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Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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
Incorporation or Organization Identification No.
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 ( )
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 SEPTEMBER 30, 1998
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Common Stock 2,585,243 shares
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1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in Thousands)
September 30, December 31,
1998 1997
------------- ------------
ASSETS:
Cash and due from banks ........................................... $ 15,915 $ 3,199
Interest-bearing deposits in other banks .......................... 1,097 0
-------- --------
Total cash and cash equivalents ..................................... $ 17,012 $ 3,199
Investment securities held to maturity ............................ $ 28,954 $ 46,903
Investment securities available for sale .......................... 76,807 41,090
Mortgage-backed securities held to maturity ....................... 33,785 52,458
Mortgage-backed securities available for sale ..................... 10,131 10,444
Loans receivable, net ............................................. 129,287 127,818
Premises and equipment ............................................ 3,006 3,019
Real estate owned ................................................. 43 118
FHLB stock ........................................................ 2,617 1,627
Accrued interest and dividends receivable ......................... 2,449 2,094
Deferred income taxes ............................................. 1,456 1,187
Other assets ...................................................... 688 388
-------- --------
TOTAL ASSETS ......................................................... $306,235 $290,345
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits .......................................................... $228,311 $217,426
FHLB Borrowings ................................................... 39,500 31,334
Escrow ............................................................ 971 986
Accrued income taxes .............................................. 64 507
Other liabilities ................................................. 1,019 822
-------- --------
TOTAL LIABILITIES .................................................... $269,865 $251,075
======== ========
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 ........................................ 30,882 30,765
Retained earnings -- substantially restricted ........................ 18,760 17,614
Accumulated other comprehensive income --
Net unrealized loss on securities available
for sale, net of tax .......................................... 344 (580)
Unallocated common stock held by the ESOP ......................... (2,250) (2,381)
Unamortized common stock held by the RRP
(97,006 shares in 1998 And 112,864 shares in 1997) .............. (1,334) (1,552)
Treasury stock at cost (588,757 shares in 1998
and 309,465 shares in 1997) ..................................... (10,032) (4,596)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ........................................... $ 36,370 $ 39,270
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $306,235 $290,345
======== ========
See accompanying notes to (unaudited) consolidated financial statements
2
1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars In Thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
INTEREST INCOME
Interest on loans .............................................. $ 2,555 $ 2,440 $ 7,707 $ 7,531
Interest on investment securities held to maturity ............. 568 950 1,949 2,388
Interest on investment securities available for sale............ 1,303 485 3,280 1,222
Interest on mortgage-backed securities held to maturity ........ 610 912 2,157 2,618
Interest on mortgage-backed securities available for sale ...... 174 126 532 252
Interest on FHLB deposits ...................................... 62 161 213 319
FHLB stock dividends ........................................... 47 28 130 77
------- ------- ------- -------
TOTAL INTEREST INCOME ............................................. $ 5,319 $ 5,102 $15,968 $14,407
INTEREST EXPENSE
Deposits ....................................................... $ 2,468 $ 2,399 7,360 6,937
FHLB borrowings ................................................ 563 413 1,745 637
------- ------- ------- -------
TOTAL INTEREST EXPENSE ............................................ $ 3,031 $ 2,812 $ 9,105 $ 7,574
NET INTEREST INCOME ............................................... 2,288 2,290 6,863 6,833
Provision for loan losses ......................................... 75 100 225 400
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ................................................. $ 2,213 $ 2,190 $ 6,638 $ 6,433
NON-INTEREST INCOME:
Loan fees and service charges .................................. $ 52 $ 47 $ 145 $ 134
Annuity commissions ............................................ 1 -- 1 --
Other income ................................................... 36 33 133 70
------- ------- ------- -------
Total other income ............................................. $ 89 $ 80 $ 279 $ 204
NON-INTEREST EXPENSE:
Compensation and employee benefits ............................. $ 863 $ 861 $ 2,644 $ 2,389
Commission expense ............................................. 1 -- 1 --
Occupancy expense .............................................. 74 77 219 228
Equipment ...................................................... 131 113 402 334
