Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 0-27686
1st BERGEN BANCORP
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(Exact name of registrant as specific in its charter)
NEW JERSEY 22-3409845
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State or other jurisdiction of IRS Employer Identification No.
Incorporation or Organization
250 VALLEY BOULEVARD, WOOD-RIDGE, NJ 07075
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Address of Principal Executive Offices
(201) 939-3400
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Registrant's Telephone No.
NOT APPLICABLE
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Former Name, Address, and Fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1998
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Common Stock 2,585,243 shares
1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
June 30, 1998 December 31, 1997
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ASSETS:
Cash and due from banks .................................................. $ 3,697 $ 3,199
Interest-bearing deposits in other banks ................................. 2 0
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Total cash and cash equivalents ........................................... $ 3,699 $ 3,199
Investment securities held to maturity ................................... $ 31,314 $ 46,903
Investment securities available for sale ................................. 76,587 41,090
Mortgage-backed securities held to maturity .............................. 38,373 52,458
Mortgage-backed securities available for sale ............................ 11,024 10,444
Loans receivable, net .................................................... 129,936 127,818
Premises and equipment ................................................... 3,029 3,019
Real estate owned ........................................................ 0 118
FHLB stock ............................................................... 2,617 1,627
Accrued interest and dividends receivable ................................ 2,322 2,094
Deferred income taxes .................................................... 1,229 1,187
Other assets ............................................................. 625 388
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TOTAL ASSETS ................................................................. $ 300,755 $ 290,345
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits ................................................................. $ 224,170 $ 217,426
FHLB Borrowings .......................................................... 39,500 31,334
Escrow ................................................................... 1,036 986
Accrued income taxes ..................................................... 563 507
Other liabilities ........................................................ 601 822
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TOTAL LIABILITIES ............................................................ $ 265,870 $ 251,075
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STOCKHOLDERS' EQUITY:
Preferred Stock - authorized 2,000,000 shares;
issued and outstanding - none .......................................... -- --
Common Stock - no par value; authorized 6,000,000 shares
issued 3,174,000 shares and outstanding 2,585,243
and 2,864,535 shares in 1998 and 1997 .................................. -- --
Additional paid-in-capital ............................................... 30,845 30,765
Retained earnings - substantially restricted ................................. 18,408 17,614
Accumulated other comprehensive income -
Net unrealized loss on securities available for sale, net of tax ....... (636) (580)
Unallocated common stock held by the ESOP ................................ (2,294) (2,381)
Unamortized common stock held by the RRP (102,292 shares in 1998
And 112,864 shares in 1997) ............................................ (1,406) (1,552)
Treasury stock at cost (588,757 shares in 1998 and 309,465 shares in 1997) (10,032) (4,596)
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TOTAL STOCKHOLDERS' EQUITY ................................................... $ 34,885 $ 39,270
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $ 300,755 $ 290,345
========= =========
See accompanying notes to unaudited consolidated financial statements
1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended June 30, Six Months Ended June 30,
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1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
Interest on loans ....................................... $ 2,581 $ 2,530 $ 5,152 $ 5,091
Interest on investment securities held to maturity ...... 590 857 1,381 1,438
Interest on investment securities available for sale .... 1,236 438 1,977 737
Interest on mortgage-backed securities held to maturity . 706 896 1,547 1,706
Interest on mortgage-backed securities available for sale 187 83 358 126
Interest on FHLB deposits ............................... 72 54 151 158
FHLB stock dividends .................................... 49 25 83 49
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TOTAL INTEREST INCOME ....................................... $ 5,421 $ 4,883 $10,649 $ 9,305
INTEREST EXPENSE
Deposits ................................................ $ 2,463 $ 2,325 $ 4,892 $ 4,538
FHLB borrowings ......................................... 658 224 1,182 224
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TOTAL INTEREST EXPENSE ...................................... $ 3,121 $ 2,549 $ 6,074 $ 4,762
NET INTEREST INCOME ......................................... 2,300 2,334 4,575 4,543
Provision for loan losses ................................... 75 125 150 300
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ............................................. $ 2,225 $ 2,209 $ 4,425 $ 4,243
NON-INTEREST INCOME:
Loan fees and service charges ........................... $ 46 $ 44 $ 93 $ 87
Other income ............................................ 54 13 97 37
------- ------- ------- -------
Total other income ...................................... $ 100 $ 57 $ 190 $ 124
NON-INTEREST EXPENSE:
Compensation and employee benefits ...................... $ 886 $ 816 $ 1,781 $ 1,528
Occupancy expense ....................................... 67 78 145 151
Equipment ............................................... 134 109 271 221
Advertising ............................................. 53 55 116 107
