<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM: TO
COMMISSION FILE NUMBER: 0-12430
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HIGH POINT FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW JERSEY 22-2426221
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
BRANCHVILLE SQUARE,
BRANCHVILLE, NEW JERSEY 07826
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 948-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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COMMON STOCK, NO PAR VALUE
TITLE OF CLASS
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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 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) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
The aggregate market value of the voting stock of the registrant held by
non-affiliates (for this purpose, persons or entities other than executive
officers, directors, or 5% or more shareholders) of the registrant, as of
March 15, 1996 is estimated to have been approximately $16,080,900.
The number of outstanding shares of the registrant's Common Stock, as of
March 15, 1996, was 3,786,480 shares of Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE:
HIGH POINT FINANCIAL CORP. PROXY STATEMENT DATED MARCH 29, 1996 (PART III)
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HIGH POINT FINANCIAL CORP.
FORM 10-K INDEX
PART I
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 5
Item 3. Legal Proceedings............................................... 6
Item 4. Submission of Matters to a Vote of Security Holders............. 6
Item 4A. Executive Officers of the Registrant............................ 6
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters......................................................... 7
Item 6. Selected Consolidated Financial Data............................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 9
Item 8. Financial Statements and Supplementary Data..................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 56
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 56
Item 11. Executive Compensation.......................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 57
Item 13. Certain Relationships and Related Transactions.................. 57
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 57
Signatures...................................................... 60
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
High Point Financial Corp. ("High Point"), a New Jersey corporation, is a
bank holding company, registered with and supervised by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). High Point was
organized in October 1982 under the Bank Holding Company Act (the "Holding
Company Act") and commenced operations on April 1, 1983 upon consummation of
the acquisition of all of the outstanding stock of The National Bank of Sussex
County ("NBSC"). Throughout this document all references to "High Point" refer
only to the parent holding company and do not include the subsidiary, NBSC.
All references in this document to the "Company" refer to the consolidated
company which includes High Point and NBSC.
High Point's primary business consists of managing and supervising NBSC. At
December 31, 1995, the Company had total assets, deposits and stockholders'
equity of approximately $200.2 million, $178.3 million and $14.6 million,
respectively.
NBSC was organized as The Branchville National Bank in 1933. Upon opening
its first branch office in 1957, The Branchville National Bank changed its
name to The National Bank of Sussex County. NBSC is a national banking
association that is a member of the Federal Reserve System. NBSC's deposits
are insured by the Federal Deposit Insurance Corporation (the "FDIC"). NBSC
has nine branches, an operations center, a human resources office and an
administration center, all within Sussex County, New Jersey. NBSC is a full
service commercial bank providing a wide range of services to individuals and
small to medium-sized businesses in its northwestern New Jersey market area,
including accepting time, demand, and savings deposits and making secured and
unsecured commercial, real estate and consumer loans. NBSC offers annuities to
its customers and through a third party lease arrangement with Link Investment
Services, Inc. provides full securities brokerage services including mutual
funds and variable annuities.
On April 24, 1992, High Point completed the sale of its Pennsylvania banking
subsidiary, The Pocono Bank ("Pocono"), to the First National Bank of Lake
Ariel, a subsidiary of Lake Ariel Bancorp. All results of the Company shown
for years prior to 1993 include the impact of Pocono. With the sale of Pocono,
High Point is now a one bank holding company.
SUPERVISION AND REGULATION
High Point Financial Corp. High Point is a registered bank holding company
under the Holding Company Act and is required to file with the Federal Reserve
Board an annual report and such additional information as the Federal Reserve
Board may require pursuant to the Holding Company Act. High Point is subject
to inspection by the Federal Reserve Board.
On October 20, 1992, High Point entered into a written agreement with the
Federal Reserve Bank of New York ("FRB") which provided, among other things,
for the submission of a capital plan, an operating plan and a debt servicing
plan designed to improve the earnings of the Company and to achieve and
maintain an adequate capital position at the Company and NBSC. The agreement
precludes High Point from incurring any debt, including the renewal or change
in terms of any existing debt, without prior approval of the FRB. The
agreement also restricts the payment of dividends and the payment of cash
expenditures (other than for routine expenses) in excess of $10,000, to any
one entity in any one month, without prior approval from the FRB.
On November 9, 1992, High Point submitted an operating plan, a capital plan
and a debt servicing plan to the FRB. These plans were accepted by the FRB on
December 14, 1992, and were subsequently updated to reflect a revised capital
plan that NBSC submitted to the Comptroller of the Currency. See "--The
National Bank of Sussex County" below. The updated plan submitted to the FRB
contemplated the closing on a sale of a portion
1
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of a parcel of land in 1993 and the acquisition of equity capital in second
quarter, 1994. For more information, see Item 2 on page 5 of this 10-K.
As with all bank holding companies, High Point is required to obtain the
prior approval of the Federal Reserve Board before it may, by merger, purchase
or otherwise, directly or indirectly acquire all or substantially all of the
assets of any bank or bank holding company, if, after such acquisition, High
Point would own or control more than 5% of the voting shares of such bank or
bank holding company. The Holding Company Act does not permit the Federal
Reserve Board to approve the acquisition by High Point, or any subsidiary, of
any voting shares of, or interest in, all or substantially all of the assets
of any bank located outside the State of New Jersey unless such acquisition is
specifically authorized by the laws of the state in which such bank is
located. Certain states have enacted reciprocal legislation to allow
interstate acquisitions of and by banking organizations within the same
geographic region. For a discussion of certain of such legislation, see "--
Recent and Proposed Legislation." As a result of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), bank holding
companies also may acquire savings institutions.
The Holding Company Act limits the activities in which High Point and NBSC
may be engaged to banking, the ownership and acquisition of assets and
securities of banking organizations, the management of banking organizations,
and certain non-banking activities which the Federal Reserve Board finds, by
order or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The Federal Reserve Board has, by regulation, determined that the following
non-banking activities, among others, are closely related to banking within
the meaning of the Holding Company Act: operating a mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing investment and financial advice; acting as an
insurance agent for certain types of credit-related insurance; leasing
personal property on a full-payout, non-operating basis; and, subject to
certain limitations, providing discount brokerage services for customers.
The National Bank of Sussex County. NBSC is a federally chartered national
banking association subject to regulation and examination by the Office of the
Comptroller of the Currency ("the OCC"). As a member of the Federal Reserve
System, NBSC is also subject to regulation and examination by the Federal
Reserve Board. In addition, NBSC's deposits are insured by the FDIC.
The regulations of federal agencies govern most aspects of NBSC's business,
including reserves against deposits, loans, investments, mergers and
acquisitions, borrowings, dividends and location of branch offices. NBSC is
subject to certain restrictions imposed by federal law on, among other things,
(i) the maximum amount of obligations of any one person or entity which may be
outstanding at any one time, (ii) investments in stock or other securities of
High Point or any other subsidiary of High Point, and (iii) the taking of such
stock or securities as collateral for loans to any borrower.
On November 12, 1991, NBSC entered into a Stipulation and Consent in the
form of a Formal Agreement (the "Consent Order") with the OCC. The Consent
Order required NBSC to increase the level of its capital, submit a capital
plan, enhance its lending policies and procedures, make certain revisions to
its methodology for analyzing the adequacy of the allowance for possible loan
losses, and enhance its asset/liability management policies and procedures.
Originally, the Consent Order required NBSC to increase its leverage capital
ratio to 6% by March 31, 1992 and to maintain a minimum ratio of 5% through
that date and an adequate allowance for possible loan losses. Subsequently,
the Consent Order was modified to give NBSC until June 30, 1992, and later
until September 1993, to meet a 6% leverage capital ratio. NBSC submitted an
updated capital plan to the OCC in August 1993, outlining its proposed course
of action, which included, among other things, a planned reduction in asset
size and an increase in earnings performance to allow NBSC to maintain a
leverage ratio above 5.25%, and a capital infusion to NBSC by High Point
through a proposed acquisition of equity capital during 1994 to enable NBSC to
attain a 6% leverage ratio. This amended capital plan was accepted by the OCC
on August 30, 1993, and the
2
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Consent Order was modified to give NBSC another extension until June 30, 1994
to meet the 6% leverage ratio, contingent upon NBSC's maintaining a capital
ratio of 5.25% and continuing to maintain an adequate allowance for possible
loan losses. In June, 1994, as a result of a public stock offering, High Point
funded $2.4 million to NBSC as an additional capital contribution. This
capital contribution allowed NBSC to attain a leverage ratio in excess of 6%.
NBSC may be subject to possible regulatory actions should it be unable to
maintain its regulatory capital requirements. For more information, see Note 2
in Notes to Consolidated Financial Statements contained in Item 8 of this 10-
K.
Dividend Limitations and Certain Other Restrictions on the Provision of
Funds to High Point by NBSC. The primary source of revenue available to High
Point for the payment of dividends on its capital stock and the payment of
principal and interest on its debt is dividends paid to High Point by NBSC.
Based on the provisions in the Consent Order, NBSC is restricted from paying
dividends to High Point without prior approval from the OCC and until NBSC is
in full compliance with certain other regulatory guidelines. NBSC cannot
anticipate when it will be able to resume dividend payments to High Point.
This restriction severely inhibits High Point's ability to pay dividends on
its capital stock. High Point has not paid dividends since June 1990 and,
pursuant to High Point's written agreement with the FRB, may not pay dividends
without prior approval of the FRB. See Item 5 on page 7 of this 10-K.
The FDIC and the OCC have authority under federal law to prohibit an insured
bank from engaging in conduct which, in their respective opinions, would
constitute an unsafe or unsound banking practice. The payment of dividends or
other payments might, under certain circumstances, be deemed to be an unsafe
or unsound banking practice. In addition, the applicable federal regulatory
agencies have established guidelines with respect to the maintenance of
appropriate levels of capital by registered bank holding companies, by
national banks and by state banks. Compliance with such standards, as
presently in effect or as they may be amended from time to time, could
possibly limit the amount of dividends which High Point may pay in the future.
In addition, as a bank whose deposits are insured by the FDIC, NBSC may not
pay dividends or distribute any of its capital assets if it is in default on
any assessment due to the FDIC. NBSC has never been in default under any of
its obligations to the FDIC.
FIRREA allows the FDIC to limit unsafe or unsound banking practices by
authorizing the FDIC to issue cease and desist orders, to make restitution
against losses, to dispose of any loans, to rescind agreements and to take
other actions. FIRREA also authorizes the FDIC to impose civil monetary
penalties against insured depository institutions and certain of their
affiliates that violate any laws, regulations, or orders or that commit unsafe
banking practices or breach any fiduciary duties.
The FDIC insurance rates payable by banks are assessed based on a bank's
capitalization and the degree of supervisory concern over the institution.
Effective June 1, 1995, the FDIC Board of Directors voted to reduce deposit
premiums paid by most members of the Bank Insurance Fund. The new range of
premiums is from $0.04 to $0.31 per $100 of deposits. NBSC 's rate, effective
June 1, 1995, was reduced from $0.29 to $0.21 per $100 of deposits. In
November 1995, the FDIC Board of Directors met again and has reduced the range
of premiums to $0.00 to $0.27 per $100 of deposits for the first six months of
1996. NBSC's rate dropped to $0.17 per $100 of deposits effective January 1,
1996. Assuming NBSC's deposit levels remain approximately the same as what was
reported December 31, 1995, NBSC's FDIC expense will drop approximately 23%
from 1995 levels in the first six months of 1996.
NBSC is subject to certain restrictions imposed by federal law on any
extension of credit to High Point. High Point is thus precluded from borrowing
from NBSC unless such loan is secured by certain designated types of
collateral in designated amounts. High Point is not indebted to NBSC for any
borrowings.
The foregoing references to statutes and regulations are brief summaries,
are not intended to be complete and are qualified in their entirety by
references to the statutes and regulations themselves. In addition, there are
other statutes and regulations that apply to, and regulate the operation of,
banking institutions.
3
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EFFECT OF GOVERNMENT MONETARY AND FISCAL POLICIES
The earnings of the Company are and will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States
government and its agencies.
The monetary policies of the Federal Reserve Board have had, and will likely
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The Federal Reserve
Board has a major effect upon the levels of bank loans, investments and
deposits through its open market operations in United States government
securities and through its regulation of, among other things, the discount
rate on borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature and impact of future
changes in monetary and fiscal policies.
RECENT AND PROPOSED LEGISLATION
From time to time proposals are made in the United States Congress, the New
Jersey Legislature, and before various bank regulatory authorities which would
alter the powers of, and place restrictions on, different types of banking
organizations. Among current legislative trends of significance to High Point
and NBSC are the expansion of the powers of banks, thrift institutions and
credit unions and the relaxation of restrictions upon the activities in which
bank holding companies may engage. It is impossible to predict the impact, if
any, of these trends on the business of High Point and NBSC.
In accordance with federal law providing for deregulation of interest on all
deposits, banks and thrift organizations are now unrestricted by law or
regulation from paying interest at any rate on most time deposits. Commercial
banks had initially experienced an effective increase in their cost of funds
when deregulation was first imposed. However, recently, in a lower interest
rate environment, banks have experienced a reduction in their cost of funds.
It is not clear whether deregulation and other pending changes in certain
aspects of the banking industry will result in further changes in the cost of
funds in relation to prevailing lending rates.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board follows Risk-Based Capital Guidelines, which
operate in conjunction with regulations relating to capital adequacy of bank
holding companies. Currently, the Federal Reserve Board has specified a
minimum leverage ratio of Tier 1 capital to total assets as a means of
assessing a bank holding company's capital adequacy.
The risk-based capital requirements establish minimum levels of capital and
require a method of capital adequacy analysis which takes into consideration
the degree of risk of certain assets. The regulators require all banks and
bank holding companies to have a core or Tier 1 capital-to-assets risk-based
ratio of at least 4% and a total capital-to-assets risk-based ratio of at
least 8%. At December 31, 1995 the Company's Tier I and total capital-to-
assets risk-based ratios determined under the required method were 13.20% and
14.96%, respectively. The federal regulatory agencies have submitted a
proposed rule integrating interest rate risk into the risk-based capital
measurement.
The Federal Reserve Board has also issued regulations establishing a 3%
minimum Tier 1 leverage ratio for bank holding companies that are considered
to have well-diversified risk, no undue interest rate exposure, high
liquidity, good earnings, excellent asset quality and in general are
considered strong banking organizations. Bank holding companies that do not
meet these standards are required to maintain higher capital ratios. At
December 31, 1995, the Company had a Tier 1 leverage ratio of 7.10%. For more
information see Note 2 to the Financial Statements included in Item 8 of this
10-K.
Additional information regarding capital requirements is discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources" in Item 7 of this 10-K.
4
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COMPETITION
NBSC operates in a highly competitive market environment within Sussex
County, New Jersey. Five major interstate multi-bank holding companies and one
large multi-state thrift holding company operate within NBSC's market area.
These larger institutions have substantially larger lending capacities and
typically offer services which NBSC does not offer.
In recent years, the financial services industry has expanded rapidly as
barriers to competition within the industry have become less significant.
Within the banking field, banks must compete not only with other banks and
traditional financial institutions, but also with other business corporations
that deliver financial services.
CONCENTRATION
NBSC is not dependent for deposits on, nor exposed by loan concentrations
to, a single customer or a small group of customers, the loss of any one or
more of which would have a materially adverse effect on the financial
condition of High Point or NBSC.
EMPLOYEES
At December 31, 1995, there were 137 persons, including 27 part time
personnel, employed by High Point and NBSC.
STATISTICAL INFORMATION
Statistical information is incorporated by reference to Item 7 hereof.
ITEM 2. PROPERTIES
High Point's principal offices are located at Branchville Square,
Branchville, New Jersey. High Point shares administrative space at this
location with NBSC.
At December 31, 1992, High Point held for sale 94 acres of undeveloped land
at a recorded carrying value of $3,240,000, which is net of a $1.1 million
writedown recorded during 1991. A 28 acre parcel of this land was sold at a
profit in fourth quarter 1993, and proceeds from the sale were used to pay
down and service the note payable secured by the land. In 1995, based on the
requirements of Statement of Accounting Standards ("SFAS") No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-lived Assets to
be disposed of," management recorded an impairment of $370,000 on the land
held for sale based on an estimated five year selling period using a discount
rate of 16%. Management also recorded an additional $28,000 impairment based
on a contract to sell 32 acres. If this contract were to close, it may not
close until January 1998 based on the length of time needed by the buyer to
receive various approvals for the project. For more information, see the
discussion in Note 7 on page 45 in Notes to Consolidated Financial Statements
contained in Item 8 of this 10-K.
NBSC operates nine banking locations, in addition to an administration
center, a human resources office and an operations center, all in Sussex
County, New Jersey. NBSC has owned its administrative office located in
Branchville, New Jersey since 1992. NBSC has a lease on the human resources
office through November 1996 with options to renew the lease for three
additional one year terms. NBSC's Vernon branch is leased under a non-
cancelable long-term lease with the current term ending in September 1996 with
options to renew the lease for three additional 5 year periods.
During 1988, NBSC sold certain banking and other premises to FMI Inc., a
wholly owned subsidiary of Franklin Mutual Insurance Co., a 6.7% shareholder
of High Point. The banking premises were leased back to NBSC for periods
ranging between 10 and 15 years. George Guptill, Jr., President of FMI, Inc.,
is also a member of the Board of Directors of High Point Financial Corp.
