================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 5, 1995
HUBCO, INC.
(Exact Name of Registrant as Specified in Charter)
New Jersey
(State or Other Jurisdiction of Incorporation)
1-10699 22-2405746
(Commission File Number) (IRS Employer Identification No.)
1000 MacArthur Boulevard, Mahwah, New Jersey 07430
(Address of principal executive offices)
(201) 236-2640
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
Item 5. Other Events.
On April 5, 1995, HUBCO, Inc. ("HUBCO") completed the previously announced
merger of Jefferson National Bank ("Jefferson") into its wholly owned
subsidiary, Hudson United Bank. The merger increases HUBCO's branch network to
49 locations in northern New Jersey. According to the terms of the merger
agreement, shareholders of Jefferson will receive 2.844 shares of HUBCO's common
stock for each share of Jefferson.
On April 5, 1995, Jefferson released its year-end audited financial
statements. Jefferson reported a net loss of $983,000 for the year ended
December 31, 1994, which amounted to a net loss per share of $4.35. Jefferson
also reported nonperforming assets of $7,174,000 as of December 31, 1994.
Item 7. Exhibits.
99.1 Press Release dated April 5, 1995
99.2 Jefferson National Bank Financial Statements As Of
December 31, 1994, 1993 and 1992 Together With Report
Of Independent Public Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, HUBCO,
Inc. has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HUBCO, INC.
Dated : April 19, 1995 By: KENNETH T. NEILSON
-----------------------
Kenneth T. Neilson
President and Chief
Executive Officer
<PAGE>
INDEX TO EXHIBITS
99.1 Press Release, dated April 5, 1995
99.2 Jefferson National Bank Financial Statements As Of
December 31, 1994, 1993 and 1992 Together With Report
Of Independent Public Accountants
EXHIBIT 99(a)
FOR IMMEDIATE RELEASE
April 5, 1995
HUBCO COMPLETES JEFFERSON NATIONAL BANK MERGER
Mahwah, New Jersey, April 5, 1995 -- HUBCO, Inc. (NASDAQ; HUBC) today
announced it has completed the merger of Jefferson National Bank into its wholly
owned subsidiary, Hudson United Bank. "This acquisition fits nicely into our
expansion strategy, complimenting our branch system within Passaic County,"
stated HUBCO and Hudson United Bank President and Chief Executive Officer,
Kenneth T. Neilson.
The Jefferson merger increases HUBCO's branch network to 49 locations in
northern New Jersey. All branches of Jefferson National Bank will remain open
and become branches of Hudson United Bank.
"We believe that Jefferson's customers will clearly benefit from this
association. As part of Hudson United, they will have access to an expanded line
of financial products including investments, consumer and commercial loans
including mortgages, Trust Department services, and 24 hour banking through MAC
and HUB-LINK, our telephone banking service along with our Dial-a-Loan Program,"
continued Mr. Neilson.
Over the past four years, HUBCO has completed ten acquisitions in northern
New Jersey and tripled in size.
According to the terms of the merger agreement, shareholders of Jefferson
will receive 2.844 shares of HUBCO's common stock for each share of Jefferson
National Bank.
HUBCO, Inc. is the bank holding company for Hudson United Bank which has
locations in Hudson, Bergen, Essex, Middlesex, Morris and Passaic Counties.
EXHIBIT 99(b)
Jefferson National Bank
Financial Statements As Of December 31, 1994, 1993 and 1992
Together With
Report Of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Jefferson National Bank:
We have audited the accompanying statements of condition of Jefferson National
Bank (the Bank) as of December 31, 1994 and 1993, and the related statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Bank'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 audit 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.
As discussed in Note 2 to the financial statements, the Bank entered into an
Agreement and Plan of Merger with Hudson United Bank, a subsidiary of Hubco,
Inc. whereby each share of common stock of the Bank will be exchanged for 2.844
shares of Hubco, Inc. common stock. The merger was completed on April 5, 1995.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson National Bank as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, during 1994 the Bank changed
its method of accounting for securities.