Federal deposit insurance premiums ...................... 35 35 70 70
Net gain (loss) from real estate owned .................. 6 (48) 9 (57)
Insurance and bond premiums ............................. 23 31 53 65
Other ................................................... 277 317 550 616
------- ------- ------- -------
Total non-interest expense .............................. $ 1,481 $ 1,393 $ 2,995 $ 2,701
Income before income taxes .............................. 844 873 1,620 1,666
Federal and state tax expense ........................... 294 303 551 592
------- ------- ------- -------
Net Income .............................................. $ 550 $ 570 $ 1,069 $ 1,074
======= ======= ======= =======
Earnings per share - Basic .............................. $ 0.24 $ 0.21 $ 0.46 $ 0.39
Earnings per share - Diluted ............................ $ 0.23 $ 0.21 $ 0.44 $ 0.39
See accompanying notes to (unaudited) consolidated financial statements
1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
June 30,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ..................................................................... $ 1,069 $ 1,074
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan loss .................................................... 150 325
Net gain on sales of real estate owned ..................................... (1) (45)
Depreciation of premises and equipment ..................................... 123 108
Amortization of MRP shares ................................................. 146 48
Amortization of ESOP shares ................................................ 167 79
Net amortization of premiums and amortization of discounts ................. (6) 40
Net (decrease) increase in deferred loan fees .............................. (46) 20
Increase in interest and dividends receivable .............................. (228) (606)
Increase (decrease) in other assets ........................................ (237) 30
(Decrease) increase in other liabilities ................................... (221) 316
Increase in deferred income taxes .......................................... (171) 266
Increase in income taxes payable ........................................... 56 615
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Net cash provided by operating activities ................................ $ 801 $ 2,270
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable ........................................... $ 3,877 $ 3,237
Purchases of investment securities held to maturity ........................ -- (19,986)
Purchases of investment securities available for sale ...................... (40,431) (16,550)
Proceeds from sales of real estate owned ................................... -- 481
Purchases of mortgage-backed securities held to maturity ................... -- (10,169)
Purchases of mortgage-backed securities available for sale ................. (2,024) (6,689)
Investment securities held to maturity called .............................. 15,000 2,000
Investment securities available for sale called ............................ 5,000 --
Proceeds from sales of real estate owned ................................... 119 --
Principle payments on investment securities held to maturity ............... 603 584
Principle payments on mortgage-backed securities held to maturity .......... 14,077 6,458
Purchase of loans .......................................................... (6,099) --
Principle payments on mortgage-backed securities available for sale ........ 1,451 104
Purchases of premises and equipment ........................................ (133) (456)
Purchases of FHLB-NY stock ................................................. (990) (140)
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Net cash used in investing activities .................................... $ (9,550) $(41,126)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ................................................... $ 6,744 $ 10,128
Purchase of shares by MRP .................................................. -- (1,745)
Purchase of treasury stock ................................................. (5,436) (207)
Net increase in advances by borrowers (taxes & insurance) .................. 50 130
Net increase in borrowings ................................................. 8,166 27,334
Dividends paid ............................................................. (275) (185)
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Net cash provided by financing activities ................................ 9,249 35,455
Net increase (decrease) in cash and cash equivalents ..................... 500 (3,401)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ....................... 3,199 7,731
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ............................. $ 3,699 $ 4,330
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................. 4,890 4,514
Income taxes ............................................................. 531 --
Non-cash investing and financing activities:
Transfer of loans to real estate owned ................................... $ -- $ 100
See accompanying notes to (unaudited) consolidated financial statements
1ST BERGEN BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The Consolidated Financial Statements include the accounts of 1st Bergen
Bancorp, (the "Company") and its wholly owned subsidiary South Bergen Savings
Bank (the "Bank") and the Bank's wholly owned subsidiary South Bergen Financial
Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation. The Bank provides a full range of banking services
to individuals and corporate customers through its branch system consisting of
offices in Bergen, Morris and Passaic Counties. The Bank is subject to
competition from other financial institutions and to the regulations of certain
regulatory agencies and undergoes periodic examinations by those regulatory
authorities.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles ("GAAP") for interim
financial information and in conformity with the instructions to Form 10-Q and
Article 10 of Regulation S-X for the Company and its subsidiary.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial condition,
results of operations, and changes in cash flows have been made for the
six-month period ended June 30, 1998. The results of operations for the three-
and six-month periods ended June 30, 1998, are not necessarily indicative of
results that may be expected for the entire year ending December 31, 1998.