Further information is incorporated by reference to
5
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information contained in Notes 7 and 11 to the Consolidated Financial
Statements set forth in Item 8 of this 10-K.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to
information contained in Note 11 to the Consolidated Financial Statements on
page 49 in Item 8 of this 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of High Point.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the current principal executive officers of High Point and
NBSC. The Boards of Directors of High Point and NBSC elect the executive
officers to one year terms (subject to removal by the respective Boards) at
their respective annual meetings. Unless otherwise indicated, the persons
below have held the position indicated for more than 5 years.
<TABLE>
<CAPTION>
NAME EMPLOYMENT DURING THE LAST 5 YEARS AGE
---- ---------------------------------- ---
<S> <C> <C>
Michael A. Dickerson.... President, Chief Executive Officer and Director of High 59
Point Financial Corp. since 1988; Director, President and
Chief Executive Officer (1988 to April 1992, except from May
9 through December 26, 1990), and Vice Chairman (May 1990 to
April 1992) of Pocono; President (since February 1992), Vice
Chairman of the Board and Chief Executive Officer (since
November 1991), and Director (since 1988) of NBSC.
Gregory W. A. Meehan ... Vice President (since 1987), Treasurer and Assistant 48
Secretary (since 1983) of High Point Financial Corp.;
Director (since 1994), Chief Operating Officer (since
November 1991), Executive Vice President (since 1990) and
Chief Financial Officer (since 1988), of NBSC.
Robert A. Vandenbergh... Secretary of High Point Financial Corp. (since February 44
1992); Director (since 1994), Senior Vice President and
Chief Lending Officer, NBSC (since October 1991); Senior
Vice President and Senior Loan Administrator, Midlantic
National Bank/North (1990-1991).
Rita A. Myers........... Comptroller of High Point Financial Corp. (since May, 1993); 37
Vice President (Since May 1990) and Comptroller (since May
1989), NBSC.
</TABLE>
6
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
High Point's common stock, no par value (the "Common Stock") is traded in
the over-the-counter market. As of December 31, 1995, there were 1,718
shareholders of record of Common Stock.
Market makers for the Common Stock as listed on the National Quotation
Bureau, non-NASDAQ price report are:
<TABLE>
<S> <C> <C>
F. J. Morrissey & Co., Inc. Sandler O'Neill & Partners, L.P. Ryan, Beck & Co., Inc.
1700 Market Street Two World Trade Center 80 Main Street
Suite 1420 104th Floor West Orange, NJ 07052
Philadelphia, PA 19103 New York, NY 10005 (800) 342-2325
(800) 842-8928 (800) 635-6860
FIA Capital Group, Inc. Hill Thompson Magid & Co. Sharpe Capital Inc.
1160 Parsippany Boulevard 30 Montgomery Street 120 Broadway
Parsippany, NJ 07054 Jersey City, NJ 07302 New York, NY 10271
(800) 878-6256 (800) 631-3083 (212) 406-2493
</TABLE>
The following table sets forth, for the calendar periods indicated, the high
and low bid/ask prices per share of the Common Stock prepared from reports
provided by the National Quotation Bureau, Inc. The prices shown do not
include mark-ups, mark-downs or commissions, and may not reflect actual
transactions. There were no cash dividends declared for the periods indicated.
<TABLE>
<CAPTION>
BID ASKED
----------- -----------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
Year ended December 31, 1994
First quarter........................................ $3.13 $2.25 $3.50 $3.00
Second quarter....................................... 4.75 2.75 5.00 3.50
Third quarter........................................ 4.25 3.00 4.63 4.00
Fourth quarter....................................... 4.00 3.25 4.25 4.00
Year ended December 31, 1995
First quarter........................................ $5.13 $4.00 $5.50 $4.25
Second quarter....................................... 5.00 4.88 5.50 5.13
Third quarter........................................ 6.00 4.75 6.13 5.00
Fourth quarter....................................... 6.50 5.88 6.75 6.00
</TABLE>
High Point has not paid dividends since June 1990. In accordance with its
written agreement with the FRB, High Point is restricted from paying dividends
without prior consent from the FRB. Furthermore, NBSC is restricted from
paying dividends to High Point as agreed to in its Consent Order with the OCC
and until NBSC is in full compliance with certain other regulatory guidelines.
NBSC cannot anticipate when it will be able to resume dividend payments.
Because substantially all of the funds available for payment of dividends by
High Point are derived from NBSC, future dividends will depend primarily on
the earnings of NBSC, NBSC's financial condition, NBSC's need for funds and
capital retention, and governmental policies and regulations applicable to
High Point and NBSC. Regulatory restrictions on the payment of dividends to
High Point by NBSC are discussed in Item 1 of this Form 10-K. High Point will
not pay dividends in 1996.
7
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
SUMMARY OF OPERATIONS (IN
THOUSANDS) 1995 1994 1993 1992(2) 1991(2)
- ------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total interest income.. $ 13,653 $ 12,017 $ 12,491 $ 16,866 $ 24,724
Total interest
expense............... 5,550 4,492 4,952 8,744 14,257
--------- --------- --------- --------- ---------
Net interest income.... 8,103 7,525 7,539 8,122 10,467
Provision for possible
loan losses(1)........ 225 1,327 336 1,857 7,761
--------- --------- --------- --------- ---------
Net interest income
after provision for
possible loan losses.. 7,878 6,198 7,203 6,265 2,706
Non-interest income..... 2,219 2,368 2,589 2,593 1,999
Non-interest
expenses(1)............ 9,472 9,630 10,573 14,291 11,378
Unrealized loss on land
held for sale.......... 0 -- -- -- (1,118)
Gain on sale of bank
premises............... 148 141 79 118 143
Gain on sale of land
held for sale.......... -- -- 306 -- --
Loans and securities
gains (losses)......... 53 (289) 519 198 679
--------- --------- --------- --------- ---------
Income (loss) before
benefit for income
taxes and cumulative
effect for change in
accounting principle.. 826 (1,212) 123 (5,117) (6,969)
Benefit for income
taxes................. (249) (97) (31) 558 (1,781)
--------- --------- --------- --------- ---------
Income (loss) before
cumulative effect for
change in accounting
principle............. 1,075 (1,115) 154 (5,675) (5,188)
Cumulative effect of
change in accounting
principle............. (370) -- -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....... $ 705 $ (1,115) $ 154 $ (5,675) $ (5,188)
========= ========= ========= ========= =========
PER SHARE INFORMATION:
- ----------------------
Net income (loss) before
cumulative effect for
change in accounting
principle.............. $ 0.29 $ (0.36) $ 0.06 $ (3.31) $ (4.07)
Cumulative Effect change
in accounting
principle.............. (0.10) 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....... 0.19 (0.36) 0.06 (3.31) (4.07)
========= ========= ========= ========= =========
Stockholders' equity
(book value)........... 3.89 3.19 4.06 3.93 7.09
Number of shares
outstanding, December
31..................... 3,745,760 3,745,760 2,439,009 2,436,924 1,280,843
Average number of shares
outstanding............ 3,745,760 3,065,786 2,437,908 1,711,935 1,274,087
YEAR END BALANCE SHEET
INFORMATION (IN
THOUSANDS)
- ----------------------
Total assets........... $ 200,184 $ 184,641 $ 181,263 $ 200,870 $ 253,259
Total deposits......... 178,325 165,572 162,788 183,942 225,864
Loans held for sale.... 628 427 5,708 6,136 6,045
Loans, net of unearned
income(1)............. 104,833 105,556 110,933 135,471 193,265
Allowance for possible
loan losses(1)........ 4,609 5,234 5,419 6,066 10,118
Securities, including
those available for
sale.................. 64,696 54,231 41,930 35,521 27,278
Note payable........... 1,270 1,482 2,373 3,130 3,800
Redeemable subordinated
debentures............ 511 510 510 544 5,289
Employee Stock
Ownership Plan debt... -- 150 321 461 595
Stockholders' equity... 14,558 11,963 9,892 9,582 9,108
CONSOLIDATED RATIOS
- -------------------
Net income (loss) to
average stockholders'
equity................ 5.26% (9.72)% 1.60% (64.22)% (40.07)%
Net income (loss) to
average total assets.. 0.37 (0.61) 0.08 (2.46) (1.90)
Stockholders' equity to
total assets at year
end................... 7.28 6.48 5.46 4.77 3.60
Net charge-offs to
average loans
outstanding........... 0.82 1.37 0.80 3.32 2.06
Net interest spread
(tax equivalent
basis)................ 3.82 3.92 4.01 3.42 3.79
Net interest margin
(tax equivalent
basis)................ 4.61 4.55 4.52 3.87 4.31
Loans to deposits...... 58.79 63.75 68.15 73.65 85.57
Non-performing loans to
loans................. 7.09 12.20 17.39 20.57 18.26
Allowance for possible
loan losses to loans.. 4.40 4.96 4.88 4.47 5.23
Allowance for possible
loan losses to non-
performing loans...... 62.02 40.61 28.07 21.73 28.62
Average stockholders'
equity to average
total assets.......... 7.02 6.32 5.19 3.82 4.74
OTHER SELECTED DATA
- -------------------
Number of full time
equivalent employees.. 123 126 124 133 160
Number of common
stockholders at year
end................... 1,718 1,713 1,553 1,413 1,199
</TABLE>
- --------
(1) The information for 1994 and prior years have been restated per the
requirements of SFAS No. 114. See Note 4 on page 41 for further
information.
(2) The information for 1992 and prior years includes the results of High
Point's former subsidiary, the Pocono Bank, which was sold on April 24,
1992.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section presents a review of the Company's consolidated results of
operations and financial condition. It should be read in conjunction with the
consolidated financial data presented elsewhere in this report. All references
to "notes" refer to Notes to Consolidated Financial Statements of the Company
appearing on pages 36 through 56 in Item 8 of this 10-K.
RESULTS OF OPERATIONS
NET INCOME (LOSS)
For the year ended December 31, 1995, the Company's consolidated net income
was $705,000, representing an increase of $1,820,000 over the net loss of
$1,115,000 reported in 1994 and $551,000 over the $154,000 in income reported
in 1993. The net income per common share for 1995 was $0.19 compared to the
reported net loss per common share of $0.36 in 1994 and the reported net
income per common share of $0.06 for 1993.
Many improvements in the Company's financial condition during 1995
contributed to recording net income in 1995. These improvements included an
increase of assets from $184.6 million on December 31, 1994 to $200.2 million
on December 31, 1995, an increase of $15.6 million or 8.5%. Non-performing
assets also improved, declining from $16.8 million to $10.2 million, a 40.0%
decrease. As non-performing assets declined, the provision for possible loan
losses also declined from $1,327,000 in 1994 to $225,000 in 1995. As a result
of the increase in assets and decrease in non-performing assets, net interest
income increased $578,000, or 7.7% to $8,103,000. Reductions in non-interest
expense also helped to improve earnings in 1995. For more information, see the
discussion entitled "--Non-interest Expense" on page 15.
The results for 1995 were also favorably affected by the recognition of an
income tax benefit of $265,000 representing the partial recognition of net
operating loss carryforwards through the reversal of a previously established
deferred tax valuation allowance. The recognition of the tax benefit is based
on the Company's evaluation of income earned in 1995 and management's estimate
of the Company's continued ability to remain profitable in future periods such
that realization of its net operating loss carryforwards can be reasonably
expected. The Company recorded a $265,000 tax benefit based on pretax income
estimated to be earned for interim periods during 1996. This estimate will be
impacted favorably or unfavorably by future results of operations. The Company
has approximately $5.5 million in remaining tax benefits that may be realized
in future periods. The Company will periodically evaluate the realizability of
its deferred tax asset and will adjust the level of the valuation allowance if
it is determined that it is more likely than not that all or a portion of the
asset is realizable. For more information, see Note 8 on page 46.
Although the Company recorded net income in 1995, it continues to be
affected by the size of its non-performing assets and the less than robust
economic environment in its market area. Non-performing assets declined $6.7
million or 40.0% during 1995 which included a $5.5 million decline in
nonperforming loans and a $1.2 million decline in other real estate. Non-
performing assets have declined but still continue to impact the net interest
margin. In addition, the number of employees and outside professionals needed
to work out troubled loans resulted in high levels of salary and benefit
expenses and legal expenses. Management's priority remains to be the further
reduction of non-performing assets in order for the Company to increase its
income from continuing operations. Non-performing assets are discussed in
greater detail in "--Non-performing Assets" on page 21.
The Company's results of operations in 1995 include the December 1995
adoption of SFAS No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121
requires that if certain events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, an entity must estimate
the future cash flows expected to result from the use or sale of the asset and
record an impairment for the amount by which the carrying value exceeds the
fair value. In the case of assets to be disposed of, the asset must be
reported at the lower of the carrying amount or
9
<PAGE>
fair value less costs to sell. Included in fair value estimates is the
discounting of net proceeds from sale of the asset over the estimated time to
sell the asset.
High Point evaluated its land held for sale for impairment under SFAS No.
121 and determined that a valuation reserve of $370,000 was required. In
accordance with the requirements of SFAS No. 121, the $370,000 provision was
retroactively reflected in the results of operations in the first quarter of
1995 as a cumulative effect of a change in accounting principle.
Subsequent to High Point's adoption of SFAS No. 121, High Point entered into
a contract for sale of 32 acres of land for approximately $2 million. There is
no assurance that this contract for sale will close; however, the transaction
must be consummated no later than January 1998 according to the terms of the
contract. High Point recorded an additional impairment loss of $29,000 in
December 1995 upon entering into this contract which is included in other
operating expenses.
The decline in net income from 1993 to 1994 resulted primarily from
recording a provision for possible loan losses of $1,327,000 in 1994 compared
to $336,000 in 1993. This is discussed further in "--The allowance for
possible loans losses as a percent of non-performing loans" on page 23. Also
impacting the decline in net income for 1993 to 1994 was a non-recurring gain
on sale of land held for sale during 1993 of $306,000. Another area of non-
interest income that declined from 1993 to 1994 was gains on securities, which
declined from $425,000 in 1993 to a loss of $262,000 in 1994.
NET INTEREST INCOME
Net interest income is the difference between interest income on earning
assets and the interest cost of funds supporting those assets. The amount of
net interest income for any given period is affected in part by the volume of
interest earning assets and the yield provided by those earning assets, and by
interest bearing liabilities and the rates paid on those liabilities. The
ability of a financial institution to fund its interest earning assets with
non-interest bearing deposits also positively impacts interest income.
10
<PAGE>
The following table, Interest Income and Expense Volume/Rate Analysis,
describes the impact on net interest income resulting from changes in average
balances and average rates over the past three years on a tax equivalent basis
(assuming a 34% tax rate). Any change in interest income or expense
attributable to both changes in volume and changes in rate has been allocated
in proportion to the relationship of the absolute dollar amount of the change
in each category.