Advertising .................................................... 49 45 165 152
Federal deposit insurance premiums ............................. 34 34 104 104
Net gain (loss) from real estate owned ......................... 15 24 24 (33)
Insurance and bond premiums .................................... 30 32 83 97
Other .......................................................... 295 303 845 919
------- ------- ------- -------
Total non-interest expense ..................................... $ 1,492 $ 1,489 $ 4,487 $ 4,190
Income before income taxes ..................................... 810 781 2,430 2,447
Federal and state tax expense .................................. 279 291 830 883
------- ------- ------- -------
Net Income ..................................................... $ 531 490 $ 1,600 $ 1,564
======= ======= ======= =======
Earnings per share -- Basic .................................... $ 0.24 $ 0.18 $ 0.71 $ 0.57
Earnings per share -- Diluted .................................. $ 0.23 $ 0.18 $ 0.69 $ 0.57
See accompanying notes to (unaudited) consolidated financial statements
3
1ST BERGEN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In Thousands)
September 30,
-------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ..................................................................... $ 1,600 $ 1,564
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan loss ..................................................... 225 400
Net gain on sales of real estate owned ...................................... (1) (45)
Depreciation of premises and equipment ...................................... 187 163
Amortization of MRP shares .................................................. 218 121
Amortization of ESOP shares ................................................. 247 177
Net accretion of premiums and amortization of discounts ..................... (8) 77
Net (increase) decrease in deferred loan fees ............................... (70) 27
Increase in interest and dividends receivable ............................... (355) (342)
Decrease in other assets .................................................... (300) (178)
Increase in other liabilities ............................................... 197 795
Increase in deferred income taxes ........................................... (45) 1
(Decrease) increase in income taxes payable ................................. (443) 477
-------- --------
Net cash provided by operating activities ................................. $ 1,452 $ 3,237
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans receivable ................................. $ 4,932 $ 2,259
Purchases of investment securities held to maturity ......................... -- (29,986)
Purchases of investment securities available for sale ....................... (50,132) (24,550)
Purchases of Loans .......................................................... (6,599) --
Proceeds from sales of real estate owned ......... .......................... 119 541
Purchases of mortgage-backed securities held to maturity .................... -- (10,169)
Purchases of mortgage-backed securities available for sale .................. (2,024) (9,621)
Investment securities held to maturity called ............................... 17,000 7,000
Investment securities available for sale called ............................. 15,000 24,550
Principle payments on investment securities held to maturity ............... 965 1,045
Principle payments on mortgage-backed securities held to maturity ........... 18,665 9,389
Principle payments on mortgage-backed securities available for sale ......... 2,454 1,913
Purchases of premises and equipment ......................................... (174) (470)
Purchases of FHLB-NY stock .................................................. (990) (140)
-------- --------
Net cash used in investing activities ..................................... $ (784) $(28,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits .................................................... $ 10,885 $ 11,362
Purchase of shares by MRP ................................................... -- (1,745)
Purchase of treasury stock .................................................. (5,436) (2,414)
Net (decrease) increase in advances by borrowers
(taxes & insurance) ....................................................... (15) 51
Net increase in borrowings .................................................. 8,166 27,334
Dividends paid .............................................................. (455) (327)
-------- --------
Net cash provided by financing activities ................................. 13,145 34,261
Net increase in cash and cash equivalents ................................. 13,813 9,259
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ....................... 3,199 7,731
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ............................. $17,012 $16,990
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................................................. 7,376 6,907
Income taxes .............................................................. 409 190
Non-cash investing and financing activities:
Transfer of loans to real estate owned .................................... $ 43 $ 168
See accompanying notes to (unaudited) consolidated financial statements
4
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
nine-month period ended September 30, 1998. The results of operations for the
three- and nine-month periods ended September 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 September 30, 1998. The
earnings per share on a basic and diluted basis were $0.18 cents for the quarter
ended September 30, 1997.
