U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, for the fiscal year ended December 31,
1997, or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required), for the
transition period from _______________ to ______________.
Commission file number: 0-24114
BCB FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
Pennsylvania 23-2444807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code: (610)376-5933
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock ($2.50 par value)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ____
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
The Registrant's revenues for its most recent fiscal year
were $29,528,000.
The aggregate market value of common stock of the Registrant
held by nonaffiliates, based on the average between the closing
bid and the closing asked prices as of March 2, 1998 was
$84,556,025. As of March 2, 1998, the Registrant had 3,472,029
shares of Common Stock outstanding.
Documents incorporated by reference. Portions of the Proxy
Statement of the Registrant relating to the Registrant's Special
Meeting to be held on April 29, 1998 are incorporated by
reference into Part III of this report.
Transitional Small Business Disclosure Format (check one):
Yes _____ No X
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
FORM 10-KSB
TABLE OF CONTENTS
Page
Part I
Item 1. Description of Business 4
Item 2. Description of Property 27
Item 3. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security
Holders 30
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 30
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 32
Item 7. Financial Statements 56
Item 8. Changes In and Disagreements with
Accountants on Accounting and Financial
Disclosure 87
Part III
Item 9. Directors, Executive Officers, and Control
Persons; Compliance with Section 16(a) of
the Exchange Act 87
Item 10. Executive Compensation 88
Item 11. Security Ownership of Certain Beneficial
Owners and Management 88
Item 12. Certain Relationships and Related
Transactions 88
Item 13. Exhibits and Reports on Form 8-K 89
Signatures
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
BCB Financial Services Corporation ("BCB") is a Pennsylvania
corporation headquartered in Reading, Pennsylvania and is a
registered bank holding company for Berks County Bank, a
Pennsylvania-chartered commercial bank. Berks County Bank is a
member of the Federal Reserve System and Berks County Bank's
deposits are insured by the FDIC to the fullest extent provided
by law. Berks County 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. Berks County Bank currently
maintains six full-service branches in Reading, Exeter,
Wyomissing, Muhlenberg, Shillington and Pottstown, Pennsylvania,
and six loan production offices in Wyomissing, Pottstown,
Schuylkill Haven, Jamison, Exton, and Allentown, Pennsylvania.
At December 31, 1997, BCB had total consolidated assets,
deposits, net loans and stockholders' equity of $447.6 million,
$360.6 million, $246.2 million and $44.1 million, respectively.
Market Overview
Berks County 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, eastern
Chester County and eastern Lehigh County. Berks County, with a
population of approximately 350,000, includes the City of
Reading, the county's largest municipality with a population of
approximately 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. Berks County Bank's extended market area consists of the
remainder of the foregoing counties and Lancaster and Lebanon
counties.
As of June 30, 1997, there were 19 different banking
institutions operating approximately 124 branch offices and
having total deposits of approximately $4.1 billion in Berks
County. The six largest of these institutions with respect to
total deposits operated over 65% of the County's branch offices
and had over 75% of the County's deposits. Berks County Bank's
five Berks County branches had approximately 6% of the County's
deposits at June 30, 1997, versus 4.0% and 3.3% of the County's
deposits at June 30, 1996 and 1995, respectively, and was the
County's sixth largest banking institution with respect to total
deposits at June 30, 1997.
Products and Services
Berks County 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 Berks County Bank's
customers typically borrow between $25,000 and $1.5 million, if a
customer's loan request exceeds Berks County Bank's legal lending
limit, which was $5.3 million in 1997, Berks County Bank seeks to
arrange such loans on a participation basis with other financial
institutions. In addition, Berks County Bank provides safe
deposit boxes, traveler's checks, wire transfer of funds, ACH
(Automated Clearing House) origination and other typical banking
services. Berks County 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.
BCB continues to update its product offering in order to
remain competitive. In the past twelve months, BCB has
introduced a number of new products and services such as "after
hours" phone system for customers to access their accounts,
automated teller terminals, and BCB "Classic" Club featuring
interest checking for members age 50 and older.
Supervision and Regulation
Various requirements and restrictions under the laws of the
United States and the Commonwealth of Pennsylvania affect BCB and
Berks County Bank.
General
BCB is a bank holding company subject to supervision and
regulation by the Federal Reserve Bank under the Bank Holding
Company Act of 1956, as amended. As a bank holding company,
BCB's activities and those of its subsidiary are limited to the
business of banking and activities closely related or incidental
to banking and BCB 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 FRB.
Berks County Bank is subject to supervision and examination
by applicable federal and state banking agencies. Berks County
Bank is a member of the Federal Reserve System, and therefore,
subject to the regulations of the FRB. Berks County Bank is also
a Pennsylvania-chartered bank subject to supervision and
regulation by the Pennsylvania Department of Banking.
In addition, because the deposits of Berks County Bank are
insured by the FDIC, Berks County Bank is subject to regulation
by the FDIC. Berks County 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 Berks County Bank. In addition to the
impact of regulation, commercial banks are affected significantly
by the actions of the FRB in attempting to control the money
supply and credit availability in order to influence the economy.
Holding Company Structure
Berks County Bank is subject to restrictions under federal
law which limit its ability to transfer funds to BCB, whether in
the form of loans, other extensions of credit, investments or
asset purchases. Such transfers by Berks County Bank to BCB are
generally limited in amount to 10% of Berks County Bank's capital
and surplus. Furthermore, such loans and extensions of credit
are required to be secured in specific amounts, and all
transactions are required to be on an arm's length basis. Berks
County Bank has never made any loan or extension of credit to BCB
nor has it purchased any assets from BCB.
Under FRB policy, a bank holding company is expected to act
as a source of financial strength to its subsidiary 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 its
subsidiary 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 its subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Regulatory Restrictions on Dividends
Dividend payments by Berks County Bank to BCB 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 Pennsylvania Banking Code, no dividends may
be paid except from "accumulated net earnings" (generally,
undivided profits). Under the FRB's regulations, Berks County
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, Berks County Bank would be
limited to approximately $5.1 million of dividends in 1998 plus
an additional amount equal to Berks County Bank's net profit for
1998, 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
Berks County Bank to pay dividends to the Company.
The payment of dividends to BCB by Berks County Bank may
also be affected by other regulatory requirements and policies.
If, in the opinion of the FRB, Berks County Bank is engaged in,
or is about to engage in, an unsafe or unsound practice (which,
depending on the financial condition of Berks County Bank, could
include the payment of dividends), the FRB may require, after
notice and hearing, that Berks County Bank cease and desist from
such practice. The FRB 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-weighted assets ratio of 10.00% or greater, a Tier 1 capital
to risk-weighted 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.
Berks County Bank's FDIC insurance assessment for the first
six months of 1998 is estimated to be $50,000. In addition, for
1997 through 1999, the banking industry is required to help pay
the FICO interest payments at an assessment rate that is
one-fifth 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 at the same rate by banks and thrifts, which rate will be
determined at such time by the FDIC. At December 31, 1997, BCB
estimated the FICO interest assessment to be approximately
$40,000 for 1998.
Capital Adequacy
The FRB adopted risk-based capital guidelines for bank
holding companies, such as BCB. 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 FRB
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. BCB is in compliance with
these guidelines. Berks County Bank is subject to similar
capital requirements also adopted by the FRB.
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.
Year 2000 Computer Issues
Management has initiated a company-wide program to prepare
BCB's and Berks County Bank's computer systems and applications
for the year 2000.
The "year 2000" challenge is pervasive and complex as
virtually every computer operation will be affected in some way
by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive
information when the year changes to 2000.
BCB is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the year
2000 compliance.
BCB plans to have all reprogramming efforts completed by
December 31, 1998, allowing adequate time for testing.
BCB expects to incur internal staff costs and other expenses
related to hardware and software enhancements necessary to
prepare the systems for the year 2000. Management expects these
"year 2000" maintenance or modification costs to be immaterial.
Berks Mortgage Company
Berks County 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
Berks County 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 Berks County Bank. Berks Mortgage
Company commenced operations in 1995. The overall activity of
Berks Mortgage Company in 1995, 1996, and 1997 was immaterial in
relation to BCB taken as a whole.
Competition
Berks County Bank faces significant competition from other
commercial banks, savings banks, savings and loan associations
and several other financial or investment services 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 BCB and Berks County Bank. As the financial services
industry continues to consolidate, competition affecting Berks
County Bank may increase. For most of the services that Berks
County 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.
Loan Portfolio
BCB'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 1997, BCB
originated $73.2 million in commercial loans.
BCB is the largest originator of residential mortgage loans
in Berks County. In 1997, BCB originated $101.8 million in
residential mortgage loans. The majority of all thirty year
fixed rate mortgages are resold in the secondary market. BCB
does not retain servicing rights on those loans sold in the
secondary market. BCB's consumer loans consist principally of
home equity lines of credit.
BCB's loans, net of deferred loan fees and allowance for
loan losses, at December 31, 1997 totaled $246.2 million, an
increase of $54.1 million, or 28.2%, 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 reflect continued
loan demand from BCB's target customers.
The following tables set forth (i) BCB's loans by major
categories as of the dates indicated and (ii) BCB's loan
origination activity by major categories for the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial:
Real estate secured $ 72,565 $ 55,732 $ 43,057 $ 38,003 $ 33,066
Non-real estate secured/
unsecured 37,248 27,154 18,159 14,826 13,635
Construction 7,525 5,006 3,004 2,577 1,294
117,338 87,892 64,220 55,406 47,995
Less deferred loan fees (costs) (678) (431) (207) (166) (94)
Total commercial $118,016 $ 88,323 $ 64,427 $ 55,572 $ 48,089
Residential:
Mortgages $104,714 $ 85,027 $ 63,538 $ 58,497 $ 50,155
Construction 6,279 4,666 5,502 5,690 5,556
110,993 89,693 69,040 64,187 55,711
Less deferred loan fees (costs) 209 184 185 105 43
Total residential $110,784 $ 89,509 $ 68,855 $ 64,082 $ 55,668
Consumer:
Installment $ 4,374 $ 3,590 $ 2,468 $ 1,732 $ 1,535
Home equity lines-secured 14,632 11,832 11,512 5,030 4,627
Lines of credit-unsecured 936 840 666 529 559
$ 19,942 $ 16,262 $ 14,646 $ 7,291 $ 6,721
Less deferred loan fees (costs) (68) (54) (37) (26) (22)
Total consumer $ 20,010 $ 16,316 $ 14,683 $ 7,317 $ 6,743
Total loans, net of deferred
loan fees (costs) $248,810 $194,148 $147,965 $126,971 $110,500
======== ======== ======== ======== ========
<CAPTION>
Loan Originations
At December 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Commercial:
Real estate secured $ 44,822 $ 34,883 $ 20,390
Non-real estate secured/
unsecured 17,511 13,738 9,976
Construction 10,869 7,514 3,742
Total commercial $ 73,202 $ 56,135 $ 34,108
======== ======== ========
Residential:
Mortgages $ 84,453 $ 69,100 $ 47,700
Construction 17,344 13,970 14,020
Total residential $101,797 $ 83,070 $ 61,720
======== ======== ========
Consumer:
Installment $ 3,466 $ 2,922 $ 2,009
Home equity lines-secured 12,199 6,331 14,193
Lines of credit-unsecured 341 536 772
Total consumer $ 16,006 $ 9,789 $ 16,974
======== ======== ========
</TABLE>
Loan Maturity and Interest Rate Sensitivity
The amount of loans outstanding by category as of
December 31, 1997, 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 December 31, 1997
More Than
One Year
One Year Through Over Total
or Less Five Years Five Years Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, construction, other $ 57,666 $ 43,890 $16,460 $118,016
Mortgage 29,541 58,197 23,046 110,784
Consumer 15,795 4,185 30 20,010
Total (1) $103,002 $106,272 $39,536 $248,810
======== ======== ======= ========
Loans with fixed rate $ 48,719 $ 72,342 $38,114 $159,175
Loans with floating rate 54,283 33,930 1,422 89,635
Total (1) $103,002 $106,272 $39,536 $248,810
======== ======== ======= ========
Percent composition by maturity 41.40% 42.71% 15.89% 100.00%
======== ======== ======= ========
Fixed rate loans as a percentage
of total loans maturing 19.58% 29.08% 15.31% 63.97%
======== ======== ======= ========
Floating rate loans as a percentage
of total loans maturing 21.82% 13.64% .57% 36.03%
======== ======== ======= ========
</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 December 31, 1997, 64.0% 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
BCB'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. Berks
County Bank has a policy to discontinue accrual of interest
income within ten days following the month end in which a loan
becomes 90 days past due in either principal or interest, except
for those insured for credit loss. In addition, if circumstances
warrant, accrual of interest may be discontinued prior to
90 days. In all cases, any payments received on non-accrual
loans are credited to principal until full recovery of past due
payments has been recognized, and the loan is not restored to
accrual status until the customer becomes and remains current for
six consecutive payments. Loans are charged off, in whole or in
part, upon determination that a loss is anticipated. Non-accrual
and large delinquent loans are reviewed monthly to determine
potential losses.