2. ORGANIZATION OF THE HOLDING COMPANY AND CONVERSION TO STOCK FORM OF OWNERSHIP
On November 28, 1995, the Company was organized for the purpose of acquiring all
of the capital stock of the Bank to be issued in the Bank's conversion from the
mutual to stock form of ownership. On March 29, 1996, the Company completed an
initial public offering. The offering resulted in the sale of 3,174,000 shares
of common stock without par value of the Company ("Common Stock"), including the
sale of 253,920 shares to the Bank's tax qualified Employee Stock Ownership Plan
(the "ESOP").
In connection with the conversion from a mutual to a capital stock form, the
Company established the ESOP for the benefit of the employees of the Company and
the Bank. The ESOP purchased 253,920 shares, or 8% of the total stock sold in
the subscription, for $2,539,200 which was financed by a loan from the Company.
The ESOP was effective upon completion of the conversion. Full-time employees of
the Company or the Bank who have been credited with at least 1,000 hours of
service during a twelve-month period and who have attained the age of 21 are
eligible to participate in the ESOP. The loan to the ESOP will be repaid
principally from the Bank's discretionary contributions to the ESOP over a
period of ten years, and the collateral for the loan will be the Common Stock
purchased by the ESOP that has not been committed to be released.
3. NET INCOME PER SHARE
The Company earned $0.24 cents per share and $0.23 cents per share on a basic
and diluted basis, respectively, for the quarter ended June 30, 1998. The
Company did not make any grants of stock under the Recognition and Retention
Plan ("RRP") and ESOP plans until the second quarter of 1997; and accordingly,
the earnings per share on a basic and diluted basis were $0.21 cents for the
quarter ended June 30, 1997.
4. NON-PERFORMING LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Non-performing loans were as follows:
June 30, 1998 December 31, 1997
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(Dollars in Thousands)
Loans delinquent 90 days or more
and other non-performing loans ............ $2,335 $2,057
Loans delinquent 90 days or more and other
Non-performing loans as a percentage
of gross loans ............................ 1.75% 1.57%
An analysis of the allowance for loan losses for the six-month periods ended
June 30, 1998 and 1997 follows:
June 30, 1998 June 30, 1997
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(Dollars in Thousands)
Balance at the beginning of the period ....... $3,061 $3,126
Provision charged to operations ............... 150 300
Charge-offs, net .............................. 4 348
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Balance at end of period ...................... $3,207 $3,078
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5. RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related information". SFAS
No. 131 establishes standards and disclosure requirements for the way companies
report information about operating segments, including related product
information. Operating segments are defined based upon the way management
organizes segments for making operations decisions and evaluating performance.
Information such as segment net earnings, revenues, expense items and certain
balance sheet amounts are required to be presented. These amounts are to be
reconciled to the Company's combined financial information. SFAS No. 131 is
effective for financial statements issued for annual periods ending after
December 15, 1998, and interim periods beginning in 1999.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benfeits". This Statement standardizes the
disclosure requirements for pension and other postretirement benefits by
requiring additional information that will facilitate financial analysis, and
eliminating certain disclosures that are considered no longer useful. SFAS No.
