148,238
Mortgage loans held for sale...................................... 609 609 453 453
Due from mortgage investors....................................... 3,478 3,478 3,204 3,204
Accrued interest receivable....................................... 2,129 2,129 1,226 1,226
Financial Liabilities:
Deposits.......................................................... 264,323 263,910 179,938 180,643
Accrued interest payable.......................................... 1,141 1,141 844 844
Other borrowed funds.............................................. 13,718 13,718 2,290 2,290
Long-term debt.................................................... 22,000 21,854 4,000 3,876
Off-Balance Sheet Financial Instruments:
Commitments to extend credit...................................... -- -- -- --
Outstanding letters of credit..................................... -- -- -- --
Commitments to sell loans......................................... -- -- -- --
</TABLE>
F-28
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1996 1995
------------- --------------
ASSETS
Cash............................................................................ $ 1,968,072 $ 2,353,206
Investment in bank subsidiary................................................... 17,825,193 16,084,504
Securities available for sale................................................... 363,243 --
Other assets.................................................................... 113,829 85,520
------------- --------------
$ 20,270,337 $ 18,523,230
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities..................................................................... $ 566,668 $ 98,690
Redeemable common stock......................................................... -- 129,969
Stockholders' equity............................................................ 19,703,669 18,294,571
------------- --------------
$ 20,270,337 $ 18,523,230
------------- --------------
------------- --------------
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C> <C>
1996 1995
------------ ----------
Expenses............................................................ $ (66,507) $ (55,406)
Federal income tax benefit.......................................... 22,612 18,838
Equity in undistributed net income of bank subsidiary............... 1,946,980 938,946
------------ ----------
Net income...................................................... $ 1,903,085 $ 902,378
------------ ----------
------------ ----------
</TABLE>
F-29
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY, BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
1996 1995
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 1,903,085 $ 902,378
Undistributed earnings of bank subsidiary...................... (1,946,980) (938,946)
(Increase) decrease in other assets............................ (28,309) 46,989
Increase (decrease) in other liabilities....................... 429,791 (18,156)
------------ -------------
Net cash provided by (used in) operating activities........ 357,587 (7,735)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale..................... (362,920) --
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options........................ 18,150 21,704
Additional investment in bank subsidiary....................... -- (2,000,004)
Cash payments for fractional shares in connection with stock
dividend..................................................... (1,381) (3,503)
Cash dividends................................................. (396,570) (311,578)
------------ -------------
Net cash used in financing activities...................... (379,801) (2,293,381)
------------ -------------
Net decrease in cash....................................... (385,134) (2,301,116)
CASH:
Beginning...................................................... 2,353,206 4,654,322
------------ -------------
Ending......................................................... $ 1,968,072 $ 2,353,206
------------ -------------
------------ -------------
</TABLE>
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. UNTIL AUGUST 31, 1997 ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 5
Recent Developments....................................................... 10
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 13
Market for Common Stock and Related Shareholder Matters................... 14
Capitalization............................................................ 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
Business.................................................................. 31
Management................................................................ 47
Security Ownership of Certain Beneficial Owners and Management............ 49
Executive Compensation.................................................... 51
Certain Relationships and Related Transactions............................ 54
Description of Common Stock............................................... 54
Underwriting.............................................................. 57
Indemnification........................................................... 58
Legal Matters............................................................. 58
Experts................................................................... 58
Index to Consolidated Financial Statements................................ F-1
</TABLE>
1,200,000 SHARES
BCB FINANCIAL SERVICES
CORPORATION
HOLDING COMPANY FOR
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JULY 22, 1997
JANNEY MONTGOMERY SCOTT INC.
WHEAT FIRST BUTCHER SINGER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of the Company and the Bank provide for (1) indemnification of
directors, officers, employees and agents of the registrant and (2) the
elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by the Company and the
Bank.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 6,482
NASD fees......................................................................... 20,000*
Attorneys' fees and expenses...................................................... 150,000
Printing.......................................................................... 50,000*
Accountants' fees and expenses.................................................... 50,000*
Blue Sky fees and expenses........................................................ 5,000*
Unaccountable Expense Reimbursement to Underwriters............................... 150,000
Miscellaneous..................................................................... 18,518*
---------
Total........................................................................... $ 450,000
</TABLE>
- ------------------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 27. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference
herein as part of the Registration Statement:
<TABLE>
<C> <S>
1.1 Amended form of Underwriting Agreement.
3.1 Articles of Incorporation of BCB Financial Services Corporation, as amended.*
3.2 Bylaws of BCB Financial Services Corporation incorporated herein by reference to
Exhibit 3.2 of the Registration Statement No. 33-76748 on Form SB-2 of the
Registrant.
4.1 Specimen Common Stock Certificate, incorporated herein by reference to Exhibit 99.2
of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
5.1 Amended Opinion of Stevens & Lee re: Legality of Common Stock.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.1 Lease, dated November 1, 1988, between Berks County Bank and Madison Avenue
Associates, as amended, incorporated herein by reference to Exhibit 10.1 of the
Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
10.2 Indenture of Lease, dated August 2, 1989, between Windon Twelfth Real Estate Limited
Partnership and Berks County Bank, incorporated herein by reference to Exhibit 10.2
of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
10.3 Lease Agreement, dated August 4, 1989, between Berks County Bank and Mary Beth
Speicher and Kathy Susan Gees-Larue, incorporated herein by reference to Exhibit 10.3
of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
10.4 Option and Lease Agreement, dated January 25, 1993, by and between Berks County Bank
and Richard L. Henry, Jr., incorporated herein by reference to Exhibit 10.5 of the
Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
10.5 1988 Incentive Stock Option Plan of BCB Financial Services Corporation, incorporated
herein by reference to Exhibit 10.6 of the Registration Statement No. 33-76748 on
Form SB-2 of the Registrant. **
10.6 1989 Stock Option Plan of BCB Financial Services Corporation, incorporated herein by
reference to Exhibit 10.7 of the Registration Statement No. 33-76748 on Form SB-2 of
the Registrant. **
10.7 1994 Stock Option Plan of BCB Financial Services Corporation, incorporated herein by
reference to Exhibit 10.8 of the Registration Statement No. 33-76748 on Form SB-2 of
the Registrant. **
10.8 Executive Employment Agreement, dated January 1, 1989, among BCB Financial Services
Corporation, Berks County Bank and Nelson R. Oswald, incorporated herein by reference
to Exhibit 10.9 of the Registration Statement No. 33-76748 on Form SB-2 of the
Registrant. **
10.9 Executive Employment Agreement, dated December 31, 1991, among BCB Financial Services
Corporation, Berks County Bank and Robert D. McHugh, Jr., incorporated herein by
reference to Exhibit 10.10 of the Registration Statement No. 33-76748 on Form SB-2 of
the Registrant. **
10.10 401(k) Plan of BCB Financial Services Corporation, incorporated herein by reference
to Exhibit 10.11 of the Registration Statement No. 33-76748 on Form SB-2 of the
Registrant.
10.11 Amendment to Executive Employment Agreement, dated January 1, 1989, among BCB
Financial Services Corporation, Berks County Bank and Nelson R. Oswald, incorporated
herein by reference to Exhibit 10.12 of the Registration Statement No. 33-76748 on
Form SB-2 of the Registrant. **
10.12 Amendment to Executive Employment Agreement, dated December 31, 1991, among BCB
Financial Services Corporation, Berks County Bank and Robert D. McHugh, Jr.,
incorporated herein by reference to Exhibit 10.13 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant. **
10.13 Amendment to Lease, dated October 10, 1994, between Crown Life Insurance (previous
owner was Madison Avenue Associates) and Berks County Bank, incorporated herein by
reference to Exhibit 10.14 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994.
10.14 Amendment to Lease, dated November 9, 1994, between Crown Life Insurance (previous
owner was Madison Avenue Associates) and Berks County Bank, incorporated herein by
reference to Exhibit 10.15 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994.
10.15 Sublease Agreement, dated February 14, 1995, by and between Berkshire Travel Agency,
Inc. and Berks County Bank, incorporated herein by reference to Exhibit 10.16 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.16 Agreement of Trust of Berks Mortgage Company, dated November 7, 1994, by and between
Berks Mortgage Corporation and Berks County Bank, incorporated herein by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994.
10.17 Amendment to Option and Lease Agreement dated November 25, 1994, by and between Berks
County Bank and Richard L. Henry, Jr., incorporated herein by reference to Exhibit
10.18 of the Company's Annual Report on Form 10-KSB for the year ended December 31,
1994.
10.18 BCB Financial Services Corporation Shareholder Automatic Dividend Reinvestment and
Stock Purchase Plan, incorporated herein by reference to Exhibit 99.1 of the
Registration Statement No. 33-955002 on Form S-3 of the registrant.
10.19 Amendment to Lease, dated July 27, 1995, between Crown Life Insurance Company and
Berks County Bank, incorporated herein by reference to Exhibit 10.20 of the Company's
annual report on Form 10-KSB for the year ended December 31, 1995
10.20 Amendment to lease, dated January 22, 1996, between Crown Life Insurance Company and
Berks County Bank, incorporated herein by reference to Exhibit 10.21 of the Company's
annual report on form 10-KSB for the year ended December 31, 1995.
10.21 Amendment to Agreement of Trust of Berks Mortgage Company, dated November 7, 1994, by
and between Berks Mortgage Corporation and Berks County Bank incorporated herein by
reference to Exhibit 10.22 of the Company's Annual Report on form 10-KSB for the year
ended December 31, 1995.
10.22 Option and Lease/Purchase Agreement, dated August 13, 1996, by and between Berks
County Bank and Richard J. Webb, incorporated herein by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB for the period ended September 30,
1996.
10.23 Option and Lease/Purchase Agreement, dated August 30, 1996, by and between Berks
County Bank and John C. Gordon and Betty L. Gordon, incorporated herein by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1996.
10.24 Amendment to Lease, dated May 29, 1996, by and between Crown Life Insurance Company
and Berks County Bank, incorporated herein by reference to Exhibit 10.24 of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996.
10.25 Amendment to Lease, dated February 4, 1997, by and between Madison Reading Associates
L. L.C. and Berks County Bank, incorporated herein by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996.
10.26 Lease Agreement, dated December 1, 1996, between George R. Vincent and Berks County
Bank, incorporated herein by reference to Exhibit 10.26 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996.
10.27 BCB Financial Services Corporation Deferred Compensation Plan, incorporated herein by
reference to Exhibit 10.27 of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.**
11.1 Statement regarding computation of per share earnings, incorporated herein by
reference to Exhibit 11.1 of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
11.2 Statement regarding computation of per share earnings, incorporated herein by
reference to Exhibit 11.1 of the Company's Quarterly Report on Form 10-QSB/A No. 1
for the quarter ended March 31, 1997.
21.1 List of Subsidiaries of BCB Financial Services Corporation, included herein,
incorporated herein by reference to Exhibit 21.1 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996.
23.1 Consent of Stevens & Lee (included in Exhibit 5.1).
23.2 Consent of Beard & Company, Inc., independent auditors.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Previously filed.
** Denotes compensatory plan or arrangement.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time the Commission declared it effective.
(b) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered in the
registration statement, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Reading,
Commonwealth of Pennsylvania on July 17, 1997.