The following summary shows information concerning loan
delinquency and other non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accruing, but past due
90 days or more $ 225 $ 187 $ 231 $ 41 $ 39
Total non-accrual loans 3,554 2,603 1,463 2,893 1,893
Restructured loans 73 79 85 91 ---
Total non-performing loans (1) 3,852 2,869 1,779 3,025 1,932
Foreclosed real estate 175 762 1,316 --- 754
Total non-performing
assets (2) $4,027 $3,631 $3,095 $3,025 $2,686
====== ====== ====== ====== ======
Non-performing loans as a
percentage of total loans,
net of unearned income 1.55% 1.48% 1.20% 2.38% 1.75%
Non-performing assets as a
percentage of total assets 0.90% 1.12% 1.50% 1.96% 1.85%
</TABLE>
____________________
(1) 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.
(2) Nonperforming assets are comprised of non-performing loans
and foreclosed real estate.
The following summary shows the impact on interest income of
nonaccrual and restructured loans for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Interest income that would have
been recorded had the loans
been in accordance with their
original terms $284 $221 $122
Interest income included in net
income 58 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 December 31, 1997, there was one restructured loan
in the amount of $73,000.
At December 31, 1997, BCB 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 December 31, 1997, all identified potential
problem loans were included in the preceding table except for
$0.8 million of loans included on Berks County Bank's internal
watch list.
Berks County Bank had no credit exposure to "highly
leveraged transactions" at December 31, 1997, as defined by the
FRB.
Allowance for Loan Losses
A detailed analysis of BCB's allowance for loan losses for
each of the years in the five year period ended December 31, is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year: $ 2,001 $ 1,674 $ 1,437 $ 1,447 $ 1,932
Charge-offs:
Commercial 87 90 222 56 579
Real estate-mortgage 296 329 173 49 267
Consumer 58 29 10 3 24
Total Charge-offs $ 441 $ 448 $ 405 $ 108 $ 870
Recoveries:
Commercial 27 62 102 39 65
Real estate-mortgage 56 24 20 32 107
Consumer -- 2 2 5 3
Total recoveries $ 83 $ 88 $ 124 $ 76 $ 175
Net charge-offs 358 360 281 32 695
Provision for loan losses 960 687 518 22 210
Balance at end of year $ 2,603 $ 2,001 $ 1,674 $ 1,437 $ 1,447
======== ======== ======== ======== =======
Average loans outstanding (1) $223,130 $170,135 $133,860 $118,435 $100,235
======== ======== ======== ======== ========
As a percent of average loans (1):
Net charge-offs 0.16% 0.21% 0.21% 0.03% 0.69%
Provision for loan losses 0.43% 0.40% 0.39% 0.02% 0.21%
Allowance for loan losses 1.17% 1.18% 1.25% 1.21% 1.44%
Allowance as a percent of each
of the following:
Total loans, net of
unearned income 1.05% 1.03% 1.13% 1.13% 1.31%
Total delinquent loans
(past due 30 to 89 days) 98.86% 68.69% 52.08% 244.80% 215.33%
Total non-performing loans 67.58% 69.75% 94.10% 47.50% 74.90%
</TABLE>
__________________
(1) Includes non-accruing loans
Management makes a monthly determination as to an
appropriate provision from earnings necessary to maintain an
allowance for loan losses that is adequate for potential yet
undetermined losses. This determination necessarily includes a
review of loans that are current, but for which management has
determined for a variety of reasons require more careful
monitoring going forward. The dollar amount charged to earnings
is determined based upon several factors including: a continuing
review of delinquent, classified and non-accrual loans, large
loans, and overall portfolio quality; regular examination and
review of the loan portfolio by regulatory authorities;
analytical review of loan charge-off experience, delinquency
rates, other relevant historical and peer statistical ratios; and
management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
Determining the appropriate level of the allowance for loan
losses at any given date is difficult, particularly in a
continually changing economy. In management's opinion, the
allowance for loan losses was adequate at December 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.
Berks County 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 December 31, 1997,
approximately 37.3% of the allowance for loan losses is allocated
to general risk to protect Berks County 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 DECEMBER 31,
_________________________________________________________________________________________________________
1997 1996 1995 1994 1993
_________________________________________________________________________________________________________
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1) Amount to Loans(1)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of
allowance for loan
losses:
Commercial $ 851 44.41% $ 652 42.91% $ 420 41.51% $ 692 41.59% $ 806 42.35%
Mortgage 574 42.00% 434 43.70% 336 42.82% 298 46.11% 265 45.35%
Consumer 150 8.04% 122 8.40% 110 9.92% 55 5.78% 50 6.10%
Construction 56 5.55% 73 4.99% 64 5.75% 62 6.52% 57 6.20%
General Allowance 972 720 744 330 269
Total $2,603 $2,001 $1,674 $1,437 $1,447
====== ====== ====== ====== ======
</TABLE>
(1) Loans, net of unearned income.
Securities Portfolio
BCB's securities portfolio is intended to provide liquidity,
reduce interest rate risk and contribute to earnings while
exposing BCB to reduced credit risk. As a result of BCB'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 $169.2 million at December 31, 1997. This
significant increase is due in large part to matched funding
programs 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.
A summary of securities available for sale and securities
held to maturity at December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
Securities Securities
Available for Sale Held To Maturity
at December 31, at December 31,
1997 1996 1995 1997 1996 1995
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 991 $ 3,465 $ 5,450 $ - $ - $ -
U.S. Government agencies 32,981 18,000 3,757 60,724 24,253 3,002
State and municipal 23,192 23,275 6,978 10,165 10,787 6,205
Mortgage-backed and asset-
backed securities (1) 33,006 4,357 2,807 - - -
Other securities (2) 7,069 4,467 1,134 25 25 -
Total Amortized Cost of
Securities $97,239 $53,564 $20,126 $70,914 $35,065 $ 9,207
======= ======= ======= ======= ======= =======
Total Fair Value of
Securities $98,326 $53,489 $20,359 $71,769 $35,147 $ 9,367
======= ======= ======= ======= ======= =======
</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.
The following table presents the maturity distribution and
weighted average yield of the securities portfolio of BCB at
December 31, 1997. Weighted average yields on tax-exempt
obligations have been computed on a taxable equivalent basis.
<TABLE>
<CAPTION>
Available for Sale
December 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years
But But After 10 Years
Within 1 Year Within 5 Years Within 10 Years or no maturity (1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury Securities $ 498 7.383% $ 493 7.779% $ 0 0% $ 0 0% $ 991 7.580%
U.S. Government Agencies 0 0 0 0 16,981 7.287 16,000 7.354 32,981 7.320
State and Municipal 0 0 0 0 0 0 23,192 7.807 23,192 7.807
Mortgage-backed and
asset-backed securities 0 0 0 0 0 0 33,006 5.787 33,006 5.787
Other Securities 5,654 6.375 0 0 0 0 1,415 7.377 7,069 6.575
Total securities
available for sale $6,152 6.456% $ 493 7.779% $16,981 7.287% $73,613 6.794% $97,239 6.864%
====== ===== ====== ===== ======= ===== ======= ===== ======= =====
<CAPTION>
Held to Maturity
December 31, 1997
(Dollars In Thousands)
After 1 Year After 5 Years
But But After 10 Years
Within 1 Year Within 5 Years Within 10 Years or no maturity (1) Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized Cost:
U.S. Treasury Securities $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0%
U.S. Government Agencies 0 0 0 0 20,481 7.396 40,243 7.379 60,724 7.385
State and Municipal 365 8.845 1,704 6.609 796 8.446 7,300 8.059 10,165 7.875
Mortgage-backed and
asset-backed securities 0 0 0 0 0 0 0 0 0 0
Other Securities 0 0 0 0 25 7.500 0 0 25 7.500
Total securities
held to maturity $ 365 8.845% $1,704 6.609% $21,302 7.435% $47,543 7.483% $70,914 7.455%
====== ====== ====== ====== ======= ====== ======= ===== ======= ======
</TABLE>
__________________
(1) The majority of the securities listed in this category are
callable or likely to repay within five years.
Berks County Bank maintains a securities portfolio for the
secondary application of funds as well as a secondary source of
liquidity. At December 31, 1997, securities having an amortized
cost of $15.5 million were pledged as collateral for public funds
and other purposes as required or permitted by law.
Neither BCB nor Berks County Bank hold securities of any one
issuer, excluding U.S. Treasury and U.S. Government Agencies,
that exceeded 10% of stockholders' equity at December 31, 1997 or
any prior period end.
Deposit Structure
The following is a distribution of the average balances of
Berks County Bank's deposits and the average rates paid thereon
for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand--non-interest bearing $ 31,422 ----% $ 21,127 ----% $ 12,960 ----%
Demand--interest-bearing 131,447 3.90% 68,642 3.76% 28,455 3.29%
Savings 12,384 3.25% 11,010 3.12% 10,162 2.68%
Time, $100,000 and over 12,563 5.69% 9,965 5.52% 9,221 5.77%
Time, other 122,033 5.76% 102,533 5.52% 86,908 5.59%
Total deposits $309,849 4.28% $213,277 4.28% $147,706 4.47%
======== ===== ======== ===== ======== =====
</TABLE>
The following is a breakdown, by maturities, of Berks County
Bank's time certificates of deposit issued in denominations of
$100,000 or more as of December 31, 1997.
<TABLE>
<CAPTION>
Certificates of Deposit $100,000 or more
At December 31,
1997
(In thousands)
<S> <C>
Maturing in:
Three months or less $ 2,722
Over three through six months 910
Over six through twelve months 1,185
Over twelve months 8,006
Total $12,823
=======
</TABLE>
Long-Term Debt and Other Borrowed Funds
Berks County 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 $1.0 million at
December 31, 1997 and 1996.
Berks County Bank had other short-term borrowings from the
FHLB at December 31, 1997 and December 31, 1996 in the amount of
$21.0 million and $13.0 million, respectively. The December 31,
1997 balance outstanding was mostly due in January 1998 with the
balance due in September 1998. The December 31, 1997 balance had
an average interest rate of 5.93%.
The following table sets forth information regarding
short-term borrowings at and for the periods ended December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Short-term advances from the FHLB
bearing interest at a weighted
average rate of 5.93% and 5.41% as
of December 31, 1997 and 1996,
respectively:...........................$21,000 $13,000
Treasury, tax and loan note option........ 1,056 718
$22,056 $13,718
======= =======
Maximum amount of short-term advances
from the FHLB outstanding at any
month-end during the twelve months
ended December 31, 1997 and 1996........$43,396 $13,000
Maximum amount of Treasury, tax and
loan note option outstanding............ 1,121 1,362
$44,517 $14,362
======= =======
Average amount of short-term advances
outstanding during the twelve months
ended December 31, 1997 and 1996,
at weighted average interest rates
of 5.73% and 5.41%, respectively........$21,430 $ 5,171
Average amount of Treasury, tax and
loan note option outstanding............ 720 632
$22,150 $ 5,803
======= =======
</TABLE>
Long-term debt consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Advances from the FHLB bearing
interest at a weighted average
rate of 5.96% and 5.49% as of
December 31, 1997 and 1996,
respectively............................$10,000 $22,000
======= =======
</TABLE>
Maturities of long-term debt at December 31, 1997 are as
follows:
(In Thousands)
1998........................................... $ ---
1999........................................... 5,000
2000........................................... ---
2001........................................... 5,000
$10,000
=======
Berks County Bank has maximum borrowing capacity with the
FHLB of approximately $177.1 million. Advances from the FHLB are
secured by qualifying assets of Berks County Bank.
Financial Ratios
The following ratios for the Company are among those
commonly used in analyzing financial statements of financial
services companies:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Selected Financial Ratios:
Return on average assets 0.87% 0.77% 0.51%
Return on average stockholders'
equity 11.24 10.16 5.14
Return on average stockholders'
equity and redeemable common stock 11.24 10.15 5.05
Net interest margin (1) 3.59 3.72 3.84
Allowance for loan losses as a
percentage of loans, net of
unearned income 1.05 1.03 1.13
Allowance for loan losses as a
percentage of non-performing
loans (2) 67.58 69.75 94.10
Non-performing loans as a percentage
of total loans, net (2) 1.55 1.48 1.20
Non-performing assets as a percen-
tage of total assets (2) 0.90 1.12 1.50
Net charge-offs as a percentage of
average loans, net 0.16 0.21 0.21
Tier 1 capital to risk-weighted
assets (3) (4) 17.01 10.39 12.43
Leverage ratio (3) (4) (5) 9.87 6.82 9.30
Total capital to risk-weighted
assets (3) (4) 18.03 11.44 13.58
Total stockholders' equity to
total assets (6) 7.73 7.57 9.99
Dividend payout ratio 25.62 22.86 36.81
Per Share Data:
Basic Earnings per share (8) (11) $ 1.23 $ 0.92 $ 0.44
Diluted Earnings per share (7) (11) 1.20 0.91 0.43
Cash dividends declared per share (11) 0.30 0.21 0.16
Book value per share (excluding allow-
ance for loan losses) (9) (10) (11) 12.71 9.52 8.91
Average shares outstanding (10) (11) 2,682,281 2,069,251 2,069,560
</TABLE>
_____________
(1) Represents net interest income as a percentage of average
total interest-earning assets, calculated on a
tax-equivalent basis.