132 supersedes the disclosure requirements in SFAS 87, 88 and 106. This
Statement is effective for fiscal years beginning after December 15, 1997, and
will be adopted December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivarive
Instruments and Hedging Activities". This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 supersedes the disclosure requirements in SFAS No. 80, 105 and 119. This
Statement is effective for periods after June 15, 1999. The adoption of SFAS No.
133 is not expected to have a material impact on the financial position or
results of operations of the Company.
In accordance with the provisions of SFAS 130 for interim period reporting, the
Company's total comprehensive income for the six months ended June 30, 1998 and
1997 was $1.0 million and $1.2 million, respectively. The difference between the
Company's net income and total comprehensive income for these periods relates to
the change in the net unrealized (losses) on securities available for sale
during the applicable period of time.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
1st Bergen Bancorp, the holding company for South Bergen Savings Bank, earned
net income for the second quarter ended June 30, 1998, of $550,000, or $0.24 per
share on a basic basis, a decrease of $20,000, or 3.51%, over the $570,000, or
$0.21 per share on a basic basis, earned for the same period last year. The
$20,000 decrease in earnings over the prior year reflects, in part, a decline in
net interest income. This decline is partially attributable to the Company
experiencing high levels of prepayments in higher yielding mortgage loans and
reinvesting these proceeds in loans and U.S. Agency securities bearing lower
current yields. To offset the decline in interest revenue caused by these
prepayments, the Company has implemented a leveraging strategy pursuant to which
the Company may take low rate advances from the Federal Home Loan Bank of New
York and invest such borrowings in U.S. Agency securities. At June 30, the
Company had $39.5 million in outstanding borrowings. In addition, the Company
has been emphasizing higher yielding loan products, such as home equity loans.
The decrease in net income also reflects higher non-interest expenses, including
expenses related to the implementation of stock benefit plans adopted by the
Company after its mutual-to-stock conversion. The increase in per share earnings
in 1998 over the comparable period of 1997 reflects the results of the Company's
stock repurchase program, which has reduced the Company's average weighted
shares outstanding by 15.6%.
FINANCIAL CONDITION
ASSETS AND LIABILITIES
Total assets increased $10.5 million, or 3.6%, to $300.8 million at June 30,
1998, from $290.3 million at December 31, 1997. Part of this growth was
attributable to the Company's increasing its borrowing through the Federal Home
Loan Bank of New York (FHLB-NY) as it continued to expand its leverage program.
At June 30, 1998, the weighted cost of the FHLB-NY borrowings was 5.55% versus a
yield on the investments purchased of 7.38%. Borrowed funds at June 30, 1998,
totalled $39.5 million, an increase of $8.2 million from December 31, 1997. All
are securities sold with the FHLB-NY under agreements to repurchase. Borrowings
of $15.5 million have fixed maturities through February 2000 with an average
rate of 5.92%. Borrowings of $24.0 million have fixed maturites from July 2001
through March 2008 with an average rate of 5.31% and are callable earlier at the
lenders' option.
Cash and cash equivalents increased $500,000, or 15.6%, to $3.7 million as of
June 30, 1998, from $3.2 million at December 31, 1997. The increase in cash and
cash equivalents reflects proceeds from loan, investment and mortgage-backed
securities prepayments being temporarily deployed until reinvestment in new
loans and securities. Loans receivable, net, increased $2.1 million, or 1.6%, to
$129.9 million at June 1998 from $127.8 million at December 1997.
Mortgage-backed securities held to maturity decreased $14.1 million, or 26.9%,
to $38.4 million at June 30, 1998, from $52.5 million at December 31, 1997. This
decrease reflects higher than average prepayments reflecting the current market
rates of interest and Management's determination to classify new purchases as
available for sale. Mortgage-backed securities available for sale increased
$600,000, or 5.8%, to $11.0 million at June 30, 1998, from $10.4 million at
December 31, 1997. The increase was a result of purchases of $2.0 million,
offset by normal repayments and prepayments.