5
4. NON-PERFORMING LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Non-performing loans were as follows:
September 30, December 31,
1998 1997
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(Dollars in Thousands)
Loans delinquent 90 days or more
and other non-performing loans ............ $2,120 $2,057
Loans delinquent 90 days or more
and other Non-performing loans
as a percentage of gross loans ............ 1.60% 1.57%
An analysis of the allowance for loan losses for the nine-month periods
ended September 30, 1998 and 1997 follows:
September 30, September 30,
1998 1997
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(Dollars in Thousands)
Balance at the beginning of the period ..... $3,061 $3,126
Provision charged to operations ............ 225 400
Charge-offs, net ........................... 60 461
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Balance at end of period ................... $3,226 $3,065
====== ======
5. RECENT ACCOUNTING PRONOUNCEMENT
In accordance with the provisions of SFAS 130 for interim period reporting, the
Company's total comprehensive income for the nine months ended September 30,
1998 and 1997, was $2.5 million and $1.8 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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". 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.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), was issued by the Financial
Accounting Standards Board ("FASB") in June 1998. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
The Company must adopt SFAS No. 133 by January 1, 2000; however, early adoption
is permitted. On adoption, the provisions of SFAS No. 133 must be applied
prospectively. The Company anticipates that the adoption of SFAS No. 133 will
not have a material impact in the financial statements.
6
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 third quarter ended September 30, 1998, of $531,000, or $0.24
per share on a basic basis, an increase of $41,000, or 8.4%, over the $490,000,
or $0.18 per share on a basic basis, earned for the same period last year. The
$41,000 increase in earnings over the prior year is primarily attributable to a
$2,000 decrease in net interest income coupled with decreases in the provision
for loan losses and tax expense of $25,000 and $12,000, respectively, partially
offset by increases in non-interest income and non-interest expense of $9,000
and $3,000, respectively. The 33.3% increase in per share earnings reflects the
increase in net income and a decrease in average shares outstanding due to the
Company's stock repurchase program.
During the fourth quarter of 1998, 1st Bergen signed a Definitive Merger
Agreement with Kearny Federal Savings Bank whereby Kearny would pay $24 cash for
each share of 1st Bergen common stock. Kearny is a federal mutual savings bank
with assets of $794 million and five northern New Jersey banking offices. The
transaction is expected to close during the first quarter of 1999.
FINANCIAL CONDITION
ASSETS AND LIABILITIES
Total assets increased $15.9 million to $306.2 million at September 30, 1998,
from $290.3 million at December 31, 1997. Part of this growth was attributable
to the Company increasing its borrowing through the Federal Home Loan Bank of
New York (FHLB-NY) as it continued to expand its Leverage Program. At September
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 September 30, 1998,
totalled $39.5 million, an increase of $8.2 million from December 31, 1997. All
borrowings with the FHLB-NY are in the form of securities sold 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 maturities from July 2001 through March 2008 with an average rate of 5.31%
and are callable earlier at the lender's option.
Cash and cash equivalents increased $13.8 million, or 431.3%, to $17.0 million
as of September 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 exceeding new loan demand. On October 1,
1998, FHLB-NY borrowings totalling $11.5 million with an average cost of 5.96%
were repaid. These borrowings were due to mature during the fourth quarter of
1998. As a result of the repayment, the weighted cost of the FHLB-NY borrowings
was reduced to 5.38% from 5.55%.
Loans receivable, net, increased $1.5 million, or 1.12%, to $129.3 million at
September 1998 from $127.8 million at December 1997. Mortgage-backed securities
held to maturity decreased $18.7 million, or 35.6%, to $33.8 million at
September 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 to enhance the Company's liquidity. Mortgage-backed securities
available for sale decreased $313,000, or 3.0%, to $10.1 million at September
30, 1998, from $10.4 million at December 31, 1997. The decrease was a result of
normal repayments and prepayments.
Investment securities held to maturity decreased $17.9 million, or 38.2%, to
$29.0 million at September 30, 1998, from $46.9 million at December 31, 1997.
This decrease was due to the early maturity or call of securities valued at
$17.0 million and Management's determination to classify new purchases as
available for sale.