INTEREST INCOME AND EXPENSE VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: DUE TO CHANGE IN:
---------------------------- ---------------------------
TOTAL TOTAL
AVERAGE AVERAGE INCREASE AVERAGE AVERAGE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------- ------- ---------- ------- ------- ----------
(TAX-EQUIVALENT BASIS, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest bearing
deposits at banks...... $ -- $ -- $ -- $ (2) $ (5) $ (7)
Federal funds sold...... 157 163 320 -- 105 105
Securities including
securities available
for sale:
U.S. Government and
agencies............. 969 240 1,209 699 174 873
State and political
subdivisions......... (20) -- (20) (22) (4) (26)
Other securities...... (124) 87 (37) (121) 44 (77)
------- ------ ------ ------- ----- -------
Total securities........ 825 327 1,152 556 214 770
------- ------ ------ ------- ----- -------
Loans, including loans
held for sale, net of
unearned income:
Commercial and
construction......... (1,061) 864 (197) (1,181) 89 (1,092)
Mortgage.............. 206 (98) 108 137 (104) 33
Installment........... 310 (57) 253 (73) (213) (286)
------- ------ ------ ------- ----- -------
Total loans............. (545) 709 164 (1,117) (228) (1,345)
------- ------ ------ ------- ----- -------
TOTAL INTEREST INCOME... 437 1,199 1,636 (563) 86 (477)
------- ------ ------ ------- ----- -------
INTEREST EXPENSE
Savings deposits...... 16 202 218 24 -- 24
Money market
accounts............. (20) 37 17 (24) 20 (4)
Time deposits......... 401 438 839 (359) (99) (458)
Short-term
borrowings........... 3 66 69 -- 28 28
Long-term borrowings.. (92) 7 (85) (60) 10 (50)
------- ------ ------ ------- ----- -------
TOTAL INTEREST EXPENSE.. 308 750 1,058 (419) (41) (460)
------- ------ ------ ------- ----- -------
Net interest income (tax
equivalent basis)...... 129 449 578 (144) 127 (17)
Tax-equivalent basis
adjustment............. -- -- -- (3) -- (3)
------- ------ ------ ------- ----- -------
NET INTEREST INCOME..... $ 129 $ 449 $ 578 $ (141) $ 127 $ (14)
======= ====== ====== ======= ===== =======
</TABLE>
11
<PAGE>
CONSOLIDATED STATISTICS ON A TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- --------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest earning as-
sets:
Loans, including loans
held for sale, net of
unearned income:
Commercial and
construction.......... $ 63,647 $ 5,780 9.08% $ 76,165 $ 5,977 7.85% $ 91,201 $ 7,069 7.75%
Mortgage............... 24,257 2,155 8.88% 21,852 2,047 9.37% 17,889 2,014 11.26%
Installment............ 16,329 1,419 8.69% 12,722 1,166 9.17% 13,419 1,452 10.82%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total loans............ 104,233 9,354 8.97% 110,739 9,190 8.30% 122,509 10,535 8.60%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Securities including
securities available
for sale:*
U.S. government and
agencies.............. 48,288 2,954 6.12% 32,068 1,745 5.44% 18,839 872 4.63%
State and political
subdivisions.......... -- -- --% 510 20 3.92% 1,061 46 4.34%
Other securities....... 11,647 666 5.72% 13,447 703 5.23% 15,708 780 4.97%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total securities....... 59,935 3,620 6.04% 46,025 2,468 5.36% 35,608 1,698 4.77%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Interest bearing depos-
its at banks.......... 113 2 1.77% 145 2 1.38% 205 9 4.39%
Federal funds sold..... 11,669 677 5.80% 8,514 357 4.19% 8,510 252 2.96%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total interest earning
assets................ 175,950 13,653 7.76% 165,423 12,017 7.26% 166,832 12,494 7.49%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Non-interest earning
assets:
Cash and due from
banks................. 7,886 7,458 7,147
Unrealized losses on
securities available
for sale.............. (577) (760) --
Allowance for possible
loan losses........... (5,042) (5,075) (5,936)
Premises and
equipment--net........ 5,321 5,479 6,197
Other assets........... 7,397 8,892 11,044
-------- -------- --------
TOTAL ASSETS........... $190,935 $181,417 $185,284
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest bearing lia-
bilities:
Savings deposits....... $ 66,646 $ 1,738 2.61% $ 65,950 $ 1,520 2.30% $ 64,966 $ 1,496 2.30%
Money market accounts.. 11,668 333 2.85% 12,651 316 2.50% 13,427 320 2.38%
Time deposits.......... 57,087 3,169 5.55% 49,286 2,330 4.73% 56,836 2,788 4.91%
Short-term borrowings.. 3,735 129 3.45% 3,542 60 1.69% 3,594 32 0.89%
Long-term borrowings... 1,875 181 9.65% 2,826 266 9.41% 3,463 316 9.13%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Total interest bearing
liabilities........... 141,011 5,550 3.94% 134,255 4,492 3.34% 142,286 4,952 3.48%
-------- ------- ---- -------- ------- ---- -------- ------- -----
Non-interest bearing
liabilities:
Demand deposits........ 34,128 33,308 30,887
Other liabilities...... 2,396 2,379 2,488
-------- -------- --------
Total non-interest
bearing liabilities... 36,524 35,687 33,375
-------- -------- --------
Stockholders' equity... 13,400 11,475 9,623
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $190,935 $181,417 $185,284
======== ======== ========
Net interest income
(tax-equivalent ba-
sis).................. 8,103 3.82% 7,525 3.92% 7,542 4.01%
Tax-equivalent basis
adjustment............ -- -- 3
------- ---- ------- ---- ------- -----
NET INTEREST INCOME.... $ 8,103 $ 7,525 $ 7,539
======= ======= =======
Net interest margin
(tax-equivalent
basis)................ 4.61% 4.55% 4.52%
==== ==== =====
</TABLE>
- --------
* Securities are reported at amortized cost without including the impact of any
unrealized gains or losses on securities available for sale.
12
<PAGE>
The table on page 12 (Consolidated Statistics on a Taxable Equivalent Basis)
shows the Company's consolidated average balances of assets, liabilities and
stockholders' equity, the amount of average interest earning assets and
interest bearing liabilities, net interest spread and net interest income as a
percentage of average interest earning assets. Non-accruing loans are included
in average loans, thereby lowering the yield on the loan portfolio in the
respective areas. Non-taxable income from investment securities is presented
on a tax-equivalent basis whereby tax-exempt income is adjusted upward by an
amount equivalent to the prevailing federal income taxes that would have been
paid if the income had been fully taxable (assuming a 34% tax rate). Although
the Company, through NBSC, must reduce the amount of interest expense
deductible for federal income tax purposes by an amount related to the average
balance of tax-exempt securities purchased after August 1986, this adjustment
is not material to the presentation and is not included in the table. The
indebtedness of the High Point Financial Corp. Employee Stock Ownership Plan
(the "ESOP") is shown under "Other Liabilities" and not in "Long-term
Borrowings" (see Note 12).
Net interest income for 1995 was $8,103,000, representing an increase of
$578,000 or 7.7% compared to the $7,525,000 reported for 1994; net interest
income decreased in 1994 by $14,000, or 0.2% from 1993.
Total interest income increased $1,636,000 from 1994 to 1995. Of the
increase, $437,000 is related to the increase in volume and $1,199,000 results
from an increase in rate. Total average interest earning assets increased from
$165,423,000 in 1994 to $175,950,000 in 1995, representing an increase of
$10,527,000 or 6.4% from 1994. Total average interest earning assets decreased
$1,409,000 in 1994, or 0.8% over the 1993 level of $166,832,000. The increase
in earning assets from 1995 came from a combination of asset growth and a
decline in non-performing assets. The composition of average assets also
changed. Average loans outstanding decreased $6.5 million from 1994 to 1995
while average securities increased $13.9 million in the same time period. The
decline in average loans outstanding resulted from sales of loans, principal
payments, charge-offs and reclassifications of loans into other real estate
owned.
Interest income on total loans increased from $9,190,000 in 1994 to
$9,354,000 in 1995, an increase of $164,000. This increase was comprised of a
$545,000 decrease in interest income resulting from a decrease in volume
offset by a $709,000 increase resulting from an increase in rate. The average
yield on loans increased from 8.30% in 1994 to 8.97% in 1995. Average yields
on mortgages and installment loans declined 49 basis points and 48 basis
points, respectively, from 1994 to 1995. In 1995, mortgage rates declined and
some borrowers refinanced at lower rates causing the overall yield to decline.
Installment loan rates declined and the overall yield on the portfolio
declined as new loans were originated at rates lower than the average yield in
the portfolio. Special rates on home equity loans, a component of installment
loans, also contributed to the decline in yield on the installment loans. NBSC
is offering home equity loans at a 6.99% introductory rate that reprices at
1.75% over prime one year after origination. Average home equity loans
outstanding have increased from $2.7 million in 1994 to $6.1 million in 1995.
The volume of non-performing loans contributed negatively to the level of
interest income earned in the last five years although that impact was lower
in 1995 than it has been in prior years. The Company had average non-accrual
loans of $6,471,000 and $11,006,000 for 1995 and 1994, respectively. Interest
that would have been earned had the loans been current was $627,000 and
$1,125,000 in 1995 and 1994, respectively. The negative impact of the non-
accruing loans on the yields on total loans presented for 1995 and 1994 would
be 59 and 91 basis points, respectively. Excluding the non-accrual loans from
interest earning assets would increase the yield on total earning assets and
the net interest income by 29 and 52 basis points for 1995 and 1994,
respectively. One basis point is equal to one hundredth of one percent.
Total interest income on securities increased from $2,468,000 in 1994 to
$3,620,000 in 1995, an increase of $1,152,000 or 46.7%. Average securities
increased from $46.0 million in 1994 to $59.9 million in 1995, an increase of
$13.9 million as a result of the purchase of securities. Total interest income
on securities increased $825,000 as a result of an increase in volume and
$327,000 as result of an increase in rates. In 1994, interest
13
<PAGE>
income on securities increased $770,000 from 1993--$556,000 and a result of an
increase in volume and $214,000 as a result of an increase in rates.
Total interest expense increased from $4,492,000 in 1994 to $5,550,000 in
1995, an increase of $1,058,000 or 23.6%. Of the increase in interest expense,
$308,000 resulted from an increase in volume and $750,000 resulted from an
increase in rate. Average interest bearing liabilities increased from $134.3
million in 1994 to $141.0 million in 1995, an increase of $6.7 million
resulting from a $7.5 million increase in average interest bearing deposits
offset by a $758,000 decrease in other borrowings. Included in the increase in
interest bearing deposits is a shift in composition from short-term savings
deposits to long-term time deposits.
Average savings accounts increased to $66.6 million in 1995, an increase of
$696,000 or 1.1% from 1994. Average savings deposits as a percent of average
total deposits decreased from 40.9% in 1994 to 39.3% in 1995. Interest expense
on savings deposits increased $218,000 from 1994 to 1995, $16,000 of which was
due to an increase in volume and $202,000 of which was due to an increase in
rates. Average time deposits increased to $57.1 million, an increase of $7.8
million or 15.8% from 1994 to 1995. Interest expense on time deposits
increased a total of $839,000--$401,000 resulting from an increase in volume
and $438,000 from an increase in rate. Average long-term borrowings,
comprising the Note Payable and the Debentures, declined to $1,875,000 in
1995, a decline of $951,000, resulting from a principal payment of $800,000 on
the Note Payable in December 1994 and additional principal paydowns in 1995.
Interest expense on long-term borrowings decreased $85,000, due to a $92,000
decrease due to a reduction in volume offset by a $7,000 increase due to an
increase in rate.
The net interest spread, or the difference between the yield on earning
assets and the average cost of funds acquired (interest bearing liabilities),
was 3.82% in 1995, 3.92% in 1994 and 4.01% in 1993. In 1992 and 1993, net
interest income measured in dollars was not high enough to cover net operating
costs if non-recurring items such as unrealized gains on investment securities
and the gain on the sale of land were excluded from non-interest income. Net
operating costs are defined as non-interest expense less non-interest income.
In 1995, the excess of the Company's net interest income over net operating
costs was $1,051,000 compared to $115,000 in 1994. The ability of the
Company's net interest income to cover its net operating costs depends on the
Company's ability to further reduce its non-performing assets. This would
enable the Company to increase its earning assets and therefore increase its
net interest income. Reducing non-performing assets would also allow the
Company to continue to reduce costs associated with the non-performing assets.
As shown in the table on page 12 (Consolidated Statistics on a Taxable
Equivalent Basis), the gross yield on interest earning assets for 1995 was
7.76%, an increase of 50 basis points compared to the 7.26% reported for 1994
and an increase of 27 basis points from the 7.49% reported for 1993. The cost
of interest bearing liabilities was 3.94% for 1995, an increase of 60 basis
points from the 3.34% reported for 1994 and 46 basis points above the 3.48%
reported for 1993. The yield on interest earning assets increased even though
the impact of the reversal of interest on non-accruing loans is included
therein. Loans not accruing interest are included in the yearly average
balances.
The cost of funds has increased in the past two years as a result of a
higher rate environment and a change in deposit mix as discussed above. As
higher yielding time deposits increased, the percentage of lower yielding
savings accounts decreased. Average non-interest demand deposits as a percent
of total deposits have remained stable over the last two years and interest-
bearing deposits as a percent of total deposits have decreased from 81.4% in
1993 to 79.3% in 1994 and increased marginally to 79.9% in 1995.
The net tax-equivalent yield on interest earning assets (see "Net interest
margin (tax equivalent basis)" in the table "Consolidated Statistics on a
Taxable Equivalent Basis") increased from 4.55% in 1994 to 4.61% in 1995, an
increase of 6 basis points compared to a 3 basis point increase from 1993 to
1994. The increase from 1994 to 1995 can be attributed to the increase in the
Company's earning assets as a percent of total assets related to the reduction
of non-performing assets.
14
<PAGE>
Although the amounts in the table would indicate that the ratio of earning
assets to total assets continued in excess of 90% for 1995, non-accruing loans
are included in total loans. After reducing earning assets by the level of
average non-accruing loans, the ratio of earning assets to total assets was
88.8%, 84.7% and 81.6% for 1995, 1994 and 1993, respectively.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses in 1995 was $225,000 compared to
provisions of $1,327,000 and $336,000 in 1994 and 1993, respectively. Net
loans charged off in 1995 amounted to $850,000, compared to $1,512,000 and
$983,000 reported for 1994 and 1993, respectively. The amount of the provision
reflects management's evaluation of potential loan losses (See Note 6 and the
discussion on "Loans" and "Non-performing Loans"). Management deems the
allowance for possible loan losses adequate as of December 31, 1995, but any
further deterioration in the local real estate market or changes in the
economy affecting the region in which NBSC operates may require substantial
additions to the allowance for possible loan losses in future periods.
NON-INTEREST INCOME
The Company generates non-interest income through the variety of services it
offers in its market area through NBSC. These services range from deposit
services to full service brokerage and investment planning services. Non-
interest income for 1995 was $2,420,000, an increase of $200,000, or 9.0%,
compared to $2,220,000 in 1994 which, in turn, was a decrease of $1,273,000 or
36.4% from the $3,493,000 reported in 1993.
Service charges on deposit accounts decreased $115,000 from $1,456,000 to
$1,341,000, or 7.9% from 1994 to 1995, compared to the $76,000 or 5.0%
decrease recorded in 1994 over 1993. The decrease in revenue generated by
service charges on deposit accounts in 1995 resulted from management's
decision to reduce service charge rates assessed on deposit accounts in order
to attract additional deposits. The decrease in revenue generated by service
charges on deposit accounts in 1994 resulted from a decrease in service fees
assessed due to higher average balances maintained on deposit accounts. Other
service charges, commissions, and fees decreased from $757,000 in 1994 to
$708,000 in 1995, a decrease of $49,000 or 6.5% resulting from declines in fee
income on annuity sales and investment planning services. Other service
charges, commissions and fees increased $136,000 or 15.2% from 1993 to 1994
because of increases in fee income on annuity sales.
A primary area in non-interest income that increased was gains (losses) on
sales of securities and loans which increased from a combined loss of $289,000
in 1994 to a combined gain of $53,000 in 1995. In 1993, the Company recorded
combined gains on sales of loans and securities of $102,000. Moreover, during
1993, the market values of securities available for sale increased and the
Company was able to record an unrealized gain of $433,000, representing a
recovery of a previously recorded unrealized loss from 1992. However, since
the adoption of SFAS No. 115 in December 1993, the Company no longer records
unrealized losses or the recovery of such losses in its available for sale
portfolio in its income statement; any unrealized gains or losses on
securities available for sale are now recorded in the equity section of the
balance sheet. The decline in non-interest income from 1993 to 1994 is also
attributable to a non-recurring $306,000 gain on land held for sale resulting
from a sale of 28 acres that was completed in 1993. For more information, see
Note 7 on page 45.
NON-INTEREST EXPENSE
Total non-interest expense decreased from $9,630,000 in 1994 to $9,472,000
in 1995, a decrease of $158,000 or 1.7% compared to the $943,000 or 8.9%
decrease recorded in 1994 over 1993. The decrease in non-interest expense from
1994 to 1995 reflects a decline in non-performing assets and management's
continuing commitment to control overhead.
15
<PAGE>
Salary and employee benefits expense increased from $4,518,000 in 1994 to
$4,623,000 in 1995, an increase of $105,000, or 2.3%. Salary expense decreased
from $3,528,000 in 1994 to $3,492,000 in 1995, a decrease of $36,000, or 1.0%.
Salary expense declined as a result of management's review and reduction of
staffing levels in the organization which began in 1993 and continued into
1995. Employee benefits expense increased from $990,000 in 1994 to $1,131,000
in 1995, an increase of $141,000 or 14.2%. However, $135,000 of this increase
is due to the planned liquidation of the Company's defined benefit pension
plan expected to be finalized during third quarter 1996. The "prepaid pension
cost included in other assets" increased $28,000 during 1995 to $207,000.
Since the plan is to be liquidated in 1996, the asset was reduced to the net
realizable amount projected to be recovered by the Company after excise taxes.
See Note 9 on page 47. From 1993 to 1994, salary and employee benefits expense
decreased $30,000. The decline in salary and employee benefits expense
resulted from a reduction in staff and a corresponding reduction in employee
benefits expense and from a reduction in benefits provided to employees.
Net occupancy expense increased to $966,000 in 1995, a $49,000 or 5.3%
increase as a result of increased depreciation expense on leasehold
improvements made on properties in the last half of 1994 and in 1995. Higher
real estate taxes assessed on the properties also increased occupancy cost.
Equipment expenses decreased $31,000 or 5.4% to $539,000 in 1995 from the
$570,000 reported in 1994, which in turn decreased from $603,000 in 1993. The
decline in equipment expense from 1994 to 1995 results from a decline in
depreciation expense.
Although the net cost of operation of other real estate remained the same in
1995 as in 1994 at $663,000, the components of this expense varied. The net
cost of operation of other real estate includes net gains or losses recorded
on properties that were sold for amounts that differed from their carrying
value. Such net losses of $20,000 were recorded in 1995 compared to net gains
of $578,000 and $178,000 in 1994 and 1993, respectively. The changes in
composition in the net cost of operation of other real estate from 1994 to
1995 include a decrease of rental income from $373,000 in 1994 to $362,000 in
1995. Provisions made to the allowance for other real estate were $137,000 in
1995 compared to $680,000 in 1994 and $251,000 in 1993. Net cost of operation
of other real estate includes costs incurred on foreclosure, subsequent
writedowns of properties to their net realizable value and costs of
maintaining the properties. These costs are net of any rental income received
on such properties. For more information, see Note 5 on page 44.
Other expenses decreased from $2,962,000 in 1994 to $2,681,000 in 1995, a
decrease of $281,000, or 9.5%. See Note 17 on page 53 for detail on other
expenses. Included in other expenses are legal fees, which decreased to
$247,000 in 1995 from $569,000 in 1994, a decrease of $322,000, or 56.6%. This
decrease resulted from the decline in non-performing assets. As non-performing
loans decline, the legal costs incurred in working out the problem loans also
decline. Similarly, legal fees declined $571,000 or 50.0% from 1993 to 1994.