(2) 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.
(3) Based on Federal Reserve Board risk-based capital
guidelines, as applicable to BCB. Berks County Bank is
subject to similar requirements imposed by the Federal
Reserve Board.
(4) Redeemable common stock has been excluded from this
computation for 1995.
(5) The leverage ratio is defined as the ratio of Tier 1 capital
to average total assets.
(6) Based upon average daily balances for the respective year.
(7) Based upon average shares and common share equivalents
outstanding.
(8) Based upon average shares outstanding.
(9) Based upon total shares issued and outstanding at the end of
each respective year.
(10) Rescission shares have been classified as redeemable common
stock for the year ending December 31, 1995 and the
Rescission shares have been included in this computation.
(11) Average shares outstanding and per common share data are
adjusted for all stock dividends and stock splits effected
through December 31, 1997.
ITEM 2. DESCRIPTION OF PROPERTY
On October 10, 1997, BCB entered into an agreement of sale
to purchase the 150,000 square foot Penn Square Center located at
601 Penn Street, Reading, Pennsylvania. It is expected that
BCB's and Berks County Bank's executive/administrative offices
will occupy four of the ten floors of this facility. BCB plans
to lease out the remaining floors. The total purchase price for
the building is $2,475,000 and includes an ATM machine and
certain furniture, fixtures and equipment. Settlement occurred
on February 18, 1998.
As of December 31, 1997, Berks County Bank owned two
properties, the land and building at the site of its branch
location at High and Wilson Streets, Pottstown, Montgomery
County, Pennsylvania and an additional parcel of land located in
Exeter Township, Berks County, used for employee parking.
Berks County 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 $44,000 and $45,000 in 1996 and 1997, respectively. The
lease expense for 1998 will be $46,000. Berks County 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 1996 and 1997 was
$41,000 and $42,000, respectively. The lease expense for 1998
will be $43,000.
Berks County 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, Berks County Bank
will purchase the land for $375,000. The monthly lease payments
are fixed at $3,750 per month until the end of the lease. Berks
County 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, Berks County Bank will
purchase the land for $400,000. The monthly lease payments are
fixed at $4,000 until the end of the lease.
Berks County 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 Berks County 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
$164,000 and $175,000 in 1996 and 1997, respectively, and will
require lease payments of $119,000 in 1998. The leases expire at
various dates through 1998. Berks County Bank has options to
renew the terms of the leases for additional periods. In April
1998, it is expected, that BCB's and Berks County Bank's
executive/administrative operations will be relocated to BCB's
Penn Square facility.
On January 6, 1998, Berks County Bank announced that the
Bank's seventh full-service branch will be opened in Hamburg
(Berks County), Pennsylvania. The Hamburg branch is expected to
open in the first quarter of 1998. Berks County Bank has agreed
to lease a 1,500 square foot commercial property for the Hamburg
branch. The lease expense for 1998 will be $15,000.
On November 11, 1997, Berks County Bank entered into two
agreements of sale for two adjacent parcels of land in Douglass
Township, (Montgomery County) Pennsylvania. Berks County Bank
will use these two parcels of land to construct its eighth
full-service branch. Estimated completion date for the Boyertown
Branch is the third quarter of 1998. The aggregate purchase
price for the two parcels is $525,000.
Berks County Bank leases space for its mortgage center and
loan office at Two Woodland Road in Wyomissing, Pennsylvania.
The lease expired in February 1998 and had three renewal options
of one year each. The annual lease expense in 1996 and 1997 was
$39,000 and $40,000, respectively. The lease expense through
February 1998 will be approximately $5,000. The lease has been
temporarily extended through May 31, 1998 at an approximate
additional expense of $12,000 for 1998.
Berks County 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 May 1998
and has three additional extensions of six months each. The
lease expense in 1996 and 1997 was $450 and $5,000, respectively.
The lease expense through May 31, 1998 will be $2,250.
Berks County 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 was
$6,000. The lease expense through March 1998 will be $2,000.
After March, the Bank will continue to lease this space on a
month-to-month basis.
Berks County Bank leases space for its Exton loan production
office in Chester County, Pennsylvania. The lease expires in
June 1998. The annual lease expense for 1997 was $7,000.
On February 1, 1998, Berks County Bank entered into a lease
agreement for a mortgage center and loan office in Allentown,
Lehigh County, Pennsylvania. The lease expires in January 1999.
The lease expense for 1998 will be approximately $16,000.
In addition to its branches and offices, Berks County Bank
operates automated teller machines at its Exeter, Pottstown,
Wyomissing, Muhlenberg and Shillington branch offices and at a
location owned by St. Joseph's Hospital, Reading, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
BCB and Berks County Bank are from time to time a party
(plaintiff or defendant) to lawsuits that are in the normal
course of BCB's and Berks County 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 BCB and Berks County Bank, if any,
resulting from such actions will not have a material effect on
the financial condition or results of operations of BCB and Berks
County Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Shares of BCB's common stock are traded in the
over-the-counter market and are quoted on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") National Market System under the symbol "BCBF."
Herzog, Heine and Geduld, Inc., Ryan Beck and Co., F. J.
Morrissey & Co., Inc., Wheat First Union and Janney Montgomery
Scott all make markets in BCB's common stock.
At February 19, 1998, the total number of holders of record
of BCB's common shares was 3,179.
The table below presents the high and low trade prices
reported for BCB's common shares and the cash dividends declared
on such common shares for the periods indicated. The range of
high and low prices is based on trade prices reported on NASDAQ.
Market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
Dividends
Year Quarter High Low Per Share
<S> <C> <C> <C> <C> <C>
1997 4th 28 19-1/2 $.08
3rd 20-1/2 15 .08
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
</TABLE>
All price information in the table has been adjusted
retroactively to reflect a 6 for 5 stock split paid on
November 19, 1996.
For certain limitations on the Bank's ability to pay
dividends to BCB, see "Description of Business - Supervision and
Regulation" hereof and Note 17 to "Notes to Consolidated
Financial Statements."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition Highlights
BCB Financial Services Corporation's ("BCB's") total assets
increased 37.9% from $324.5 million at December 31, 1996 to
$447.6 million at year-end 1997. During the same period, net
loans increased by 28.2% to $246.2 million, and securities
increased by 90.1% to $169.2 million. The increase in securities
was due primarily to the net purchase of $44.8 million in
available for sale securities and $35.8 million in held to
maturity securities as part of a matched funding program by the
Bank to increase earnings. Cash and amounts due from banks,
interest-bearing deposits (which are held at the Federal Home
Loan Bank, "FHLB"), and federal funds sold are all liquid funds.
The aggregate amount in these three categories decreased by
$18.0 million to $13.7 million at December 31, 1997 from
$31.7 million at December 31, 1996, primarily due to a greater
amount of growth in loans and securities during 1997 than the
amount of growth in deposits. Amounts due from mortgage
investors increased from $3.5 million at year-end 1996 to
$5.4 million at year-end 1997. These amounts represent loans
originated by the Bank for other mortgage investors/lenders under
standing commitments. These loans are temporarily funded for
such investors for periods ranging from three to forty-five days
after origination. Bank premises and equipment, net of
accumulated depreciation, increased from $4.4 million at year-end
1996 to $6.4 million at year-end 1997. The increase of
$2.0 million was mainly attributable to the construction of two
new branch sites in Muhlenberg and Shillington. These offices
opened in the first and second quarters of 1997, respectively.
Prepaid expenses and other assets increased by $2.3 million, from
$0.5 million at December 31, 1996 to $2.8 million at December 31,
1997. The increase was mainly due to securities sold prior to
year end 1997, which did not settle until early 1998. Foreclosed
real estate decreased from $0.8 million at December 31, 1996 to
$0.2 million at December 31, 1997. Foreclosed real estate is
comprised of property acquired through foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure.
Total liabilities increased by $98.7 million, or 32.4%, from
$304.8 million at December 31, 1996 to $403.5 million at
December 31, 1997. During this period, deposits increased by
36.4% from $264.3 million at year-end 1996 to $360.6 million at
year-end 1997. The deposit mix changed considerably during 1997,
along the same trend as it did in 1996, because the Bank
continued to place greater emphasis upon the generation of
savings and checking deposits versus higher cost certificates of
deposits. This was accomplished by raising the rate of interest
paid for money market deposits in 1996 and maintaining the above
market interest rate throughout 1997; offering no-fee, "free"
personal and business checking; and also paying attractive
interest rates on interest checking accounts during a period of
time where major competitors charged fees for checking and paid
no interest, or lower interest, for checking accounts. The
aggregate amount of demand and savings deposits, which are lower
in rate than time deposits, increased $70.9 million, or 49.9%,
from $142.0 million at December 31, 1996 to $212.9 million at
December 31, 1997. As a percentage of total deposits, aggregate
demand and savings deposits increased from 53.7% at December 31,
1996 to 59.0% at December 31, 1997. Aggregate demand deposits
include non-interest bearing demand, interest checking (NOW) and
money market deposits. Certificates of deposit increased
$25.3 million, or 20.7%, from $122.3 million at year-end 1996 to
$147.6 million at December 31, 1997. As a percentage of total
deposits, certificates of deposit decreased from 46.3% at
December 31, 1996 to 40.9% at December 31, 1997. The proceeds
from the increase in deposits were used to fund new loans,
securities purchases, and additions to bank premises and
equipment. Other borrowed funds increased $8.4 million from
$13.7 million at year-end 1996 to $22.1 million at year-end 1997.
The increase was primarily the result of new FHLB advances with a
maturity date of less than one year. Long-term borrowed funds
decreased $12.0 million from $22.0 million at year-end 1996 to
$10.0 million at year-end 1997. This decrease was due to the
reclassification of long-term borrowings that, due to the passage
of time, mature in less than a year, or due to their prepayment.
BCB utilizes FHLB borrowings as part of its on-going matched
funding program to increase earnings and/or to manage
interest-rate risk and liquidity.
Stockholders' equity increased $24.4 million, or 123.9% to
$44.1 million at December 31, 1997 from $19.7 million at
December 31, 1996. The increase in stockholders' equity is
primarily attributable to the completion of BCB's secondary
public offering, during the third quarter of 1997, in which it
sold 1,380,000 shares at $16.375 per share. Net proceeds to BCB,
after deducting expenses of $1.7 million, were $20.9 million.
Also contributing to the increase was the retention of earnings
of $2.5 million, net of cash dividends declared of $0.8 million.
The change in net unrealized appreciation (depreciation) on
securities available for sale, net of taxes, was $766,000, from
($49,000) depreciation at December 31, 1996 to $717,000
appreciation at December 31, 1997. This increase was caused by
the general decrease in interest rates during the period. When
interest rates fall, the fair value of debt securities generally
increases, thereby increasing equity.
Results of Operations for the Years Ended December 31, 1997 and
1996
Overview
BCB's net income for the year-ended December 31, 1997 was
$3.3 million, increasing by 73.7% from $1.9 million for 1996.
The increase in net income for 1997 compared to 1996 was largely
attributable to an increase in net interest income.
Analysis of Net Interest Income
Historically, BCB'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. BCB's net interest income,
calculated on a tax-equivalent basis, increased $4.2 million, or
48.3%, to $12.9 million during 1997 from $8.7 million during
1996. The increase in net interest income was primarily due to
an increase in average interest-earning assets at rates higher
than the increase in average interest-bearing liabilities.
Interest income, on a tax-equivalent basis, increased
$9.8 million, or 53.0%, from $18.5 million in 1996 to
$28.3 million in 1997, while interest expense increased $5.5
million, or 56.1%, from $9.8 million in 1996 to $15.3 million in
1997.
Net interest margin decreased 13 basis points to 3.59% for
the year-ended December 31, 1997 compared to 3.72% for the
year-ended December 31, 1996, calculated on a tax-equivalent
basis. Net interest margin is the difference between interest
earned and interest paid, divided by average total
interest-earning assets. Net interest margin decreased in 1997
due primarily to a decrease in the average yield on interest
earning assets -- specifically securities, and an increase in the
average yield on interest-bearing liabilities, primarily other
borrowed funds and deposits. In 1997, the average yield on
interest-earning assets, on a tax equivalent basis, decreased 6
basis points, or less than 1 percent, to 7.85% compared to 7.91%
for the prior year-ended December 31, 1996. The average yield on
total interest-bearing liabilities (deposits plus borrowed funds)
increased 8 basis points, or 1.7%, to 4.87% for the year-ended
December 31, 1997 compared to 4.79% for the prior year-ended
December 31, 1996.
To the extent that BCB chooses to invest in tax-free
securities or extend tax-free loans, BCB's tax expense can be
reduced from the statutory rate of 34% to an effective rate below
that level. The amount of tax that is saved by the acquisition
of tax-free assets is included in interest income for purposes of
calculating the tax-equivalent yield on earning assets. During
the latter part of 1996, BCB significantly increased its
investments in State and Municipal Securities, which are
substantially tax-free, except for the disallowance of the
deduction of twenty percent of interest expense on deposits or
liabilities used to fund these investments, in accordance with
the Federal tax laws governing bank qualified securities. This
resulted in a substantial increase in the average balance in
State and Municipal securities in 1997, versus 1996.