Investment securities available for sale increased $35.7 million, or 86.9%, to
$76.8 million at September 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.
7
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $2.9 million, or 7.38%, to $36.4 million at
September 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 nine-months ended September 30, 1998,
the Company repurchased 279,292 shares of its common stock with a market value
of $5.4 million. Offsetting the stock repurchase was year-to-date income of $1.6
million.
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 September 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 $45.3 million, or 14.8% of
total assets. This amount includes $31.2 million scheduled to mature within one
year, which represented 10.2% of total assets and 13.7% of total deposits at
September 30, 1998.
At September 30, 1998, the Company had commitments to originate loans totalling
$1.2 million, and outstanding unused lines of credit of $5.6 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 September 30, 1998, and December 31, 1997, the Bank exceeded
all regulatory capital requirements. The Bank's required and actual capital
levels as of September 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 SEPTEMBER 30, 1998:
Tangible capital ............ $32,927 10.9% $ 4,550 1.5% $ 4,550 1.5%
Core capital ................ $32,927 10.9% $ 9,100 3.0% $15,165 5.0%
Tier 1 risk-based capital.... $32,927 25.3% $ 5,215 4.0% $ 7,822 6.0%
Risk-based capital $34,567 26.5% $10,430 8.0% $13,037 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%
8
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
For the three months ended September 30, 1998, net income increased $41,000 to
$531,000 from the $490,000 earned for the same period last year. The increase in
earnings over the prior year is primarily attributable to a decrease in net
interest income offset by decreases in the loan loss provision and tax expense
coupled with increases in non-interest income and non-interest expense.
INTEREST INCOME
Interest on loans for the three months ended September 30, 1998, was $2.6
million, an increase of $115,000 over the $2.4 million earned in the same period
last year. The average balance of loans outstanding increased $8.6 million, or
7.2%, to $128.7 million at September 30, 1998, from $120.0 million at September
30, 1997, while the average yield increased to 7.94% at September 30, 1998, from
7.92% for the same period last year.
Interest on mortgage-backed securities held to maturity decreased $302,000, or
33.1%, to $610,000 for the three months ended September 30, 1998, from $912,000
for the same period in 1997. The decrease was due to the average balance
decreasing $18.1 million, or 33.3%, to $36.1 million at September 30, 1998, from
$54.2 million at September 30, 1997. The average yield changed slightly to 6.76%
at September 30, 1998, from 6.73% at September 30, 1997.
Interest on investment securities held to maturity decreased $382,000, or 40.2%,
to $568,000 for the three months ended September 30, 1998, from $950,000 for the
same period in 1997. The decrease was primarily due to a decrease in the average
balance of securities held to maturity to $30.7 million during the period ended
September 30, 1998, from $50.5 million for the same period last year. This
decrease was coupled with a decrease in the average yield to 7.41% for the three
months ended September 30, 1998, from 7.52% for the same period in 1997,
reflecting lower current market rates.
Interest income on mortgage-backed securities available for sale increased
$48,000, or 38.1%, to $174,000 for the three-month period ended September 30,
1998, compared to $126,000 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 $10.7 million for the three months
ended September 30, 1998, from $8.8 million for the same period in 1997. The
increase in the average balance was accompanied by an increase in the average
yield to 6.49% at September 30, 1998, from 5.72% at September 30, 1997.
Interest income on investment securities available for sale increased $818,000,
or 168.7%, to $1.3 million for the three months ended September 30, 1998,
compared to $485,000 for the same period in 1997. The increase was due to an
increase in the average balance outstanding of $46.4 million, or 171.9%, to
$73.4 million for the three months ended September 30, 1998, from $27.0 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 decreased
to 7.10% for the three months ended September 30, 1998, compared to 7.17% for
the same period last year.