The level of high legal fees can be attributed to legal costs incurred in
working out problem loans and foreclosing costs related to defaulted loans.
The Company's FDIC insurance assessment fees decreased from $464,000 in 1994
to $383,000 in 1995, a decline of $81,000 or 17.5%. The reduced fees resulted
from a decision by the FDIC Board of Governors to reduce deposit premiums paid
by most members of the Bank Insurance Fund. Therefore, NBSC experienced a
reduction in its fees from $0.29 per $100 of deposits to $0.21 per $100 of
deposits. Effective January 1, 1996, the range of premiums will drop again to
$0.00 to $0.27 per $100 of deposits. NBSC's premium will drop to $0.17 per
$100 of deposits. Assuming NBSC's deposit levels remain the same, NBSC's FDIC
expense will drop approximately 23% in 1996 from 1995 levels. FDIC fees had
decreased $50,000 from 1993 to 1994 resulting from lowered deposit levels.
Like all FDIC insured banks, NBSC's assessment fee as a percent of deposits is
based on a tiered structure based on a bank's level of capitalization and the
degree of supervisory concern over the institution.
Appraisal fees increased from $65,000 in 1994 to $125,000 in 1995, an
increase of $60,000, or 92.3% resulting from the cyclical need to reappraise
property collateralizing loans and from the implementation of
16
<PAGE>
Statement of Financial Accounting Standards, No. 114, Accounting by Creditors
for Impairment of a Loan. Appraisal expense in 1994 had decreased $76,000 from
1993 levels.
FINANCIAL CONDITION
DEPOSITS
Total deposits increased $12,753,000 from $165,572,000 on year-end 1994 to
$178,325,000 on year-end 1995, a 7.7% increase. The largest deposit increase
was in time deposit accounts, which increased to $59.1 million, an increase of
$7,142,000 or 13.8% from year-end 1994 to year-end 1995. The increase in time
deposits reflects a shift from short-term deposit instruments to long-term
instruments resulting from an increase in deposit rates. Jumbo time deposits
(time deposits that are $100,000 and over) increased to $9.3 million from
year-end 1994 to year-end 1995, an increase of $2.4 million or 34.0%,
resulting from management's decision to bid for municipal CDs in 1995.
As shown on the balance sheet on page 32, savings accounts, which include
money market deposit accounts, increased to $55,832,000 on December 31, 1995,
an increase of $2,160,000 or 4.0% from year-end 1994 levels. Interest bearing
demand deposits decreased $105,000 to $25,092,000 from year end 1994 to year
end 1995. Comparing average balances on non-interest bearing demand deposits
shows that average demand deposits increased from $30,887,000 in 1993 to
$33,308,000 in 1994 to $34,128,000 in 1995. Average non-interest demand
deposits as a percent of total deposits increased from 18.6% in 1993 to 20.7%
in 1994, and declined marginally to 20.1% in 1995. Average savings deposits
increased to $66,646,000 in 1995 from $65,950,000 in 1994 and $64,966,000 in
1993. Average money market accounts declined to $11,668,000 in 1995 from
$12,651,000 in 1994 and from $13,427,000 in 1993. Average time deposits
declined from $56.8 million in 1993 to $49.3 million in 1994 but increased to
$57.1 million in 1995. Because interest rates had been low in 1993 and 1994,
there was a gradual shift from long-term time deposits to short-term savings
deposits and non-interest bearing demand deposits. This is a trend that has
changed in 1995 as interest rates increased.
The average amounts of deposits and the average rates paid on deposits for
the years indicated are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing de-
mand deposits.......... $ 34,128 -- $ 33,308 -- $ 30,887 --
Savings deposits........ 66,646 2.61% 65,950 2.30% 64,966 2.30%
Money market accounts... 11,668 2.85% 12,651 2.50% 13,427 2.38%
Time deposits........... 57,087 5.55% 49,286 4.73% 56,836 4.91%
---------- ------ ---------- ------ ---------- ------
Total................. $ 169,529 3.09% $ 161,195 2.58% $ 166,116 2.77%
========== ====== ========== ====== ========== ======
</TABLE>
The following table summarizes the maturity distribution of time
certificates of deposit in amounts of $100,000 or more as of December 31,
1995. There were no other time deposits in amounts of $100,000 or more as of
that date.
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- -------------
(IN THOUSANDS)
<S> <C>
Within 3 months............................................ $6,192
Over 3 through 6 months.................................... 1,020
Over 6 through 12 months................................... 1,365
Over 12 months............................................. 795
------
Total.................................................... $9,372
======
</TABLE>
17
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings include securities sold under agreements to
repurchase. Information relating to securities sold under agreements to
repurchase for 1995, 1994, and 1993 is summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31................................ $2,959 $2,621 $3,075
Interest rate at December 31.......................... 3.52% 3.08% 0.84%
Maximum amount outstanding at any month-end during the
year................................................. $5,189 $5,325 $5,452
Average amount outstanding during the year............ $3,735 $3,542 $3,595
Weighted average interest rate during the year........ 3.46% 1.69% 0.88%
</TABLE>
Securities sold under agreements to repurchase generally mature within 90
days. The table includes securities sold under agreements to repurchase which
mature on a daily basis.
LOANS
Total loans decreased from $105,608,000 on December 31, 1994 to $104,863,000
on December 31, 1995, a decrease of $745,000. Total loans decreased by
$5,418,000 or 4.9% from 1993 to 1994. Commercial loans decreased from
$66,848,000 to $58,274,000, a decline of $8,574,000 or 12.8% during 1995
compared to a decrease of $13,981,000 or 17.3% during 1994. Real estate
construction loans increased to $4,300,000 on December 31, 1995, an increase
of $1,129,000 or 35.6% during 1995 compared to the $1,572,000 or 33.1%
decrease in the previous year. These changes in balances outstanding are net
of charge-offs and principal reductions made during each respective year. Real
estate mortgage loans increased from $21,795,000 at the end of 1994 to
$24,216,000 at the end of 1995, an increase of $2,421,000 or 11.1%, because
the Company sold a lower volume of mortgages in 1995 than it did in 1994.
Because a major portion of the Company's loan demand came from residential
mortgages and because the sale of the mortgages was not necessary for
liquidity purposes, management decided not to sell new 15 year fixed rate
mortgages, biweekly mortgages and adjustable rate mortgages. Conventional 30
year mortgages continue to be sold as they are closed. Installment loans
increased as a result of increased demand in consumer installment loans and as
a result of an increase in home equity loans, which increased from $4,531,000
at year-end 1994 to $7,190,000 at year-end 1995.
The following table sets forth the composition of the Company's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial*....................... $ 58,274 $ 66,848 $ 80,829 $ 98,260 $134,919
Real estate--construction......... 4,300 3,171 4,743 8,274 13,603
Real estate--mortgage............. 24,216 21,795 13,658 14,400 21,167
Installment....................... 18,073 13,794 11,796 14,765 23,914
-------- -------- -------- -------- --------
Total........................... $104,863 $105,608 $111,026 $135,699 $193,603
======== ======== ======== ======== ========
</TABLE>
- --------
* Includes loans previously accounted for as insubstance foreclosures now
included in non-accrual loans according to SFAS No. 114.
18
<PAGE>
The Company has not made loans to borrowers outside the United States. All
references to loans of the Company are loans of NBSC (or Pocono, prior to
April 1992). High Point is not a lender. The following table presents the
percentage distribution of loans by category as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial................. 55.57% 63.30% 72.81% 72.41% 69.69%
Real estate--construction.. 4.10% 3.00% 4.27% 6.10% 7.03%
Real estate--mortgage...... 23.09% 20.64% 12.30% 10.61% 10.93%
Installment................ 17.24% 13.06% 10.62% 10.88% 12.35%
------ ------ ------ ------ ------
Total.................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
The following table shows the maturity of loans in the specified categories
of the Company's loan portfolio at December 31, 1995, and the amount of such
loans with predetermined fixed rates or with floating or adjustable rates.
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
-------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Types of Loans:
Commercial............................. $21,644 $24,209 $12,421 $58,274
Real Estate--construction.............. 4,234 0 66 4,300
------- ------- ------- -------
Total................................. $25,878 $24,209 $12,487 $62,574
======= ======= ======= =======
Amount of such loans with:
Predetermined rates.................... $13,592 $12,809 $ 3,951 $30,352
Floating or adjustable rates........... 12,286 11,400 8,536 32,222
------- ------- ------- -------
Total................................. $25,878 $24,209 $12,487 $62,574
======= ======= ======= =======
</TABLE>
The Company's policy concerning rollovers of loans at maturity is to review
each particular case and consider a rollover based upon the continued
creditworthiness of the borrower. The table above shows maturities based upon
the contract terms at year-end 1995 of loans in the categories indicated and
does not reflect rollovers which may occur subsequently.
The loan to deposit ratio at year-end 1995 was 58.8%, down from the 63.8%
level at year-end 1994 and the 68.2% level at year-end 1993. This ratio is
reviewed in relation to credit demand, deposit activity, local economic
factors and the perceived credit risk within the loan portfolio.
From time to time in the ordinary course of business, management may
identify certain loans which it may sell to meet liquidity or other
operational needs. At December 31, 1995 and 1994, management had designated
loans with a face amount of approximately $621,000 and $429,000, respectively,
as loans held for sale. The loans held for sale at year-end 1995 and 1994 had
market values of $628,000 and $427,000, respectively. These were recorded at
their aggregate market values, and as a result an unrealized gain of $7,000
was recorded on December 31, 1995 and an unrealized loss of $2,000 was
recorded on December 31, 1994.
Based on the Company's market area and the communities it serves, the
majority of loans approved are for the purpose of acquiring and/or developing
real estate. When proceeds may be used for other purposes, the loans primarily
are secured by real estate. New commercial and real estate construction loans
totaled $10.1 million during 1995 compared to levels of $4.3 million and $1.7
million in 1994 and 1993, respectively. As of year-end 1995, the percent of
commercial and real estate construction loans was 60% of loans outstanding
compared to 66% and 77% in 1994 and 1993, respectively. For further
information regarding the percentage distribution of loans by collateral type
and purpose, see Note 4 on page 41.
19
<PAGE>
The Company recorded $6.3 million in new real estate mortgage loans during
1995 compared to $9.1 million in 1994. During the course of 1995 $3.6 million
in mortgage loans were sold compared to $6.2 million of mortgage loan sales in
1994. By year-end 1995 mortgage loans increased to 23.1% of total loans
compared to the levels of 20.6% and 12.3% at year-end 1994 and 1993,
respectively. The Company continues to maintain the servicing rights on
mortgages that were sold in 1995. In any given year the level of loans sold
into the secondary market may increase or decrease. The decision to increase
or decrease the level of loans sold is a function of liquidity needs, interest
rate risk management and demand in the market area for new mortgage loans. In
order to support a level of demand greater than resources available, mortgage
loans may be sold in order to generate funds to meet new mortgage demand. As
of December 31, 1995, there were approximately $434,000 in mortgage loans
which are held for sale. At December 31, 1995, $53.7 million in mortgage loans
previously sold were being serviced compared to $56.6 million and $62.3
million at year-end 1994 and 1993, respectively. In addition to the mortgages
held for sale, there were approximately $187,000 in student loans held for
sale as of December 31, 1995, which the Company expects to sell in 1996 at
their book value.
The allowance for possible loan losses at year-end 1995 was $4,609,000, a
decrease of $625,000 compared to the previous year-end. The allowance for
possible loan losses represents 4.40% of total loans outstanding compared to
the 4.96% and 4.88% levels at year-end 1994 and 1993, respectively. The level
in the allowance at December 31, 1995 is based on management's evaluation of
the underlying credit risk inherent in the total loan portfolio. Management
reviews the loan portfolio and evaluates credit risk throughout the year.
The following table provides a five-year analysis of changes in the
allowance for possible loan losses:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses:
Beginning balance*....................... $5,234 $5,419 $6,066 $10,118 $ 6,605
Loans charged off:*
Commercial.............................. 1,153 1,677 1,803 5,398 4,453
Real estate--construction............... 86 254 17 250 --
Real estate--mortgage................... 143 189 40 211 39
Installment............................. 89 135 260 461 567
------ ------ ------ ------- -------
Total loans charged off............... 1,471 2,255 2,120 6,320 5,059
------ ------ ------ ------- -------
Recoveries:*
Commercial.............................. 560 636 886 602 710
Real estate--construction............... 9 16 84 -- --
Real estate--mortgage................... 3 27 1 56 --
Installment............................. 49 64 166 96 101
------ ------ ------ ------- -------
Total Recoveries...................... 621 743 1,137 754 811
------ ------ ------ ------- -------
Net charge-offs:...................... 850 1,512 983 5,566 4,248
Provision for possible loan losses
charged to operations*.................. 225 1,327 336 1,857 7,761
Less: Reduction of allowance through sale
of Pocono Bank -- -- -- 343 --
------ ------ ------ ------- -------
Ending balance........................... $4,609 $5,234 $5,419 $ 6,066 $10,118
====== ====== ====== ======= =======
</TABLE>
- --------
* Prior years balances, chargeoffs and provisions are adjusted for restatement
of insubstance foreclosure reserves to the allowance for possible loan
losses per the requirements of SFAS No 114.
20
<PAGE>
The following table presents an allocation of the allowance for possible
loan losses as to indicated categories. The allocation is based upon
management's review of the credit risk of the loans in the specific category
as well as historical trends.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial................................. $4,318 $4,947 $4,832 $5,413 $ 9,505
Real estate--construction.................. 4 81 319 252 2
Real estate--mortgage...................... 192 129 107 146 236
Installment................................ 95 77 161 255 375
------ ------ ------ ------ -------
Total.................................... $4,609 $5,234 $5,419 $6,066 $10,118
====== ====== ====== ====== =======
</TABLE>
The determination of the appropriate level of the allowance for possible
loan losses is based on management's evaluation of the risk characteristics of
the loan portfolio under current economic conditions in the market area. In
addition to analyzing the financial condition of each borrower, management
also analyzes fair market value of collateral; industry trends; trends in loan
losses, past due and delinquency levels, and other considerations which
deserve recognition in estimating possible loan losses. Management also
reviews the impact of the changing local economy as it pertains to the loan
portfolio. Conditions such as the demand for residential construction and the
changes in the employment rate in the Company's market area are considered, as
are changes in national retail sales, leading economic indicators, predictions
of slow growth and changes in unemployment levels.
Total loans outstanding at year-end 1995 to finance real estate construction
and land development were $7,468,000 compared to $6,653,000 a year ago. The
Company does not normally finance, or participate in the financing of, large
commercial real estate projects beyond the fringes of its market. There are
currently $3,413,000 in commitments outstanding to finance real estate
construction and land development loans. During 1995, 1994 and 1993 the
following charge-offs were made that were directly related to real estate
activities:
<TABLE>
<CAPTION>
1995 1994 1993
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Type of loan charged off
Land development/construction--residential................. $ 16 $ 254 $ --
Land development/construction--commercial.................. 70 -- 253
Permanent commercial real estate loans..................... 721 1,139 956
---- ------ ------
$807 $1,393 $1,209
==== ====== ======
</TABLE>
Based on the continuing review of real estate construction loans, management
expects some deterioration in the ability of some of the borrowers to repay
these loans under existing loan agreements. As part of management's evaluation
for the allowance for possible loan losses, it has provided specific reserves
for these loans as deemed necessary.
In 1995, net loans charged off (gross loans charged off less recoveries
received on loans charged off in prior periods) amounted to $850,000, as
compared with net charge-offs of $1,512,000 and $983,000 for the years 1994
and 1993, respectively (see Note 6). Net charge-offs as a percent of average
loans outstanding were 0.82% for 1995 compared to the 1.37% and the 0.80%
levels reported for 1994 and 1993, respectively.
NON-PERFORMING ASSETS
Non-performing loans consist of (i) renegotiated loans, (ii) non-accrual
loans, and (iii) loans which are contractually past due 90 days or more as to
interest or principal but are well secured and in the process of collection or
renewal in the normal course of business.
21
<PAGE>
NBSC ceases to accrue interest on commercial loans and real estate mortgage
loans when principal or interest is in default for a period of 90 days or
more, except where there exists sufficient collateral to cover the defaulted
principal and interest payments and the loan is in the process of collection.
Installment loans are generally charged off when principal and interest
payments are four months in arrears. Interest which was previously accrued on
non-accrual loans but not yet paid is then reversed and charged against
earnings during the period in which the loan is placed in the non-accrual
status, except where management has determined that such loans are adequately
secured as to principal and interest. Interest earned thereafter is included
in income only to the extent that it is received on a cash basis. Interest on
renegotiated loans is only recognized in current income at the renegotiated
rate and then only to the extent that such interest is deemed to be
collectible.
The following table details information concerning non-performing assets as
of December 31 for all of the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Renegotiated loans.............. $ 1,532 $ 4,164 $ 2,894 $ 6,809 $ 7,998
Loans past due over 90 days..... 156 289 184 355 3,935
Loans on non-accrual*........... 5,744 8,435 16,229 20,750 23,418
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS....... 7,432 12,888 19,307 27,914 35,351
Other real estate, net*.......... 2,741 3,946 3,876 2,371 2,245
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS...... $10,173 $16,834 $23,183 $30,285 $37,596
======= ======= ======= ======= =======
Allowance for possible loan
losses.......................... $ 4,609 $ 5,234 $ 5,419 $ 6,066 $10,118
======= ======= ======= ======= =======
Allowance for possible loan
losses as a percent of:
Total loans.................... 4.40% 4.96% 4.88% 4.47% 5.23%
Non-performing loans........... 62.02% 40.61% 28.07% 21.73% 28.62%
Non-performing loans as a percent
of total loans.................. 7.09% 12.20% 17.39% 20.57% 18.26%
</TABLE>
- --------
*Loans previously accounted for as insubstance foreclosure are now accounted
for as non-accrual loans according to SFAS No. 114. See Note 4 on page 41 for
more information.