Net interest income is affected by changes in the mix of the
volume and rates of interest-earning assets and interest-bearing
liabilities. The Average Balances, Average Rates, and Net
Interest Margin table provides an analysis of net interest income
on a tax-equivalent basis, setting forth for the periods
(i) average assets, liabilities and stockholders' equity,
(ii) interest income earned on interest-earning assets and
interest expense paid on interest-bearing liabilities,
(iii) average yields earned on interest-earning assets and
average rates paid on interest-bearing liabilities, and (iv) the
Bank's net interest margin (net interest income as a percentage
of average total interest-earning assets).
<TABLE>
<CAPTION>
Average Balances, Average Rates, and Net Interest Margin
Years Ended December 31, 1997 December 31, 1996 December 31, 1995
Interest Interest Interest
(Dollars in thousands) Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense(1) Rate(2) Balance Expense(1) Rate(2) Balance Expense(1) Rate(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits
at banks $ 4,287 $ 243 5.67% $ 8,095 $ 431 5.32% $ 9,716 $ 560 5.76%
U.S. Treasury 2,376 167 7.03 4,168 261 6.26 5,891 382 6.48
U.S. Government agencies 91,503 6,333 6.92 25,237 1,770 7.01 6,239 397 6.36
State and municipal (3) 32,574 2,560 7.86 22,003 1,773 8.06 7,336 591 8.06
Other bonds and securities 5,477 343 6.24 1,920 119 6.20 1,177 78 6.63
Total securities 131,930 9,403 7.13 53,328 3,923 7.36 20,643 1,448 7.01
Federal funds sold 649 35 5.55 2,319 121 5.22 1,290 73 5.66
Commercial loans (3) 104,044 9,098 8.74 76,196 6,758 8.87 57,443 5,307 9.24
Mortgage loans 100,446 7,779 7.74 78,745 5,952 7.56 66,832 5,124 7.67
Installment loans 18,640 1,703 9.14 15,194 1,324 8.71 9,585 864 9.01
Total loans(4) 223,130 18,580 8.33 170,135 14,034 8.25 133,860 11,295 8.44
Total interest-
earning assets 359,996 28,261 7.85 233,877 18,509 7.91 165,509 13,376 8.08
Unrealized depreciation on
available for sale
securities (106) (227) (172)
Allowance for loan losses (2,283) (1,849) (1,492)
Non-interest earning assets 22,275 15,479 11,821
Total assets $379,882 $247,280 $175,666
======== ======== ========
INTEREST-BEARING LIABILITIES:
Demand deposits,
interest-bearing $131,447 $5,131 3.90% $ 68,642 $ 2,582 3.76% $ 28,455 $ 937 3.29%
Savings deposits 12,384 402 3.25 11,010 343 3.12 10,162 272 2.68
Other time deposits 134,596 7,744 5.75 112,498 6,210 5.52 96,129 5,391 5.61
Total deposits 278,427 13,277 4.77 192,150 9,135 4.75 134,746 6,600 4.90
Other borrowed funds 22,150 1,256 5.67 5,803 303 5.22 2,736 141 5.15
Long-term borrowings 13,830 788 5.70 6,742 371 5.50 5,488 285 5.19
Total interest-bearing
liabilities 314,407 15,321 4.87 204,695 9,809 4.79 142,970 7,026 4.91
Demand deposits,
non-interest bearing 31,422 21,127 12,960
Other non-interest
bearing liabilities 4,682 2,718 1,870
Total liabilities 350,511 228,540 157,800
Redeemable common stock --- 14 315
Stockholders' equity 29,371 18,726 17,551
Total liabilities,
redeemable common stock
and stockholders' equity $379,882 $247,280 $175,666
======== ======== ========
Net interest income $12,940 $8,700 $6,350
======= ====== ======
Net interest margin(5) 3.59% 3.72% 3.84%
===== ===== =====
</TABLE>
_____________
(1) Includes loan fee income.
(2) Yields on investments are calculated on amortized cost.
(3) Taxable equivalent basis, using a 34% statutory tax rate and
adjusted for the disallowance of the deduction for interest
expense to carry bank eligible tax-exempt securities and
loans.
(4) Loans outstanding include non-accruing loans.
(5) Represents the difference between interest earned and
interest paid, divided by average total interest-earning
assets.
BCB's total interest income on a tax-equivalent basis
increased by $9.8 million during 1997 over the previous year,
from $18.5 million in 1996 to $28.3 million in 1997. Interest
and fees on loans increased $4.6 million, from $14.0 million for
the year-ended December 31, 1996 to $18.6 million for the
year-ended December 31, 1997, which was the result of an increase
in average loan volume, from $170.1 million at December 31, 1996
to $223.1 million at December 31, 1997, and an increase in the
average yield on loans, from 8.25% in 1996 to 8.33% in 1997.
Also contributing to the increase in total interest income was an
increase in interest and dividend income on securities of
$5.5 million, from $3.9 million in 1996 to $9.4 million in 1997.
This increase in investment income was the result of an increase
in the average balance of securities owned in 1997 versus 1996,
from $53.3 million in 1996 to $131.9 million in 1997. BCB has
elected during the past several years to maintain the bulk of its
excess liquidity in an interest-bearing account at the Federal
Home Loan Bank of Pittsburgh instead of selling it overnight as
Federal Funds Sold. By doing this during 1997, BCB increased its
yield on its deposits at the FHLB by 12 basis points over what it
could have earned in Federal Funds Sold, an average yield of
5.67% versus 5.55%. Plus, the FHLB affords BCB the protection of
an AAA/Aaa rated institution by Moody's and Standard and Poor,
since it is a quasi-Federal government agency.
BCB's total interest expense increased $5.5 million, or
56.1%, to $15.3 million in 1997 from $9.8 million in 1996. This
increase was due to an increase in the volume of average
interest-bearing liabilities of $109.7 million, or 53.6%, to
$314.4 million for the year-ended December 31, 1997 versus
$204.7 million for the year-ended December 31, 1996. The average
rate paid on interest-bearing liabilities increased 8 basis
points, or 1.7%, from 4.79% for 1996 compared to 4.87% for 1997.
This increase was primarily the result of BCB's decision to
leverage its balance sheet in order to increase earnings, thereby
electing to increase its average volume of borrowed funds, which
were at rates in excess of the average rate on total average
deposits.
The average rate paid on interest-bearing demand deposits,
primarily money market savings and interest checking accounts,
increased in 1997 to 3.90% from 3.76% in 1996. Additionally, the
average volume increased from $68.6 million in 1996 to
$131.4 million in 1997, an increase of $62.8 million, or 91.5%.
BCB believes that its strategy of paying an above market 4.20%
APY (annual percentage yield) on money market savings accounts
having balances of $1,000 or more, and guaranteeing that APY
through June 30, 1998 has resulted in significant volume
increases in deposits at incremental costs far below those that
would have been paid for the same volume of certificates of
deposit.
Interest expense on time deposits increased $1.5 million, or
24.2%, from $6.2 million during 1996 to $7.7 million during 1997.
This increase was due to an increase in the average volume of
certificates of deposit in the amount of $22.1 million, or 19.6%,
from $112.5 million in 1996 to $134.6 million in 1997.
Interest expense on other borrowed funds and long-term
borrowings increased in 1997 to $2.0 million from $0.7 million in
1996 as the average balance increased to $36.0 million in 1997
from $12.5 million in 1996. The increase, along with the increase
in deposits and other borrowed funds, funded purchases of
securities and loans as part of an on-going matched funding
program that's primary purpose was to increase earnings while
also managing interest-rate risk and liquidity. An integral part
of this strategy was to aggressively promote "free" non-interest
bearing business and personal demand (checking) accounts. This
strategy is continuing into 1998 in an on-going effort by BCB to
lower its overall cost of funds while attracting significant
volumes of new deposits at incremental rates below rates on
certificates of deposit or borrowings.
During 1997, non-interest bearing business and personal
demand (checking) deposits increased to $38.5 million at
December 31, 1997 from $29.0 million at December 31, 1996, an
increase of $9.5 million, or 32.8%. On an average balance basis,
the increase from 1996 to 1997 was $10.3 million, or 48.8%, from
$21.1 million in 1996 to $31.4 million in 1997. Since the cost
of funds on these deposits is zero percent, to the extent BCB is
successful in increasing these non-interest bearing deposits as a
percentage of total deposits, it should mitigate any above market
interest rates paid on savings and time deposits acquired to fund
earning assets in the future.
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 "Rate/Volume Analysis of Changes in Net Interest
Income" table which follows 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>
Years Ended December 31,
1997 vs. 1996 1996 vs. 1995
Change due to Change due to
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest-bearing deposits
with banks $ (294) $ 106 $ (188) $ 428 $ (557) $ (129)
Federal funds sold (87) 2 (85) (42) 90 48
Securities (1) 5,816 (337) 5,479 2,941 (466) 2,475
Loans (1) 4,485 61 4,546 3,415 (676) 2,739
Total interest income $9,920 $ (168) $9,752 $ 6,742 $(1,609) $5,133
Interest paid on:
Interest-bearing demand
and savings deposits $2,385 $ 223 $2,608 $1,097 $ 619 $1,716
Time deposits under $100,000 143 5 148 724 68 792
Time deposits $100,000 and above 1,078 309 1,387 193 (166) 27
Borrowed funds 1,284 85 1,369 2,009 (1,761) 248
Total interest expense $4,890 $ 622 $5,512 $4,023 $(1,240) $2,783
Net interest income $5,030 $ (790) $4,240 $2,719 $ (369) $2,350
====== ======= ====== ====== ======= ======
</TABLE>
______________
(1) Interest income is reported on a tax-equivalent basis, using
a 34% statutory tax rate and adjusted for the disallowance
of the deduction for interest expense to carry bank eligible
tax-exempt securities and loans.
Provision for Loan Losses
The provision for loan losses is charged to operations to
bring the total allowance for loan losses to a level considered
appropriate by management. The level of the allowance for loan
losses is determined by management of the Bank based upon its
evaluation of the known as well as inherent risks within the
Bank's loan portfolio. Management's periodic evaluation is based
upon an examination of the portfolio, past loss experience,
current economic conditions, the results of the most recent
regulatory examinations and other relevant factors (See
discussion under "Asset Quality"). The provision for loan losses
was $1.0 million for 1997 compared to $0.7 million for 1996.
The reason for the increase in 1997 was to replace that
portion of the allowance for loan losses used to fund loan
charge-offs, net of recoveries, in 1997 of $358,000 as well as to
build the allowance for loan losses to a level deemed to be
satisfactory given the growth in the size of the loan portfolio
during 1997. Non-performing assets were 0.90% of total assets at
December 31, 1997, compared to 1.12% at December 31, 1996.
Delinquencies were down to 2.3% at December 31, 1997, from the
2.7% ratio at December 31, 1996.
Other Income
Non-interest income increased $0.8 million, or 61.5%, from
$1.3 million in 1996 to $2.1 million in 1997. The increase was
due primarily to a $0.3 million increase in customer service fees
for services such as merchant cards, overdrafts and NSF
(non-sufficient funds) charges, safe deposit box rentals, and
other services 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 $0.3 million, or 50.0%, from
$0.6 million in 1996 to $0.9 million in 1997, due to an increase
in investors' mortgage commitments in 1997. In 1997, BCB also
realized gains on the sale of securities of $176,000, an increase
of $177,000 over the ($1,000) net losses realized in 1996.
Other Expenses
Total other expenses increased $2.6 million, or 40.0%, from
$6.5 million in 1996 to $9.1 million in 1997. Salaries, wages
and employee benefits increased $1.8 million, or 64.3%, from
$2.8 million in 1996 to $4.6 million in 1997. The primary reason
for the increase in salaries, wages and employee benefits was the
opening and staffing of two new branches in Muhlenberg and
Shillington along with the additional backroom staff required to
support the rapid growth of the bank.
Occupancy expenses increased $142,000, or 24.9%, from
$570,000 in 1996 to $712,000 in 1997. Equipment expenses
increased $136,000 or 32.5%, from $419,000 in 1996 to $555,000 in
1997. Other operating expenses increased $0.6 million, or 23.1%,
from $2.6 million in 1996 to $3.2 million in 1997. Other
operating expenses encompasses all expenses not otherwise
categorized and includes items such as third-party data
processing costs for ATM machines, FDIC insurance premiums,
professional fees, advertising costs, insurance and other
miscellaneous expenses. The primary reason why occupancy,
equipment, and other operating expenses increased during 1997 was
the growth of the Bank.