BCB FINANCIAL SERVICES CORPORATION
(Registrant)
Date: July 17, 1997 By: /s/ NELSON R. OSWALD
-----------------------------------------
Nelson R. Oswald,
CHAIRMAN AND PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ NELSON R. OSWALD Director and Chairman July 17, 1997
- ------------------------------ Board and President
Nelson R. Oswald (Principal Executive
Officer)
/s/ ROBERT D. MCHUGH, JR. Senior Vice President/ July 17, 1997
- ------------------------------ Treasurer (Principal
Robert D. McHugh, Jr. Financial Officer)
/s/ DONNA L. RICKERT Vice President and July 17, 1997
- ------------------------------ Controller
Donna L. Rickert (Principal Accounting
Officer)
/s/ HAROLD C. BOSSARD* Director and Secretary July 17, 1997
- ------------------------------
Harold C. Bossard
/s/ EDWARD J. EDWARDS* Director July 17, 1997
- ------------------------------
Edward J. Edwards
/s/ LEWIS R. FRAME, JR.* Director July 17, 1997
- ------------------------------
Lewis R. Frame, Jr.
/s/ IVAN H. GORDON* Director July 17, 1997
- ------------------------------
Ivan H. Gordon
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JEFFREY W. HAYES* Director July 17, 1997
- ------------------------------
Jeffrey W. Hayes
/s/ ALFRED B. MAST* Director July 17, 1997
- ------------------------------
Alfred B. Mast
/s/ WESLEY R. PACE* Director July 17, 1997
- ------------------------------
Wesley R. Pace
/s/ FLOYD S. WEBER* Director July 17, 1997
- ------------------------------
Floyd S. Weber
/s/ RANDALL S. WEEBER* Director July 17, 1997
- ------------------------------
Randall S. Weeber
*By: /s/ NELSON R. OSWALD
-------------------------
Nelson R. Oswald
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- --------------- -------------------------------------------------------------------------------------------------
<S> <C>
1.1 Amended form of Underwriting Agreement.
3.1 Articles of Incorporation of BCB Financial Services Corporation, as amended.*
3.2 Bylaws of BCB Financial Services Corporation incorporated herein by reference to Exhibit 3.2 of
the Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
4.1 Specimen Common Stock Certificate, incorporated herein by reference to Exhibit 99.2 of the
Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
5.1 Amended Opinion of Stevens & Lee re: Legality of Common Stock.
10.1 Lease, dated November 1, 1988, between Berks County Bank and Madison Avenue Associates, as
amended, incorporated herein by reference to Exhibit 10.1 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant.
10.2 Indenture of Lease, dated August 2, 1989, between Windon Twelfth Real Estate Limited Partnership
and Berks County Bank, incorporated herein by reference to Exhibit 10.2 of the Registration
Statement No. 33-76748 on Form SB-2 of the Registrant.
10.3 Lease Agreement, dated August 4, 1989, between Berks County Bank and Mary Beth Speicher and Kathy
Susan Gees-Larue, incorporated herein by reference to Exhibit 10.3 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.4 Option and Lease Agreement, dated January 25, 1993, by and between Berks County Bank and Richard
L. Henry, Jr., incorporated herein by reference to Exhibit 10.5 of the Registration Statement No.
33-76748 on Form SB-2 of the Registrant.
10.5 1988 Incentive Stock Option Plan of BCB Financial Services Corporation, incorporated herein by
reference to Exhibit 10.6 of the Registration Statement No. 33-76748 on Form SB-2 of the
Registrant. **
10.6 1989 Stock Option Plan of BCB Financial Services Corporation, incorporated herein by reference to
Exhibit 10.7 of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant. **
10.7 1994 Stock Option Plan of BCB Financial Services Corporation, incorporated herein by reference to
Exhibit 10.8 of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant. **
10.8 Executive Employment Agreement, dated January 1, 1989, among BCB Financial Services Corporation,
Berks County Bank and Nelson R. Oswald, incorporated herein by reference to Exhibit 10.9 of the
Registration Statement No. 33-76748 on Form SB-2 of the Registrant. **
10.9 Executive Employment Agreement, dated December 31, 1991, among BCB Financial Services
Corporation, Berks County Bank and Robert D. McHugh, Jr., incorporated herein by reference to
Exhibit 10.10 of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant. **
10.10 401(k) Plan of BCB Financial Services Corporation, incorporated herein by reference to Exhibit
10.11 of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant.
10.11 Amendment to Executive Employment Agreement, dated January 1, 1989, among BCB Financial Services
Corporation, Berks County Bank and Nelson R. Oswald, incorporated herein by reference to Exhibit
10.12 of the Registration Statement No. 33-76748 on Form SB-2 of the Registrant. **
10.12 Amendment to Executive Employment Agreement, dated December 31, 1991, among BCB Financial
Services Corporation, Berks County Bank and Robert D. McHugh, Jr., incorporated herein by
reference to Exhibit 10.13 of the Registration Statement No. 33-76748 on Form SB-2 of the
Registrant. **
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- --------------- -------------------------------------------------------------------------------------------------
<S> <C>
10.13 Amendment to Lease, dated October 10, 1994, between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank, incorporated herein by reference to Exhibit
10.14 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994.
10.14 Amendment to Lease, dated November 9, 1994, between Crown Life Insurance (previous owner was
Madison Avenue Associates) and Berks County Bank, incorporated herein by reference to Exhibit
10.15 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994.
10.15 Sublease Agreement, dated February 14, 1995, by and between Berkshire Travel Agency, Inc. and
Berks County Bank, incorporated herein by reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994.
10.16 Agreement of Trust of Berks Mortgage Company, dated November 7, 1994, by and between Berks
Mortgage Corporation and Berks County Bank, incorporated herein by reference to Exhibit 10.17 of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994.
10.17 Amendment to Option and Lease Agreement dated November 25, 1994, by and between Berks County Bank
and Richard L. Henry, Jr., incorporated herein by reference to Exhibit 10.18 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994.
10.18 BCB Financial Services Corporation Shareholder Automatic Dividend Reinvestment and Stock Purchase
Plan, incorporated herein by reference to Exhibit 99.1 of the Registration Statement No.
33-955002 on Form S-3 of the registrant.
10.19 Amendment to Lease, dated July 27, 1995, between Crown Life Insurance Company and Berks County
Bank, incorporated herein by reference to Exhibit 10.20 of the Company's annual report on Form
10-KSB for the year ended December 31, 1995
10.20 Amendment to lease, dated January 22, 1996, between Crown Life Insurance Company and Berks County
Bank, incorporated herein by reference to Exhibit 10.21 of the Company's annual report on form
10-KSB for the year ended December 31, 1995.
10.21 Amendment to Agreement of Trust of Berks Mortgage Company, dated November 7, 1994, by and between
Berks Mortgage Corporation and Berks County Bank incorporated herein by reference to Exhibit
10.22 of the Company's Annual Report on form 10-KSB for the year ended December 31, 1995.
10.22 Option and Lease/Purchase Agreement, dated August 13, 1996, by and between Berks County Bank and
Richard J. Webb, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1996.
10.23 Option and Lease/Purchase Agreement, dated August 30, 1996, by and between Berks County Bank and
John C. Gordon and Betty L. Gordon, incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1996.
10.24 Amendment to Lease, dated May 29, 1996, by and between Crown Life Insurance Company and Berks
County Bank, incorporated herein by reference to Exhibit 10.24 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996.
10.25 Amendment to Lease, dated February 4, 1997, by and between Madison Reading Associates L. L.C. and
Berks County Bank, incorporated herein by reference to Exhibit 10.25 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
- --------------- -------------------------------------------------------------------------------------------------
<S> <C>
10.26 Lease Agreement, dated December 1, 1996, between George R. Vincent and Berks County Bank,
incorporated herein by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996.
10.27 BCB Financial Services Corporation Deferred Compensation Plan, incorporated herein by reference
to Exhibit 10.27 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996.**
11.1 Statement regarding computation of per share earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996.
11.2 Statement regarding computation of per share earnings, incorporated herein by reference to
Exhibit 11.1 of the Company's Quarterly Report on Form 10-QSB/A No. 1 for the quarter ended March
31, 1997.
21.1 List of Subsidiaries of BCB Financial Services Corporation, included herein, incorporated herein
by reference to Exhibit 21.1 of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
23.1 Consent of Stevens & Lee (included in Exhibit 5.1).
23.2 Consent of Beard & Company, Inc., independent auditors.
24.1 Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Previously filed.
** Denotes compensatory plan or arrangement.
<PAGE>
1,200,000 Shares
BCB Financial Services Corporation
Common Stock
$2.50 Par Value
------------------------------
UNDERWRITING AGREEMENT
------------------------------
Philadelphia, Pennsylvania
______ ___, 1997
JANNEY MONTGOMERY SCOTT INC.
WHEAT FIRST BUTCHER SINGER
Representatives of the Several
Underwriters Named in Schedule I Hereto
c/o Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, Pennsylvania 19103
Ladies and Gentlemen:
BCB Financial Services Corporation, a Pennsylvania corporation ("BCB"),
proposes to sell to the several underwriters identified above (the
"Representatives") and the several other underwriters named in Schedule I
hereto (together with the Representatives, the "Underwriters"), 1,200,000
shares of BCB's Common Stock, par value $2.50 per share (the "Common Stock").
The 1,200,000 shares of Common Stock to be sold to the Underwriters by BCB
are referred to herein as the "Firm Shares." The respective amounts of the
Firm Shares to be purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The Firm Shares shall be offered
to the public at a public offering price of $______ per Firm Share (the
"Offering Price").
In order to cover over-allotments in the sale of the Firm Shares, the
Underwriters may purchase for the Underwriters' own accounts up to 180,000
additional shares of Common Stock from BCB. Such 180,000 additional shares
of Common Stock are referred to herein as the "Optional Shares." If any
Optional Shares are purchased, the Optional Shares shall be purchased for
offering to the public at the Offering Price and in accordance with the terms
and conditions set forth herein. The Firm Shares and the Optional Shares are
referred to collectively herein as the "Shares."
<PAGE>
1. Representations and Warranties of BCB. BCB represents and warrants
to, and agrees with, the several Underwriters that:
(a) BCB has prepared, in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "SEC") under the Act in
effect at all applicable times, and has filed with the SEC a
registration statement on Form SB-2 (File No. 333-_____) and one
or more amendments thereto for the purpose of registering the
Shares under the Act. Copies of such registration statement and
any amendments thereto, and all forms of the related prospectus
contained therein, have been delivered to the Representatives.
Any preliminary prospectus included in such registration
statement or filed with the SEC pursuant to Rule 424(a) of the
Regulations is hereinafter called a "Preliminary Prospectus."
The various parts of such registration statement, including all
exhibits thereto and the information contained in the form of
final prospectus filed with the SEC pursuant to Rule 424(b) of
the Regulations in accordance with Section 5(a) of this Agreement
and deemed by virtue of Rule 424 of the Regulations to be part of
the registration statement at the time it was declared effective,
each as amended at the time the registration statement became
effective, including the information (if any) deemed to be part
of the registration statement at the time of effectiveness
pursuant to Rule 430A of the Regulations, are hereinafter
collectively called the "Registration Statement." The final
prospectus in the form included in the Registration Statement or
first filed with the SEC pursuant to Rule 424(b) of the
Regulations and any amendments or supplements thereto, including
the information (if any) deemed to be part of that prospectus at
the time of effectiveness pursuant to Rule 430A of the
Regulations, is hereinafter called the "Prospectus." All
references to the Registration Statement, the Preliminary
Prospectus and the Prospectus include all documents incorporated
therein by reference. If BCB has filed an abbreviated
registration statement to register additional Common Stock
pursuant to Rule 462(b) under the Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such 462 Registration
Statement.