Investment securities held to maturity decreased $15.6 million, or 33.3%, to
$31.3 million at June 30, 1998, from $46.9 million at December 31, 1997. This
decrease was due to the early maturity call of securities valued at $15.0
million and Management's determination to classify new purchases as available
for sale.
Investment securities available for sale increased $35.5 million, or 86.4%, to
$76.6 million at June 30, 1998, from $41.1 million at December 31, 1997. This
increase was funded in part by reinvested cash flow from the early maturity of
securities in the held to maturity portfolio and additional FHLB-NY borrowings
as the Company increased its leverage program.
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $4.4 million, or 11.2%, to $34.9 million at June
1998 from $39.3 million at December 1997. The decrease in stockholders' equity
was due primarily to the continued repurchase by the Company of 1st Bergen
Bancorp common stock in the open market pursuant to the Company's repurchase
program. During the quarter ended June 30, 1998, the Company completed its third
5% buyback which began in the first quarter. Also, during the second quarter,
the Company received regulatory approval and completed a fourth 5% buyback. The
market value of the shares repurchased in the second quarter was $2.8 million.
With the completion of the fourth 5% buyback, the Company has repurchased
588,757 shares of its common stock. Offsetting the stock repurchase was second
quarter income of $550,000.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a bank's ability to fund loans and withdrawals of
deposits in a cost-effective manner. The Company's principal sources of funds
are deposits, scheduled amortization and prepayments of loan principal and
mortgage-backed securities, maturities of investment securities and funds
provided by operations. Liquidity is also available through borrowings from the
FHLB-NY.
While loan repayments and maturing investment securities are a relatively
predictable source of funds, deposit flows, prepayments and calls of investment
securities and prepayment of mortgage-backed securities are influenced by
interest rates, general economic conditions and competition in the marketplace.
At June 30, 1998, total liquid assets, consisting of cash, interest bearing
deposits in other banks, investment securities and mortgage-backed securities,
all with final maturities of five years or less, were $40.0 million, or 13.3% of
total assets. This amount includes $18.5 million scheduled to mature within one
year, which represented 6.2% of total assets and 8.3% of total deposits at June
30, 1998.
At June 30, 1998, the Company had commitments to originate and purchase loans
totalling $950,000 and $229,000, respectively, and outstanding unused lines of
credit of $5.4 million. The Company is committed to maintaining a strong
liquidity position and anticipates that it will have sufficient funds to meet
its current funding commitments. The Company does not have any balloon or other
payments due on any long-term obligations or any off-balance sheet items other
than the loan commitments and unused lines of credit noted above.
The Office of Thrift Supervision (OTS), which regulates activities of the Bank,
requires that the Bank meet minimum tangible, core and risk-based capital
requirements. As of June 30, 1998, and December 31, 1997, the Bank exceeded all
regulatory capital requirements. The Bank's required and actual capital levels
as of June 30, 1998, and December 31, 1997, are as follows:
To Be Well Capitalized
For Capital Under Prompt
Actual Adequacy Purpose Corrective Action
------------------------ ------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ----- ------- --------
AS OF JUNE 30, 1998:
Tangible capital ................. $32,192 10.8% $ 4,485 1.5% $ 4,485 1.5%
Core capital ..................... $32,192 10.8% $ 8,970 3.0% $14,950 5.0%
Tier 1 risk-based capital ........ $32,192 25.3% $ 5,098 4.0% $ 7,647 6.0%
Risk-based capital ............... $33,795 26.5% $10,196 8.0% $12,745 10.0%
AS OF DECEMBER 31, 1997:
Tangible capital ................. $30,860 10.6% $ 4,371 1.5% $ 4,371 1.5%
Core capital ..................... $30,860 10.6% $ 8,742 3.0% $14,571 5.0%
Tier 1 risk-based capital ........ $30,860 24.9% $ 4,949 4.0% $ 7,423 6.0%
Risk-based capital ............... $32,417 26.2% $ 9,897 8.0% $12,371 10.0%
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
1997
NET INCOME
For the three months ended June 30, 1998, net income decreased $20,000 to
$550,000 from $570,000 for the same period last year. The decrease in earnings
over the prior year reflects a decline in net interest income and an increase in
non-interest expenses, including expenses related to the implementation of stock
benefit plans adopted by the Company's shareholders after its mutual-to-stock
conversion.