As the above table indicates, total non-performing loans decreased
$5,456,000 or 42.3% in 1995. In addition to the decrease in non-performing
loans, other real estate has decreased $1,205,000 or 30.5% during 1995 due to
sales of properties, writedowns and charge-offs on other real estate in excess
of foreclosures on real estate provided as collateral to secure loans. Thus,
non-performing assets decreased $6,661,000 or 39.6% during 1995.
Loans on non-accrual declined from $8,435,000 in 1994 to $5,744,000 in 1995,
a decrease of $2,691,000, or 31.9%. At December 31, 1995, there were four
credits in excess of $500,000 classified as non-accrual. In the aggregate,
these four loans totaled $2,772,000 or 48.3% of total non-accrual loans. Of
total non-accrual loans, $3,481,000 or 60.6% were primarily secured by
commercial property and $1,012,000 or 17.6% were secured by residential first
mortgages. The remaining $1,251,000 in non-accrual loans were secured by
miscellaneous assets including but not limited to second mortgages on
residential and commercial property and other assets.
Renegotiated loans include those loans that are classified as "troubled debt
restructurings" as defined by Statement of Accounting Standards Number 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructurings." SFAS
No. 114, "Accounting for Impairment of Loans," which supercedes SFAS No. 15,
was implemented effective January 1, 1995. All loans renegotiated after
December 31, 1994 are accounted for under the requirements of SFAS No. 114. As
of December 31, 1995, $884,000 of restructured loans were accounted for under
the requirements of SFAS No. 15 and $648,000 under the requirements of SFAS
No. 114. For more
22
<PAGE>
information, see Note 4 on page 41. Renegotiated loans decreased from
$4,164,000 at year-end 1994 to $1,532,000 at year-end 1995, a decrease of
$2,632,000 or 63.2%. Substantially all of the decrease in renegotiated loans
resulted from loans being returned to an accrual status. A loan is usually
returned to an accrual status if the customer shows the ability to repay the
debt under the terms of the renegotiation either by a period of performance or
by financial statements or other evidence of ability to service the debt. With
respect to the renegotiated loans, certain restructures provided for the
forgiveness of a portion of the debt (principal and/or interest) based on
specific performance standards or timeframes. Renegotiated interest rates are
generally consistent with prevailing market rates for similar loans. However,
reflective of current market conditions, extensions of time to make repayment
or other similar concessions have been granted. All of the renegotiated loans
were contractually current as of December 31, 1995.
Generally, other real estate is appraised when title is taken on the
property unless there is a contract of sale or there is a valid appraisal on
file which conforms to regulatory guidelines. Upon transfer or receipt of a
new appraisal, the property's carrying value is adjusted to its appraised
value less estimated costs of disposition if such value is lower than its
existing carrying value. Any reduction of the carrying value of the underlying
collateral is charged to the allowance for possible loan losses when the
property is recorded as other real estate. Appraisals thereafter are received
and reviewed in accordance with regulatory guidelines. Based on this
continuing review and results of updated appraisals as required, any further
deterioration to market value is expensed to the net cost of operation of
other real estate. For 1995, there were no charge-offs on other real estate;
writedowns to expense were $331,000. Sales of other real estate were
$2,589,000 while new additions were $1,715,000. Of the $2,741,000 in other
real estate at December 31, 1995, there were no properties of which the value
exceeded $1,000,000. The value of three properties exceeded $500,000. These
properties had an aggregate carrying value of $1,892,000 and comprised 69.0%
of other real estate. Commercial real estate comprises approximately 90% of
other real estate.
Non-performing loans as a percent of total loans outstanding decreased from
12.2% to 7.1% from year-end 1994 to year-end 1995. Although NBSC's non-
performing assets have been reduced from $37.6 million at year end 1991 to
$10.2 million at year-end 1995, the economic environment still remains
uncertain. The impact of the prime rate increasing from 6% in early 1994 to
8.75% during 1995 increased the payment burden on borrowers with floating rate
loans. However, during fourth quarter 1995, the prime rate was reduced to
8.50% and further reduced early in the first quarter of 1996. At year-end
1995, floating rate loans comprised 36% of the loan portfolio. At year-end the
total of non-performing assets were deemed adequately secured and, where
appropriate, reserves have been established in view of potential future
deterioration in market conditions.
THE ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A PERCENT OF NON-PERFORMING LOANS
Non-performing loans declined $5,456,000 from year-end 1994 to year-end
1995, which included charge-offs of $1,471,000 and loans reclassified to other
real estate of $1,455,000. The allowance for possible loan losses as a percent
of non-performing loans increased from 40.6% at year-end 1994 to 62.0% at
year-end 1995. NBSC's ratio of the allowance for possible loan losses to non-
performing loans as of December 31, 1995, although substantially higher than
in prior years, continues to be lower than the regional and national peer
statistics. However, when comparing peer averages, management believes that it
is essential to consider potential differences in the procedures that each
institution has in place to identify, monitor and account for potential credit
losses in its loan portfolio. A higher ratio is not necessarily indicative of
the adequacy of the allowance for possible loan losses. The predominant factor
in determining the adequacy of such allowance is whether the relevant
institution employs a comprehensive methodology to analyze the risk profile of
its loan portfolio.
NBSC performs the following procedures in order to evaluate the adequacy of
the allowance for possible loan losses. First, NBSC conducts a loan-specific
review each quarter. This review assesses the estimated future losses for
every loan classified as non-performing, as well as performing loans which
have been criticized (either
23
<PAGE>
internally or by NBSC's regulators) but which do not meet the requirements for
non-performing loan status. Second, management monitors on a periodic basis
the status of larger non-criticized credits for changes and developments that
could affect future collectibility. Third, NBSC assesses the potential for
loan losses in general reserve requirements based on historical and
anticipated collection statistics. Incorporated into this loan review is the
potential loan loss exposure on each significant credit considering the value
of the underlying collateral and present and prospective economic conditions
within the market area. This evaluation is an ongoing process which is
performed at least on a quarterly basis. Part of management's evaluation
includes identifying those loans where a probable loss exists and charging off
the loans to the extent of the estimated losses. Trends in the industry, in
the Company's non-performing loans and in the rate of charge-offs are also
examined.
Based on its evaluation, management believes that it has identified the risk
in the loan portfolio and that the loan loss reserve is adequate on December
31, 1995. Based on this evaluation, management also believes that the
allowance is adequate to absorb such additional losses as may arise in the
loan portfolio, although no assurances can be given that the Company will not
sustain losses in any given year which could be substantial in relation to the
size of the Company's allowance.
Loans classified for regulatory purposes but not included as non-performing
assets at December 31, 1995 include loans classified as "other assets
especially mentioned" of $7,394,000 and "substandard" of $9,733,000. These
loans as of December 31, 1995 are not past due in excess of 90 days. As part
of management's evaluation of the allowance for possible loan losses, it has
provided specific reserves for these loans as deemed necessary.
The risks and uncertainties in the financial industry are compounded by the
dependence of the Company's financial statements on estimates of future
circumstances, appraisals of collateral values in a soft real estate market,
and evaluations of borrowers' ability to repay loans according to their terms.
The possibility exists that changes in such estimates, appraisals and
evaluations might be required quickly because of changing economic conditions
and the economic prospects of NBSC's borrowers. These future changes could
either positively or adversely impact the financial condition of the Company.
Information with respect to the interest that would have accrued had the
loans discussed above been current versus the interest income that was
realized is discussed in Note 4 on page 41 in Notes to Consolidated Financial
Statements contained in Item 8 of this 10-K.
There were no loans at December 31, 1995, other than those included in the
table on page 22 or which were classified as set forth above, where the
Company was aware of any credit conditions of any borrower that would indicate
a strong possibility that the borrower could not comply with the present terms
and conditions of repayment and which would result in such loans being
included as a non-accrual, past due or restructured loan at some future time.
At December 31, 1995, there were no concentrations of loans exceeding 10% of
total loans outstanding except as disclosed in Note 4 on page 41 in Notes to
Consolidated Financial Statements contained in Item 8 of this 10-K. Loan
concentrations are considered to exist when there are amounts loaned to a
number of borrowers engaged in similar activities which would cause them to be
similarly affected by economic or other related influences.
24
<PAGE>
SECURITIES PORTFOLIO
The following table shows the carrying value of the Company's security
portfolio as of the dates indicated. Securities held to maturity are stated at
cost, adjusted for amortization of premium and accretion of discounts.
Securities available for sale are stated at their fair value.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government corporations and agencies:
Held to Maturity...................................... $ 3,514 $13,168 $ 4,733
Available for sale.................................... 26,449 10,956 1,026
Obligations of states and political subdivisions:
Held to Maturity...................................... -- -- --
Available for sale.................................... -- -- 1,002
Mortgage backed securities, agency issued:
Held to Maturity...................................... 11,878 9,393 --
Available for sale.................................... 19,011 14,899 30,069
Vanguard money market fund:
Held to Maturity...................................... -- -- --
Available for sale.................................... 3,289 5,009 4,405
Other investments:
Held to Maturity...................................... -- -- 444
Available for sale.................................... 555 806 251
------- ------- -------
Total securities....................................... $64,696 $54,231 $41,930
======= ======= =======
</TABLE>
25
<PAGE>
The following table shows the maturity and the weighted average yields for
the Company's security portfolio at December 31, 1995. The securities are
shown in their respective maturity categories based on contractual maturities
rather than anticipated paydowns. The securities are shown at their amortized
cost. Mortgage backed securities are shown within the one year category.
Maturities could differ based on calls or prepayments.
<TABLE>
<CAPTION>
WITHIN AFTER ONE AFTER FIVE
ONE BUT WITHIN BUT WITHIN AFTER TEN
YEAR FIVE YEARS TEN YEARS YEARS TOTAL
------- ---------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. govern-
ment corporations and
agencies, available for
sale
Amount..................... $ 9,553 $16,573 $ -- $-- $26,126
Yield...................... 5.66% 6.29% -- -- 6.06%
U.S. treasury securities and
obligations of U.S. government
corporations and agencies,
held to maturity
Amount..................... 1,007 2,007 500 -- 3,514
Yield...................... 5.03% 6.77% 5.65% -- 6.11%
Mortgage backed securities,
available for sale
Amount..................... 19,094 -- -- -- 19,094
Yield...................... 6.00% -- -- -- 6.00%
Mortgage backed securities,
held to maturity
Amount..................... 11,878 -- -- -- 11,878
Yield...................... 6.65% -- -- -- 6.65%
Vanguard money market fund,
available for sale
Amount..................... 3,289 -- -- -- 3,289
Yield...................... 5.30% -- -- -- 5.30%
Equity securities, available
for sale
Amount..................... 551 -- -- -- 551
Yield...................... 5.62% -- -- -- 5.62%
------- ------- ---- --- -------
Total securities
Amount..................... $45,372 $18,580 $500 $-- $64,452
Yield...................... 6.02% 6.34% 5.65% -- 6.11%
======= ======= ==== === =======
</TABLE>
In November 1995, the Financial Accounting Standards Board issued a special
report--"A Guide to Implementation of Statement No. 115 on Accounting for
Certain Investments in Debt and Equity Securities." This special report
allowed a company to make a one time reclassification of securities within
investment categories without tainting other securities remaining within the
categories. In December 1995, the Company reclassified $18.7 million of
securities previously classified as held to maturity to available for sale
resulting in a mark to market adjustment of $168,000 which increased
stockholders' equity of the Company.
LIQUIDITY
Liquidity is a measure of the Company's ability to provide sufficient cash
flow for current and future financial obligations and commitments on a timely
basis. For the Company, liquidity could be defined as having the cash
available at the subsidiary bank level to meet the borrowing and cash
withdrawal requirements of customers, as well as for meeting the needs of
current and planned expenditures. At the subsidiary bank level liquidity is
typically provided by the funds received through customer deposits, investment
sales and maturities, loan repayments, borrowings and from net income. As
previously mentioned, the sale of loans is another source of liquidity at the
subsidiary level. For the Company, liquidity goes beyond that typically
related to banking
26
<PAGE>
operations. High Point's liquidity needs include sufficient cash flow to meet
debt repayment requirements, debt interest payments and planned capital
expenditures.
During 1995, NBSC sold $3.6 million in new mortgage loans and $2.2 million
of securities. At NBSC it is management's intent to fund loan demand with
deposit growth, sales of securities and sales of mortgages. The sales of the
securities in 1995 were to respond to changes in interest rate risk and
prepayment risk. In 1995, deposits increased $12.8 million from year-end 1994
levels.
To meet future operational needs, NBSC held at year-end 1995 $49.3 million
of securities available for sale, $628,000 in loans available to be sold
subsequent to year-end at a price approximately equal to book value, and $11.1
million in overnight funds. The liquidity levels at NBSC have been increased
since March 31, 1991 after the loss of lines of credit at two correspondent
banks. In 1995, NBSC established two lines of credit--one for $1.5 million and
one for $2.0 million--with correspondent banks in consideration of which NBSC
has agreed to pledge U.S. Treasury securities. NBSC also has an overnight
repurchase agreement arrangement with a brokerage firm pursuant to which NBSC
can pledge up to the amount of its remaining securities and borrow up to 97%
of the amount pledged overnight. NBSC did not borrow against any of its lines
of credit during 1995, 1994 or 1993. NBSC also did not have any brokered
deposits during 1995, 1994, or 1993. The Company believes that the current
level of liquidity at NBSC is sufficient to meet that bank's current and
anticipated operational needs.
At December 31, 1995, High Point had $13,000 in cash and $500,000 in
overnight funds sold available to meet its liquidity needs. Additionally, High
Point maintains an interest bearing escrow account at another bank with a
balance of $125,000 at December 31, 1995. High Point's major cash flow
requirements for 1996 are to meet the monthly principal, interest and fee
payments totaling approximately $24,000 on the note payable secured by land.
High Point also must pay the quarterly interest payments of $11,000 to the
remaining holders of High Point's debentures. In addition to the debt
requirements, High Point has legal fees, printing expenses, auditing fees and
other miscellaneous fees to be paid throughout the year. The residual
obligation, after scheduled principal payments, to the lending bank on High
Point's note payable secured by the land held for sale of $1,122,000 is due in
a final balloon payment on January 2, 1998. High Point plans to meet this
obligation primarily through the disposition of land held for sale, although
no assurance can be given in this regard. For further information, see Notes
14 and 18 on pages 51 and 54, respectively. Alternatively, High Point is
reviewing other options that may become available as a source of funds to pay
the balance of the Note Payable.
Liquidity at the parent company level in the normal course of business is
provided by dividend payments from its subsidiaries. High Point's only
subsidiary is NBSC. As stipulated in the Consent Order between NBSC and the
OCC, NBSC is precluded from paying dividends to High Point, and NBSC cannot
anticipate when it will resume dividend payments to High Point. High Point
suspended the payment of dividends to its shareholders in 1990, and under the
terms of its written agreement with the FRB, is prohibited from paying
dividends to its shareholders without prior approval by the FRB. High Point
cannot anticipate when it will resume dividend payments. No dividends will be
paid in 1996.
High Point currently has three additional sources available to increase its
liquidity. First, High Point can generate cash through its security portfolio.
As of December 31, 1995, High Point has equity securities with a market value
of $10,000 and a US Treasury security with a market value of $204,000. These
securities are available for sale with the intent to continue to fund High
Point's note payable escrow account as needed. Second, High Point has $380,000
in collateralized equity contracts that are due to convert to stock on March
1, 1996. The collateralized equity contract holders must fulfill their
obligation by making a cash payment to convert their equity contracts to stock
at a price of $19.17 per share (as adjusted for stock dividends and other
events). An additional $401,000 in equity contracts collateralized by High
Point's debentures also must convert to stock by March 1, 1996. The conversion
can be paid by the surrender of debentures with a principal amount equal to
the stock purchased. Therefore, the quarterly interest payments on the
debentures of $11,000 are likely to decline after March 1, 1996. Third, there
is a contract for sale on the 32 acres of the land held for sale. There is no
assurance that this land sale will be consummated, and if the sale is
consummated, it is possible that it may not close until January 1998. The
remainder of the land continues to generate interest among potential buyers.
27
<PAGE>
High Point and NBSC are not dependent on any one customer segment to provide
a source of deposits or dependent on any one customer or industry segment for
loan production.
INTEREST RATE SENSITIVITY
Closely related to the concept of liquidity is the management of interest
earning assets and interest bearing liabilities, which focuses on maintaining
stability in the net interest spread, an important factor in earnings growth
and stability. Emphasis is placed on maintaining a controlled rate sensitivity
position to avoid wide swings in spreads and minimize risk due to changes in
interest rates.
The following table sets forth the cumulative maturity distribution of the
Company's interest earning assets and interest bearing liabilities as of
December 31, 1995, the Company's interest rate sensitivity gap (i.e., interest
rate sensitive assets less interest rate sensitive liabilities), the Company's
cumulative interest rate sensitivity gap, the Company's interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by
interest rate sensitive liabilities) and the Company's cumulative interest
rate sensitivity gap ratio. For the purpose of the following table, an asset
or liability is considered rate sensitive within a specified period when it
matures or could be repriced within such period in accordance with its
contractual terms.