(b) The Registration Statement has become effective under the Act,
and the SEC has not issued any stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the Preliminary
Prospectus, nor has the SEC instituted or threatened to institute proceedings
with respect to such an order. No stop order suspending the sale of the
Shares in any jurisdiction designated by the Representatives as provided for
in Section 5(f) hereof has been issued, and no proceedings for that purpose
have been instituted or threatened. BCB has complied in all material
respects with all requests of the SEC, or requests of which BCB has been
advised of any state or foreign securities commission in a state or foreign
jurisdiction designated by the Representatives as provided for in Section
5(f) hereof, for additional information to be included in the Registration
Statement, any Preliminary Prospectus or the Prospectus. Each Preliminary
Prospectus conformed to all the requirements of the Act and the Regulations
as of its date in all material respects and did not as of its date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
2
<PAGE>
statements therein, in light of the circumstances under which they were made,
not misleading, except the foregoing shall not apply to statements in or
omissions from any Preliminary Prospectus in reliance upon and in conformity
with information supplied to BCB in writing by or on behalf of any
Underwriter through the Representatives expressly for use therein. The
Registration Statement, on the date on which it was declared effective by the
SEC (the "Effective Date") and when any post-effective amendment thereof
shall become effective, and the Prospectus, at the time it is filed with the
SEC including, if applicable, pursuant to Rule 424(b), and on the Closing
Date (as defined in Section 3 hereof) and any Option Closing Date (as defined
in Section 4(b) hereof), conformed and will conform in all material respects
to all the requirements of the Act and the Regulations, and did not and will
not, on any of such dates, include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this representation
and warranty does not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to BCB in writing by or on behalf of
any Underwriter through the Representatives expressly for use therein.
(c) BCB is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, with all
necessary corporate power and authority, and all required licenses, permits,
certifications, registrations, approvals, consents and franchises to own or
lease and operate its properties and to conduct its current business as
described in the Prospectus, and to execute, deliver and perform this
Agreement. BCB is duly registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") as a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA").
(d) BCB's only direct or indirect subsidiaries are Berks County
Bank (the "Bank") and Berks Mortgage Company (the "Mortgage Company") and BCB
does not own or control, directly or indirectly, more than 5% of any class of
equity security of any corporation, association or other entity other than
the Bank and the Mortgage Company (collectively, the "Subsidiaries"). The
Bank is a Pennsylvania-chartered commercial bank and the Mortgage Company is
a Pennsylvania business trust and both Subsidiaries are duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania, with all necessary corporate power and authority, and all
required licenses, permits, certifications, registrations, approvals,
consents and franchises to own or lease and operate their respective
properties and to conduct their respective businesses as described in the
Prospectus. The deposit accounts of the Bank are insured by the Bank
Insurance Fund administered by the Federal Deposit Insurance Corporation (the
"FDIC") up to the maximum amount provided by law; and no proceedings for the
modification, termination or revocation of any such insurance are pending or,
to the knowledge of BCB, threatened. BCB and each of its Subsidiaries are
duly qualified to do business as foreign corporations, and are in good
standing, in all jurisdictions in which such qualification is required,
except where the failure to so qualify would not have a material adverse
effect on the general affairs, properties, condition (financial or
otherwise), results of operations, stockholders'
3
<PAGE>
equity, business or prospects (collectively, the "Business Conditions") of
BCB and the Subsidiaries taken as a whole.
(e) The outstanding shares of capital stock of each of the
Subsidiaries has been duly authorized and validly issued, are fully paid and
non-assessable and are owned, directly or indirectly, by BCB free and clear
of all liens, encumbrances and security interests; and no options, warrants
or other rights to purchase, agreements or other obligations to issue, or
other rights to convert any obligations into, shares of capital stock or
ownership interests in either of the Subsidiaries or securities convertible
into or exchangeable for capital stock of, or other ownership interests in,
either of the Subsidiaries are outstanding.
(f) This Agreement has been duly authorized, executed and
delivered by BCB and constitutes its legal, valid and binding obligation,
enforceable against BCB in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to applicability of
general principles of equity and except, as to this Agreement, as rights to
indemnity and contribution may be limited by federal and state securities
laws or principles of public policy.
(g) The execution, delivery and performance of this Agreement and
the transactions contemplated herein, do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) conflict with any
term or provision of BCB's or either of the Subsidiaries' Articles of
Incorporation or Bylaws; (ii) result in a breach of, constitute a default
under, result in the termination or modification of, result in the creation
or imposition of any lien, security interest, charge or encumbrance upon any
of the properties of BCB or either of the Subsidiaries or require any payment
by BCB or either of the Subsidiaries or impose any liability on BCB or either
of the Subsidiaries pursuant to, any contract, indenture, mortgage, deed of
trust, commitment or other agreement or instrument to which BCB or either of
the Subsidiaries is a party or by which any of their respective properties
are bound or affected other than this Agreement; (iii) assuming compliance
with all applicable state securities ("Blue Sky") laws and the rules of the
National Association of Securities Dealers, Inc. ("NASD") applicable to the
offer and sale of the Shares, violate any law, rule, regulation, judgment,
order or decree of any government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over BCB or either of the
Subsidiaries or any of their respective properties or businesses; or (iv)
result in a breach, termination or lapse of BCB's or either of the
Subsidiaries' corporate power and authority to own or lease and operate their
respective properties and conduct their respective businesses.
(h) At the date or dates indicated in the Prospectus, BCB had the
duly authorized and outstanding capitalization set forth in the Prospectus
under the caption "Capitalization" and will have, as of the issuance of the
Firm Shares on the Closing Date, the as adjusted capitalization set forth
therein as of the date indicated in the Prospectus. On the Effective Date,
the Closing Date and any Option Closing Date, there will be no
4
<PAGE>
options or warrants or other outstanding rights to purchase, agreements or
obligations to issue or agreements or other rights to convert or exchange any
obligation or security into, capital stock of BCB or securities convertible
into or exchangeable for capital stock of BCB, except as described in the
Prospectus or the grant of options after the date of the Prospectus under
option plans of the Company described in the Prospectus. The information in
the Prospectus insofar as it relates to all outstanding options and other
rights to acquire securities of BCB as of the Effective Date and immediately
prior to the Closing Date and any Option Closing Date is true and correct in
all material respects.
(i) The currently outstanding shares of BCB's capital stock have
been duly authorized and are validly issued, fully paid and non-assessable,
and none of such outstanding shares of BCB's capital stock has been issued in
violation of any preemptive rights of any security holder of BCB. The
holders of the outstanding shares of BCB's capital stock are not subject to
personal liability solely by reason of being such holders. All prior offers
and sales of BCB's capital stock were at all relevant times registered under
the Act or exempt from the registration requirements of the Act and were duly
registered with or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky
laws, except for such offers and sales which are described in the
Registration Statement. The failure to duly register or satisfy an
applicable exemption from registration pursuant to the Act and/or applicable
state securities or Blue Sky laws with respect to any prior offers and sales
of BCB's capital stock which are described in the Registration Statement,
will not, either individually or in the aggregate, have a material adverse
effect on the Business Conditions of BCB and the Subsidiaries taken as a
whole. The authorized capital stock of BCB including, without limitation,
the outstanding Common Stock, the Shares being issued, and the outstanding
options to purchase shares of Common Stock, conform in all material respects
with the descriptions thereof in the Prospectus, and such descriptions
conform in all material respects with the instruments defining the same.
(j) When the Shares have been duly delivered against payment
therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The
certificates representing the Shares are in proper legal form under, and
conform in all respects to the requirements of, the Pennsylvania Business
Corporation Law, as amended (the "PBCL"). Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated
by this Agreement gives any security holder of BCB any rights for or relating
to the registration of any Common Stock or any other capital stock of BCB or
any rights to covert or have redeemed or otherwise receive anything of value
with respect to any other security of BCB.
(k) No consent, approval, authorization, order, registration,
license or permit of, or filing or registration with, any court, government,
governmental agency, instrumentality or other regulatory body or official is
required for the valid and legal execution, delivery and performance by BCB
of this Agreement and the consummation of the transactions contemplated
hereby or described in the Prospectus, except such as may be required for the
5
<PAGE>
registration of the Shares under the Act, the Regulations and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and for compliance
with the applicable state securities or Blue Sky laws or the Bylaws, rules
and other pronouncements of the NASD.
(l) The Common Stock (including the Shares) have been registered
pursuant to Section 12(g) of the Exchange Act. The issued and outstanding
shares of Common Stock (including the Shares) are included for quotation on
the Nasdaq National Market. Neither BCB nor, to BCB's knowledge, any other
person has taken any action designed to cause, or likely to result in, the
termination of the registration of the Common Stock under the Exchange Act.
BCB has not received any notification that the SEC or the NASD is
contemplating terminating such registration or inclusion.
(m) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts, agreements or
other documents, are accurate in all material respects and present or
summarize fairly, in all material respects, the information required to be
disclosed under the Act or the Regulations, and there are no contracts,
agreements or other documents, instruments or transactions of any character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement that have
not been so described, referred to or filed, as required.
(n) Each contract or other instrument (however characterized or
described) to which BCB or either of its Subsidiaries is a party or by which
any of their respective properties or businesses is bound or affected and
which is material to the conduct of BCB's or either of its Subsidiaries',
business has been duly and validly executed by BCB or either of its
Subsidiaries, as applicable, and, to the knowledge of BCB, by the other
parties thereto. Each such contract or other instrument is in full force and
effect and is enforceable in all material respects against the parties
thereto in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to applicability of general
principles of equity, and neither BCB nor either of its Subsidiaries is, and
to the knowledge of BCB, no other party is, in default thereunder, and no
event has occurred that, with the lapse of time or the giving of notice, or
both, would constitute a default under any such contract or other instrument.
All necessary consents under such contracts or other instruments to the
disclosure in the Prospectus with respect thereto have been obtained.
(o) The consolidated financial statements of BCB (including the
notes thereto) filed as part of any Preliminary Prospectus, the Prospectus
and the Registration Statement present fairly, in all material respects, the
financial position of BCB as of the respective dates thereof, and the results
of operations and cash flows of BCB for the periods indicated therein, all in
conformity with generally accepted accounting principles. The supporting
notes included in the Registration Statement fairly state in all material
respects the information required to be stated therein in relation to the
financial statements taken as a whole. The financial information included in
the Prospectus under the caption "Prospectus
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Summary - Summary Selected Consolidated Financial Data" pursuant to
applicable accounting and securities law standards, presents fairly the
information shown therein and has been compiled on a basis consistent with
that of the audited consolidated financial statements included in the
Registration Statement. The unaudited pro forma adjustments to financial
information included in the Registration Statement have been properly
applied, pursuant to applicable accounting and securities law standards, to
the historical amounts in the compilation of that information to reflect the
sale by BCB of 1,200,000 shares of Common Stock offered thereby at an assumed
offering or actual price set forth in the Preliminary Prospectus or the
Prospectus, as the case may be, and the application of the estimated net
proceeds therefrom.