INTEREST EXPENSE
Interest expense increased $219,000, or 7.82%, to $3.0 million for the three
months ended September 30, 1998, compared to $2.8 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 $39.5 million for the three months ended September 30, 1998, with an
average cost of 5.70% compared to an average balance of $27.3 million and
average cost of 6.04% for the same period last year. The average balance of
savings deposits was $225.7 million with a cost of 4.37% for the three months
ended September 30, 1998, compared to average deposits of $214.6 million and a
cost of 4.47% for the same period last year. The increase in the average
deposits of $11.1 million to $225.7 million at September 30, 1998, from $214.6
million at September 30, 1997, was due primarily to deposit growth at the
Company's new Wanaque and Montville, New Jersey, offices.
9
PROVISION FOR LOAN LOSSES
The provision for loan losses was $75,000 for the three months ended September
30, 1998, compared to $100,000 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 $2.1
million, or 1.60% of gross loans at September 30, 1998, and $2.1 million or
1.57% of gross loans at December 31, 1997. Real estate owned at September 30,
1998, was $43,000 compared to $118,000 at December 31, 1997. At September 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 0.71% at September 30, 1998 and 0.75% at December 31, 1997. The Company's
ratio of non-performing loans to total assets was 0.69% at September 30, 1998,
and 0.71% at December 31, 1997.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest income increased $9,000, or 11.3%, to $89,000 for the three months
ended September 30, 1998, compared to $80,000 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 was $1.5 million
for the three months ended September 30, 1998, and for the same period last
year.
INCOME TAX EXPENSE
Income tax expense decreased $12,000, or 4.1%, to $279,000 for the three months
ended September 30, 1998, from $291,000 for the same period in 1997.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the third 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.
YEAR 2000
A great deal of information has been disseminated about the global year 2000.
Many computer programs that can only distinguish the final two digits of the
year entered (a common programming practice in earlier years) are expected to
read entries for the Year 2000 as the Year 1900 and compute payment, interest or
delinquency. Rapid and accurate data processing is essential to the operation of
the Company. Data processing is also essential to most other financial
institutions and many other companies. The Company contracts with a service
bureau to provide the majority of its data processing and is dependent upon
purchased application software. In-house applications are limited to word
processing and spreadsheet functions. The Company has obtained, where
appropriate, certification from external vendors and servicers that the systems
and software provided are Year 2000 compliant. Beginning in the fourth quarter
of 1998, the Company has coordinated with the primary servicer end-to-end tests
which allow the Company to simulate daily processing on sensitive century dates.
In the evaluation, the Company will ensure that critical operations will
continue if the servicer or vendors are unable to achieve the Year 2000
requirements. The Company expects that all appropriate Year 2000 compliance
testing, including third party vendors and interfaces will be completed by 1st
quarter of 1999. The Company has identified critical applications and where
necessary has begun hardware/software upgrades and system replacement.
Although contingency plans will be developed, the Company continues to bear some
risk related to the Year 2000 issue and could be adversely affected, if some
other entities ( i.e. vendors ) do not appropriately address their own
compliance. The Company continues to evaluate the estimated costs associated
with attaining Year 2000 readiness. Additional costs for 1998, such as testing,
software purchases and marketing are not anticipated to be material to the
Company.
10
While additional costs will be incurred, the Company believes, based upon
available information, that it will be able to manage its Year 2000 transition
with out any adverse effect on business operation or financial condition.
However, any delays, mistakes or failures could have a significant adverse
impact on the financial condition and results of operation of the Company.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Net income for the nine months ended September 30, 1998, was $1.6 million.
Earnings per share for this period were $0.71 and $0.69 on a basic and diluted
basis, respectively. Net income for the nine months ended September 30, 1997,
was also $1.6 million while earnings per share were $0.57 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 $205,000, or 3.2%, to $6.6 million for the nine months
ended September 30, 1998, from $6.4 million for the same period last year. This
was accompanied by an increase in non-interest income of $75,000 and offset by
an increase in non-interest expense of $297,000.
INTEREST INCOME
Interest on loans increased $176,000, or 2.3%, to $7.7 million for the nine
months ended September 30, 1998, from $7.5 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 $129.0 million for
the nine months ended September 30, 1998, from $121.3 million for the same
period in 1997. This was partially offset by a decrease in the average yield to
7.96% for the nine months ended September 30, 1998, from 8.28% for the same
period in 1997, reflecting lower current market rates of interest.