Interest bearing and non-interest bearing demand accounts as well as savings
accounts are reflected as maturing immediately. Loans held for sale and
securities available for sale are reported within the one year time frame.
Non-accrual loans are considered non-earning assets and are included in the
"After 5 Years" column.
<TABLE>
<CAPTION>
MATURING OR REPRICING
---------------------------------------------------------------
DECEMBER 31, 1995 WITHIN 1 YEAR AFTER 1 BUT WITHIN 5 YEARS AFTER 5 YEARS TOTAL
- ----------------- ------------- -------------------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans.................. $ 57,021 $23,431 $18,819 $ 99,271
Loans held for sale.... 628 -- -- 628
Investment securities.. 1,007 6,175 8,210 15,392
Federal funds sold..... 11,150 -- -- 11,150
Interest bearing
deposits.............. 125 -- -- 125
Securities available
for sale.............. 49,304 -- -- 49,304
-------- ------- ------- --------
Total earning assets.... 119,235 29,606 27,029 175,870
Non-earning assets...... -- -- 24,314 24,314
-------- ------- ------- --------
Total Assets............ 119,235 29,606 51,343 200,184
-------- ------- ------- --------
Interest bearing
liabilities:
Deposits:
Interest bearing
demand................ 25,092 -- -- 25,092
Savings accounts....... 55,832 -- -- 55,832
Jumbo certificates..... 8,577 592 203 9,372
Other time deposits.... 32,448 15,150 2,097 49,695
-------- ------- ------- --------
Total interest bearing
deposits............. 121,949 15,742 2,300 139,991
-------- ------- ------- --------
Borrowings:
Repurchase agreements.. 2,959 -- -- 2,959
Mortgage payable....... 1,270 -- -- 1,270
ESOP debt.............. -- -- -- --
Subordinated
debentures............ -- 511 -- 511
-------- ------- ------- --------
Total borrowings...... 4,229 511 -- 4,740
-------- ------- ------- --------
Non-interest bearing
demand deposits........ -- -- 38,334 38,334
Other liabilities....... -- -- 2,561 2,561
Stockholders' equity.... -- -- 14,558 14,558
-------- ------- ------- --------
Total liabilities and
equity................. 126,178 16,253 57,753 200,184
-------- ------- ------- --------
Interest rate
sensitivity gap........ $ (6,943) $13,353 $(6,410) $ --
======== ======= ======= ========
Cumulative rate
sensitivity gap........ $ (6,943) $ 6,410 $ -- $ --
======== ======= ======= ========
Interest rate
sensitivity gap ratio.. 94.50% 182.16% 88.90% --
Cumulative interest rate
sensitivity gap ratio.. 94.50% 104.50% 100.00% --
</TABLE>
28
<PAGE>
As of December 31, 1995, the Company's rate sensitive liabilities exceed its
rate sensitive assets by $6.9 million. Traditional gap theory holds that when
a bank is asset-sensitive (meaning that it has more rate sensitive assets
repricing within a given time frame than rate sensitive liabilities) and
interest rates increase, the bank's net interest margin should increase. If a
bank is liability sensitive (meaning that is has more liabilities repricing in
a given time frame than assets) and interest rates increase, the net interest
margin should decrease. What traditional gap theory does not measure is that
rates on various instruments do not always change by the same amounts. In
addition, gap theory does not reflect the impact of changes in interest rates
on loan prepayments or early withdrawals of CDs. Management carefully monitors
interest rate risk by using simulation modeling under a variety of different
scenarios to estimate interest rate sensitivity. Based on management's
analysis of its interest rate sensitivity, if interest rates were to increase
1%, net interest income would increase $110,000. Conversely, if interest rates
were to decrease, net interest income would decrease by the same amount.
CAPITAL RESOURCES
Stockholders' equity increased $2.6 million or 21.7% during 1995 to
$14,558,000 at December 31, 1995 compared to the increase in 1994 of $2.1
million or 20.9%, and the increase in 1993 of $310,000 or 3.2%. The change in
stockholders' equity in each of the years is a function of the net income or
net loss, the reduction of ESOP debt, conversion of Equity Contracts, the
purchase of new shares, the impact of any net unrealized gains or losses in
securities available for sale and the acquisition or sale of treasury stock
(see Notes 12 and 15). During 1995, a final principal payment of $150,000 was
made on the ESOP debt compared to payments of $171,000 and $140,000 for 1994
and 1993, respectively. For accounting purposes, the loan to the ESOP is
reflected as a liability of the Company and a reduction of the Company's
stockholders' equity. As principal is paid on the ESOP loan, corresponding
amounts are credited to stockholders' equity (see Note 12). Unrealized gains
on securities available for sale totaled $244,000 on December 31, 1995
compared to $1,496,000 of unrealized losses on December 31, 1994. For more
information, see Note 3 on page 40. During 1994, High Point completed a
successful offering to its shareholders and the public of 1,285,700 shares of
its common stock for total proceeds of $4.5 million net of $109,000 in
expenses. Also, in 1994, $100,000 of collateralized Equity Contracts were
converted to stock. In comparison, in 1993, $35,000 of commonly registered
Equity Contracts and Debentures were converted to stock.
High Point has not paid a dividend on its Common Stock since 1990, and
cannot anticipate when it will resume making dividend payments. NBSC is
precluded from paying dividends to High Point by its formal agreement with the
OCC. Similarly, High Point is precluded in its written agreement with the FRB
from paying dividends to its shareholders without prior approval of the FRB.
Neither NBSC or High Point will pay dividends in 1996.
The Company's and NBSC's regulators have classified and defined bank holding
company capital into the following components: (1) Tier I capital, which
includes tangible stockholders' equity for common stock, certain perpetual
preferred stock and certain mandatory convertible securities, and (2) Tier II
capital, which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock, and mandatory
convertible securities which do not qualify for Tier I capital.
The Company's and NBSC's regulators have implemented risk-based capital
guidelines which require banks and bank holding companies to maintain certain
minimum capital as a percent of such bank's and bank holding company's assets
and certain off-balance sheet items adjusted for predefined credit risk
factors (risk-adjusted assets). Banks and bank holding companies are required
to maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets
of 4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted
assets of 8.0%. As of December 31, 1995, the Company's Tier I and combined
Tier I and Tier II capital ratios were 13.20% and 14.96%, respectively, and
NBSC's Tier I and combined Tier I and Tier II capital ratios were 12.34% and
13.63%, respectively.
In addition to the risk-based guidelines discussed above, the Company's and
NBSC's regulators require that banks and bank holding companies which meet the
regulators' highest performance and operational standards
29
<PAGE>
maintain a minimum leverage ratio (Tier I capital as a percent of tangible
assets) of 3.0%. For those banks and bank holding companies with higher levels
of risk or that are experiencing or anticipating significant growth, the
minimum leverage ratio is proportionately increased. Minimum leverage ratios
for each bank and bank holding company are established and updated through the
ongoing regulatory examination process. NBSC's regulator requires a minimum
ratio of 6.0%. As of December 31, 1995, the Company has a leverage ratio of
7.10% and NBSC has a leverage ratio of 6.57%. For more information and
information regarding the capital of NBSC, see Note 2 on page 38.
EFFECTS OF INFLATION
The impact of inflation on banks and bank holding companies differs from its
impact on non-financial institutions. Banks, as financial intermediaries, have
assets which are primarily monetary in nature and which tend to fluctuate in
connection with inflation. This is especially true for banks with a high
percentage of rate-sensitive interest earning assets and interest bearing
liabilities. A bank can reduce the impact of inflation if it can manage the
rate sensitivity gap. Management of the Company monitors and seeks to mitigate
the impact of interest rate changes by attempting to match the maturities of
assets and liabilities to manage its gap, thus seeking to minimize the
potential effects of inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 122--"Accounting for
Mortgage Servicing Rights" ("SFAS No. 122") was issued in May 1995 and must be
adopted by the Company effective January 1, 1996. This statement requires that
an institution recognize as a separate asset its right to service mortgage
loans for others and to evaluate its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. Impairment would be
recognized by establishing a valuation allowance. Management has evaluated its
mortgage banking activities and does not believe that the implementation of
SFAS No. 122 will have a material impact on the Company's financial condition
and results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No 123") was issued in October 1995 and must be
adopted by the Company effective January 1, 1996. SFAS No. 123, requires
entities that have employee stock option plans to estimate the value of grants
awarded to employees and disclose in a pro forma footnote the impact on the
entities' earnings and earnings per share as if the estimated option value was
expensed over the vesting period of the grants.
The Company maintains two stock option plans and has granted to key
employees options to buy 95,000 shares of stock at the current market value of
$6.75 per share. For more information, see Note 10 on page 49. Since SFAS No.
123 only requires additional disclosure of the cost of stock options,
implementation will not have a material impact on the Company's results of
operations.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of High Point Financial Corp.:
We have audited the accompanying consolidated balance sheets of High Point
Financial Corp.(a New Jersey corporation) and subsidiary (collectively "the
Company") as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 more fully described in Note 2 to the consolidated financial statements,
the Company has entered into a Written Agreement dated October, 1992 with the
Federal Reserve Bank of New York. The Company's subsidiary, The National Bank
of Sussex County, has entered into a Consent Order in the form of a Formal
Agreement dated November, 1991, with the Office of the Comptroller of the
Currency.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of High Point
Financial Corp. and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 7, effective January 1, 1995, the Company changed its
method for accounting for long lived assets to be disposed of.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 19, 1996
31
<PAGE>
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1995 1994
- ------ -------- --------
<S> <C> <C>
Cash and due from banks (Notes 1 and 11).................... $ 11,290 $ 9,818
Federal funds sold (Note 1)................................. 11,150 7,300
-------- --------
Total cash and cash equivalents........................... 22,440 17,118
Interest bearing deposits with banks........................ 125 124
Securities (Notes 1 and 3):
Available for sale, at fair value.......................... 49,304 31,670
Held to maturity, at cost (market value of $15,483 in 1995
and $21,593 in 1994)...................................... 15,392 22,561
-------- --------
Total securities.......................................... 64,696 54,231
Loans held for sale......................................... 628 427
Loans (Notes 1, 4 and 6).................................... 104,863 105,608
Less: Unearned income...................................... 30 52
Allowance for possible loan losses (Notes 1 and 6)....... 4,609 5,234
-------- --------
Net loans................................................. 100,224 100,322
Land held for sale (Notes 1, 7 and 14)...................... 2,135 2,534
Premises and equipment--net (Notes 1 and 7)................. 2,692 2,865
Accrued interest receivable................................. 1,388 1,217
Other real estate, net (Notes 1 and 5)...................... 2,741 3,946
Other assets................................................ 3,115 1,857
-------- --------
TOTAL ASSETS.............................................. $200,184 $184,641
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits (Note 13):
Transaction accounts:
Interest bearing.......................................... $ 25,092 $ 25,197
Non-interest bearing...................................... 38,334 34,778
Savings accounts........................................... 55,832 53,672
Time accounts (includes CDs $100 or over of $9,372
and $6,995 in 1995 and 1994, respectively)................ 59,067 51,925
-------- --------
Total deposits............................................ 178,325 165,572
Securities sold under agreements to repurchase.............. 2,959 2,621
Accrued expenses and other liabilities...................... 2,561 2,343
Note payable (Note 14)...................................... 1,270 1,482
Redeemable subordinated debentures, 8.5% due March 1, 1997
(Note 15).................................................. 511 510
Employee Stock Ownership Plan (ESOP) debt (Note 12)......... -- 150
-------- --------
Total liabilities......................................... 185,626 172,678
-------- --------
Commitments and contingencies (Notes 2, 9 and 11)
Stockholders' equity (Notes 1, 10, 12 and 14):
Preferred stock, authorized 1,000,000 shares, no shares
issued.................................................... -- --
Common stock, no par value; stated value $5 per share;
authorized
5,000,000 shares, issued 3,745,760 shares in 1995 and
1994...................................................... 18,729 18,729
Additional Paid-in-Capital................................. 5,214 5,214
Accumulated Deficit........................................ (9,629) (10,334)
Common stock acquired by ESOP (Note 12).................... -- (150)
Unrealized gain (loss) on securities available for sale
(Notes 1 and 3)........................................... 244 (1,496)
-------- --------
Total stockholders' equity................................ 14,558 11,963
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $200,184 $184,641
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest income and fees on loans (Note 1)....... $ 9,354 $ 9,190 $ 10,535
Interest on securities:
Taxable interest income......................... 3,620 2,448 1,691
Non-taxable interest income..................... -- 20 4
Interest on deposits with banks.................. 2 2 9
Interest on federal funds sold................... 677 357 252
-------- -------- --------
TOTAL INTEREST INCOME.......................... 13,653 12,017 12,491
-------- -------- --------
INTEREST EXPENSE
Interest on deposits............................. 5,240 4,166 4,604
Interest on other borrowed money................. 129 60 32
Interest on long-term debt....................... 44 44 45
Interest on note payable (Note 14)............... 137 222 271
-------- -------- --------
TOTAL INTEREST EXPENSE......................... 5,550 4,492 4,952
-------- -------- --------
NET INTEREST INCOME.............................. 8,103 7,525 7,539
Less: Provision for possible loan losses (Notes 1
and 6).......................................... 225 1,327 336
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES........................ 7,878 6,198 7,203
-------- -------- --------
NON-INTEREST INCOME
Service charges on deposit accounts.............. 1,341 1,456 1,532
Commissions and fees............................. 708 757 893
Unrealized gain on securities available for
sale............................................ -- -- 433
Gain (loss) on the sales of securities available
for sale (Note 3)............................... 14 (262) (8)
Gain (loss) on the sales of loans................ 39 (27) 110
Gain on sale of bank premises (Note 7)........... 148 141 79
Gain on sale of land held for sale (Note 7)...... -- -- 306
Other income..................................... 170 155 148
-------- -------- --------
TOTAL NON-INTEREST INCOME...................... 2,420 2,220 3,493
-------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits (Notes 9 and 12).. 4,623 4,518 4,548
Net occupancy expense (Notes 7 and 11)........... 966 917 909
Equipment expense (Note 7)....................... 539 570 603
Net cost of operation of other real estate (Notes
1 and 5)........................................ 663 663 840
Other expenses (Notes 7 and 17).................. 2,681 2,962 3,673
-------- -------- --------
TOTAL NON-INTEREST EXPENSE..................... 9,472 9,630 10,573
-------- -------- --------
Income (loss) before benefit for income taxes and
cumulative effect for change in accounting
principle....................................... 826 (1,212) 123
Benefit for income taxes (Notes 1 and 8)......... (249) (97) (31)
-------- -------- --------
Income (loss) before cumulative effect for change
in accounting principle......................... 1,075 (1,115) 154
Cumulative effect of change in accounting
principle....................................... (370) -- --
-------- -------- --------
NET INCOME (LOSS)................................ $ 705 $ (1,115) $ 154
======== ======== ========
Net income (loss) per common share and common
share equivalents before cumulative effect for
change in accounting principle (Note 7)......... $ 0.29 $ (0.36) $ 0.06
Cumulative effect per share for change in
accounting principle............................ (0.10) 0.00 0.00
-------- -------- --------
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS (Note 1)............... $ 0.19 $ (0.36) $ 0.06
======== ======== ========
WEIGHTED AVERAGE COMMON SHARE AND
COMMON SHARE EQUIVALENTS (Note 1)............... 3,746 3,066 2,438
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
33
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS
COMMON (LOSSES) ON
ADDITIONAL STOCK SECURITIES
COMMON PAID-IN- ACCUMULATED ACQUIRED TREASURY AVAILABLE
STOCK CAPITAL DEFICIT BY ESOP STOCK FOR SALE TOTAL
------- ---------- ----------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,
1992................... $12,187 $7,229 $(9,367) $(461) $(6) -- $ 9,582
Net Income--1993....... -- -- 154 -- -- -- 154
Issuance of stock under
Dividend Reinvestment
and Common Stock
Purchase Plan......... -- -- (6) -- 6 -- --
Principal payment on
ESOP debt............. -- -- -- 140 -- -- 140
Exercise of equity
contracts............. 8 28 -- -- -- -- 36
Unrealized losses on
securities
available for sale.... -- -- -- -- -- (20) (20)
------- ------ ------- ----- --- ------- -------
BALANCE DECEMBER 31,
1993................... 12,195 7,257 (9,219) (321) -- (20) 9,892
Net Loss--1994......... -- -- (1,115) -- -- -- (1,115)
Proceeds from stock
offering, net of
expenses of $109...... 6,429 (2,038) -- -- -- -- 4,391
Principal payment on
ESOP debt............. -- -- -- 171 -- -- 171
Exercise of equity
contracts............. 105 (5) -- -- -- -- 100
Unrealized losses on
securities
available for sale.... -- -- -- -- -- (1,476) (1,476)
------- ------ ------- ----- --- ------- -------
BALANCE DECEMBER 31,
1994................... 18,729 5,214 (10,334) (150) -- (1,496) 11,963
Net Income--1995....... -- -- 705 -- -- -- 705
Principal payment on
ESOP debt............. -- -- -- 150 -- -- 150
Unrealized gains on
securities
available for sale.... -- -- -- -- -- 1,740 1,740
------- ------ ------- ----- --- ------- -------
BALANCE DECEMBER 31,
1995................... $18,729 $5,214 $(9,629) $ -- $-- $ 244 $14,558
======= ====== ======= ===== === ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
34
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 705 $ (1,115) $ 154
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................... 422 403 513
Amortization of securities premium, net......... 113 274 446
Net cash paid related to discount (premium) on
matured securities............................. 46 -- (82)
Deferred income tax benefit..................... (265) -- --
Loan fees amortized, net........................ (22) (41) (135)
Provision for possible loan losses.............. 225 1,327 336
Provision for allowance for other real estate... 137 680 234
Refundable income taxes received................ -- -- 2,552
(Gain) loss on sale of securities............... (14) 262 8
Unrealized gain on securities available for
sale........................................... -- -- (433)
Unrealized loss on land held for sale........... 399 -- --
Gain on sale of land held for sale.............. -- -- (306)
Gain on sale of premises and equipment.......... (148) (141) (79)
(Increase) decrease in accrued interest
receivable and other assets.................... (96) 529 1,468
Increase in accrued expenses and other
liabilities.................................... 363 186 49
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 1,865 2,364 4,725
-------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of available for sale
securities..................................... 2,244 8,710 15,749
Proceeds from maturity of securities:
Available for sale............................. 5,620 4,812 7,951
Held for maturity.............................. 2,019 1,723 --
Purchase of securities:
Available for sale............................. (5,305) (15,806) (25,305)
Held for maturity.............................. (13,448) (13,750) (4,763)
Net (increase) decrease of interest bearing
deposits with banks............................ (1) 141 418
Net (increase) decrease in loans................ (306) 7,898 21,431
Capital expenditures............................ (260) (258) (356)
Proceeds from sale of land held for sale........ -- -- 1,012
Proceeds from sale of premises and equipment.... 15 1 290
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES...................................... (9,422) (6,529) 16,427
-------- -------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits............. 12,753 2,784 (21,154)
Increase (decrease) in securities sold under
agreements to repurchase....................... 338 (454) 2,265
Net proceeds from stock offering................ -- 4,391 --
Repayments of long-term debt principal.......... (212) (891) (757)
Proceeds from conversion of equity contracts.... -- 100 --
Other........................................... -- -- 2
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 12,879 5,930 (19,644)
-------- -------- --------
Net increase in cash and cash equivalents........ 5,322 1,765 1,508
Cash and cash equivalents, beginning of year..... 17,118 15,353 13,845
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR........... $ 22,440 $ 17,118 $ 15,353
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
INTEREST PAID................................... $ 5,391 $ 4,627 $ 5,114
INCOME TAXES PAID (REFUNDED).................... $ 5 $ (108) $ (2,532)
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of High Point
Financial Corp. ("High Point") and its subsidiary (collectively the
"Company").