(p) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (i) any material adverse change (including,
whether or not insured against, any material loss or damage to any material
assets), or development involving a prospective material adverse change, in
the Business Conditions of BCB and the Subsidiaries taken as a whole; (ii)
any material adverse change, loss, reduction, termination or non-renewal of
any material contract to which BCB or either of its Subsidiaries is a party;
(iii) any transaction entered into by BCB or either of its Subsidiaries not
in the ordinary course of its business that is material to BCB; (iv) any
dividend or distribution of any kind declared, paid or made by BCB on its
capital stock, except for and to the extent described in the Prospectus; (v)
any liabilities or obligations, direct or indirect, incurred by BCB or either
of its Subsidiaries that are material to BCB or either of its Subsidiaries;
(vi) any change in the capitalization of BCB or either of its Subsidiaries;
or (vii) any change in the indebtedness of BCB or either of its Subsidiaries
that is material to BCB or either of its Subsidiaries. Neither BCB nor
either of its Subsidiaries has any contingent liabilities or obligations that
are material and that are not expressly disclosed in the Prospectus.
(q) BCB has not distributed, and will not distribute, any offering
material in connection with the offering and sale of the Shares other than
the Registration Statement, a Preliminary Prospectus, the Prospectus and
other material, if any, permitted by the Act and the Regulations. Neither
BCB nor any of its officers, directors or affiliates has taken, nor shall BCB
or such persons take, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock.
(r) BCB and the Subsidiaries have filed with the appropriate
federal, state and local governmental agencies, and all foreign countries and
political subdivisions thereof, all tax returns that are required to be filed
or have duly obtained extensions of time for the filing thereof and have paid
all taxes shown on such returns or otherwise due and all material assessments
received by them to the extent that the same have become due. Neither BCB
nor either of its Subsidiaries has executed or filed with any taxing
authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income or other tax and none of them is a
party to any pending action or proceeding by any
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foreign or domestic governmental agency for the assessment or collection of
taxes, and no claims for assessment or collection of taxes have been asserted
against BCB or either of its Subsidiaries that might materially adversely
affect the Business Conditions of BCB and the Subsidiaries taken as a whole.
(s) Beard & Company, Inc., who have certified the consolidated
financial statements of BCB included as part of the Registration Statement,
are independent certified public accountants with respect to BCB as required
by the Act and the Regulations.
(t) Neither BCB nor either of its Subsidiaries is in violation of,
or in default under, any of the terms or provisions of (i) its Articles of
Incorporation or Bylaws or similar governing instruments, (ii) any indenture,
mortgage, deed of trust, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its assets or
properties is bound or affected, (iii) any law, rule, regulation, judgment,
order or decree of any government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over it or any of its
properties or business, or (iv) any license, permit, certification,
registration, approval, consent or franchise, except with respect to clause
(ii), (iii) or (iv) above, where any such default would not have a material
adverse effect on the Business Conditions of BCB and the Subsidiaries taken
as a whole.
(u) Except as expressly disclosed in the Prospectus, there are no
claims, actions, suits, protests, proceedings, arbitrations, investigations
or inquiries pending before, or, to BCB's knowledge, threatened or
contemplated by, any governmental agency, instrumentality, court or tribunal,
domestic or foreign, or before any private arbitration tribunal to which BCB
or either of its Subsidiaries is or may be made a party that could reasonably
be expected to affect the validity of any of the outstanding shares of Common
Stock, or that, if determined adversely to BCB or either of its Subsidiaries
would, in any case or in the aggregate, result in any material adverse change
in the Business Conditions of BCB and the Subsidiaries taken as a whole, nor
to BCB's knowledge is there any reasonable basis for any such claim, action,
suit, protest, proceeding, arbitration, investigation or inquiry. There are
no outstanding orders, judgments or decrees of any court, governmental
agency, instrumentality or other tribunal enjoining BCB or either of its
Subsidiaries from, or requiring BCB or either of its Subsidiaries to take or
refrain from taking, any action, or to which BCB or either of its
Subsidiaries or their respective properties, assets or businesses are bound
or subject.
(v) Each of BCB and the Subsidiaries owns, or possesses adequate
rights to use, all trademarks, trademark registrations, applications for
trademark registration, trade names, service marks, licenses, copyrights, and
other proprietary information necessary for, used in, or proposed to be used
in, the conduct of the business of BCB as described in the Prospectus
(collectively, the "Intellectual Property"). To BCB's knowledge, BCB has not
infringed, is not infringing and BCB has not received any notice of conflict
with, the asserted rights of others with respect to the Intellectual Property
that, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could materially
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adversely affect the Business Conditions of BCB and the Subsidiaries taken as
a whole, and BCB knows of no reasonable basis therefor. To the knowledge of
BCB, no other parties have infringed upon or are in conflict with any
Intellectual Property.
(w) Each of BCB and the Subsidiaries has good and marketable title
to all property described in the Prospectus as being owned by it, free and
clear of all liens, security interests, charges or encumbrances and the like,
except such as are expressly described or referred to in the Prospectus or
such as do not materially affect the Business Conditions or the conduct of
the business of BCB and the Subsidiaries as described in the Prospectus.
Each of BCB and the Subsidiaries has insured its property against loss or
damage by fire or other casualty, in amounts reasonably believed by BCB to be
adequate, and maintains insurance against such other risks as management of
BCB deems appropriate. All real and personal property leased by BCB and the
Subsidiaries as described or referred to in the Prospectus, is held by BCB
and the Subsidiaries, as applicable, under valid leases. All real property
owned by BCB and the Subsidiaries (including offices and real estate acquired
through foreclosure or deed-in-lien thereof) and all real property securing
any loans originated and/or purchased by BCB and the Subsidiaries
(collectively, the "Real Property") are, to the knowledge of BCB, in
compliance with all federal, state and local statutes, ordinances,
regulations, rules, standards and requirements of common law concerning or
relating to industrial hygiene and the protection of health and the
environment (collectively, "the Environmental Laws"), except to the extent
that any failure in such compliance would not materially adversely affect the
Business Conditions of BCB and the Subsidiaries taken as a whole. To the
knowledge of BCB, there are no conditions on, about, beneath or arising from
the Real Property, in close proximity to the Real Property or at any other
location that might give rise to liability, the imposition of a statutory
lien or require a "Response," "Removal" or "Remedial Action," as defined
herein, under any of the Environmental Laws, and that would materially
adversely affect the Business Conditions of BCB and the Subsidiaries taken as
a whole except as described in the Prospectus. Except as expressly disclosed
in the Prospectus, or which will not materially adversely affect the Business
Conditions of BCB and the Subsidiaries taken as a whole, (i) neither BCB nor
either of its Subsidiaries has received notice or has knowledge of any claim,
demand, investigation, regulatory action, suit or other action instituted or
threatened against BCB or either of its Subsidiaries or any portion of the
Real Property or any parcel in close proximity to the Real Property relating
to any of the Environmental Laws and (ii) neither BCB nor either of its
Subsidiaries has received any notice of material violation, citation,
complaint, order, directive, request for information or response thereto,
notice letter, demand letter or compliance schedule to or from any
governmental or regulatory agency arising out of or in connection with
"hazardous substances" (as defined by applicable Environmental Laws) on,
about, beneath, arising from or generated at the Real Property, near the Real
Property or at any other location. As used in this subsection, the terms
"Response, " Removal" and "Remedial Action" shall have the respective
meanings assigned to such terms under Sections 101(23) - 101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
9601(23) - 9601(25).
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(x) Each of BCB and the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(y) Except for the plans that are expressly disclosed in the
Prospectus or are not required to be disclosed therein, neither BCB nor
either of its Subsidiaries has any employee benefit plan, profit sharing
plan, employee pension benefit plan or employee welfare benefit plan or
deferred compensation arrangements ("Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder ("ERISA"). All Plans that
are subject to ERISA are in compliance with ERISA, in all material respects,
and, to the extent required by the Internal Revenue Code of 1986, as amended
(the "Code"), in compliance with the Code in all material respects. Neither
BCB nor either of its Subsidiaries has any employee pension benefit plan that
is subject to Part 3 of Subtitle B of Title I or ERISA or any defined benefit
plan or multi-employer plan. Neither BCB nor either of its Subsidiaries has
maintained retiree life or retiree health insurance plans that are employee
welfare benefit plans providing for continuing benefit or coverage for any
employee or any beneficiary of any employee after such employee's termination
of employment, except as required by Section 4980B of the Code and except as
disclosed in the Prospectus. No fiduciary or other party in interest with
respect to any of the Plans has caused any of such Plans to engage in a
prohibited transaction as defined in Section 406 of ERISA. As used in this
subsection, the terms "defined benefit plan," "employee benefit plan,"
"employee pension benefit plan," "employee welfare benefit plan," "fiduciary"
and "multiemployer plan" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
(z) No labor dispute exists with BCB's or the Subsidiaries'
employees, and to BCB's knowledge, no such labor dispute is threatened. BCB
has no knowledge of any existing or threatened labor disturbance by the
employees of any of the principal suppliers, contractors or customers of BCB
or the Subsidiaries that would materially adversely affect the Business
Conditions of BCB and the Subsidiaries taken as a whole. None of BCB's or
the Subsidiaries' employees is covered by a collective bargaining agreement
and no union organizing activity exists with respect to any of such employees.
(aa) Neither BCB nor either of its Subsidiaries has incurred any
liability for any finder's fees or similar payments in connection with the
transactions contemplated herein other than as disclosed in the Prospectus.
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(bb) BCB is familiar with the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, and has
in the past conducted, and BCB intends to conduct, its affairs in such a
manner as to ensure that it will not be an "investment company" within the
meaning of the 1940 Act and the rules and regulations thereunder.
(cc) No statement, representation, warranty or covenant made by BCB
or either of its Subsidiaries in this Agreement or in any certificate or
document required by this Agreement to be delivered to the Representatives
is, or as of the Closing Date or any Option Closing Date will be, inaccurate,
untrue or incorrect in any material respect. No transaction has occurred or
is proposed between or among BCB or either of its Subsidiaries and any of
their respective officers, directors or stockholders or any affiliate of the
foregoing, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(dd) Neither BCB or either of its Subsidiaries nor any officer,
director, employee, partner, agent or other person acting on behalf of BCB or
either of its Subsidiaries has, directly or indirectly, given or agreed to
give any money, property or similar benefit or consideration to any customer
or supplier (including any employee or agent of any customer or supplier) or
official or employee of any agency or instrumentality of any government
(foreign or domestic) or political party or candidate for office (foreign or
domestic) or any other person who was, is or in the future may be in a
position to affect the Business Conditions of BCB and the Subsidiaries taken
as a whole or any actual or proposed business transaction of BCB or either of
its Subsidiaries that (i) could subject BCB or either of its Subsidiaries to
any liability (including, but not limited to, the payment of monetary
damages) or penalty in any civil, criminal or governmental action or
proceeding that would have a material adverse effect on the Business
Conditions of BCB and the Subsidiaries taken as a whole or (ii) with respect
to BCB, either of its Subsidiaries, or any officer or director thereof,
violates any law, rule or regulation to which BCB or either of it
Subsidiaries is subject.