INTEREST INCOME
Interest on loans for the three months ended June 30, 1998, was $2.6 million, an
increase of $100,000 over the $2.5 million earned in the same period last year.
The average balance of loans outstanding increased $8.5 million, or 7.0%, to
$129.3 million at June 30, 1998, from $120.8 million at June 30, 1997, while the
average yield decreased to 7.98% at June 30, 1998, from 8.38% for the same
period last year, reflecting lower current market rates of interest and
repayment and prepayment of higher yielding loans.
Interest on mortgage-backed securities held to maturity decreased $190,000, or
21.2%, to $706,000 for the three months ended June 30, 1998, from $896,000 for
the same period in 1997. The decrease was due to the average balance decreasing
$11.5 million, or 21.2%, to $42.8 million at June 30, 1998, from $54.3 million
at June 30, 1997. The average yield changed slightly to 6.60% at June 30, 1998,
from 6.61% at June 30, 1997.
Interest on investment securities held to maturity decreased $267,000, or 31.2%,
to $590,000 for the three months ended June 30, 1998, from $857,000 for the same
period in 1997. The decrease was primarily due to a decrease in the average
balance of securities held to maturity to $35.3 million during the period ended
June 30, 1998, from $46.0 million for the same period last year. This decrease
was coupled with a decrease in the average yield to 6.56% for the three months
ended June 30, 1998, from 7.45% for the same period in 1997, reflecting lower
current market rates.
Interest income on mortgage-backed securities available for sale increased
$104,000, or 125.3%, to $187,000 for the three-month period ended June 30, 1998,
compared to $83,000 for the same period in 1997. The increase was primarily due
to an increase in the average balance of mortgage-backed securities outstanding
during the period to $11.3 million for the three months ended June 30, 1998,
from $5.3 million for the same period in 1997. This was accompanied by an
increase in the average yield to 6.60% at June 30, 1998, from 6.32% at June 30,
1997.
Interest income on investment securities available for sale increased $798,000,
or 182.2%, to $1.2 million for the three months ended June 30, 1998, compared to
$438,000 for the same period in 1997. The increase was due to an increase in the
average balance outstanding of $46.9 million, or 173.1%, to $74.0 million for
the three months ended June 30, 1998, from $27.1 million for the same period
last year. The increase reflects the securities purchased in connection with the
Company's leverage program. The average yield also increased to 6.72% for the
three months ended June 30, 1998, compared to 6.47% for the same period last
year.
INTEREST EXPENSE
Interest expense increased $572,000, or 22.4%, to $3.1 million for the three
months ended June 30, 1998, compared to $2.5 million for the same period last
year. The increase was primarily due to the cost of borrowed funds in connection
with the Company's leverage program. The average balance of borrowed funds was
$45.3 million for the three months ended June 30, 1998, with an average cost of
5.81% compared to an average balance of $15.1 million and average cost of 5.94%
for the same period last year. The average balance of savings deposits was
$223.4 million with a cost of 4.41% for the three months ended June 30, 1998,
compared to average deposits of $211.3 million and a cost of 4.40% for the same
period last year. The increase in the average deposits of $12.1 million to
$223.4 million at June 30, 1998, from $211.3 million at June 30, 1997, was due
primarily to deposit growth at the Company's new Wanaque and Montville, New
Jersey, offices.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $75,000 for the three months ended June 30,
1998, compared to $125,000 for the same period last year. The decrease in the
provision reflects management's view of the risks inherent in the Company's loan
portfolio, including, among other factors, a leveling off of non-performing
loans, more modest loan growth, the amount of the existing reserve balance and
economic conditions in the Company's trade area. Non-performing loans, defined
as non-accrual loans and accruing loans delinquent 90 days or more were $2.3
million, or 1.72% of gross loans at June 30, 1998, an increase of $200,000, or
9.5%, from $2.1 million at December 31, 1997. There was no real estate owned at
June 30, 1998, compared to $118,000 at December 31, 1997. At June 30, 1998, the
allowance for loan losses was $3.2 million compared to $3.1 million at December
31, 1997. The Company's ratio of non-performing assets to total assets was 0.78%
at June 30, 1998 and 0.75% at December 31, 1997. The Company's ratio of
non-performing loans to total assets was 0.77% at June 30, 1998, and 0.71% at
December 31, 1997.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest income increased $43,000, or 75.4%, to $100,000 for the three
months ended June 30, 1998, compared to $57,000 for the same period last year.