NATURE OF OPERATIONS High Point is the parent company of The National Bank
of Sussex County ("NBSC"). NBSC's deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). NBSC has nine branches, an operations
center, a human resources office and an administration center, all within
Sussex County, New Jersey. NBSC is a full service commercial bank providing a
wide range of services to individuals and small to medium-sized businesses in
its northwestern New Jersey market area, including accepting time, demand, and
savings deposits and making secured and unsecured commercial, real estate and
consumer loans. NBSC offers annuities to its customers, and through a third
party lease arrangement with Link Investment Services, Inc. provides full
securities brokerage services including mutual funds and variable annuities.
USE OF ESTIMATES The accompanying consolidated financial statements, which
are prepared in accordance with generally accepted accounting principles,
require the use of management estimates. The most significant estimates with
regard to these financial statements relate to the allowance for possible loan
losses as discussed in Notes 1 and 6, the deferred tax valuation allowance as
discussed in Note 8 and the fair value of financial instruments discussed in
Notes 1 and 16. Actual results may differ from those assumed in management's
estimates.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of High
Point include all of the accounts of the parent company and its subsidiary,
NBSC. All intercompany transactions and balances have been eliminated.
SECURITIES The Company classifies its investment securities into three
categories, as follows: (1) held for investment purposes (held to maturity),
(2) available for sale, and (3) held for trading purposes.
Securities which the Company 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 on a
straight line basis which is not materially different from the interest
method.
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 fair value. Differences between an investment's
amortized cost and fair value is charged/credited directly to stockholders'
equity. The cost of securities sold is determined on a specific identification
basis. Gains and losses on sales of securities are recognized in the income
statement upon sales.
The Company has no securities held for trading purposes at December 31, 1995
or 1994.
LOANS Loans are stated at the principal amount outstanding. Interest income
on loans is credited to income as earned. Loans are placed on a non-accrual
basis generally when they become past due 90 days or more and doubt exists as
to the ultimate collection of principal or interest. The net amount of all
loan origination fees, direct loan origination costs and loan commitment fees
are deferred and recognized over the estimated life of the related loans as an
adjustment of yield. Loans held for sale are carried at the lower of their
aggregate cost or fair market value.
ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses
represents management's estimate of the amount adequate to provide for
potential future losses which may be incurred on loans currently outstanding.
The provision for possible loan losses is charged to operations and serves to
increase the allowance to a level which management deems adequate. Management
determines the adequacy of the
36
<PAGE>
allowance on a monthly basis based upon appraised collateral values, financial
condition of borrowers, industry experience, current and anticipated economic
conditions, changes in the composition of the loan portfolio and such other
factors which are relevant to the collectibility of the loans. The region in
which NBSC operates had been affected by depressed real estate values and a
general downturn in economic conditions. Further deterioration or changes in
the economy effecting the region in which NBSC operates may effect the final
outcome of collection of certain of NBSC's loans and non-performing assets.
PREMISES AND EQUIPMENT Land is carried at cost, and premises and equipment
are stated at cost less accumulated depreciation based upon estimated useful
lives (ten to forty years for premises and three to thirty years for
equipment), calculated by using the straight-line method. Leasehold
improvements are amortized over the terms of the leases. In addition, land
which is held for sale is carried at the lower of its historical acquisition
cost or net realizable value.
OTHER REAL ESTATE Other real estate includes loan collateral that has been
formally repossessed. All amounts have been transferred into and carried in
other real estate at the lower of carrying value or fair market value less
estimated costs to sell. When a property is acquired through foreclosure the
excess of the carrying amount over fair value and estimated costs to sell is
charged to the allowance for possible loan losses. Subsequently, an allowance
for other real estate is established to maintain these properties at the lower
of cost or fair value less estimated costs to sell. The allowance is
established through charges to net cost of operation of other real estate.
When the costs that are estimated are actually incurred, a charge-off is made
to the specific reserve.
INCOME TAXES The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method deferred tax
liabilities and assets are determined based on the difference between the
financial statement and the tax basis of assets and liabilities using tax
rates in effect for the year in which the differences are expected to reverse.
RETIREMENT PLAN The Company has a non-contributory retirement plan covering
substantially all employees. Effective December 31, 1993, the plan was amended
to terminate the accumulation of additional benefits for future service, and
effective May 31, 1995, the Company elected to terminate and liquidate the
plan, which is anticipated to occur in the second or third quarter of 1996.
NET INCOME (LOSS) PER SHARE Income (loss) per share is calculated based on
the weighted average number of common shares and common share equivalents
outstanding during each year. Shares issuable under the cancelable mandatory
stock purchase contracts are considered common share equivalents for the
purpose of per share data but have been excluded from the computations since
their net effect is immaterial.
STATEMENT OF CASH FLOWS For the purpose of reporting cash flows, cash and
cash equivalents include cash on hand, non-interest bearing amounts due from
banks and federal funds sold. Generally, federal funds sold are for a one-day
maturity.
FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS No. 107") requires that the Company disclose estimated fair values for
its financial instruments. The recorded value for cash and due from banks,
federal funds sold and purchased, interest bearing deposits with banks and
securities sold under agreements to repurchase approximate fair value because
they mature in less than one year and do not present unanticipated credit
risks. The fair value and the methodology of estimating fair value of the
other financial instruments for the Company is disclosed in the related Notes
to the Consolidated Financial Statements below. A summary of carrying values
and fair values of financial instruments is presented in Note 16 on page 53.
Fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instrument. Because no
market exists for a significant portion of NBSC's financial
37
<PAGE>
instruments, fair value estimates are based on judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the assessments.
PROSPECTIVE CHANGES IN ACCOUNTING POLICIES Statement of Financial Accounting
Standards No. 122--"Accounting for Mortgage Servicing Rights" ("SFAS No. 122")
was issued in May 1995 and must be adopted by the Company effective January 1,
1996. This statement requires that an institution recognize as a separate
asset its right to service mortgage loans for others and to evaluate its
capitalized mortgage servicing rights for impairment based on the fair value
of those rights. Impairment would be recognized by establishing a valuation
allowance. Management has evaluated its mortgage banking activities and does
not believe that the implementation of SFAS No. 122 will have a material
impact on the Company's financial condition and results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123") was issued in October 1995 and must be
adopted by the Company effective January 1, 1996. SFAS No. 123, requires
entities that have employee stock option plans to estimate the value of grants
awarded to employees and disclose in a pro forma footnote the impact on the
entities' earnings and earnings per share as if the estimated option value
were expensed over the vesting period of the grants.
The Company maintains two stock option plans and has granted to key
employees options to buy 95,000 shares of stock at the current market value of
$6.75 per share. For more information, see Note 10 on page 49. Since SFAS No.
123 only requires additional disclosure of the cost of stock options,
implementation will not have a material impact on the Company's results of
operations.
2 CURRENT OPERATING ENVIRONMENT AND REGULATORY MATTERS
A substantial portion of NBSC's loan portfolio and underlying real estate
collateral is located in areas adversely affected by the deterioration in the
real estate industry. The economic environment and general market conditions
in these areas have resulted in certain borrowers not being able to meet their
obligations to NBSC. Accordingly, this has resulted in NBSC experiencing
increased levels of non-accrual and non-performing loans and real estate
obtained or anticipated to be obtained through foreclosure. As a result, NBSC
has recorded substantial provisions for possible loan losses from 1990 through
1994. In addition, the increase in the level of non-performing assets has
decreased the amount of interest income earned and increased the level of
professional and other costs associated with loan collection efforts. Although
NBSC's non-performing assets have substantially declined from $37.6 million at
year-end 1991 to $10.2 million at year-end 1995, the local economic
environment still remains uncertain. NBSC has recorded additional provisions
for possible loan and other real estate losses throughout 1995 aggregating
approximately $400,000.
In November, 1991, as a result of a regulatory examination, NBSC entered
into a Consent Order in the form of a Formal Agreement with the Office of the
Comptroller of the Currency (the "OCC"). The Consent Order requires that NBSC
increase the level of its capital and submit a capital plan, enhance its
lending, loan review and asset/liability management policies and procedures.
In addition, NBSC is restricted from paying dividends to High Point without
prior approval from the OCC and until NBSC is in compliance with certain other
regulatory guidelines.
In June, 1995, an OCC examination indicated that NBSC was in substantial
compliance with the requirements of the Formal Agreement including its
leverage ratio requirement which was achieved after a capital infusion of $2.4
million by High Point made on June 24, 1994. The regulators have indicated
that NBSC must continue to reduce the level of criticized loans and non-
performing assets in order to achieve complete compliance.
In addition, High Point entered into a written agreement with its primary
regulator, the Federal Reserve Bank of New York ("FRB") in October 1992. This
agreement required, among other things, that High Point
38
<PAGE>
submit an operating plan, a debt servicing plan and a capital plan designed to
improve the earnings of the Company and achieve and maintain an adequate
capital position at the Company and at NBSC. High Point is restricted from
incurring any debt or renewing or modifying any existing debt agreement
without prior approval of the FRB. The agreement also restricts the payment of
any dividends and the payment of any operating expenses (other than routine
expenses) in excess of $10,000 to any one entity in any one month without
prior approval of the FRB.
NBSC's regulators have classified and defined bank capital into the
following components: (1) Tier I capital which includes tangible stockholders'
equity for common stock and certain perpetual preferred stock and (2) Tier II
capital which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock which does not qualify
for Tier I capital.
NBSC's regulators have implemented risk-based capital guidelines which
require a bank to maintain certain minimum capital as a percent of such bank's
assets and certain off-balance sheet items adjusted for predefined credit risk
factors (risk-adjusted assets). The regulatory minimum Tier I and combined
Tier I and II capital ratios are 4.0% and 8.0%, respectively. In addition to
the risk-based capital requirements, a bank is also required by its regulators
to maintain a certain level of Tier I capital as a percent of tangible assets
(leverage ratio).
The following table reflects NBSC's capital ratios as of December 31, 1995:
<TABLE>
<CAPTION>
NBSC CAPITAL RATIOS REQUIRED REGULATORY
AT DECEMBER 31, 1995 CAPITAL RATIOS
-------------------- -------------------
<S> <C> <C>
Risk-based Capital Ratios
Tier I Capital....................... 12.34% 4.0%
Combined Tier I and II Capital....... 13.63% 8.0%
Leverage Ratio......................... 6.57% 6.00%*
</TABLE>
- --------
* Pursuant to the Consent Order, NBSC must achieve and maintain a 6% minimum
leverage ratio.
The Company and NBSC may be subject to possible regulatory actions should
they be unable to maintain their required regulatory capital levels and meet
all other requirements. The financial impact, if any, of regulatory actions
that may result from not maintaining required regulatory capital levels or
meeting all other requirements is not known. The accompanying consolidated
financial statements do not include any adjustments that may result from
actions that may be taken by regulatory authorities should High Point or NBSC
be unable to continue to meet all the regulatory requirements.
39
<PAGE>
3 SECURITIES
Information relative to the Company's securities portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------------- -----------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies: $26,126 $352 $ (29) $26,449 $11,105 $ -- $ (149) $10,956
Mortgage backed
securities:
U.S. agency issued..... 19,094 53 (136) 19,011 16,173 -- (1,274) 14,899
Other investments:
Federal Reserve Bank
Stock................. 516 -- -- 516 516 -- -- 516
Vanguard money market
fund.................. 3,289 -- -- 3,289 5,009 -- -- 5,009
Marketable equity
securities............ 35 4 -- 39 248 42 -- 290
------- ---- ----- ------- ------- ---- ------- -------
Securities available for
sale................... $49,060 $409 $(165) $49,304 $33,051 $ 42 $(1,423) $31,670
======= ==== ===== ======= ======= ==== ======= =======
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------------- -----------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies: $ 3,514 $ 35 $ (7) $ 3,542 $13,168 $ -- $(535) $12,633
Mortgage backed
securities:
U.S. agency issued..... 11,878 85 (22) 11,941 9,393 -- (433) 8,960
------- ---- ----- ------- ------- ---- ------- -------
Securities held to
maturity............... $15,392 $120 $ (29) $15,483 $22,561 $ -- $(968) $21,593
======= ==== ===== ======= ======= ==== ======= =======
</TABLE>
The amortized cost and estimated market value of securities at December 31,
1995 and 1994 are shown below. The Vanguard money market fund is backed by US
Treasury notes and is used to secure overnight repurchase agreements. Since it
has a one business day maturity, its carrying value approximates market value.
Expected maturities may differ from contractual maturities because borrowers
have the right to call or prepay obligations without call or prepayment
penalties.
40
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Due in one year or less........... $ 9,553 $ 9,575 $ 3,959 $ 3,926
Due after one year through five
years............................ 16,573 16,874 7,146 7,030
------- ------- ------- -------
26,126 26,449 11,105 10,956
Mortgage backed securities........ 19,094 19,011 16,173 14,899
Other investments................. 3,840 3,844 5,773 5,815
------- ------- ------- -------
Securities available for sale..... $49,060 $49,304 $33,051 $31,670
======= ======= ======= =======
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD TO MATURITY
Due in one year or less........... $ 1,007 $ 1,005 -- --
Due after one year through five
years............................ 2,007 2,039 $13,168 $12,633
Due after five years but within 10
years............................ 500 498 -- --
------- ------- ------- -------
3,514 3,542 13,168 12,633
Mortgage backed securities........ 11,878 11,941 9,393 8,960
------- ------- ------- -------
Securities held to maturity....... $15,392 $15,483 $22,561 $21,593
======= ======= ======= =======
</TABLE>
Proceeds from sales of securities available for sale during 1995 were
$2,244,000 resulting in gross gains of $73,000 and gross losses of $59,000. In
1994, proceeds from sales in securities were $8,710,000 resulting in no gains
and gross losses of $262,000.
Securities with a book value of $7,708,000 and $7,625,000 at December 31,
1995 and 1994, respectively, are pledged to secure public funds, repurchase
agreements and for other purposes required by law. Certain of these securities
are available for sale and if sold will be replaced by similar securities
acceptable for pledging purposes.
In November 1995, the Financial Accounting Standards Board issued a special
report--"A Guide to Implementation of Statement No. 115 on Accounting for
Certain Investments in Debt and Equity Securities." This special report
allowed a company to make a one time reclassification of securities within
investment categories without tainting other securities remaining within the
categories. In December 1995, the Company reclassified $18.7 million of
securities previously classified as held to maturity to available for sale
resulting in a mark to market adjustment of $168,000 which increased
stockholders' equity of the Company.