Any certificate signed by any officer of BCB or either of its
Subsidiaries in such capacity and delivered to the Representatives or to
counsel for the Underwriters pursuant to this Agreement shall be deemed a
representation and warranty by BCB or either of its Subsidiaries, as the case
may be, to the several Underwriters as to the matters covered thereby.
2. Purchase and Sale of Firm Shares. On the basis of the
representations, warranties, covenants and agreements contained herein, but
subject to the terms and conditions set forth herein, BCB shall sell the Firm
Shares to the several Underwriters at the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus, and the Underwriters, severally and not jointly, shall purchase
from BCB on a firm commitment basis, at the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus, the respective amounts of the Firm
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Shares set forth opposite their names on Schedule I hereto. In making this
Agreement, each Underwriter is contracting severally and not jointly, and
except as provided in Sections 4 and 11 hereof, the agreement of each
Underwriter is to purchase only that number of Shares specified with respect
to that Underwriter in Schedule I hereto. The Underwriters shall offer the
Shares to the public as set forth in the Prospectus.
3. Payment and Delivery. Payment for the Firm Shares shall be made by
certified or official bank check or checks payable to the order of BCB in New
York Clearing House (next day) funds, at the offices of Janney Montgomery
Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, or in immediately
available funds wired to such accounts as BCB may specify (with all costs and
expenses incurred by the Underwriters in connection with such settlement in
immediately available funds, including, but not limited to, interest or cost
of funds and expenses, to be borne by BCB), against delivery of the Firm
Shares to the Representatives at the offices of Janney Montgomery Scott Inc.,
26 Broadway, New York, New York for the respective accounts of the
Underwriters. Such payment and delivery will be made at 10:00 am.,
Philadelphia, Pennsylvania time, on the third business day after the date of
this Agreement, or at such other time on the same or such other date, not
later than seven business days thereafter as shall be designated in writing
by the Representatives. Such time and date are referred to herein as the
"Closing Date." The certificates representing the Firm Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for
inspection, checking and packaging not less than one full business day prior
to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection
with the distribution and sale of the Firm Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth, the several
Underwriters are hereby granted an option by BCB to purchase all or any part
of the Optional Shares (the "Over-allotment Option"). The purchase price to
be paid for the Optional Shares shall be the Offering Price less the
Underwriting Discounts and Commissions shown on the cover page of the
Prospectus. The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters as to all or any part
of the Optional Shares at any time and from time to time within 30 days after
the date of the Prospectus. No Underwriter shall be under any obligation to
purchase any Optional Shares prior to an exercise of the Over-allotment
Option.
(b) The Over-allotment Option granted hereby may be exercised by
the Representatives on behalf of the several Underwriters by giving notice to
BCB by a letter sent by registered or certified mail, postage prepaid, telex,
telegraph, telegram or facsimile (such notice to be effective when received),
addressed as provided in Section 13 hereof, setting forth the number of
Optional Shares to be purchased, the date and time for delivery of and
payment for the Optional Shares and stating that the Optional Shares referred
to
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therein are to be used for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares. If such notice
is given at least two full business days prior to the Closing Date, the date
set forth therein for such delivery and payment shall be not earlier than the
Closing Date. If such notice is given after two full business days prior to
the Closing Date, the date set forth therein for such delivery and payment
shall be a date selected by the Representatives not later than five full
business days after the exercise of the Over-allotment Option. The date and
time set forth in such a notice is referred to herein as an "Option Closing
Date," and a closing held pursuant to such a notice is referred to herein as
an "Option Closing." Upon each exercise of the Over-allotment Option, and on
the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the
several Underwriters shall become severally, but not jointly, obligated to
purchase from BCB the number of Optional Shares specified in each notice of
exercise of the Over-allotment Option (allocated among them in accordance
with Section 4(c) hereof).
(c) The number of Optional Shares to be purchased by each
Underwriter pursuant to each exercise of the Over-allotment Option shall be
the number that bears the same ratio to the aggregate number of Optional
Shares being purchased through such Over-allotment Option exercise as the
number of Firm Shares opposite the name of such Underwriter in Schedule I
hereto bears to the total number of all Firm Shares. Notwithstanding the
foregoing, the number of Optional Shares purchased and sold pursuant to each
exercise of the Over-allotment Option shall be subject to such adjustment as
the Representatives may approve to eliminate fractional shares and subject to
the provisions for the allocation of Optional Shares purchased for the
purpose of covering over-allotments set forth in the agreement entered into
by and among the Underwriters in connection herewith (the "Agreement Among
Underwriters").
(d) Payment for the Optional Shares shall be made to BCB, by
certified or official bank check payable to the order of BCB, in New York
Clearing House (next day) funds, at the offices of Janney Montgomery Scott
Inc., 26 Broadway, New York, New York, or such other place as shall be agreed
upon by BCB and the Representatives, or in immediately available funds wired
to such accounts as BCB may specify (with all costs and expenses incurred by
the Underwriters in connection with such settlement in immediately available
funds, including, but not limited to, interest or cost of funds and expenses,
to be borne by BCB), against delivery of the Optional Shares to the
Representatives at the offices of Janney Montgomery Scott Inc., 1801 Market
Street, Philadelphia, Pennsylvania, for the respective accounts of the
Underwriters. The certificates representing the Optional Shares to be issued
and delivered will be in such denominations and registered in such names as
the Representatives request upon reasonable notice prior to such Option
Closing Date, and will be made available to the Representatives for
inspection, checking and packaging at a reasonable time in advance of such
Option Closing Date.
5. Certain Covenants and Agreements of BCB. BCB covenants and agrees
with the several Underwriters as follows:
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(a) If Rule 430A of the Regulations is employed, BCB will timely
file the Prospectus pursuant to and in compliance with Rule 424(b) of the
Regulations and will advise the Representatives of the time and manner of
such filing.
(b) BCB will not file or publish any amendment or supplement to
the Registration Statement, Preliminary Prospectus or Prospectus at any time
before the completion (in the opinion of the Underwriters' counsel) of the
distribution of the Shares by the Underwriters that is not (i) in compliance
with the Regulations and (ii) approved by the Representatives (such approval
not to be unreasonably withheld or delayed).
(c) BCB will advise the Representatives immediately, and confirm
such advice in writing, (i) when any post-effective amendment to the
Registration Statement is filed with the SEC under Rule 462(c) under the Act
or otherwise, (ii) when any Rule 462(b) Registration Statement is filed,
(iii) of the receipt of any comments from the SEC concerning the Registration
Statement, (iv) when any post-effective amendment to the Registration
Statement becomes effective, or when any supplement to the Prospectus or any
amended Prospectus has been filed, (v) of any request of the SEC for
amendment or supplementation of the Registration Statement or Prospectus or
for additional information, (vi) during the period when the Prospectus is
required to be delivered under the Act and Regulations, of the happening of
any event as a result of which the Registration Statement or the Prospectus
would include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, (vii)
during the period noted in clause (vi) above, of the need to amend the
Registration Statement or supplement the Prospectus to comply with the Act,
(viii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, and (ix)
of the suspension of the qualification of any of the Shares for offering or
sale in any jurisdiction in which the Underwriters intend to make such offers
or sales, or the initiation or threatening of any proceedings for any of such
purposes known to BCB. BCB will use its best efforts to prevent the issuance
of any such stop order or of any order preventing or suspending such use, and
if any such order is issued, to obtain as soon as possible the lifting
thereof.
(d) BCB has delivered to the Representatives, without charge, as
many copies of each Preliminary Prospectus as the Representatives have
reasonably requested. BCB will deliver to the Representatives, without
charge, from time to time during the period when delivery of the Prospectus
is required under the Act, such number of copies of the Prospectus (as
supplemented or amended) as the Representatives may reasonably request. BCB
hereby consents to the use of such copies of the Preliminary Prospectus and
the Prospectus for purposes permitted by the Act, the Regulations and the
securities or Blue Sky laws of the states or foreign jurisdictions in which
the Shares are offered by the several Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required
by the Act to be delivered in connection with sales by any Underwriter or
dealer.
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BCB has furnished or will furnish to the Representatives at least three
original signed copies of the Registration Statement as originally filed and
of all amendments and supplements thereto, whether filed before or after the
Effective Date, at least three copies of all exhibits filed therewith and of
all consents and certificates of experts, and will deliver to the
Representatives such number of conformed copies of the Registration
Statement, including financial statements and exhibits, and all amendments
thereto, as the Representatives may reasonably request.
(e) BCB will comply with the Act, the Regulations, the Exchange
Act and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Shares for as long as may be necessary to
complete the distribution of the Shares as contemplated hereby.
(f) BCB will furnish such information and pay such filing fees and
other expenses as may be required, and otherwise cooperate in the
registration or qualification of the Shares, or exemption therefrom, for
offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions in which the
Representatives determine to offer the Shares, after consultation with BCB,
and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or
qualification; provided, however, that no such qualification shall be
required in any jurisdiction where, solely as a result thereof, BCB would be
subject to taxation or qualification as a foreign corporation doing business
in such jurisdiction where it is not now so qualified or to take any action
which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where
it is not now so subject. BCB will, from time to time, prepare and file such
statements and reports as are or may be required to continue such
qualification in effect for so long a period as is required under the laws of
such jurisdictions for such offering and sale.
(g) Subject to Section 5(b) hereof, in case of any event
(occurring at any time within the period during which, in the opinion of
counsel for the Underwriters, a prospectus is required to be delivered under
the Act or the Regulations), as a result of which any Preliminary Prospectus
or the Prospectus, as then amended or supplemented, would contain, in the
opinion of counsel for the Underwriters, an untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, if it is necessary at any time to amend any Preliminary
Prospectus or the Prospectus to comply with the Act or the Regulations or any
applicable state securities or Blue Sky laws, BCB promptly will prepare and
file with the SEC, and any applicable state and foreign securities
commission, an amendment, supplement or document that will correct such
statement or omission or effect such compliance and will furnish to the
several Underwriters such number of copies of such amendments, supplements or
documents (in form and substance satisfactory to the Representatives and
counsel for the Underwriters) as the Representatives may reasonably request.
For purposes of this Section 5(g), BCB will provide such information to the
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Representatives, the Underwriters' counsel and counsel to BCB as shall be
necessary to enable such persons to consult with BCB with respect to the need
to amend or supplement the Registration Statement, Preliminary Prospectus or
Prospectus or file any document, and shall furnish to the Representatives and
the Underwriters' counsel such further information as each may from time to
time reasonably request.
(h) BCB will make generally available to its security holders not
later than 45 days after the end of the period covered thereby, a
consolidated earnings statement of BCB (which need not be audited unless
required by the Act or the Regulations) that shall comply with Section 11(a)
of the Act and Rule 158 thereunder and cover a period of at least 12
consecutive months beginning not later than the first day of BCB's fiscal
quarter next following the Effective Date (or, if later, the effective date
of the Rule 462(b) Registration Statement).
(i) For a period of five years from the Effective Date, BCB will
deliver to the Representatives and, upon request, to each of the
Underwriters: (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q (or such similar forms
as may be designated by the SEC), registration statements and any exhibits
thereto, filed or furnished to the SEC or any securities exchange or the
NASD, on the date each such report or document is so filed or furnished; (ii)
as soon as practicable, copies of any reports or communications (financial or
other) of BCB mailed to its security holders; and (iii) every material press
release in respect of BCB or its affairs that is released or prepared by BCB.