ARTHUR ANDERSON LLP
Roseland, New Jersey
April 5, 1995
<PAGE>
JEFFERSON NATIONAL BANK
STATEMENTS OF CONDITION
DECEMBER 31, 1994 AND 1993
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ------- -------
<S> <C> <C>
CASH AND DUE FROM BANKS ................................ $ 3,916 $ 3,377
FEDERAL FUNDS SOLD ..................................... 9,640 14,790
------- -------
Total cash and cash equivalents ........ 13,556 18,167
------- -------
SECURITIES (Notes 1 and 3):
Available for sale, at fair value ................... 4,987 0
Held to maturity (aggregate market value of
$26,618 and $23,953, respectively) ................ 27,672 23,925
------- -------
Total securities ....................... 32,659 23,925
------- -------
LOANS (Notes 1, 4 and 5) ............................... 42,862 48,564
Less-
Allowance for possible loan losses ................ 1,845 1,682
------- -------
Net loans .............................. 41,017 46,882
------- -------
PREMISES AND EQUIPMENT, net (Notes 1 and 6) ............ 805 839
------- -------
ACCRUED INTEREST RECEIVABLE ............................ 909 880
------- -------
OTHER REAL ESTATE, net of valuation allowance
of $587 and $438, respectively (Notes 1 and 7) ...... 2,207 3,336
------- -------
OTHER ASSETS (Note 8) .................................. 134 684
------- -------
Total assets ........................... $91,287 $94,713
======= =======
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
-------- --------
<S> <C> <C>
LIABILITIES:
Deposits--
Demand--
Interest bearing ................................... $ 20,757 $ 19,769
Noninterest bearing ................................ 10,227 9,581
Savings .............................................. 27,927 27,168
Time ................................................. 26,465 31,441
-------- --------
Total deposits .......................... 85,376 87,959
Accrued interest payable ............................. 290 336
Accrued expenses and other liabilities ............... 536 244
-------- --------
Total liabilities ....................... 86,202 88,539
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Note 2):
Common stock, $6.00 par value, 500 shares authorized,
226 shares issued and outstanding .................. 1,357 1,357
Additional paid-in capital ........................... 1,474 1,474
Retained earnings .................................... 2,360 3,343
Unrealized holding losses on securities
available for sale ................................. (106) 0
-------- --------
Total shareholders' equity .............. 5,085 6,174
-------- --------
Total liabilities and shareholders'
equity ............................... $ 91,287 $ 94,713
======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
JEFFERSON NATIONAL BANK
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(in thousands, except share data)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans .................................................................. $ 4,050 $ 4,896 $ 6,105
Securities ............................................................. 1,426 781 908
Federal funds sold ..................................................... 420 442 418
-------- -------- --------
Total interest income ..................................... 5,896 6,119 7,431
-------- -------- --------
INTEREST EXPENSE -- DEPOSIT ACCOUNTS ...................................... 2,121 2,311 3,454
-------- -------- --------
Net interest income ....................................... 3,775 3,808 3,977
PROVISION FOR POSSIBLE LOAN LOSSES ........................................ 425 1,156 1,718
-------- -------- --------
Net interest income after provision for
possible loan losses .................................... 3,350 2,652 2,259
-------- -------- --------
OTHER INCOME:
Service charges on deposit accounts .................................... 393 313 241
Other income ........................................................... 78 176 83
-------- -------- --------
Total other income ........................................ 471 489 324
-------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits ......................................... 1,572 1,469 1,374
Occupancy and equipment expense ........................................ 450 412 383
Other real estate expenses--
Cost of operations ................................................... 221 243 65
Valuation adjustments ................................................ 543 555 538
Other operating expenses (Note 10) ..................................... 1,954 1,756 1,522
-------- -------- --------
Total other expenses ...................................... 4,740 4,435 3,882
-------- -------- --------
Loss before income taxes................................... (919) (1,294) (1,299)
PROVISION (BENEFIT) FOR INCOME TAXES (Notes 1 and 8) ...................... 64 62 (181)
-------- -------- --------
Net loss .................................................. ($983) ($1,356) ($1,118)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING ....................................... 226,078 226,078 226,078
======== ======== ========
Net loss per share ........................................ ($4.35) ($6.00) ($4.95)