The increase was primarily due to an increase in NOW account service charges and
an increase in safe deposit box rental fees. Non-interest expense increased
$88,000, or 6.32%, to $1.5 million for the three months ended June 30, 1998,
from $1.4 million for the same period last year. The increase was primarily due
to an increase in compensation and employee benefit expense of $70,000. The
increase in compensation and employee benefit expense is due to the addition of
staff at the Company's new retail office in Montville and the amortization of
stock based benefit plans. All other expense categories were relatively
unchanged in 1998 as compared to 1997, except for an increase of $25,000 in
equipment expense due to the new branch opening and an increase in the net loss
from real estate owned of $54,000. These were offset by a decrease in other
expenses of $40,000.
INCOME TAX EXPENSE
Income tax expense decreased $9,000, or 3.0%, to $294,000 for the three months
ended June 30, 1998, from $303,000 for the same period in 1997 due to lower
before-tax income.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the second quarter of 1998, there were no significant changes in the
Company's assessment of market risk as reported in Item 7A of the Company's Form
10-K.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME
Net income for the six months ended June 30, 1998, was $1.1 million. Earnings
per share for this period were $0.46 and $0.44 on a basic and diluted basis,
respectively. Net income for the six months ended June 30, 1997, was also $1.1
million while earnings per share were $0.39 on a basic and diluted basis. The
period-to-period increases in earnings per share is the result of the Company's
ongoing stock repurchase program. Net interest income after provision for loan
losses increased $182,000, or 4.3%, to $4.4 million for the six months ended
June 30, 1998, from $4.2 million for the same period last year. This was
accompanied by an increase in non-interest income of $66,000 and offset by an
increase in non-interest expense of $294,000.
INTEREST INCOME
Interest on loans increased $61,000, or 1.2%, to $5.2 million for the six months
ended June 30, 1998, from $5.1 million for the same period in 1997. The increase
in interest on loans was primarily attributable to an increase in the average
balance of loans outstanding during the period to $129.3 million for the six
months ended June 30, 1998, from $122.0 million for the same period in 1997.
This was partially offset by a decrease in the average yield to 7.97% for the
six months ended June 30, 1998, from 8.35% for the same period in 1997,
reflecting lower current market rates of interest.
Interest income on mortgage-backed securities held to maturity decreased
$159,000, or 9.3%, to $1.5 million for the six months ended June 30, 1998, from
$1.7 million for the same period in 1997. The decrease was due to a decline in
the average balance of mortgage-backed securities held to maturity during the
period to $46.5 million from $52.4 million for the same period in 1997. This was
offset slightly by an increase in the average yield at June 30, 1998, of 6.66%
from 6.51% for the comparable period in 1997.
Interest income on investments held to maturity decreased slightly and for the
six-month periods ended June 30, 1998 and 1997, was $1.4 million. The decrease
was due to a reduction in the average yield of investments held to maturity to
6.80% from 7.36% for the same period in 1997. This was partially offset by an
increase in the average balance outstanding for the six months ended June 30,
1998, of $70,000 to $40.3 million at June 30, 1998, from $39.6 million in 1997.