(j) During the course of the distribution of the Shares, BCB will
not take, directly or indirectly, any action designed to, or that could
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the Common Stock.
(k) BCB has caused each person listed on Schedule II hereto to
execute an agreement (a "Lock-up Agreement") in form and substance
satisfactory to the Representatives and the Underwriters' counsel which
provides that for a period of 180 days from the date of the final Prospectus,
as amended or supplemented, such persons will not, without the prior written
consent of the Representatives, directly or indirectly, sell, offer or
contract to sell or grant any option to purchase or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock). BCB has delivered such
agreements to the Representatives prior to the date of this Agreement.
Appropriate stop transfer instructions will be issued by BCB to the transfer
agent for the Common Stock, and a copy of such instructions will be delivered
to the Representatives.
(l) For a period of 180 days after the Effective Date, BCB will
not, without the prior written consent of the Representatives, offer, sell,
contract to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable for any Common Stock or grant options to
purchase any Common Stock, except (i) the issuance of
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Common Stock upon the exercise of currently outstanding options and warrants
as described in the Prospectus and (ii) the grant of options to purchase
Common Stock under BCB's currently outstanding stock option plans as
described in the Prospectus and the issuance of Common Stock upon the
exercise thereof.
(m) For a period of five years from the Effective Date, BCB will
use all reasonable efforts to maintain the listing of the Common Stock
(including, without limitation, the Shares) on the Nasdaq National Market or
on a national securities exchange.
(n) BCB shall, at its sole cost and expense, supply and deliver to
the Representatives and the Underwriters' counsel, within a reasonable period
from the Closing Date, transaction binders in such number and in such form
and content as the Representatives reasonably request.
(o) BCB will use the net proceeds from the sale of the Shares to
be sold by it hereunder substantially in accordance with the description set
forth in the Prospectus.
6. Payment of Fees and Expenses.
(a) Whether or not the transactions contemplated by this Agreement
are consummated and regardless of the reason this Agreement is terminated,
BCB will pay or cause to be paid, and bear or cause to be borne, all costs
and expenses incident to the performance of the obligations of BCB under this
Agreement, including: (i) the fees and expenses of the accountants and
counsel for BCB incurred in the preparation of the Registration Statement and
any post-effective amendments thereto (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; (ii) printing and mailing expenses associated with the
Registration Statement and any post-effective amendments thereto, any
Preliminary Prospectus, the Prospectus, this Agreement, the Agreement Among
Underwriters, the power of attorney executed by each of the Underwriters, the
Selected Dealers Agreement and related documents and the Preliminary Blue Sky
Memorandum (and any supplement thereto); (iii) the costs and expenses
incident to the authentication, issuance, sale and delivery of the Shares to
the Underwriters; (iv) the fees, expenses and all other costs of qualifying
the Shares for sale under the securities or Blue Sky laws of those states or
foreign jurisdictions in which the Shares are to be offered or sold,
including the reasonable fees and expenses of Underwriters' counsel, except
such fees shall not exceed $5,000; (v) the fees, expenses and other costs of,
or incident to, securing any review or approvals by or from the NASD; (vi)
the filing fees of the SEC; (vii) the cost of furnishing to the Underwriters
copies of the Registration Statement, Preliminary Prospectuses and
Prospectuses as herein provided; (viii) BCB's travel expenses in connection
with meetings with the brokerage community and institutional investors; (ix)
the costs and expenses associated with settlement in same day funds
(including, but not limited to, interest or cost of funds expenses), if
desired by BCB; (x) any fees or costs payable to the Nasdaq National Market
as a result of the offering; (xi) the cost of printing certificates for the
Shares; (xii) the costs and charges of any transfer
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agent; (xiii) all taxes, if any, on the issuance, delivery and transfer of
the Shares sold by BCB; and (xiv) all other costs and expenses reasonably
incident to the performance of BCB's obligations hereunder that are not
otherwise specifically provided for in this Section 6(a).
(b) BCB shall pay as due any state or foreign registration,
qualification and filing fees and any accountable out-of-pocket disbursements
in connection with such registration, qualification or filing in the states
and foreign jurisdictions in which the Representatives determine to offer or
sell the Shares.
(c) On the Closing Date, BCB shall pay the Representatives a
non-accountable expense allowance in the amount of $150,000.
(d) If (i) the Underwriters are willing to proceed with the
offering, and the transactions contemplated by this Agreement are not
consummated because BCB elects not to proceed with the offering for any
reason or (ii) the Representatives terminate this Agreement pursuant to
Section 10(b) hereof, then BCB will reimburse the Representatives for its
reasonable out-of-pocket expenses, including, without limitation, fees and
disbursements of counsel for the Underwriters, incurred in connection with
investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder, in an amount not to
exceed an additional $50,000.
7. Conditions of Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any
Optional Shares as to which it exercises its right to purchase under Section
4 on an Option Closing Date, is subject at the date hereof, the Closing Date
and any Option Closing Date to the continuing accuracy and fulfillment of the
representations and warranties of BCB, to the performance by BCB of its
covenants and obligations hereunder, and to the following additional
conditions:
(a) If required by the Regulations, the Prospectus shall have been
filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations. On or
prior to the Closing Date or any Option Closing Date, as the case may be, no
stop order or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been
issued under the Act or any state or foreign securities law, and no
proceedings for that purpose shall have been initiated or shall be pending
or, to the Representatives' knowledge or the knowledge of BCB, shall be
contemplated by the SEC or by any authority in any jurisdiction designated by
the Representatives pursuant to Section 5(f) hereof. Any request on the part
of the SEC or any state or foreign securities authority for additional
information shall have been complied with to the reasonable satisfaction of
counsel for the Underwriters.
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(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form
of the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all material respects to counsel for the Underwriters. BCB
shall have furnished to such counsel all documents and information that they
may have reasonably requested to enable them to pass upon such matters. The
Representatives shall have received from the Underwriters' counsel, Elias,
Matz, Tiernan & Herrick L.L.P., an opinion, dated as of the Closing Date and
any Option Closing Date, as the case may be, and addressed to the
Representatives individually and as representative of the several
Underwriters, which opinion shall be satisfactory in all respects to the
Representatives.
(c) The Representatives shall have received a copy of an executed
Lock-up Agreement from each person listed on Schedule II hereto.
(d) The Representatives shall have received at or prior to the
Closing Date from the Underwriters' counsel a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
the securities or Blue Sky laws of such jurisdictions designated by the
Representatives pursuant to Section 5(f) hereof.
(e) On the Closing Date and any Option Closing Date, there shall
have been delivered to the Representatives signed opinions of Stevens & Lee,
counsel for BCB, dated as of each such date and addressed to the
Representatives individually and as representative of the several
Underwriters to the effect set forth in Exhibit A hereto or to such effect as
is otherwise reasonably satisfactory to the Representatives.
(f) At the Closing Date and any Option Closing Date: (i) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the Act
and the Regulations and in all material respects shall conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor any post-effective amendment thereto nor the Prospectus and any
amendments or supplements thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
since the respective dates as of which information is given in the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto, except as otherwise
stated therein, there shall have been no material adverse change in the
Business Conditions of BCB and the Subsidiaries from that set forth therein,
whether or not arising in the ordinary course of business; (iii) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus or any amendment or supplement thereto, there
shall have been no event or transaction, contract or agreement entered into
by BCB or either of its Subsidiaries other than in the ordinary course of
business and as set forth in the
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Registration Statement or Prospectus, that has not been, but would be
required to be, set forth in the Registration Statement or Prospectus; (iv)
since the respective dates as of which information is given in the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto, there shall have been
no material adverse change, loss, reduction, termination or non-renewal of
any contract to which BCB or either of its Subsidiaries is a party, that has
not been, but would be required to be set forth in the Registration Statement
or Prospectus; and (v) no action, suit or proceeding at law or in equity
shall be pending or threatened against BCB or either of its Subsidiaries that
would be required to be set forth in the Prospectus, other than as set forth
therein, and no proceedings shall be pending or threatened against or
directly affecting BCB or either of its Subsidiaries before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
Business Conditions of BCB and the Subsidiaries taken as a whole.
(g) The Representatives shall have received at the Closing Date
and any Option Closing Date certificates of the Chief Executive Officer and
the Chief Financial Officer of BCB dated as of the date of the Closing Date
or Option Closing Date, as the case may be, and addressed to the
Representatives, individually and as representatives of the several
Underwriters, to the effect that (i) the representations and warranties of
BCB in this Agreement are true and correct, as if made at and as of the
Closing Date or the Option Closing Date, as the case may be, and that BCB has
complied with all the agreements, fulfilled all the covenants and satisfied
all the conditions on its part to be performed, fulfilled or satisfied at or
prior to the Closing Date or the Option Closing Date, as the case may be, and
(ii) the signers of the certificate have carefully examined the Registration
Statement and the Prospectus and any amendments or supplements thereto, and
the conditions set forth in Section 7(g) hereof have been satisfied.
(h) At the time this Agreement is executed and at the Closing Date
and any Option Closing Date, the Representatives shall have received a
letter, dated the date of delivery thereof, addressed to the Representatives,
individually and as representative of the several Underwriters, in form and
substance satisfactory to the Representatives in all respects (including,
without limitation, the non-material nature of the changes or decreases, if
any, referred to in clause (iii) below) from Beard & Company, Inc.
(i) confirming they are independent certified public
accountants within the meaning of the Act and the Regulations, and stating
that the section of the Registration Statement under the caption "Experts" is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the consolidated
financial statements, schedules and notes of BCB audited by them and included
in the Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Regulations;
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(iii) stating that, on the basis of specified procedures,
which included the procedures as specified by the American Institute of
Certified Public Accountants for a review of interim financial information,
as described in SAS No. 71, Interim Financial Information (with respect to
the latest unaudited consolidated financial statements of BCB included in the
Registration Statement), a reading of the latest available unaudited interim
consolidated financial statements of BCB (with an indication of the date of
the latest available unaudited interim financial statements), a reading of
the minutes of the meetings of the stockholders and the Boards of Directors
of BCB and the Subsidiaries, and audit and compensation committees of such
Boards, if any, and inquiries to certain officers and other employees of BCB
and the Subsidiaries responsible for operational, financial and accounting
matters and other specified procedures and inquiries, nothing has come to
their attention that would cause them to believe that (A) the unaudited
consolidated financial statements of BCB and the Subsidiaries included in the
Registration Statement, (I) do not comply in form and all material respects
with the applicable accounting requirements of the Act and the Regulations,
or (II) any material modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted accounting
principles; (B) at a specified date not more than five business days prior to
the date of such letter, there was any change in the capital stock or debt of
BCB or any decrease in net current assets, total assets or stockholders'
equity of BCB as compared with the amounts shown in the March 31, 1997
unaudited balance sheet of BCB included in the Registration Statement, or
that for the periods from April 1, 1997 to the date of the latest available
unaudited financial statements of BCB and to a specified date not more than
five days prior to the date of the letter, there were any decreases, as
compared to the corresponding periods in the prior year, in operating income
or total or per share amounts of net income, except in all instances for
changes, decreases or increases that the Registration Statement discloses
have occurred or may occur and except for such other changes, decreases or
increases which the Representatives shall in their sole discretion accept; or
(C) the unaudited pro forma financial statements included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X under the
Act and that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements; and
(iv) stating that they have compared specific dollar amounts
(or percentages derived from such dollar amounts), numbers of shares and
other numerical data and financial information set forth in the Registration
Statement that have been specified by the Representatives prior to the date
of this Agreement (in each case to the extent that such dollar amounts,
percentages and other information is derived from the general accounting
records subject to the internal controls of BCB's or either of its
Subsidiaries' accounting systems, or has been derived directly from such
accounting records by analysis or comparison or has been derived from other
records and analyses maintained or prepared by BCB or either of its
Subsidiaries) with the results obtained from the application of readings,
inquiries and other appropriate procedures set forth in the letter, and found
them to be in agreement.