======== ======== ========
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
JEFFERSON NATIONAL BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(in thousands)
<TABLE>
<CAPTION>
Unrealized
Holding
Losses on
Additional Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale Total
------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991 ........................... $1,357 $1,474 $5,930 $ 0 $8,761
Net loss -- 1992 .................................. 0 0 (1,118) 0 (1,118)
Cash dividend ($.50 per share) .................... 0 0 (113) 0 (113)
------ ------ ------ ----- ------
BALANCE, December 31, 1992 ........................... 1,357 1,474 4,699 0 7,530
Net loss -- 1993 .................................. 0 0 (1,356) 0 (1,356)
------ ------ ------ ----- ------
BALANCE, December 31, 1993 ........................... 1,357 1,474 3,343 0 6,174
------ ------ ------ ----- ------
Net loss - 1994 ................................... 0 0 (983) 0 (983)
Unrealized holding losses on
securities available for sale ................... 0 0 0 (106) (106)
------ ------ ------ ----- ------
BALANCE, December 31, 1994 ........................... $1,357 $1,474 $2,360 ($106) $5,085
====== ====== ====== ===== ======
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
JEFFERSON NATIONAL BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ..................................................................... ($ 983) ($ 1,356) ($ 1,118)
Adjustments to reconcile net loss to net cash provided
by operating activities--
Provision for possible loan losses ....................................... 425 1,156 1,718
Provision for losses on other real estate ................................ 543 555 538
Depreciation ............................................................. 115 110 113
Deferred income tax provision (benefit) .................................. 64 292 (282)
Amortization (accretion) of securities, net .............................. 301 (328) (657)
Unrealized holding losses on securities available for sale ............... (106) 0 0
(Increase) decrease in accrued interest receivable ....................... (29) 409 697
Decrease (increase) in other assets ...................................... 486 (324) 271
Decrease in accrued interest payable ..................................... (46) (134) (354)
Increase (decrease) in other liabilities ................................. 362 220 (217)
------- ------- -------
Net cash provided by operating activities ....................... 1,132 600 709
------- ------- -------
INVESTING ACTIVITIES:
Maturities of securities--
Available for sale ......................................................... 3,000 0 0
Held to maturity ........................................................... 8,000 29,847 40,301
Purchases of securities--
Available for sale ......................................................... (6,987) 0 0
Held to maturity ........................................................... (13,048) (29,650) (47,124)
Net decrease in loans ........................................................ 5,440 9,452 4,847
Net decrease (increase) in other real estate ................................. 516 (477) (2,814)
Capital expenditures ......................................................... (81) (77) (52)
------- ------- -------
Net cash (used in) provided by investing activities ............. (3,160) 9,095 (4,842)
------- ------- -------
FINANCING ACTIVITIES:
Net decrease in deposits ..................................................... (2,583) (5,086) (6,664)
Cash dividend ................................................................ 0 0 (113)
------- ------- -------
Net cash used in financing activities ........................... (2,583) (5,086) (6,777)
Net (decrease) increase in cash and cash equivalents ............ (4,611) 4,609 (10,910)
CASH AND CASH EQUIVALENTS, beginning of year .................................... 18,167 13,558 24,468
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year .......................................... $13,556 $18,167 $13,558
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for--
Interest ................................................................... $ 2,167 $ 2,445 $ 3,808
Taxes ...................................................................... 0 110 105
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
JEFFERSON NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
(in thousands)
(1) ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Organization--
------------
Jefferson National Bank (Passaic, New Jersey) is a national banking
institution that provides community banking services primarily to
residents and businesses in the greater Passaic area.
Securities--
----------
The Bank prospectively adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115), effective January 1, 1994. SFAS 115
requires the Bank to classify its securities as: (1) held to maturity,
(2) available for sale and (3) trading.
Securities which the Bank has the ability and intent to hold until
maturity are classified as held to maturity. These securities are
carried at cost adjusted for amortization of premiums and accretion of
discounts.