Interest income on securities available for sale increased $1.2 million, or
168.3%, to $2.0 million for the six months ended June 30, 1998, compared to
$737,000 for the same period in 1997. This increase was due to an increase in
the average balance outstanding of securities available for sale of $35.0
million, or 149.6%, to $58.4 million compared to $23.4 million for the
comparison period in 1997. This was coupled with an increase in the average
yield to 6.77% from 6.30% in 1997.
Interest income on mortgage-backed securities available for sale increased
$232,000, or 184.1%, to $358,000 for the six months ended June 30, 1998, from
$126,000 for the same period in 1997. This increase was due primarily to the
average balance outstanding of mortgage-backed securities available for sale
increasing $6.9 million, or 172.5%, to $10.9 million at June 30, 1998, from $4.0
million at June 30, 1997. In addition, the average yield increased to 6.59% from
6.30% in 1997.
INTEREST EXPENSE
Interest expense increased $1.3 million, or 27.1%, to $6.1 million for the six
months ended June 30, 1998, from $4.8 million at June 30, 1997. The increase was
primarily attributable to the cost of borrowed funds in connection with the
Company's leverage program. The average balance of borrowed funds was $40.6
million for the six months ended June 30, 1998, with an average cost of 5.82%
compared to an average balance of $7.6 million with an average cost of 5.90% for
the same period in 1997. The average balance of savings deposits was $221.7
million with a cost of 4.41% for the six months ended June 30, 1998, compared to
an average balance of $208.6 million and a cost of 4.35% at June 30, 1997. The
increase in the average deposits of $13.1 million was due primarily to deposit
growth at the Company's new Wanaque and Montville, New Jersey, offices.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $150,000 for the six-month period ended June
30, 1998, compared to $300,000 for the same period last year. The decrease in
the provision reflects management's view of the risks inherent in the Bank's
loan portfolio, including, among other factors, a leveling off of non-performing
loans, modest loan growth, the amount of the existing reserve balance and
economic conditions in the Company's trade area. Non-performing loans to total
assets were 0.78% at June 30, 1998, compared to 0.76% at June 30, 1997. At June
30, 1998 and 1997, the allowance for loan losses was $3.2 million and $3.1
million, respectively.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest income increased $66,000, or 53.2%, to $190,000 for the six months
ended June 30, 1998, compared to $124,000 for the same period last year. The
increase was primarily due to an increase in NOW account service charges and an
increase in safe deposit box rental fees. Non-interest expense increased
$294,000, or 10.9%, to $3.0 million for the six-month period ended June 30,
1998, from $2.7 million for the same period last year. The increase was
primarily due to an increase in compensation and employee benefit expense of
$253,000 related to the addition of staff at the Company's Montville, New
Jersey, office and the amortization of stock based benefit plans. There were
also increases in equipment and real estate owned expense of $50,000 and
$66,000, respectively. Partially offsetting these was a decrease in other
expenses of $66,000.
INCOME TAX EXPENSE
Income tax expense decreased $41,000, or 6.9%, to $551,000 for the six months
ended June 30, 1998, from $592,000 for the same period in 1997 due to lower
before-tax income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the
opinion of management, no material loss is expected from any of such
pending claims and lawsuits.
ITEM 2. CHANGES IN SECURITIES.
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports of Form 8-K
The Registrant filed a current report on February 5, 1998, announcing
a stock buyback program.
The Registrant filed a current report on April 27, 1998, announcing
the Registrant's earnings for the quarter ending March 31, 1998.
The Registrant filed a current report on May 19, 1998, announcing the
payment of a cash dividend.
The Registrant filed a current report on May 27, 1998, announcing a
stock buyback program.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1ST BERGEN BANCORP
/s/ WILLIAM M. BRICKMAN
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Date: August 12, 1998 By: William M. Brickman
President and Chief Executive Officer
/s/ ALBERT E. GOSSWEILER
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Date: August 12, 1998 By: Albert E. Gossweiler
Executive Vice President and
Chief Financial Officer