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All financial statements and schedules included in material
incorporated by reference into the Prospectus shall be deemed included in the
Registration Statement for purposes of this subsection.
(i) There shall have been duly tendered to the Representatives for
the respective accounts of the Underwriters certificates representing all of
the Shares to be purchased by the Underwriters on the Closing Date or Option
Closing Date, as the case may be.
(j) All corporate and other proceedings and other matters incident
to the authorization, form and validity of this Agreement and the form of the
Registration Statement and Prospectus and all other legal matters related to
this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all respects to counsel to the Underwriters. BCB shall have
furnished to such counsel all documents and information that they shall have
reasonably requested to enable them to pass upon such matters.
(k) At the Closing Date and any Option Closing Date, the
Representatives shall have been furnished such additional documents,
information and certificates as they shall have reasonably requested.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Representatives and the
Underwriters' counsel. BCB shall furnish the Representatives with such
conformed copies of such opinions, certificates, letters and other documents
as they shall reasonably request. If any condition to the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or any
Option Closing Date, as the case may be, is not fulfilled, the
Representatives may on behalf of the several Underwriters, terminate this
Agreement with respect to the Closing Date or such Option Closing Date, as
applicable, or, if they so elect, waive any such conditions which have not
been fulfilled or extend the time for their fulfillment. Any such
termination shall be without liability of the Underwriters to BCB.
8. Indemnification and Contribution.
(a) BCB shall indemnify and hold harmless each Underwriter, and
each person, if any, who controls each Underwriter within the meaning of the
Act, against any and all loss, liability, claim, damage and expense
whatsoever, including, but not limited to, any and all reasonable expenses
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever or in connection with any
investigation or inquiry of, or action or proceeding that may be brought
against, the respective indemnified parties, arising out of or based upon any
breach of BCB's representations and warranties made in this Agreement or any
untrue statements or alleged untrue statements of material fact contained in
any Preliminary Prospectus, the Registration
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Statement or the Prospectus, any application or other document (in this
Section 8 collectively called "application") filed in any jurisdiction in
order to qualify all or any part of the Shares under the securities laws
thereof or filed with the SEC or the NASD, or the omission or alleged
omission from any of the foregoing of a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the foregoing indemnity shall not apply in respect of any
statement or omission made in reliance upon and in conformity with written
information furnished to BCB by any Underwriter through the Representatives
expressly for use in any Preliminary Prospectus, the Registration Statement
or Prospectus, or any amendment or supplement thereto, or in any application
or in any communication to the SEC, as the case may be; and further provided,
however, that the indemnification contained in this Section 8(a) with respect
to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) on
account of any such loss, claim, liability or expense arising from the sale
of the Shares by such Underwriter to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time required
by the Act and the Regulations, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus, provided that
BCB has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The
obligations of BCB under this Section 8(a) will be in addition to any
liability BCB may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless BCB, each of the directors of BCB, each of the officers of
BCB who shall have signed the Registration Statement, and each other person,
if any, who controls BCB within the meaning of the Act to the same extent as
the foregoing indemnities from BCB to the several Underwriters, but only with
respect to any and all loss, liability, claim, damage or expense resulting
from statements or omissions, or alleged statements or omissions, if any,
made in any Preliminary Prospectus, Registration Statement or Prospectus or
any amendment or supplement thereof or any application in reliance upon, and
in conformity with written information furnished to BCB by any Underwriter
through the Representatives expressly for use in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement
thereof or any application, as the case may be. The obligations of each
Underwriter under this Section 8(b) will be in addition to any liability
which such Underwriter may otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought
against any person in respect of which indemnification may be sought pursuant
to Section 8(a) or (b) hereof, such person (hereinafter called the
"indemnified party") shall, promptly after notification of, or receipt of
service of process for, such action, inquiry, investigation or proceeding,
notify in writing the party or parties against whom indemnification is to be
sought (hereinafter called the "indemnifying party") of the institution of
such action, inquiry, investigation or proceeding. The indemnifying party,
upon the request of the indemnified party, shall assume the defense of such
action, inquiry, investigation or proceeding, including,
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without limitation, the employment of counsel (reasonably satisfactory to
such indemnified party) and payment of expenses. No indemnification provided
for in this Section 8 shall be available to any indemnified party who shall
fail to give such notice if the indemnifying party does not have knowledge of
such action, inquiry, investigation or proceeding to the extent that such
indemnifying party has been materially prejudiced by the failure to give such
notice, but the omission to so notify the indemnifying party shall not
relieve the indemnifying party otherwise than under this Section 8. Such
indemnified party shall have the right to employ its or their own counsel in
any such case, but the fees and expenses of such counsel shall be at the
expense such indemnified party unless the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with
the defense of such action or if the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party or if such
indemnified party or parties shall have been advised by counsel that there
may be a conflict between the positions of the indemnifying party or parties
and of the indemnified party or parties or that there may be legal defenses
available to such indemnified party or parties different from or in addition
to those available to the indemnifying party or parties, in any of which
events the indemnified party or parties shall be entitled to select counsel
to conduct the defense to the extent determined by such counsel to be
necessary to protect the interests of the indemnified party or parties, and
the reasonable fees and expenses of such counsel shall be borne by the
indemnifying party. The indemnifying party shall be responsible for the fees
and disbursements of only one such counsel so engaged by the indemnified
party or parties. Expenses covered by the indemnification in this Section 8
shall be paid by the indemnifying party as they are incurred by the
indemnified party. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action. Anything in this Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of a claim effected without its written consent, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) hereof in respect of any losses, liabilities, claims,
damages or expenses (or actions, inquiries, investigations or proceedings in
respect thereof) referred to therein, except by reason of the failure to give
notice as required in Section 8(c) hereof (provided that the indemnifying
party does not have knowledge of the action, inquiry, investigation or
proceeding and to the extent such party has been materially prejudiced by the
failure to give such notice), then each indemnifying
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party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, liabilities, claims, damages or expenses
(or actions, inquiries, investigations or proceedings in respect thereof in
such proportion as is appropriate to reflect the relative benefits received
by BCB on the one hand and the Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of BCB on the one hand and the
Underwriters on the other in connection with the statements or omissions
which resulted in such losses, liabilities, claims or expenses (or actions,
inquiries, investigations or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
BCB on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by BCB bears to the total underwriting discount
and commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by BCB on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
BCB and the Underwriters agree that it would not be just and equitable
if contributions to this Section 8(d) were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, liabilities,
claims, damages or expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this Section 8(d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), (i)
the provisions of the Agreement Among Underwriters shall govern contribution
among Underwriters, (ii) no Underwriter (except as provided in the Agreement
Among Underwriters) shall be required to contribute any amount in excess of
the underwriting discounts and commissions applicable to the Shares purchased
by such Underwriter, and (iii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their individual underwriting
obligations and not joint.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters and BCB,
including, without limitation, the indemnity and contribution agreements
contained in Section 8 hereof and the agreements contained in Sections 6, 9,
10 and 13 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or
any controlling person, and shall
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survive delivery of the Shares and termination of this Agreement, whether
before or after the Closing Date or any Option Closing Date.
10. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at 10:00 a.m.,
Philadelphia, Pennsylvania time, on the first business day following the
Effective Date or at the time of the public offering by the Underwriters of
the Shares, whichever is earlier, except that the provisions of Sections 6,
8, 9, 10 and 13 hereof shall be effective upon execution hereof. The time of
the public offering, for the purpose of this Section 10, shall mean the time
when any of the Shares are first released by the Underwriters for offering by
dealers. The Representatives and BCB may prevent the provisions of this
Agreement (other than those contained in Sections 6, 8, 9, 10 and 13) hereof
from becoming effective without liability of any party to any other party,
except as noted below, by giving the notice indicated in Section 10(c) hereof
before the time the other provisions of this Agreement become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Option Closing Date as
provided in Sections 7 and 11 hereof or if any of the following have
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or
affecting the Business Conditions of BCB or the Subsidiaries, whether or not
arising in the ordinary course of business, that would, in the
Representatives' opinion, make the offering or delivery of the Shares
impracticable; (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or
financial market conditions if the effect on the financial markets of the
United States of such outbreak, calamity, crisis or change would, in the
Representatives' opinion, make the offering or delivery of the Shares
impracticable; (iii) any suspension or limitation of trading generally in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the over-the-counter market or any setting of
minimum prices for trading or the promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental
authority that in the Representatives' opinion materially and adversely
affects trading on such exchange or the over-the-counter market; (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental
authority which in the Representatives' opinion materially and adversely
affects or will materially or adversely affect the business or operations of
BCB or the Subsidiaries; (v) declaration of a banking moratorium by either
United States, New York or Pennsylvania authorities; (vi) the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs that in the Representatives' opinion has a
material adverse effect on the securities markets in the United States; or
(vii) trading in any securities of BCB shall have been suspended or halted by
NASD or the SEC.
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(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Representatives shall notify BCB hereof promptly by telephone, telex,
telegraph, telegram or facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Optional Shares hereunder, and if
the Firm Shares or Optional Shares with respect to which such default relates
do not exceed in the aggregate 10% of the number of Firm Shares or Optional
Shares, as the case may be, that all Underwriters have agreed to purchase on
the relevant Closing Date or Option Closing Date, then the Representatives
may make arrangements satisfactory to BCB for the purchase of such Firm
Shares by other persons, including any of the Underwriters, but if no such
arrangements are made by the relevant Closing Date or Option Closing Date,
such Firm Shares or Optional Shares to which the default relates shall be
purchased severally by the non-defaulting Underwriters in proportion to their
respective commitments hereunder.
(b) If such default relates to more than 10% of the Firm Shares or
Optional Shares, as the case may be, the Representatives may in their
discretion arrange for another party or parties (including a non-defaulting
Underwriter) to purchase such Firm Shares or Optional Shares to which such
default relates, on the terms contained herein. In the event that the
Representatives do not arrange for the purchase of the Firm Shares or
Optional Shares to which a default relates as provided in this Section 11,
this Agreement may be terminated by the Representatives or by BCB without
liability on the part of the non-defaulting several Underwriters (except as
provided in Section 8 hereof) or BCB (except as provided in Sections 6 and 8
hereof); provided that if such default occurs with respect to Optional Shares
after the Closing Date, this Agreement will not terminate as to the Firm
Shares or any Optional Shares purchased prior to such termination. Nothing
herein shall relieve a defaulting Underwriter of its liability, if any, to
the other several Underwriters and to BCB for damages occasioned by its
default hereunder.