The largest increase in other operating expenses in 1997
came from office supplies and expenses. In 1997 office supplies
and expenses were $612,000 versus $372,000 in 1996, a $240,000
increase, or 64.5%. Professional fees also increased
significantly, to $350,000 in 1997 versus $161,000 in 1996, a
$189,000 increase, or 117.4%. These two expenses account for
78.9% of the net increase in the other operating expense
category. Other expenses that increased significantly in 1997
versus 1996 were Advertising, a $60,000 or 10.0% increase;
Insurance, a $20,000 or 23.9% increase; Dues and Subscriptions,
an $18,000 or 98.2% increase; Travel and Entertainment, a $30,000
or 67.7% increase; Data Processing and MAC Fees, a $117,000 or
31.9% increase; Telephone, a $32,000 or 53.7% increase; and other
loan expenses increased $111,000 or 80.3%.
During the normal course of operations, it sometimes becomes
necessary for the Bank to take possession of real estate
collateral associated with non-performing loans. Until that real
estate is disposed of through a sale, the Bank often must incur
maintenance, repair, taxes and other expenses in order to protect
the value of that real estate. These costs, plus losses (net of
gains) on the sale of foreclosed real estate totaled $301,000 in
1996, but decreased to a net gain of ($66,000) in 1997, a
decrease of $367,000.
Provision for Income Taxes
The provision for federal income taxes increased $435,000,
or 100.5%, to $868,000 in 1997 from $433,000 in 1996. The
effective tax rates for the years ended December 31, 1997 and
1996 were 20.8% and 18.5% respectively. The significant decrease
in 1997's and 1996's effective tax rate from the statutory tax
rate of 34% was due to the significant generation of tax-exempt
interest income earned on bank-qualified municipal securities and
loans. The significant increase in the amount of federal income
taxes from 1996 to 1997 was the result of the substantial
increase in income before income taxes of $1.9 million, from
$2.3 million in 1996 to $4.2 million in 1997. A reconciliation
of the statutory income tax at a rate of 34% to the income tax
expense for 1997 and 1996 is included in footnote No. 8 to the
consolidated financial statements.
Asset Quality
Non-performing assets as a percentage of total assets
decreased 19.6% from 1.12% at December 31, 1996 to 0.90% at
December 31, 1997. Non-performing assets increased 11.1%, from
$3.6 million at December 31, 1996 to $4.0 million at December 31,
1997. Non-performing assets are comprised of non-accrual loans,
accruing loans that are 90 days or more past due which are
insured for credit loss, foreclosed real estate (assets acquired
in foreclosures), and restructured loans. It is the Bank's
policy to classify a loan, other than a loan insured for credit
loss, as non-accrual within ten days after the month end in which
the loan becomes 90 days past due for either principal or
interest.
The balance in the allowance for loan losses was
$2.6 million, or 1.05% of total loans, at December 31, 1997. At
December 31, 1996, the balance in the allowance for loan losses
was $2.0 million, or 1.03% of total loans. The balance in the
allowance for loan losses was 1.97% of total loans excluding
residential mortgages at December 31, 1997, compared to 1.83% at
December 31, 1996. The ratio of the allowance for loan losses to
non-performing loans was 67.58% at December 31, 1997 compared to
69.75% at December 31, 1996. It has been the Bank's experience
that the percentage of loan losses have been substantially less
in its residential mortgage portfolio than its commercial loan
portfolio. At December 31, 1997, 44.5% of the Bank's loan
portfolio was in residential mortgage loans, compared to 46.1% at
December 31, 1996.
As a financial institution which assumes lending and credit
risks as a principal element of its business, BCB anticipates
that credit losses will be experienced in the normal course of
business. Accordingly, management of BCB makes a quarterly
determination as to an appropriate provision from earnings
necessary to maintain an allowance for loan losses that is
adequate for potential yet undetermined losses. The amount
charged against earnings is based upon several factors including,
at a minimum, each of the following:
- a continuing review of delinquent, classified and
non-accrual loans, large loans, and overall portfolio
quality. This continuous review assesses the risk
characteristics of both individual loans and the total
loan portfolio;
- analytical review of loan charge-off experience,
delinquency rates and other relevant historical and
peer statistical ratios;
- management's judgment with respect to local and general
economic conditions and their impact on the existing
loan portfolio;
- regular examinations and reviews of the loan portfolio
by the bank regulators.
When it is determined that the prospect for recovery of the
principal of a loan has significantly diminished, that portion of
the loan is immediately charged against the allowance account.
Subsequent recoveries, if any, are credited to the allowance
account. In addition, non-accrual and large delinquent loans are
reviewed monthly to determine potential losses.
Management believes the allowance for loan losses was
adequate to cover risks inherent in its loan portfolio at
December 31, 1997. However, there can be no assurance that BCB
will not have to increase its provision for loan losses in the
future as a result of changes in economic conditions or for other
reasons. Any such increase could adversely affect BCB's results
of operations.
Interest-Rate Risk Management
Interest-rate risk management involves managing the extent
to which interest-sensitive assets and interest-sensitive
liabilities are matched. The Bank typically defines
interest-sensitive assets and interest-sensitive liabilities as
those that reprice within one year or less. Maintaining an
appropriate match is a method of avoiding wide fluctuations in
net-interest margin during periods of changing interest rates.
The difference between interest-sensitive assets and
interest- sensitive liabilities is known as the
"interest-sensitivity gap" ("GAP"). A positive GAP occurs when
interest-sensitive assets exceed interest-sensitive liabilities
repricing in the same time periods, and, a negative GAP occurs
when interest-sensitive liabilities exceed interest-sensitive
assets repricing in the same time periods. A negative GAP ratio
suggests that a financial institution may be better positioned to
take advantage of declining interest rates rather than increasing
interest rates, and a positive GAP ratio suggests the converse.
The Bank attempts to manage its assets and liabilities in a
manner that stabilizes net interest income and net economic value
under a broad range of interest rate environments. Adjustments
to the mix of assets and liabilities are made periodically in an
effort to give the Bank dependable and steady growth in net
interest income regardless of the behavior of interest rates in
the economy.
The Interest Rate Sensitivity Analysis table presents a
summary of the Bank's interest rate sensitivity at December 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 pre-paid
before their maturity date, even without regard to interest rate
fluctuations. See "Interest Rate Sensitivity Analysis at
December 31, 1997."
However, 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 Interest Rate Sensitivity Analysis 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
.75 beta factor 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
(dependent variable). 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 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 December 31, 1997 indicate that despite the
negative GAP balance shown in the zero to one year periods of the
Interest Rate Sensitivity Analysis table, the Bank does not have
material interest-rate risk in the event that interest rates rise
or fall as much as 300 basis points over the next twelve months.
BCB uses quantitative statistical measures such as Regression
analysis as well as empirical evidence to determine the most
appropriate measure for "Beta."
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS AT December 31, 1997 (1)
0 days 31 days 61 days 91 days 181 days 1 year
through through through through through through Over 5
30 days 60 days 90 days 180 days 1 year 5 years Years Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $45,518 $4,444 $4,582 $16,445 $32,013 $106,272 $ 39,536 $248,810
Securities (2) 5,904 0 0 293 320 28,405 133,231 168,153
Interest-bearing deposits
& Federal Funds sold 645 0 0 0 0 0 0 645
Total $52,067 $4,444 $4,582 $16,738 $32,333 $134,677 $172,767 $417,608
Interest-bearing liabilities:
Interest bearing deposits $59,606 $4,137 $4,465 $ 6,536 $15,269 $108,314 $123,759 $322,086
Borrowed Funds 20,056 0 0 0 2,000 10,000 0 32,056
Non-interest-bearing
deposits 7,562 0 0 0 0 0 30,904 38,466
Total $87,224 $4,137 $4,465 $ 6,536 $17,269 $118,314 $154,663 $392,608
Interest-rate sensitivity
gap:
Interval ($35,157) $ 307 $ 117 $10,202 $15,064 $ 16,363 $ 18,104 $ 25,000
========= ====== ====== ======= ======= ======== ======== ========
Cumulative ($35,157) ($34,850) ($34,733) ($24,531) ($9,467) $ 6,896 $ 25,000 $ 25,000
========= ========= ========= ========= ======== ======== ======== ========
Ratio of cumulative gap
to total rate-sensitive
assets (8.42%) (8.35%) (8.32%) (5.87%) (2.27%) 1.65% 5.99% 5.99%
======= ======= ======= ======= ======= ===== ===== =====
</TABLE>
____________
(1) Calculated on a beta-adjusted basis.
(2) Maturity of securities is based on maturity date; excludes
unrealized appreciation on available for sale securities.
Capital
BCB's Tier 1 capital to risk-weighted assets ratio at
December 31, 1997 was 17.01% compared to 10.39% at December 31,
1996. These ratios far exceeded the Tier I regulatory capital
requirement of 4.00%. BCB's total capital to risk-weighted
assets ratio at December 31, 1997 was 18.03% compared to 11.44%
at December 31, 1996. These ratios exceeded the total risk-based
capital regulatory requirement of 8.00%. At December 31, 1997,
BCB's leverage ratio was 9.87% versus 6.82% at December 31, 1996.
BCB is categorized as "well capitalized" under applicable Federal
regulations. BCB's capital performance, as measured by its return
on average equity ratio (ROAE), increased to 11.24% in 1997 from
10.16% in 1996. This increase was caused by a faster rate of
growth in earnings in 1997 than the rate of growth in average
equity in 1997.
Banking laws and regulations limit the amount of dividends
that may be paid. Under current banking laws, the Bank would be
limited to approximately $5.1 million of dividends in 1998 plus
an additional amount equal to the Bank's net profit for 1998, up
to the date of such dividend declaration. In December 1997, BCB
declared an $.08 per share cash dividend to stockholders of
record on January 2, 1998, payable January 20, 1998.
Liquidity and Capital Resources
Financial institutions must maintain liquidity to meet
day-to-day requirements of depositors and borrowers, take
advantage of market opportunities, and provide a cushion against
unforeseen needs. Liquidity needs can be met by either reducing
assets or increasing liabilities. Sources of asset liquidity are
provided by securities maturing within one year, cash and amounts
due from banks, interest-bearing deposits with banks, and Federal
funds sold.
These liquid assets totalled $20.3 million at December 31,
1997 compared to $38.8 million at December 31, 1996. Maturing
and repaying loans are another source of asset liquidity. At
December 31, 1997, the Bank estimated that an additional
$28.8 million of loans will mature or repay in the next six-month
period ended June 30, 1998.
Liability liquidity can be met by attracting deposits with
competitive rates, buying Federal funds or utilizing the
facilities of the Federal Reserve System or the Federal Home Loan
Bank System. The Bank utilizes a variety of these methods of
liability liquidity. At December 31, 1997, the Bank had
approximately $146.1 million in unused lines of credit available
to it under informal arrangements with the Federal Home Loan Bank
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
Consolidated Statements of Cash Flows. See "Consolidated
Financial Statements." Net cash provided by (used in) operating
activities during the years ended December 31, 1997 and 1996 was
($0.6 million) and $3.0 million, respectively. The decrease from
1996 to 1997 was due primarily to an increase in due from
mortgage investors, accrued interest receivable, and prepaid
expenses and other assets. BCB's cash flows from financing
activities remained relatively consistent at $113.1 million
during the year-ended December 31, 1997 compared to
$113.4 million in 1996. During 1997, the cash provided by
financing activities was the result of a continued net increase
in deposits and the cash proceeds from BCB's stock offering
completed in July 1997. In 1996, such cash was provided by the
net increase in deposits and net borrowings with the Federal Home
Loan Bank. The net increase in deposits was $84.4 million in
1996 versus a net increase of $96.2 million in 1997. BCB
utilized $108.3 million in cash for investing activities in 1997
compared to $115.1 million in 1996. Cash utilized for investing
activities was primarily due to an increase in loans originated
for the portfolio in 1997 versus 1996 and by the purchase of
securities, offset by a decrease in interest-bearing deposits
with banks. The changes in cash flows resulted in a net increase
of internally generated cash of $4.1 million during the
year-ended December 31, 1997 compared to a net increase in 1996
of $1.3 million.
Capital expenditures that are anticipated for 1998 include
approximately $2.75 million for the purchase and improvement of
an operations center at 601 Penn Street, Reading, PA. Also
anticipated for 1998 are capital expenditures for the purchase,
improvement, and construction of three full-service branch sites
totaling approximately $2.5 million. Each of these sites have
been announced, one to be located in Hamburg, a second in
Boyertown, and a third in Robesonia. The Hamburg site should
only require modest improvements plus equipment totaling about
$100,000, because this site is being leased. The Hamburg branch
is expected to open in March 1998 and is located in Hamburg,
Berks County, Pennsylvania. The Boyertown site includes
improvements to land plus construction that will be approximately
$1.25 million. The Boyertown site is located in Douglass
Township, Montgomery County, Pennsylvania, and is expected to
open in the third quarter of 1998. The Robesonia site is under
agreement of sale and includes improvements to land plus
construction. The Robesonia site is located in Heidelberg
Township, Berks County and is expected to open in the third
quarter of 1998. These cost estimates also include furniture,
fixtures, and equipment necessary to operate these offices.