Securities which are held for an indefinite period of time which
management intends to use as part of its asset/liability strategy, or
that may be sold in response to changes in interest rates, changes in
prepayment risk, increased capital requirements or other similar
factors, are classified as available for sale and are carried at market
value. Differences between a security's amortized cost and market value
is charged/credited directly to shareholders' equity, net of income
taxes. The cost of securities sold is determined on a specific
identification basis. Gains and losses on sales of securities are
recognized in the statements of operations on the date of sale.
The Bank has not classified any of its securities as trading. The Bank
does not engage in any investment trading activity and has not sold any
securities during 1994, 1993 or 1992. The Bank meets its liquidity
requirements primarily by maintaining Federal Funds sold and certain
short-term securities.
Loans--
-----
Loans are stated at the principal amount outstanding. Interest income
on loans is credited to income as earned. The accrual of interest
generally is discontinued when a loan becomes 90 days past due as to
principal or interest. When interest accruals are discontinued, accrued
but uncollected interest credited to income in the current year is
generally reversed, and any interest accrued in prior years is charged
to the allowance for possible loan losses. Accrued interest on certain
residential mortgage loans placed on nonaccrual is not charged off if
the accrued interest is deemed to be recoverable based on management's
analysis of the underlying collateral.
<PAGE>
-2-
Allowance for Possible Loan Losses--
-----------------------------------
The allowance for possible loan losses is maintained at a level
believed adequate by management to absorb loan losses on loans
currently outstanding. The allowance is increased by provisions charged
to expense and reduced by net charge-offs. The level of the allowance
is based on management's evaluation of the inherent risks in the
portfolio after consideration of prevailing and anticipated economic
conditions. Credit reviews of the loan portfolio are made on an ongoing
basis. Ultimate losses may vary from current estimates as a result of
many factors, including the difficult and unpredictable economic
conditions in the region. These uncertainties have and may continue to
result in increased levels of nonperforming assets, provisions for
possible loan losses and charge-offs, as well as a decline in net
interest income.
Premises and Equipment--
-----------------------
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of each type of asset.
Other Real Estate (ORE)--
------------------------
Other real estate includes real estate acquired in satisfaction of a
loan and in-substance foreclosures. In-substance foreclosures are
properties in which the borrower has little or no equity in the
collateral, where repayment of the loan is expected only from the
operation or sale of the collateral, and the borrower has either
effectively abandoned control of the property or the borrower has
retained control of the property but its ability to rebuild equity
based on current financial conditions is considered doubtful.
Properties acquired by foreclosure or deed in lieu of foreclosure and
properties classified as in-substance foreclosures are transferred to
ORE and recorded at the lower of carrying value or fair value of the
properties, reduced by estimated costs to sell. Subsequent provisions
that result from ongoing periodic evaluations of these ORE properties
are charged to expense in the period in which they are identified. ORE
is carried at the lower of cost or fair value, less estimated costs to
sell. Carrying costs, such as maintenance and property taxes, are
charged to expense as incurred.
Income Taxes--
-------------
Effective January 1, 1993, the Bank adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
The standard requires a change from the deferred method to an asset and
liability method of computing deferred income taxes. Deferred income
taxes are recognized for tax consequences of "temporary differences" by
applying enacted statutory tax rates, applicable to future years, to
differences between the financial reporting and the tax basis of
existing assets and liabilities. Prior years' financial statements have
not been restated to comply with the provisions of SFAS 109. The effect
of adopting SFAS 109 in 1993 was not significant.
Statements of Cash Flows--
-------------------------
For the purpose of reporting cash flows, cash and cash equivalents
include cash on hand, noninterest bearing amounts due from banks and
Federal Funds sold. Generally, Federal Funds sold are for a one-day
period.
<PAGE>
-3-
New Financial Accounting Standards--
-----------------------------------
The Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS 114), in May
1993. The Bank plans to adopt this statement in 1995. As defined in
SFAS 114, a loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
SFAS 114 requires that the impairment of a loan be based on the present
value of expected future cash flows, net of estimated costs to sell,
discounted at the loan's effective interest rate. Impairment can also
be measured based on a loan's observable market price or the fair value
of collateral, if the loan is collateral dependent. If the measure of
the impaired loan is less than the recorded investment in the loan, the
Bank will be required to establish a valuation allowance, or adjust
existing valuation allowances, with a corresponding charge or credit to
the provision for possible loan losses. Management of the Bank believes
that the effect of SFAS 114 will not be significant.