Interest income on mortgage-backed securities held to maturity decreased
$461,000, or 17.6%, to $2.2 million for the nine months ended September 30,
1998, from $2.6 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 $43.0 million from $53.0 million for the same period in
1997. This was offset slightly by an increase in the average yield at September
30, 1998, to 6.69% from 6.59% for the comparable period in 1997.
Interest income on investments held to maturity decreased $439,000, or 18.3%, to
$1.9 million for the nine-month period ended September 30, 1998, from $2.4
million for the same period in 1997. The decrease was due to a reduction in the
average yield of investments held to maturity to 7.02% from 7.36% for the same
period in 1997. This reduction was partially offset by a decrease in the average
balance outstanding for the nine months ended September 30, 1998, of $6.3
million to $37.0 million at September 30, 1998, from $43.3 million in 1997.
Interest income on securities available for sale increased $2.1 million, or
175.0%, to $3.3 million for the nine months ended September 30, 1998, compared
to $1.2 million for the same period in 1997. This increase was due to an
increase in the average balance outstanding of securities available for sale of
$38.0 million, or 149.0%, to $63.5 million compared to $25.5 million for the
comparison period in 1997. This increase was coupled with an increase in the
average yield to 6.89% from 6.39% in 1997.
Interest income on mortgage-backed securities available for sale increased
$280,000, or 111.1%, to $532,000 for the nine months ended September 30, 1998,
from $252,000 for the same period in 1997. This increase was due primarily to
the average balance outstanding of mortgage-backed securities available for sale
increasing $5.2 million, or 92.9%, to $10.8 million at September 30, 1998, from
$5.6 million at September 30, 1997. In addition, the average yield increased to
6.56% from 5.97% in 1997.
11
INTEREST EXPENSE
Interest expense increased $1.5 million, or 19.7%, to $9.1 million for the nine
months ended September 30, 1998, from $7.6 million at September 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
$40.2 million for the nine months ended September 30, 1998, with an average cost
of 5.78% compared to an average balance of $14.2 million with an average cost of
5.96% for the same period in 1997. The average balance of savings deposits was
$224.0 million with a cost of 4.38% for the nine months ended September 30,
1998, compared to an average balance of $211.7 million and a cost of 4.37% at
September 30, 1997. The increase in the average deposits of $12.3 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 $225,000 for the nine-month period ended
September 30, 1998, compared to $400,000 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. The ratio of
non-performing loans to total assets was 0.69% at September 30, 1998, compared
to 0.71% at September 30, 1997. At September 30, 1998 and December 31, 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 $75,000, or 36.8%, to $279,000 for the nine months
ended September 30, 1998, compared to $204,000 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
$298,000, or 7.1%, to $4.5 million for the nine-month period ended September 30,
1998, from $4.2 million for the same period last year. The increase was
primarily due to an increase in compensation and employee benefit expense of
$255,000 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 $68,000 and
$57,000, respectively. Partially offsetting these was a decrease in other
expenses of $74,000.
INCOME TAX EXPENSE
Income tax expense decreased $53,000, or 6.0%, to $830,000 for the nine months
ended September 30, 1998, from $883,000 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 July 28, 1998, announcing its
second fiscal quarter 1998 earnings.
The Registrant filed a current report on August 19, 1998, announcing the
payment of a cash dividend.
The Registrant filed a current report on October 15, 1998, announcing the
signing of a Definitive Agreement and Plan of Reorganization by and among
Kearny Federal Savings Bank, Registrant, and Registrant's wholly-owned
subsidiary, South Bergen Savings Bank, on October 14, 1998.
13
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
By: /s/ WILLIAM M. BRICKMAN
----------------------------------
Date: November 12, 1998 William M. Brickman
President and Chief Executive
Officer
By: /s/ ALBERT E. GOSSWEILER
----------------------------------
Date: November 12, 1998 Albert E. Gossweiler
Executive Vice President and Chief
Financial Officer
14