Effects of Inflation
The Bank's asset and liability structure is primarily
monetary in nature. As such, the Bank's assets and liabilities
tend to move in concert with inflation. While changes in
interest rates may have a significant impact on financial
performance, interest rates do not necessarily move in the same
direction or in the same magnitude as prices of other goods and
services and may frequently reflect government policy initiatives
or economic factors not measured by a price index.
Recently Issued Accounting Guidance
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements. Statement No. 130 requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. BCB will adopt Statement No. 130 in its
March 31, 1998 Form 10-QSB. Reclassification of financial
statements for earlier periods provided for comparative purposes
will be required. Adoption of Statement No. 130 is not expected
to have a material impact on BCB.
In June 1997, the FASB issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for the way that public
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. Statement No. 131
supersedes FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise." BCB will adopt Statement
No. 131 in its December 31, 1998 Form 10-KSB, and comparative
information for earlier years will be restated. Adoption of
Statement No. 131 is not expected to have a material impact on
BCB.
Future Outlook
On November 19, 1997, BCB announced that it had jointly
signed a Definitive Agreement and Plan of Consolidation with
Heritage Bancorp, Inc., located in Pottsville, Pennsylvania.
Under the Agreement BCB and Heritage will consolidate into a
new holding company which will direct the banking activities of
Berks County Bank and Heritage National Bank. On a pro forma
basis, at December 31, 1997 the resulting company would have had
combined assets of $813.9 million and combined shareholders'
equity of $88.7 million. Pro forma earnings for the combined
organization for the year ended December 31, 1997 would have been
$9.3 million.
Under the terms of the Agreement, BCB Financial Services
Corporation shareholders will receive 1.3335 shares of common
stock of the new holding company for each BCB share owned on the
date of record. Heritage shareholders will receive 1.05 shares
for each Heritage share owned on the date record. The
transaction, which is subject to regulatory approvals and the
approval of BCB and Heritage shareholders, will be accounted for
as a pooling of interests and will be a tax free reorganization.
The transaction is expected to close during the second quarter of
1998.
BCB and Heritage, through their subsidiary banks, currently
operate 20 community offices in Berks, Montgomery, Schuylkill and
Dauphin Counties. In addition, there are loan offices in Berks,
Bucks, Chester, Lehigh, Montgomery and Schuylkill Counties.
Executive management of the new corporation will include
Nelson R. Oswald, Chairman and Chief Executive Officer, Allen E.
Kiefer, President and Chief Operating Officer, Robert D. McHugh,
Jr., Executive Vice President and Chief Financial Officer and
Richard A. Ketner, Executive Vice President and Chief
Administrative Officer. Oswald will continue to be President and
CEO of Berks County Bank and Kiefer will serve as President and
CEO of Heritage National Bank.
On October 10, 1997, BCB entered into an agreement of sale
to purchase the 150,000 square foot Penn Square Center located at
601 Penn Street, Reading, Pennsylvania. It is expected that
BCB's and Berks County Bank's executive/administrative offices
will occupy four of the ten floors of this facility. BCB plans
to lease out the remaining floors. The total purchase price for
the building is $2,475,000 and includes an ATM Machine and
certain furniture, fixtures and equipment. Settlement occurred
on February 18, 1998.
On February 4, 1998, BCB Financial Services Corporation and
its wholly owned subsidiary, Berks County Bank, submitted to the
Department of Banking, of the Commonwealth of Pennsylvania, an
application for a Letter of Authority to establish a branch
office at Sixth and Penn Streets, Reading, in Berks County,
Pennsylvania. This represents a relocation of Berks County
Bank's Reading office currently located at 400 Washington Street,
Reading, to Sixth and Penn Streets.
On January 6, 1998, Berks County Bank announced that the
Bank's seventh full-service branch will be opened in Hamburg
(Berks County), Pennsylvania. The Hamburg branch is expected to
open in the first quarter of 1998. Berks County Bank has agreed
to lease a 1,500 square foot commercial property for the Hamburg
branch.
On November 24, 1997, Berks County Bank announced that the
Bank's eighth full-service branch will be opened near Boyertown
in Douglass Township (Montgomery County), Pennsylvania. The
Boyertown branch is expected to open in the third quarter of
1998. Berks County Bank has purchased land for the construction
of the Boyertown branch.
On December 8, 1997, Berks County Bank entered into an
agreement of sale for a parcel of land in Heidelberg Township
(Berks County), Pennsylvania. Berks County Bank will use this
parcel of land to construct its ninth full-service branch.
Estimated completion date for the Robesonia branch is the third
quarter of 1998. The aggregate purchase price for the parcel is
$189,000.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
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, 1997 and 1996,
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,
1997 and 1996, 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 30, 1998
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
(In Thousands,
Except Per Share Data)
ASSETS
Cash and due from banks $ 13,093 $ 8,985
Interest-bearing deposits with banks 175 21,407
Federal funds sold 470 1,290
Securities available for sale 98,326 53,489
Securities held to maturity, fair value
1997 $71,769; 1996 $ 35,147 70,914 35,065
Loans receivable, net of allowance for
loan losses 1997 $ 2,603; 1996 $ 2,001 246,207 192,148
Mortgage loans held for sale - 609
Due from mortgage investors 5,425 3,478
Premises and equipment, net 6,399 4,395
Accrued interest receivable 3,571 2,129
Foreclosed real estate 175 762
Deferred income taxes 80 246
Prepaid expenses and other assets 2,759 519
Total assets $447,594 $324,522
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 38,466 $ 29,048
Demand, interest bearing 165,311 100,847
Savings 9,126 12,123
Time deposits 147,649 122,305
Total deposits 360,552 264,323
Accrued interest payable and other
liabilities 10,885 4,777
Other borrowed funds 22,056 13,718
Long-term debt 10,000 22,000
Total liabilities 403,493 304,818
Stockholders' equity:
Common stock, par value $ 2.50 per
share; authorized 20,000,000 shares;
issued and outstanding 1997
3,471,062 shares; 1996 2,070,385
shares 8,678 5,176
Surplus 27,550 9,876
Retained earnings 7,156 4,701
Net unrealized appreciation
(depreciation) on securities
available for sale, net of
taxes 717 (49)
Total stockholders' equity 44,101 19,704
Total liabilities and stockholders'
equity $447,594 $324,522
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1997 1996
(In Thousands,
Except Per Share Data)
Interest income:
Loans receivable, including fees $18,536 $14,011
Interest and dividends on securities:
U.S. Treasury 168 261
U.S. Government agencies and
corporations 6,333 1,770
State and political subdivisions,
tax-exempt 1,782 1,230
Dividends 341 119
Interest-bearing deposits with banks 243 431
Federal funds sold 35 121
Total interest income 27,438 17,943
Interest expense:
Deposits 13,277 9,135
Other borrowed funds 1,256 303
Long-term debt 788 371
Total interest expense 15,321 9,809
Net interest income 12,117 8,134
Provision for loan losses 960 687
Net interest income after
provision for loan losses 11,157 7,447
Other income:
Customer service fees 961 697
Mortgage banking activities 915 634
Net realized gain (loss) on sales
of securities 176 (1)
Other 38 15
Total other income 2,090 1,345
Other expenses:
Salaries and wages 3,770 2,265
Employee benefits 875 580
Occupancy 712 570
Equipment depreciation and
maintenance 555 419
Other 3,166 2,622
Total other expenses 9,078 6,456
Income before income taxes 4,169 2,336
Federal income taxes 868 433
Net income $ 3,301 $ 1,903
Basic earnings per share $ 1.23 $ 0.92
Diluted earnings per share $ 1.20 $ 0.91
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> Years Ended December 31, 1997 and 1996
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available For
Stock Surplus Earnings Sale Total
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $4,276 $10,628 $3,234 $ 157 $18,295
Issuance of 2,584 shares of common stock upon
exercise of stock options 7 11 - - 18
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes - - - (206) (206)
Transfer of 12,539 shares from redeemable
common stock 31 99 - - 130
Issuance of 344,873 shares of common stock
in connection with a 6 for 5 stock split,
effectuated as a 20% stock dividend 862 (862) (1) - (1)
Cash dividends declared ($ .21 per share) - - (435) - (435)
Net income - - 1,903 - 1,903
Balance, December 31, 1996 5,176 9,876 4,701 (49) 19,704
Issuance of 6,146 shares of common stock upon
exercise of stock options 16 43 - - 59
Issuance of 14,531 shares of common stock under
dividend reinvestment and stock purchase plan 36 212 - - 248
Proceeds from issuance of 1,380,000 shares of
common stock upon completion of stock
offering (net of offering costs of $ 1,728) 3,450 17,419 - - 20,869
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes - - - 766 766
Cash dividends declared ($ .30 per share) - - (846) - (846)
Net income - - 3,301 - 3,301
Balance, December 31, 1997 $8,678 $27,550 $7,156 $ 717 $44,101
====== ======= ====== ===== =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
<TABLE>
Years Ended December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,301 $ 1,903
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and foreclosed real estate
losses 1,075 920
Provision for depreciation and amortization 536 376
Net realized (gain) loss on sales of securities (176) 1
Gain on sale of foreclosed real estate (223) (57)
Proceeds from sale of mortgage loans 51,251 34,710
Net (gain) loss on sale of mortgage loans (13) 11
Mortgage loans originated for sale (50,629) (34,878)
Net accretion (amortization) of securities
premiums and discounts 40 (74)
(Increase) decrease in:
Due from mortgage investors (1,947) (274)
Accrued interest receivable (1,442) (903)
Deferred income taxes (229) 69
Prepaid expenses and other assets (2,208) (350)
Increase in accrued interest payable
and other liabilities 21 1,523
Net cash provided by (used in) operating
activities (643) 2,977
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for
sale 25,598 2,882
Proceeds from maturities of and principal
repayments on securities available for sale 20,490 1,822
Proceeds from maturities and calls of securities
held to maturity 7,170 1,610
Purchases of securities available for sale (89,652) (36,916)
Purchases of securities held to maturity (37,094) (27,430)
(Increase) decrease in interest-bearing deposits
with banks 21,232 (11,364)
Net decrease in federal funds sold 820 1,755
Loans made to customers, net of principal
collected (55,761) (46,740)
Proceeds from sales of foreclosed real estate 1,437 575
Purchases of premises and equipment (2,540) (1,277)
Net cash used in investing activities (108,300) (115,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 96,229 84,385
Net proceeds from other borrowed funds 6,338 11,428
Proceeds from long-term debt - 22,000
Principal payments of long-term borrowings (10,000) (4,000)
Proceeds from exercise of stock options 59 18
Proceeds from dividend reinvestment and stock
purchase plan 248 -
Net proceeds from stock offering 20,869 -
Cash payments for fractional shares in connection
with stock dividend - (1)
Cash dividends (692) (396)
Net cash provided by financing activities 113,051 113,434
Increase in cash and due from banks 4,108 1,328
Cash and due from banks:
January 1 8,985 7,657
December 31 $ 13,093 $ 8,985
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 14,960 $ 9,512
Income taxes $ 797 $ 490
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 937 $ 245
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of BCB Financial Services Corporation ("the Company"), a
bank holding company, and its wholly-owned subsidiary, Berks
County Bank ("the Bank"). All significant intercompany
accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a state bank charter and provides
full banking services. The bank holding company and the
Bank are subject to regulation of the Pennsylvania
Department of Banking and the Federal Reserve Bank. The
area served by the Bank is principally Berks, Bucks,
Chester, Montgomery and Schuylkill Counties in Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks.
Securities:
Securities that management has both the positive intent and
ability to hold to maturity are classified as securities
held to maturity and are carried at cost, adjusted for
amortization of premium or accretion of discount using the
interest method. Securities that may be sold prior to
maturity for asset/liability management purposes, or that
may be sold in response to changes in interest rates,
changes in prepayment risk, to increase regulatory capital
or other similar factors, are classified as securities
available for sale and carried at fair value with
adjustments to fair value, after tax, reported as a separate
component of stockholders' equity. Management determines
the appropriate classification of debt securities at the
time of purchase and reevaluates such designation at each
balance sheet date.
Interest and dividends on securities, including the
amortization of premiums and the accretion of discounts, are
reported in interest and dividends on securities using the
interest method. Gains and losses on the sale of securities
are recorded on the trade date and are calculated using the
specific identification method.
Loans receivable:
Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or
payoff are stated at their outstanding unpaid principal
balances, net of an allowance for loan losses and any
deferred fees or costs. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and
recognized as an adjustment of the yield (interest income)
of the related loans. The Bank is generally amortizing
these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal
and interest payments due in accordance with the terms of
the loan agreement. The accrual of interest is generally
discontinued when the contractual payment of principal or
interest has become 90 days past due or management has
serious doubts about further collectibility of principal or
interest, even though the loan is currently performing. A
loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against
the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against
principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time
and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or
the fair value, less selling costs, of the collateral for
collateral dependent loans. By the time a loan becomes
probable of foreclosure it has been charged down to fair
value, less estimated cost to sell.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation of
the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current
economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows
expected to be received on impaired loans.
Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or
estimated fair value. Net unrealized losses are recognized
through a valuation allowance by corresponding charges in
the statements of income. All sales are made without
recourse.