(2) REGULATORY PROCEEDINGS AND MERGER AGREEMENT:
--------------------------------------------
In December 1992, as a result of a regulatory examination, the Board of
Directors of the Bank entered into a Consent Order (the Order) with the
OCC. The Order requires, among other things, that the Bank maintain Tier
I capital ratios of at least 10% and 6% of risk weighted assets and
adjusted total assets, respectively; submit capital, profit and strategic
plans; enhance the Bank's loan administration, internal loan review,
allowance for possible loan loss and appraisal policies and procedures,
as well as implement a written program designed to eliminate the basis of
criticism of criticized assets. In addition, the Bank is restricted from
declaring dividends without prior approval from the OCC.
The regulatory capital ratios of the Bank are as follows at the dates
indicated--
Actual
---------------
December 31
---------------
1994 1993 Required
---- ---- --------
Tier I risk-based capital (unaudited) ... 13.1% 13.2% 10.0%
==== ==== ====
Tier I capital/adjusted total assets
(leverage ratio) ..................... 5.5% 6.5% 6.0%
==== ==== ====
As of December 31, 1994, the Bank is not in compliance with certain
provisions in the Order including the minimum leverage ratio of Tier 1
capital to adjusted total assets and the enhancement of policies and
procedures in the areas of internal loan review and determining the
adequacy of the allowance for possible loan losses.
Management's plans include a merger with Hudson United Bank, a subsidiary
of Hubco, Inc. whereby each share of common stock of the Bank will be
exchanged for 2.8 44 shares of Hubco, Inc. common stock. The merger was
completed on April 5, 1995.
<PAGE>
-4-
(3) SECURITIES:
-----------
Information relative to the Bank's securities portfolio is as follows--
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
- ------------------
U.S. Treasury Notes .................... $5,008 $0 ($106) $4,902
Federal Reserve Bank stock ............. 85 0 0 85
------ -- ----- ------
$5,093 $0 ($106) $4,987
====== == ===== ======
HELD TO MATURITY
- ----------------
U.S. Treasury Notes and obligations
of U.S. Government Agencies ............ $24,024 $0 ($739) $23,285
Mortgage backed securities of
U.S. Government agencies .............. 3,648 0 (315) 3,333
------- -- ------- -------
$27,672 $0 ($1,054) $26,618
======= == ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Notes and obligations
of U.S. Government agencies ............ $19,966 $27 ($7) $19,986
Mortgage backed securities of
of U.S. Government agencies ............ 3,874 31 (23) 3,882
Federal Reserve Bank stock ................ 85 0 0 85
------- --- ---- -------
$23,925 $58 ($30) $23,953
======= === ==== =======
</TABLE>
The amortized cost and estimated market value of securities at December
31, 1994 by contractual maturity are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or repayment
penalties.
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------
Amortized Estimated
Cost Market Value
--------- ----------------
<S> <C> <C>
AVAILABLE FOR SALE
------------------
Due in one year or less ........................... $2,011 $1,996
Due after one year through five years ............. 2,997 2,906
Federal Reserve Bank stock ........................ 85 85
------ ------
$5,093 $4,987
====== ======
</TABLE>
<PAGE>
-5-
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------
Amortized Estimated
Cost Market Value
--------- ----------------
<S> <C> <C>
HELD TO MATURITY
----------------
Due in one year or less ........................... $ 8,997 $ 8,934
Due after one year through five years ............. 13,027 12,572
Due after five years .............................. 2,000 1,779
------ -------
24,024 23,285
Mortgage backed securities of U.S. Government
Agencies ....................................... 3,648 3,333
------- -------
$27,672 $26,618
======= =======
December 31, 1993
-----------------------------------
Due in one year or less ........................... $ 6,936 $ 6,935
Due after one year through five years ............. 11,030 11,046
Due after five years .............................. 2,000 2,005
------- -------
19,966 19,986
Mortgage backed securities of U.S. Government
agencies ......................................... 3,874 3,882
Federal Reserve Bank stock ........................ 85 85
------- -------
$23,925 $23,953
======= =======
</TABLE>
As of December 31, 1994, securities having a book value of $2 million were
pledged to secure public deposits and for other purposes as required by
law.