(c) If the Firm Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties, the Representatives or BCB shall have
the right to postpone the Closing Date or any Option Closing Date, as the
case may be, for a reasonable period but not in any event exceeding seven
days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus or in any other documents and
arrangements, and BCB agrees to file promptly any amendment to the
Registration Statement or supplement to the Prospectus that in the opinion of
counsel for the Underwriters may thereby be made necessary. The terms
"Underwriters" and "Underwriter" as used in this Agreement shall include any
party substituted under this Section 11 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares
and/or Optional Shares.
27
<PAGE>
12. Information Furnished by Underwriters. The statement set forth on
the last paragraph at the bottom of the cover page of the Prospectus
regarding the terms of the Offering by the Underwriters, the legend on the
inside cover page regarding stabilization, the identity of the Underwriters
set forth in the first paragraph under the heading "Underwriting" and the
concession and reallowance figures appearing in the second paragraph under
the caption "Underwriting," constitute the only written information furnished
by reference or on behalf of any Underwriter referred to in Sections 1(b) and
8 hereof.
13. Notice. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied
and confirmed to such Underwriter, c/o Janney Montgomery Scott Inc., 1801
Market Street, Philadelphia, Pennsylvania 19103, Attention: Mr. Edward J.
Losty, with a copy to Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street,
Washington, D.C. 20005, Attention: Daniel P. Weitzel, Esquire, and Jeffrey D.
Haas, Esquire; and if sent to BCB, shall be mailed, delivered, telexed,
telegrammed, telegraphed or telecopied and confirmed to BCB Financial
Services Corporation, 400 Washington Street, Reading, Pennsylvania 19603;
Attention: Nelson R. Oswald, with a copy to Stevens & Lee, 111 North Sixth
Street, Reading, Pennsylvania 19603, Attention: Jeffrey P. Waldron, Esquire.
14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, BCB and the controlling
persons, directors and officers thereof, and their respective successors,
assigns, heirs and legal representatives, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein
contained. The terms "successors" and "assigns" shall not include any
purchaser of the Shares merely because of such purchase.
15. Definition of Business Day. For purposes of this Agreement,
"business day" means any day on which the Nasdaq National Market is opened
for trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
17. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.
28
<PAGE>
If the foregoing correctly sets forth your understanding of our
agreement, please sign and return to BCB the enclosed duplicate hereof,
whereupon it will become a binding agreement in accordance with its terms.
Very truly yours,
BCB FINANCIAL SERVICES CORPORATION
By:
-----------------------------------
Nelson R. Oswald, Chairman and President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
JANNEY MONTGOMERY SCOTT INC.
WHEAT FIRST BUTCHER SINGER
As Representatives of the Several Underwriters
named in Schedule I hereto
By: JANNEY MONTGOMERY SCOTT INC.
By:
--------------------------------------------
Edward J. Losty
First Vice President
By: WHEAT FIRST BUTCHER SINGER
By:
--------------------------------------------
Scott R. Anderson
Managing Director
29
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------------------------------------- ----------------------
<S> <C>
Janney Montgomery Scott Inc..................................
Wheat First Butcher Singer...................................
-----------------
Total........................................................
-----------------
-----------------
</TABLE>
30
<PAGE>
SCHEDULE II
Persons Who Are to Deliver Lock-Up Agreements
Lock-Up Agreements are to be delivered by the following persons and
entities immediately prior to the time the SEC declares the Registration
Statement effective:
[To be completed]
31
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
BCB FINANCIAL SERVICES CORPORATION
1. Name of Corporation: BCB Financial Services Corporation
2. Address of Registered Office in Pennsylvania:
400 Washington Street
Reading, Berks County
Pennsylvania 19601
3. Purpose of Corporation:
To have unlimited power to engage in and do any lawful act concerning
any or all lawful business for which corporations may be incorporated
under the provisions of the Business Corporation law of the Commonwealth
of Pennsylvania.
4. Aggregate Number of Shares, Classes of Shares and Par Value of
Shares Which the Corporation Shall Have Authority to Issue:
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is twenty million (20,000,000) shares of
Common Stock, par value $2.50 per share.
5. Term of Existence: Perpetual
6. Name and address of incorporator:
Nelson R. Oswald
P.O. Box 8
Limekiln, Pennsylvania 19535
7. No merger, consolidation, liquidation or dissolution of this corporation
nor any action that would result in the sale or other disposition of all
or substantially all of the assets of this corporation shall be valid
unless first approved by the affirmative vote of the holders of at least
seventy-five percent (75%) of the outstanding shares of Common Stock of
this corporation. This Article 7 may not be amended unless first
approved by the affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding shares of Common Stock of this
corporation.
8. Cumulative voting rights shall not exist with respect to the election of
directors.
9. (a) The Board of Directors may, if it deems it advisable, oppose a
tender or other offer for the corporation's
1
<PAGE>
securities, whether the offer is in cash or in the securities of a
corporation or otherwise. When considering whether to oppose an offer,
the Board of Directors may, but is not legally obligated to, consider
any relevant, germane or pertinent issue; by way of illustration, but
not to be considered any limitation on the power of the Board of
Directors to oppose a tender or other offer for this corporation's
securities, the Board of Directors may, but shall not be legally
obligated to, consider any or all of the following:
(i) Whether the offer price is acceptable based
on the historical and present operating
results or financial condition of this
corporation;
(ii) Whether a more favorable price could be
obtained for this corporation's securities in
the future;
(iii) The social and economic effects of the
offer or transaction on this corporation
and any of its subsidiaries, employees,
depositors, loan and other customers,
creditors, shareholders and other
elements of the communities in which
this corporation and any of its
subsidiaries operate or are located;
(iv) The reputation and business practice of the
offeror and its management and affiliates as
they would affect the shareholders,
employees, depositors and customers of the
corporation and its subsidiaries and the
future value of the corporation's stock;
(v) The value of the securities (if any) which
the offeror is offering in exchange for the
corporation's securities, based on an
analysis of the worth of the corporation or
other entity whose securities are being
offered;
(vi) The business and financial conditions and
earnings prospects of the offeror, including,
but not limited to, debt service and other
existing or likely financial obligations of
the offeror, and the possible effect of such
conditions upon this corporation and any of
its subsidiaries and the other elements of
the communities in which this corporation and
any of its subsidiaries operate or are
located;
(vii) Any antitrust or other legal and
regulatory issues that are raised by the
offer.
2
<PAGE>
(b) If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose,
including, but not limited to, any or all of the following: advising
shareholders not to accept the offer; litigation against the offeror;
filing complaints with all governmental and regulatory authorities;
acquiring the offeror corporation's securities; selling or otherwise
issuing authorized by unissued securities or treasury stock or granting
options with respect thereto; acquiring a company to create an antitrust
or other regulatory problem for the offeror; and obtaining a more
favorable offer from another individual or entity.
10. (a) It is the declared intent and policy of this corporation and its
shareholders that control of this corporation is an asset that belongs
to all shareholders of this corporation and that no shareholder should
have, either directly or indirectly, beneficial ownership of twenty-five
percent (25%) or more of the outstanding shares of this corporation.
Therefore, to carry out the aforementioned intent and policy, this
corporation and its shareholders approve and adopt this Article 10.
(b) When any person is determined by the Board of Directors to be the
beneficial owner, either directly or indirectly, of twenty-five percent
(25%) or more of the outstanding shares of this corporation (the
"Substantial Shareholder"), then the Board of Directors may issue in its
sole discretion on a pro rata basis to those shareholders of the
corporation who are not affiliated with the Substantial Shareholder
warrants to purchase additional shares of the common stock of this
corporation at a purchase price equivalent to fifty percent (50%) of the
average transaction price of all purchases and sales of the common stock
of this corporation that occurred during the previous twelve month
period and that are known by the Board of Directors. Such warrants shall
be issued without any consideration, shall not be assignable and shall
expire six (6) months from the date of their issuance. The Board of
Directors shall have the sole discretion in the determination of the
number of shares of common stock of this corporation that may be
purchased pursuant to such warrants.
(c) The Board of Directors may use, but is not necessarily limited
to, the following indicia to determine "beneficial ownership": the
effect of stock ownership by a person's spouse and minor children;
ownership of shares held by a corporation or foundation of which a
Substantial Shareholder is an officer or affiliate; the extent of a
Substantial Shareholder's ownership of
3
<PAGE>
partnership shares; transfers pursuant to divorce; installment
purchases; stock warrants, grants and options; control over the voting
power of any stock; the status of a Substantial Shareholder as trustee,
trust beneficiary or settlor of a trust of which part of all of the
corpus is shares of the common stock of this corporation; and stock
dividends.
(d) "Affiliate" of, or a person "affiliated" with, the Substantial
Shareholder, is a person that directly, or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the Substantial Shareholder.
(e) "Person" means an individual, corporation, partnership,
association, joint stock company, syndicate, trust where the interests
of the beneficiaries are evidenced by a security, an unincorporated
organization, group of persons acting in consort, or any other entity.
"Person" does not mean the Board of Directors of this corporation acting
collectively in its capacity as the Board of Directors. "Person" does
include an individual who is a member of the Board of Directors.
(f) This Article 10 may not be amended unless first approved by
the affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares of common stock of this corporation.
4
<PAGE>
July 17, 1997
Exhibit 5.1
Board of Directors
BCB Financial Services Corporation
400 Washington Street
P.O. Box 1097
Reading, Pennsylvania 19603
Re: Registration Statement on Form SB-2 (SEC File No. 333-27873)
Gentlemen:
In connection with the proposed offering by BCB Financial Services
Corporation (the "Company") of up to 1,380,000 shares of the Company's common
stock, par value $2.50 per share (the "Common Stock"), covered by the
Company's Registration Statement on Form SB-2 (No. 333-27873) (the
"Registration Statement"), we, as counsel to the Company, have
reviewed:
1. the Articles of Incorporation of the Company;
2. the Bylaws of the Company;
3. the minute books of the Company;
4. a Corporate Subsistence Certificate, dated May 29, 1997, issued by the
Secretary of the Commonwealth of Pennsylvania with respect to the
Company;
5. the Registration Statement; and
6. copies of the certificates representing shares of the Common Stock.
Based upon our review of such documents, it is our opinion that:
1. The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good
standing under the laws of such Commonwealth.
<PAGE>
Board of Directors
July 17, 1997
Page 2
2. The 1,380,000 shares of Common Stock covered by the Registration
Statement have been duly authorized and, when issued and sold for cash
pursuant to the terms described in the Registration Statement, will be
legally issued by the Company and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to us under the heading "Legal
Matters" in the related Prospectus. In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
Rules and Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stevens & Lee
------------------
STEVENS & LEE
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Pre-effective Amendment
No. 2 to the Registration Statement (Form SB-2, No. 333-27873) of
our report, dated January 31, 1997, relating to the consolidated
financial statements of BCB Financial Services Corporation and
its wholly-owned subsidiary, Berks County Bank. We also consent
to the reference to our Firm under the captions "Experts" and
"Summary Selected Consolidated Financial Data" in the Prospectus.
/s/ BEARD & COMPANY, INC.
Reading, Pennsylvania
July 17, 1997