Due from mortgage investors:
A division of the Bank performs underwriting and origination
services for various mortgage investors. As part of this
program, the Bank will temporarily fund the investors'
mortgage commitments for periods generally ranging from
three to forty-five 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 and loans classified as in-substance
foreclosure. A loan is classified as in-substance
foreclosure when the Bank has taken possession of the
collateral regardless of whether formal foreclosure
proceedings take place.
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, net realized gains and losses on sales and
changes in the valuation allowance are included in other
expenses.
Advertising costs:
The Bank follows the policy of charging the 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:
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." Statement No. 128
replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options,
warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts
for all periods have been presented to conform to the
requirements of Statement No. 128.
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 1996 financial statements have been
reclassified to conform to the 1997 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 $1,620,000 and
$1,000,000 at December 31, 1997 and 1996 respectively.
3. SECURITIES
The amortized cost and approximate fair value of securities
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
December 31, 1997:
U.S. Treasury securities $ 991 $ 9 $ - $ 1,000
U.S. Government agencies
and corporations 32,981 488 (9) 33,460
States and political
subdivisions 23,192 531 (5) 23,718
Mortgage-backed and
asset-backed securities 33,006 121 (80) 33,047
Equity securities 7,069 32 - 7,101
$97,239 $1,181 $ (94) $98,326
December 31, 1996:
U.S. Treasury securities $ 3,465 $ 44 $ - $ 3,509
U.S. Government agencies
and corporations 18,000 58 (75) 17,983
States and political
subdivisions 23,275 141 (219) 23,197
Mortgage-backed and
asset-backed securities 4,357 11 (35) 4,333
Equity securities 4,467 - - 4,467
$53,564 $ 254 $(329) $53,489
Held to maturity securities:
December 31, 1997:
U.S. Government agencies
and corporations $60,724 $ 602 $ (41) $61,285
States and political
subdivisions 10,165 302 (8) 10,459
Other 25 - - 25
$70,914 $ 904 $ (49) $71,769
December 31, 1996:
U.S. Government agencies
and corporations $24,253 $ 138 $(217) $24,174
States and political
subdivisions 10,787 173 (12) 10,948
Other 25 - - 25
$35,065 $ 311 $(229) $35,147
</TABLE>
Equity securities are principally comprised of Federal Home
Loan Bank and Federal Reserve Bank stock.
The amortized cost and fair value of securities as of
December 31, 1997, 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.
Available For Sale Held To Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(In Thousands)
Due in one year or less $ 498 $ 499 $ 365 $ 384
Due after one year
through five years 493 500 1,704 1,714
Due after five years
through ten years 16,981 17,290 21,302 21,809
Due after ten years 39,192 39,889 47,543 47,862
Mortgage-backed and
asset-backed
securities 33,006 33,047 - -
Equity securities 7,069 7,101 - -
$97,239 $98,326 $70,914 $71,769
Gross gains of $217,028 and gross losses of $41,031 were
realized on sales of available for sale securities in 1997.
Gross gains of $1,757 and gross losses of $2,439 were
realized on sales of available for sale securities in 1996.
Securities with an amortized cost of $15,477,000 and
$4,963,000 at December 31, 1997 and 1996 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, 1997 and
1996 were as follows:
1997 1996
(In Thousands)
Commercial $109,813 $ 82,886
Installment 19,942 16,262
Mortgage 104,714 85,027
Construction 13,804 9,672
248,273 193,847
Less:
Allowance for loan losses 2,603 2,001
Net deferred loan fees and costs (537) (302)
2,066 1,699
$246,207 $192,148
Changes in the allowance for loan losses for the years ended
December 31, 1997 and 1996 were as follows:
1997 1996
(In Thousands)
Balance, beginning $2,001 $1,674
Provision for loan losses 960 687
Loans charged off (441) (448)
Recoveries 83 88
Balance, ending $2,603 $2,001
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $1,685,655 and $587,483 at
December 31, 1997 and 1996 respectively. The recorded
investment in impaired loans requiring an allowance for loan
losses was $227,336 and $711,861 at December 31, 1997 and
1996 respectively. At December 31, 1997 and 1996, the
related allowance for loan losses associated with those
loans was $146,626 and $252,321 respectively. For the years
ended December 31, 1997 and 1996, the average recorded
investment in these impaired loans was $1,563,001 and
$1,425,975 respectively. Interest income on impaired loans
of $38,638 and $23,840 was recognized for cash payments
received in 1997 and 1996 respectively.
5. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1997
and 1996 were as follows:
1997 1996
(In Thousands)
Land $1,569 $1,487
Building and improvements 3,690 2,256
Leasehold improvements 63 63
Equipment 2,027 1,424
Furniture and fixtures 737 421
Construction in progress 83 104
8,169 5,755
Less accumulated depreciation 1,770 1,360
$6,399 $4,395
6. DEPOSITS
The aggregate amount of certificates of deposit with a
minimum denomination of $100,000 were approximately
$12,823,000 and $12,372,000 at December 31, 1997 and 1996
respectively.
At December 31, 1997, the scheduled maturities of time
deposits are as follows (in thousands):
1998 $ 38,512
1999 53,589
2000 38,249
2001 8,033
2002 8,443
Thereafter 823
$147,649
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 $1,056,000
and $718,000 at December 31, 1997 and 1996 respectively.
The Bank has other short-term borrowings from the Federal
Home Loan Bank at December 31, 1997 and 1996 in the amount
of $21,000,000 and $13,000,000 respectively. The
December 31, 1997 balance outstanding is due in 1998, at an
average interest rate of 5.93%.
Long-term debt consisted of the following at December 31,
1997 and 1996 (in thousands):
1997 1996
Advances from the Federal Home Loan Bank
bearing interest at a weighted average
rate of 5.96% and 5.49% as of
December 31, 1997 and 1996 respectively $10,000 $22,000
Maturities of long-term debt at December 31, 1997 are as
follows (in thousands):
1998 $ -
1999 5,000
2000 -
2001 5,000
$10,000
The Bank has maximum borrowing capacity with the Federal
Home Loan Bank of approximately $177,122,000. Advances from
the Federal Home Loan Bank are secured by qualifying assets
of the Bank.
8. INCOME TAXES
The provision for federal income taxes for the years ended
December 31, 1997 and 1996 consisted of the following (in
thousands):
1997 1996
Current $1,097 $364
Deferred (229) 69
$ 868 $433
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, 1997 and 1996 is
as follows (in thousands):
1997 1996
Federal income tax at statutory rate $1,417 $794
Tax-exempt interest (655) (436)
Disallowance of interest expense 94 62
Other 12 13
$ 868 $433
The income tax provision includes $59,838 in 1997 and $(232)
in 1996 of income tax expense (benefit) related to net
realized securities gains (losses).
Net deferred tax assets consisted of the following
components as of December 31, 1997 and 1996 (in thousands):
1997 1996
Deferred tax assets:
Allowance for loan losses $627 $333
Interest on non-accrual loans 102 68
Unrealized depreciation on
securities available for sale - 25
Foreclosed real estate 26 35
Other 49 16
804 477
Deferred tax liabilities:
Premises and equipment 147 117
Supplies inventory 25 12
Loan origination fees and costs 182 102
Unrealized appreciation on securities
available for sale 370 -
Total deferred tax liabilities 724 231
Net deferred tax assets $ 80 $246
9. RETIREMENT SAVINGS PLAN - 401(k)
The Bank has 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 $114,392 and $80,851 for the years
ended December 31, 1997 and 1996 respectively.
10. OTHER EXPENSES
The following represents the most significant categories of
other expenses for the years ended December 31, 1997 and
1996:
1997 1996
(In Thousands)
Advertising $ 654 $ 594
Data processing and MAC fees 485 367
Office supplies and expenses 612 372
Professional fees 350 161
Foreclosed real estate (66) 301
All other expenses 1,131 827
$3,166 $2,622
11. STOCK OPTIONS AND GRANTS
The Company has adopted various qualified and non-qualified
stock option plans 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. All options are exercisable six months
after the date of grant.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding,
beginning of year 143,956 $10.80 62,321 $ 8.49
Granted - - 84,600 12.40
Exercised (6,146) 9.47 (2,965) 7.71
Outstanding,
end of year 137,810 $10.86 143,956 $10.80
Exercisable at end of year 137,810 $10.86 59,356 $ 8.53
Stock options outstanding at December 31, 1997 are
exercisable at prices ranging from $6.93 to $12.40 a share.
The weighted average remaining contractual life of those
options is 6.5 years.
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 for the year
ended December 31, 1996 would have been reduced to the
pro forma amounts indicated below (in thousands, except per
share amounts):
Net income:
As reported $1,903
Pro forma $1,745
Basic earnings per share:
As reported $ .92
Pro forma $ .84
Diluted earnings per share:
As reported $ .91
Pro forma $ .84
The fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of
6.2%, 10.48% volatility, and an expected life of five years.
The weighted-average fair value of options granted was $2.52
per share for both the Non-employee Directors and Incentive
Stock Options.
Two of the Company's officers are entitled to receive grants
of 1,000 and 992 shares respectively of the Company's common
stock at the end of each 12 months of employment under their
employment agreements. The fair value of the stock grants
are recorded each year as compensation expense.
12. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense:
The Bank rents facilities under lease agreements which
expire between 1998 and 2009, and require various minimum
annual rentals. The total minimum rental commitment at
December 31, 1997 is approximately $922,000 which is due as
follows:
During the year ending December 31 (in thousands):
1998 $252
1999 85
2000 61
2001 63
2002 65
Later years 396
$922
The total rental expense included in the income statements
for the years ended December 31, 1997 and 1996 is $324,373
and $336,760 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.
Commitments:
At December 31, 1997, the Bank has entered into agreements
of sale to purchase land in Robesonia, Pennsylvania to build
a branch office, to purchase land and a building in
Boyertown, Pennsylvania for the use as a branch office and
to purchase a building in Reading, Pennsylvania for the use
as the Company's operations facility. Deposits on the
purchase of these properties of $121,000 are included in
premises and equipment as of December 31, 1997. The
estimated cost to complete these projects is approximately
$5,250,000 at December 31, 1997.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, letters of
credit and commitments to sell loans. Those instruments
involve, to varying degrees, elements of credit risk and
interest rate risk in excess of the amount recognized in the
balance sheets.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and letters of
credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does
for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial
instrument commitments at December 31, 1997 and 1996 is as
follows (in thousands):
1997 1996
Commitments to extend credit $43,629 $31,141
Outstanding letters of credit 2,649 1,102
Commitments to sell loans - -
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Since many of the commitments
are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment
of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal
or commercial real estate, accounts receivable, inventory
and equipment.
Outstanding letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Commitments to sell loans are to the Federal National
Mortgage Association and other mortgage investors. These
commitments are generally met through mortgage originations
in the normal course of business.
14. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans
to customers primarily located in Berks, Bucks, Chester,
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.
15. 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, 1997 and 1996,
these persons were indebted to the Bank for loans totaling
$1,702,000 and $2,898,000 respectively. During 1997,
$2,858,000 of new loans were made; repayments totaled
$4,069,000. Other changes increased the loans outstanding
by $15,000.
16. STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
The Company has a dividend reinvestment and stock purchase
plan available to stockholders who elect to reinvest their
cash dividends and, from time to time, as the Board of
Directors of the Company may in its discretion determine,
voluntary cash payments for the purchase of additional
shares of the Company's common stock. The common stock may
be purchased in the open market or from authorized but
unissued shares, substantially at prevailing market prices.
The Company has reserved 200,000 shares of common stock for
possible issuance under the plan. Stock purchases under the
Plan totaled 21,823 and 6,486 shares in 1997 and 1996
respectively. Share purchases made in the open market were
7,292 and 6,486 in 1997 and 1996 respectively.
17. 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, 1997, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from
the Federal Reserve Bank categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since
that notification that management believes have changed the
Bank's category.
The actual capital amounts and ratios are also presented in
the table below:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars In Thousands)
As of December 31, 1997:
Total capital (to risk weighted assets)
Greater Than or Equal To
<S> <C> <C> <C> <C> <C> <C>
Company $46,085 18.03% $20,445 8.00% N/A
Bank 39,253 15.38 20,411 8.00 $25,514 10.00%
Tier I capital
(to risk weighted assets)
Company 43,482 17.01 10,223 4.00 N/A
Bank 36,650 14.36 10,206 4.00 15,308 6.00
Tier I capital
(to average assets)
Company 43,482 9.87 17,628 4.00 N/A
Bank 36,650 8.33 17,591 4.00 21,989 5.00
As of December 31, 1996:
Total capital
(to risk weighted assets)
Company $21,752 11.44% $15,208 8.00% 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
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
Bank 17,872 6.18 11,572 4.00 14,465 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 $5,136,000 of dividends in
1998 plus an additional amount equal to the Bank's net
profit for 1998, up to the date of any such dividend
declaration. In December 1997, the Company declared a $.08
per share cash dividend to stockholders of record on
January 2, 1998, payable January 20, 1998.
18. EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Numerator, net income $3,301,000 $1,903,000
Denominator:
Denominator for basic earnings
per share, weighted average shares 2,682,281 2,069,251
Effect of dilutive securities,
stock options 57,611 20,375
Denominator for diluted earnings
per share, adjusted weighted
average shares and
assumed conversions 2,739,892 2,089,626
Basic earnings per common share $ 1.23 $ 0.92
Diluted earnings per common share $ 1.20 $ 0.91
</TABLE>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however, there
are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the
fair value estimates herein are not necessarily indicative
of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair
value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes
of these consolidated financial statements subsequent to
those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported
at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a
fair value calculation is only provided for a limited
portion of the Company's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company's
disclosures and those of other companies may not be
meaningful. The following methods and assumptions were used
to estimate the fair values of the Company's financial
instruments at December 31, 1997 and 1996:
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 value.
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 value.
Other borrowed funds:
The carrying amounts of short-term borrowings approximate
their fair values.
Long-term debt:
The fair values of the Bank's long-term debt are estimated
using discounted cash flow analyses, based on the Bank's
current incremental borrowing rates for similar types of
borrowing arrangements.
Off-balance sheet instruments:
The fair values of the Bank's commitments to extend credit
and outstanding letters of credit are estimated using the
fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements
and the counterparties' credit standing.
The estimated fair value of the Company's financial
instruments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 13,093 $ 13,093 $ 8,985 $ 8,985
Interest-bearing deposits
with banks 175 175 21,407 21,407
Federal funds sold 470 470 1,290 1,290
Securities 169,240 170,095 88,554 88,636
Loans receivable, net 246,207 248,320 192,148 193,674
Mortgage loans
held for sale - - 609 609
Due from mortgage
investors 5,425 5,425 3,478 3,478
Accrued interest receivable 3,571 3,571 2,129 2,129
Financial Liabilities:
Deposits 360,552 361,928 264,323 263,910
Accrued interest payable 1,502 1,502 1,141 1,141
Other borrowed funds 22,056 22,056 13,718 13,718
Long-term debt 10,000 9,915 22,000 21,854
Off-Balance Sheet
Financial Instruments:
Commitments to extend credit - - - -
Outstanding letters of credit - - - -
</TABLE>
20. MERGER
On November 18, 1997, the Company entered into an agreement
to merge with Heritage Bancorp, Inc. ("Heritage"), a one
bank holding company located in Pottsville, Pennsylvania.
Under the terms of the Agreement, the Company and Heritage
propose to combine into a new Pennsylvania business
corporation, with a name yet to be determined. Upon the
effective date, which is expected to occur during the second
quarter of 1998 pending regulatory and shareholder approval,
the new corporation will be the holding company for the
independent bank subsidiaries, Berks County Bank and
Heritage National Bank. There are no plans to merge the two
banking subsidiaries at this time. Stockholders of the
Company would receive 1.3335 shares of the new corporation
for each share of the Company held on the record date.
Stockholders of Heritage will receive 1.05 shares of common
stock of the new corporation for each share held on the
record date. The new corporation will be issuing
approximately 9,640,000 shares. The transaction will be
accounted for under the pooling of interests method of
accounting.
The following table provides a summary of the consolidated
operating results and financial condition on a pro forma
basis as of and for the year ended December 31, 1997:
BCB Financial
Services
Corporation Heritage Combined
(As Reported) Bancorp., Inc. Pro Forma
(In Thousands)
Net interest income $ 12,117 $ 16,287 $ 28,404
Net income 3,301 6,028 9,329
Total assets 447,594 366,269 813,863
Total stockholders'
equity 44,101 44,619 88,720
The pro forma combined results are not necessarily
indicative of the combined results of future operations.
<PAGE>
21. BCB FINANCIAL SERVICES CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1997 1996
(In Thousands)
ASSETS
Cash $ 6,902 $ 1,968
Investment in bank subsidiary 37,259 17,825
Securities available for sale 683 151
Other assets 356 326
$45,200 $20,270
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 1,099 $ 566
Stockholders' equity 44,101 19,704
$45,200 $20,270
STATEMENTS OF INCOME
December 31,
1997 1996
(In Thousands)
Interest and dividend income $ 284 $ 5
Other expenses (130) $ (72)
Federal income tax (expense) benefit (42) 23
Income (loss) before equity
in undistributed net
income of bank subsidiary 112 (44)
Equity in undistributed net income
of bank subsidiary 3,189 1,947
Net income $ 3,301 $1,903
STATEMENTS OF CASH FLOWS
December 31,
1997 1996
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,301 $1,903
Undistributed earnings of bank subsidiary (3,189) (1,947)
(Increase) in other assets (9) (240)
Increase in liabilities 347 430
Net cash provided by operating activities 450 146
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of securities available for sale (500) (151)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 59 18
Proceeds from dividend reinvestment and
stock purchase plan 248 -
Additional investment in bank subsidiary (15,500) -
Net proceeds from stock offering 20,869 -
Cash payments for fractional shares in
connection with stock dividend - (1)
Cash dividends (692) (397)
Net cash provided by (used in)
financing activities 4,984 (380)
Net increase (decrease) in cash 4,934 (385)
Cash:
Beginning 1,968 2,353
Ending $ 6,902 $1,968
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information relating to the directors and executive
officers is incorporated herein by reference to BCB's definitive
Proxy Statement to be used in connection with BCB's 1998 Special
Meeting of Shareholders (the "Proxy Statement"). Pursuant to
Securities and Exchange Commission regulations, BCB is required
to identify the names of persons who failed to file or filed a
late report required under Section 16(a) of the Exchange Act of
1934, as amended. Generally, the reporting regulations under
Section 16(a) require directors and executive officers to report
changes in their ownership in BCB's stock. Based on BCB's review
of copies of such reports received or written representations
from certain directors and executive officers, BCB believes that,
during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its executive officers,
directors and control persons were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein
by reference to the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein
by reference to the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON Form 8-K
a. Exhibits
The following exhibits are filed herewith or incorporated by
reference herein as part of this Annual Report:
3.1 Articles of Incorporation of BCB Financial Services
Corporation, as amended, incorporated herein by
reference to Exhibit 3.1 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
3.2 Bylaws of BCB Financial Services Corporation
incorporated herein by reference to Exhibit 3.2 of the
Registration Statement No. 33-76748 on Form SB-2 of the
Registrant.
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 10.4 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 10.5 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 10.6 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 10.7 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 10.8 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 10.9 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 10.10 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 10.11 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 10.12 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 BCB'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 BCB'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 BCB'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 BCB'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 BCB'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
BCB'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
BCB'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 BCB'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 BCB's Quarterly Report on Form 10-KSB 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 BCB's Quarterly Report on
Form 10-KSB 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
BCB's Annual Report on Form 10-KSB for the 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 BCB's Annual Report on Form 10-KSB for
the 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 BCB's Annual
Report on Form 10-KSB for the year ended December 31,
1996.
10.27 BCB Financial Services Corporation Deferred
Compensation Plan and Trust Agreement, incorporated
herein by reference to Exhibit 10.27 of BCB's Annual
Report on Form 10-KSB for the year ended December 31,
1996.*
21.1 List of Subsidiaries of BCB Financial Services
Corporation, included herein.
23.1 Consent of Beard & Company, Inc., independent auditors.
27.1 Financial Data Schedule.
________________
*Denotes compensatory plan or arrangement.
b. Reports on Form 8-K
On November 25, 1997, BCB filed a Current Report on
Form 8-K, dated November 25, 1997, to report information
under items 5 and 7(a). No financial statements were filed
with the Current Report.
On December 4, 1997, BCB filed a Current Report on Form 8-K,
dated December 4, 1997, to report information under items 5
and 7(a). No financial statements were filed with the
Current Report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BCB FINANCIAL SERVICES CORPORATION
By:/s/ Nelson R. Oswald
Nelson R. Oswald
President and Chairman of the
Board
March 6, 1998
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature Title Date
/s/ Nelson R. Oswald Director and Chairman March 6, 1998
Nelson R. Oswald of the Board and
President (Principal
Executive Officer)
/s/ Robert D. McHugh, Jr. Senior Vice President/ March 6, 1998
Robert D. McHugh, Jr. Treasurer (Principal
Financial Officer)
/s/ Donna L. Rickert, C.P.A. Vice President/Controller March 6, 1998
Donna L. Rickert, C.P.A. (Principal Accounting
Officer)
/s/ Harold C. Bossard Director and Secretary March 6, 1998
Harold C. Bossard
/s/ Edward J. Edwards Director March 6, 1998
Edward J. Edwards
/s/ Lewis R. Frame, Jr. Director March 6, 1998
Lewis R. Frame, Jr.
/s/ Ivan H. Gordon Director March 6, 1998
Ivan H. Gordon
/s/ Jeffrey W. Hayes Director March 6, 1998
Jeffrey W. Hayes
/s/ Alfred B. Mast Director March 6, 1998
Alfred B. Mast
/s/ Wesley R. Pace Director March 6, 1998
Wesley R. Pace
/s/ Floyd S. Weber Director March 6, 1998
Floyd S. Weber
/s/ Randall S. Weeber Director March 6, 1998
Randall S. Weeber
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Articles of Incorporation of BCB Financial
Services Corporation, as amended, incorpor-
ated herein by reference to Exhibit 3.1 of
the Registration Statement No. 33-76748 on
Form SB-2 of the Registrant.
3.2 Bylaws of BCB Financial Services Corpor-
ation, incorporated herein by reference to
Exhibit 3.2 of the Registration Statement
No. 33-76748 on Form SB-2 of the Registrant.
10.1 Lease, dated November 1, 1988, between
Berks County Bank and Madison Avenue Asso-
ciates, as amended, incorporated herein by
reference to Exhibit 10.1 of the Registra-
tion 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, incorpor-
ated 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 From 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 10.4 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 10.5 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 10.6 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 10.7 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 10.8 of the Registration Statement
No. 33-76748 on Form SB-2 of the Regis-
trant. *
10.9 Executive Employment Agreement, dated
December 31, 1991,among BCB Financial Ser-
vices Corporation,Berks County Bank and
Robert D. McHugh, Jr., incorporated herein
by reference to Exhibit 10.9 of the Regis-
tration Statement No. 33-76748 on Form SB-2
of the Registrant. *
10.10 401(k) Plan of BCB Financial Services
Corporation, incorporated herein by refer-
ence to Exhibit 10.10 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 10.11 of the Registra-
tion 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 10.12 of the Registra-
tion 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 BCB'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 hereby by
reference to Exhibit 10.15 of BCB's
Annual Report on Form 10-KSB for the year
ended December 31, 1994.
10.15 Sublease Agreement, dated February 14, 1995,
between Berkshire Travel Agency and Berks
County Bank, incorporated herein by reference
to Exhibit 10.16 of BCB's Annual Report
on Form 10-KSB for the year ended December 31,
1994.
10.16 Agreement of Trust of Berks Mortgage Com-
pany dated November 7, 1994, by and between
Berks Mortgage Corporation and Berks County
Bank, incorporated herein by reference to
Exhibit 10.17 of BCB'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 BCB's Annual Report
on Form 10-KSB for the year ended December 31,
1994.
10.18 BCB Financial Services Corporation Share-
holder 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 BCB'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 BCB'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 BCB'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
and Richard J. Webb, incorporated herein by
reference to Exhibit 10.1 of BCB'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 BCB'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
BCB's Annual Report on Form 10-KSB for
the 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 BCB's Annual Report
on Form 10-KSB for the 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 BCB's Annual Report
on Form 10-KSB for the year ended
December 31, 1996.
10.27 BCB Financial Services Corporation Deferred
Compensation Plan and Trust Agreement,
incorporated herein by reference to
Exhibit 10.27 of BCB's Annual Report on
Form 10-KSB for the year ended
December 31, 1996.*
21.1 List of Subsidiaries of BCB Financial
Services Corporation, included herein.
23.1 Consent of Beard & Company, Inc., inde-
pendent auditors, included herein.
27.1 Financial Data Schedule
_____________________
*Denotes compensatory plan or arrangement.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BCB FINANCIAL SERVICES CORPORATION
List of Subsidiaries
Name State of Incorporation
Berks County Bank Pennsylvania
BERKS COUNTY BANK
List of Subsidiaries
Name State of Incorporation
Berks Mortgage Company Pennsylvania
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements on Forms S-8 pertaining to the BCB
Financial Services Corporation 1988 Stock Option Plan, the BCB
Financial Services Corporation 1989 Stock Option Plan, the BCB
Financial Services Corporation 1994 Stock Option Plan and the BCB
Financial Services Corporation 1996 Stock Option Plan and
Form S-3 pertaining the to BCB Financial Services Corporation
Shareholder Automatic Dividend Reinvestment and Stock Purchase
Plan, of our report dated January 30, 1998 relating to the
consolidated financial statements of BCB Financial Services
Corporation and subsidiary included in its Annual Report
(Form 10- KSB) for the year ended December 31, 1997.
BEARD & COMPANY, INC.
Reading, Pennsylvania
March 3, 1998
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