(4) LOANS:
-----
Loans outstanding by classification are as follows as of December 31--
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Loans secured by real estate--
Construction and land development .............. $ 89 $ 328
Secured by first mortgages ..................... 23,607 28,034
Secured by secondary mortgages ................. 3,388 6,133
Secured by nonresidential properties ........... 13,589 9,833
Demand loans -- secured commercial and
industrial loans ............................... 509 1,956
Installment loans ................................. 1,680 2,280
------- -------
$42,862 $48,564
======= =======
</TABLE>
As of December 31, 1994 and 1993, approximately 95% and 91%,
respectively, of the Bank's loans were secured by real estate. As such,
a substantial portion of the Bank's borrowers' ability to repay their
loans is dependent on the economic environment of the real estate
industry in the Bank's market area.
<PAGE>
-6-
Activity related to loans to directors, executive officers and their
affiliated interests is as follows as of December 31--
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Balance, beginning of year ........................ $1,233 $1,433
Loans granted ..................................... 290 47
Repayments of loans ............................... (479) (247)
------ ------
Balance, end of year .............................. $1,044 $1,233
====== ======
</TABLE>
All such loans are current as to principal and interest payments as of
December 31, 1994 and 1993.
The following table details information concerning nonperforming loans
as of December 31--
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Nonaccrual loans .................................. $4,161 $5,768
Additional loans past due 90 days or more ......... 613 1,832
Restructured loans ................................ 193 0
------ ------
Total nonperforming loans ..................... $4,967 $7,600
====== ======
</TABLE>
If the nonaccrual loans had continued to pay interest at the original
contract rate, interest income for the years ended December 31, 1994,
1993 and 1992 would have been increased by $519 thousand, $528 thousand
and $415 thousand, respectively, while the actual amount recognized as
income was not significant.
(5) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
-----------------------------------
The allowance for possible loan losses is based upon estimates and
ultimate losses may vary from the current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are
reported in operations in the periods in which they become known.
An analysis of the allowance for possible loan losses is as follows for
the years ended December 31--
1994 1993 1992
---- ---- ----
Balance, beginning of year ........ $1,682 $2,196 $1,117
Provision charged to expense ...... 425 1,156 1,718
Loans charged off ................. (352) (1,707) (655)
Recoveries on loans charged off ... 90 37 16
------ ------ ------
Balance, end of year .............. $1,845 $1,682 $2,196
====== ====== ======
<PAGE>
-7-
(6) PREMISES AND EQUIPMENT:
-----------------------
Premises and equipment consists of the following as of December 31--
1994 1993
---- ----
Land .............................................. $ 249 $ 249
Building and improvements ......................... 1,013 1,008
Furniture, fixtures and equipment ................. 1,153 1,073
------ ------
2,415 2,330
Less--Accumulated depreciation ..................... (1,610) (1,491)
------ ------
$ 805 $ 839
====== ======
Depreciation and amortization expense charged to operations for the years
ended December 31, 1994, 1993 and 1992 amounted to $115 thousand, $110
thousand and $113 thousand, respectively.
(7) OTHER REAL ESTATE:
------------------
Other real estate consists of the following as of December 31--
1994 1993
---- ----
Repossessed collateral--
Residential properties ....................... $ 801 $1,023
Commercial properties ........................ 369 480
------ ------
1,170 1,503
------ ------
In-substance foreclosures--
Residential properties ....................... 668 1,296
Commercial properties ........................ 956 975
------ ------
1,624 2,271
Less--Valuation allowance ....................... (587) (438)
------ ------
$2,207 $3,336
====== ======
An analysis of the valuation allowance is as follows for the years ended
December 31--
1994 1993 1992
---- ---- ----
Balance, beginning of year ..................... $438 $538 $ 0
Valuation adjustments charged to expense ....... 543 555 538
Amounts charged off ............................ (394) (655) 0
---- ---- ----
Balance, end of year ........................... $587 $438 $538
==== ==== ====
<PAGE>
-8-
(8) INCOME TAXES:
------------
The provision (benefit) for income taxes includes the following
components as of December 31--
1994 1993 1992
---- ---- ----
Federal--
Current provision (benefit) ............ $ 0 ($230) $ 101
Deferred provision (benefit) ........... 64 292 (282)
State ..................................... 0 0 0
--- ---- -----
$64 $ 62 ($181)
=== ==== =====
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Bank's assets and
liabilities. The components of the net deferred tax asset at December 31,
1994 and 1993 are as follows--
1994 1993
---- ----
Provision for possible loan losses ........... $ 627 $ 602
Interest on nonaccrual loans ................. 532 356
Other real estate ............................ 152 166
Depreciation ................................. (94) (100)
Net operating loss carryforwards ............. 75 0
------ ------
1,292 1,024
------ ------
Less--Valuation allowance .................... (1,292) (729)
------ ------
$ 0 $ 295
====== ======
The Bank received cash refunds aggregating $431 thousand in October,
1994, as a result of Federal income tax carryback claims related to the
years 1990, 1991 and 1992. During the year ended December 31, 1994, the
Bank provided for $64 thousand in Federal income taxes, representing the
amount of net deferred tax assets recorded that were not refunded. This
effectively increased the valuation allowance to 100% of net deferred tax
assets at December 31, 1994, as all available net operating loss
carrybacks have been refunded in October, 1994.
At December 31, 1994, the Bank had a net operating loss carryforward of
approximately $219 thousand for tax purposes. This carryforward expires
in varying amounts through 2008.
A reconciliation of the provision (benefit) for income taxes, as
reported, with the Federal income tax at the statutory rate of 34% is as
follows for the years ended December 31--
1994 1993 1992
---- ---- ----
Benefit at statutory rate .................. ($312) ($440) ($442)
Tax exempt income, net of interest
expense disallowance ..................... 0 (14) (64)
Unrecognized benefit of net operating
loss carryforward to future years ........ 312 454 325
Recognition of provision to increase
valuation allowance on deferred
tax assets ............................... 64 62 0
---- --- -----
Provision (benefit) for income taxes ....... $ 64 $ 62 ($181)
==== ==== =====
<PAGE>
-9-
(9) COMMITMENTS AND CONTINGENCIES:
-----------------------------
In March 1988, the Bank entered into a 20 year lease agreement for the
rental of one of its branches. As of December 31, 1994, future minimum
rental payments under this lease are as follows--
Years Ending--
1995 ................... $ 36
1996 ................... 36
1997 ................... 36
1998 ................... 36
1999 ................... 36
Thereafter ............. 294
===
The above amounts represent minimum rentals not adjusted for possible
future increases due to escalation provisions.
Pursuant to a lease agreement for the Bank's Broad Street branch, the
Bank has the option to purchase the branch at a price of $356 thousand
which management intends to exercise.
The statements of condition do not reflect various commitments relating
to financial instruments which are used in the normal course of business.
Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Bank's financial
position. These instruments include commitments to extend credit and
letters of credit. These financial instruments carry various degrees of
credit risk, which is defined as the possibility that a loss may occur
from the failure of another party to perform according to the terms of
the contract.
Commitments to extend credit are legally binding loan commitments with
set expiration dates. They are intended to be disbursed, subject to
certain conditions, upon request of the borrower. The Bank evaluates each
customer's creditworthiness 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 of the customer. The
Bank was committed to advance $583 thousand and $1,081 thousand,
respectively, to its borrowers as of December 31, 1994, 1993, which
commitments generally expire within one year.
The Bank may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business. In management's
judgment, the financial position and results of operations of the Bank
will not be affected materially by the final outcome of any present legal
proceedings.
<PAGE>
-10-
(10) OTHER OPERATING EXPENSES:
------------------------
Other operating expenses consist of the following for the years ended
December 31--
1994 1993 1992
---- ---- ----
Insurance expense ............ $ 371 $ 356 $ 298
Professional fees ............ 946 594 192
Data processing .............. 172 185 180
Communication expense ........ 82 73 70
Other expense ................ 383 548 782
------ ------ ------
Other operating expenses ... $1,954 $1,756 $1,522
====== ====== ======