4 LOANS
A summary of loans, as reflected in the consolidated balance sheets, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial................................................... $ 58,274 $ 66,848
Real estate-construction..................................... 4,300 3,171
Real estate-mortgage......................................... 24,216 21,795
Installment.................................................. 18,073 13,794
-------- --------
Total loans................................................ $104,863 $105,608
======== ========
</TABLE>
41
<PAGE>
The following table presents the percentage distribution of loans for the
following categories:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ ------
<S> <C> <C>
Construction and land development loans....................... 7.12% 6.36%
Loans secured by 1-4 family residential properties............ 44.88% 41.25%
Loans secured by nonfarm nonresidential properties............ 37.98% 41.00%
Commercial and industrial loans............................... 6.46% 8.41%
Loans to individuals for household, family and other personal
expenditures................................................. 3.39% 2.90%
Other loans................................................... 0.17% 0.08%
------ ------
Total loan distribution..................................... 100.00% 100.00%
====== ======
</TABLE>
The aggregate extension of credit, in the ordinary course of business, to
directors, principal officers and their associates as of December 31, 1995 and
1994, amounted to $2,190,000 and $2,525,000, respectively. During 1995,
$1,569,000 of new loans were made and $1,904,000 were repaid in the normal
course of business. As of December 31, 1995, no loans to directors, principal
officers and their associates are renegotiated, past due or on non-accrual
status.
The following table details information concerning non-performing loans as
of December 31 for 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
------ -------
(IN THOUSANDS)
<S> <C> <C>
Non-performing loans:
Renegotiated loans............................................. $1,532 $ 4,164
Loans past due over 90 days.................................... 156 289
Loans on non-accrual........................................... 5,744 8,435
------ -------
Total non-performing loans.................................... $7,432 $12,888
====== =======
</TABLE>
Interest income that would have accrued had the loans been current totaled
$847,000, $1,450,000 and $2,133,000, while the actual amount recognized as
income was $365,000, $447,000 and $400,000 for the years ended December 31,
1995, 1994, and 1993, respectively. At December 31, 1995, there were aggregate
commitments to lend up to $90,000 to customers whose loans were renegotiated.
NBSC adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
and SFAS No. 118, Accounting by Creditors for Impairment of a Loan, Income
Recognition and Disclosures, as of January 1, 1995. SFAS No. 114 requires that
certain impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's original effective interest rate.
As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a
valuation allowance.
NBSC had previously estimated the allowance for possible loan losses using
methods similar to those prescribed in SFAS No. 114. Adoption of these
statements did not require any additional provision for possible loan losses
as of January 1, 1995.
42
<PAGE>
As of December 31, 1995, NBSC's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------
RECORDED VALUATION
INVESTMENT ALLOWANCE
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Impaired loans:
Valuation allowance required.............................. $5,195 $1,375
No valuation allowance required........................... -- --
------ ------
Total impaired Loans..................................... $5,195 $1,375
====== ======
</TABLE>
This valuation allowance is included in the allowance for loan losses on the
balance sheet.
The average recorded investment in impaired loans for the year ended
December 31, 1995 was $5,408,000.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining investment is doubtful in which case
payments received are recorded as reductions of principal. NBSC recognized
interest income on impaired loans of $128,000 for the year ended December 31,
1995. These loans are on non-accrual and are classified as impaired because
doubt exists regarding the borrowers' ability to pay both principal and
interest as originally agreed. Interest payments are recorded on a cash basis
because the loans are sufficiently collateralized to ultimately repay the
outstanding principal balance should the property collateralizing the debt be
taken in foreclosure proceedings.
In accordance with SFAS No. 114, a loan is classified as foreclosed property
only after the bank has taken possession of the collateral, regardless of
whether formal proceedings have taken place. This is a change from previous
accounting for in-substance foreclosed loans under the provisions of Financial
Reporting Release No. 28, whereby certain loans were classified as other real
estate prior to possession based on characteristics of the borrower and
underlying collateral. As a result of adopting SFAS No. 114, in-substance
foreclosed loans of approximately $1,048,000 have been reclassified from other
real estate back to loans as of January 1, 1995. All prior periods presented
were also restated.
At December 31, 1995, NBSC had $884,000 of loans that resulted from troubled
debt restructurings that occurred prior to the adoption of SFAS No. 114 which
continue to be accounted for in accordance with the requirements of SFAS No.
15, "Troubled Debt Restructurings." The effect on income if interest on such
troubled debt restructurings had been recognized at original contractual rates
during the year was not material.
The fair value of NBSC's loan portfolio has been estimated primarily using a
discounted cash flow approach. NBSC used a discount rate which was equivalent
to a rate it would obtain on new loans adjusted for prepayment and credit risk
factors. When available, market quotes obtained from an independent broker
were used to determine fair value. As of December 31, 1995, the Company
estimates the fair value of its loan portfolio to be approximately $104
million as compared to its gross recorded value of approximately $105 million.
As of December 31, 1994, the Company estimated the fair value of its loan
portfolio to be approximately $103 million as compared to its gross recorded
value of approximately $106 million.
Changes in assumptions and methodologies may have a material effect on these
estimated fair values. In addition, management is concerned that reasonable
comparability between financial institutions may not be likely due to the wide
range of permitted valuation techniques and numerous estimates which must be
made given the absence of active secondary markets for many of the financial
instruments. This lack of uniform valuation methodologies also introduces a
greater degree of subjectivity to these estimated fair values.
43
<PAGE>
5 OTHER REAL ESTATE
Other real estate includes properties that have been acquired by NBSC
through foreclosure. Upon adoption of SFAS No. 114 by NBSC effective January
1, 1995, in-substance foreclosed assets were reclassified to a non-performing
loan classification for all periods presented.
The following is an analysis of the changes in other real estate during 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year.................................. $ 4,606 $ 3,966
New foreclosed properties..................................... 1,455 2,707
Capital Improvements.......................................... 260 --
Properties sold............................................... (2,536) (1,570)
Payments received on properties not sold...................... (53) (217)
Charge-offs against reserve................................... (797) (111)
Direct writedowns on ORE properties........................... (194) (169)
------- -------
Balance at end of year...................................... $ 2,741 $ 4,606
======= =======
</TABLE>
A summary of the activity for the allowance for other real estate is
summarized in the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance, January 1.................................. $ 660 $ 91
Provisions.................................................... 137 680
Charge-offs................................................... (797) (111)
------- -------
Ending Balance................................................ $ 0 $ 660
======= =======
</TABLE>
A summary of the expenses in the net cost of operations of other real estate
is shown in the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Provisions to the allowance/direct writedowns............... $ 331 $ 849 $ 405
Rental income............................................... (362) (373) (157)
Operating expenses.......................................... 674 765 770
Net (gains) losses on sales of other real estate............ 20 (578) (178)
----- ----- -----
Total net cost of operations of other real estate......... $ 663 $ 663 $ 840
===== ===== =====
</TABLE>
6 ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known. Upon adoption of SFAS
No. 114 on January 1, 1995, prior years balances, chargeoffs and provisions
were adjusted for restatement of insubstance foreclosure reserves.
44
<PAGE>
A summary of the activity in the allowance for possible loan losses is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1................................... $ 5,234 $ 5,419 $ 6,066
Provision charged to operations...................... 225 1,327 336
Loans charged off.................................... (1,471) (2,255) (2,120)
Recoveries of charged off loans...................... 621 743 1,137
------- ------- -------
Balance, December 31................................. $ 4,609 $ 5,234 $ 5,419
======= ======= =======
</TABLE>
7 PREMISES AND EQUIPMENT AND LAND HELD FOR SALE
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 360 $ 360
Buildings and leasehold improvements........................... 2,335 2,258
Furniture and equipment........................................ 3,219 3,117
Construction in Process........................................ 10 --
------- -------
Total Premises and equipment................................. 5,924 5,735
Less accumulated depreciation and amortization................. 3,232 2,870
------- -------
Premises and equipment, net.................................... $ 2,692 $ 2,865
======= =======
</TABLE>
Depreciation and amortization expense for premises and equipment for 1995,
1994 and 1993 amounted to $421,000, $403,000 and $464,000, respectively.
As of December 31, 1992, High Point held for sale 94 acres of land in
Frankford Township, New Jersey, at a recorded carrying value of $3,240,000,
net of a $1.1 million write-down recorded during 1991. On October 1, 1993,
High Point sold a 28 acre parcel of this land for $1,012,000 (net of expenses)
and recorded a $306,000 gain based upon the net carrying value of the parcel
sold. Proceeds from the sale were used to pay down and service the note
payable secured by the land.
In December 1995, High Point adopted SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires that if certain events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, an entity must estimate the future cash flows expected to result
from the use or sale of the asset and record an impairment for the amount by
which the carrying value exceeds the fair value. In the case of assets to be
disposed of, the asset must be reported at the lower of the carrying amount or
fair value less costs to sell. Included in fair value estimates is the
discounting of net proceeds from sale of the asset over the estimated time to
sell the asset.
High Point evaluated its land held for sale for impairment under SFAS No.
121 and determined that a valuation reserve of $370,000 was required. In
accordance with the requirements of SFAS No. 121, the $370,000 provision was
retroactively reflected in the results of operations in the first quarter of
1995 as a cumulative effect of a change in accounting principle.
Subsequent to High Point's adoption of SFAS No. 121, High Point entered into
a contract for sale of 32 acres of the land for approximately $2 million.
There is no assurance that this contract for sale will close; however, the
transaction must be consummated no later than January 1998 according to the
terms of the contract. High Point recorded an additional impairment loss of
$29,000 in December 1995 upon entering into this contract which is included in
other operating expenses.
45
<PAGE>
8 INCOME TAXES
The current and deferred amounts of the benefit for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current.......................................... $ -- $ (121) $ (98)
Deferred......................................... (265) -- --
State............................................. 16 24 67
-------- -------- -------
Total benefit for income taxes.................... $ (249) $ (97) $ (31)
======== ======== =======
</TABLE>
Temporary differences and carryforwards at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994
------------------ ------------------
DEFERRED TAX DEFERRED TAX
------------------ ------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal and State operating loss
carryforwards.......................... $ 2,071 -- $ 1,750 --
Allowance for possible loan losses...... 870 -- 2,106 --
Valuation reserves for land held for
sale and other real estate............. 1,208 -- 1,214 --
Loan and investment income recognition.. 1,152 -- 536 --
Other, net.............................. 506 86 474 199
------- --- ------- ----
5,807 86 6,080 199
Less valuation allowance................ (5,456) -- (5,881) --
------- --- ------- ----
$ 351 $86 $ 199 $199
======= === ======= ====
</TABLE>
In December 1995, the Company recorded a net benefit of $265,000
representing the partial recognition of net operating loss carryforwards
through the reversal of a previously established deferred tax valuation
allowance. The recognition of the tax benefit is based on the Company's
evaluation of income earned in 1995 and management's estimate of the Company's
continued ability to remain profitable in future periods such that realization
of its net operating loss carryforwards can be reasonably expected. The
Company recorded a $265,000 tax benefit based on pretax income estimated to be
earned for interim periods during 1996. This estimate will be impacted
favorably or unfavorably by future results of operations. The Company has
approximately $5.5 million in remaining tax benefits that may be realized in
future periods. The Company will periodically evaluate the realizability of
its deferred tax asset and will adjust the level of the valuation allowance if
it is determined that it is more likely than not that all or a portion of the
asset is realizable.
At December 31, 1995, the Company has net operating loss carryforwards for
federal tax purposes of approximately $2.8 million and for state tax purposes
of approximately $18.9 million which expire in varying amounts through 2010.
In addition, the Company has an alternative minimum tax credit carryforward
approximating $147,000.
46
<PAGE>
A reconciliation of the provision (benefit) for income taxes, as reported,
with the federal income tax at the statutory rates of 35% in 1995, 1994 and
1993, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax (benefit) at statutory rate................... $ 160 $ (424) $ 54
Increase (decrease) in taxes resulting from:
Change in valuation allowance.................... (425) 424 (42)
State taxes on income, net of federal income tax
effect.......................................... 10 16 44
Realization of tax refund received greater than
receivable recorded............................. -- (126) (114)
Other-net........................................ 6 13 27
------- ------- -------
Benefit for income taxes........................ $ (249) $ (97) $ (31)
------- ------- -------
Effective tax rate................................ (54.6)% 8.0% (25.2)%
======= ======= =======
</TABLE>
9 BENEFIT PLANS
The Company has a trusteed, non-contributory defined benefit pension plan
covering substantially all of its employees. Effective December 31, 1993, the
plan was amended to terminate the accumulation of additional benefits for
service rendered after December 31, 1993. Participants continued to vest in
benefits already earned. The effect of this amendment was to record a gain in
the amount of $179,000. Prior to December 31, 1993, the benefits were based on
years of service and the employees' career average compensation. The Company's
funding policy was to contribute annually an amount that can be deducted for
Federal income tax purposes using an actuarial cost method and assumptions,
which differed from those used for financial reporting. Contributions were
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
In 1995, the Company elected to liquidate the pension plan. The Company has
filed notice with its employees, with the Internal Revenue Service and with
the Pension Benefit Guaranty Corp. of the pension plan's termination. The
liquidation is expected to be completed in the third quarter of 1996.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets as of December 31,
1995 and 1994 (not considering the impact of liquidating the plan):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$1,201 and $757
for 1995 and 1994, respectively............................. $ 1,201 $ 815
------- ------
Plan assets at fair value.................................... $ 1,276 $1,006
Projected benefit obligations for service rendered to date... (1,201) (815)
------- ------
Plan assets in excess of projected benefit obligation........ 75 191
Unrecognized net (gain) loss from past experience which is
different from that assumed, and effect of changes in
assumptions................................................. 132 (12)
------- ------
Prepaid pension cost included in other assets................ $ 207 $ 179
======= ======
</TABLE>
47
<PAGE>
Pension costs related to the plan for the years ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994 1993
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Net pension cost includes the following components:
Service cost................................................ $ -- $ 2 $ 67
Interest cost............................................... 52 51 71
Return on plan assets....................................... (300) (92) (181)
Net amortization and deferral............................... 221 17 138
----- ---- -----
Net pension (income) expense.............................. $ (27) $(22) $ 95
===== ==== =====
</TABLE>
The rates used in determining the actuarial present value of the projected
benefit obligation include the average discount rates of 4.5% and 6.5% for
December 31, 1995 and 1994, respectively, and the rates of increase in future
compensation levels of 4% for December 31, 1995 and 1994. The expected long-
term rate of return on plan assets is 8% on December 31, 1995.
The above tables do not account for the impact for the termination of the
pension plan. Because the pension plan is expected to be liquidated in the
third quarter of 1996, the Company reduced its pension asset to the level that
it expects to recover less any excise taxes that may have to be paid at that
time. As a result, the Company wrote down its prepaid pension asset from
$207,000 to $44,000 resulting in a $163,000 expense in the fourth quarter,
1995.
Plan assets are primarily invested in stocks, money market accounts and
mutual funds.
The Company has a retirement savings plan (401K) covering qualified
employees. Employer contributions totaled $62,000 in 1995, $61,000 in 1994 and
$1,000 in 1993.
The Company has an Employee Stock Ownership Plan in order to enable its
employees to share in the proprietary interest of the Company (see Note 12).
The Company provides postretirement health care benefits and life insurance
coverage to its employees who meet certain predefined criteria. The Financial
Accounting Standards Board has issued Statement of Accounting Standards No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
which requires that the expected cost of these benefits be charged to expense
during the years that the employees render service. The Company adopted the
new standard in the first quarter of 1993 using the prospective method of
accounting and will amortize its estimated accumulated postretirement benefit
obligation (APBO) of $435,000 over a 20 year period. The net periodic
postretirement benefit cost for 1995 was $69,000 although required cash
payments of approximately $20,000 did not change from prior years.
The accumulated postretirement benefit obligation as of December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Retirees..................................................... $ 293 $ 316
Fully eligible, active participants.......................... 20 19
Other active participants.................................... 172 190
------- -------
Total accumulated post retirement benefit obligation....... 485 525
Unrecognized net gain (loss) due to past experience different
from that assumed and effects of changes in assumptions
made........................................................ 49 (29)
Unamortized transition obligation............................ (369) (391)
------- -------
Accrued accumulated post retirement benefit obligation..... $ 165 $ 105
======= =======
</TABLE>
48
<PAGE>
The components of net periodic post retirement benefit cost is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost, benefits attributed to employee service
during the year....................................... $ 17 $ 21 $ 19
Interest cost on APBO.................................. 31 36 35
Amortization of transition obligation.................. 22 22 22
Amortization of (gains) losses......................... (1) -- --
------ ------ ------
Net periodic postretirement benefit cost............. $ 69 $ 79 $ 76
====== ====== ======
</TABLE>
The discount rate used in determining the APBO was 7.0% and 7.5% in 1995 and
1994, respectively. The rate of increase used in future compensation levels
was 4%. For measurement purposes, the cost of medical benefits was projected
to increase at a rate of 10% in 1995 and decreasing at a rate of 1% through
1997 and 0.5% thereafter until the year 2003 and projected to increase 5% in
2003 and subsequent years. Increasing the assumed health care cost trend by
one percent in each year would increase the accumulated post retirement
benefit obligation as of January 1, 1995 by $41,000, or 9.0% and the aggregate
of the service and interest components of net periodic postretirement benefit
expense for the year ended December 31, 1995 by $6,000, or 12.8%.
10 STOCK OPTION PLANS
The Company maintains two stock option plans which were established in 1990
and 1987. Under the terms of the 1990 and 1987 plans, options to purchase
50,000 and 50,054 shares, respectively, may be granted to key employees of the
Company or its subsidiary. As of December 31, 1994, no options under either
plan were outstanding. In November 1995, options to purchase 95,000 shares of
stock were granted at an exercise price of $6.75 per share which was the fair
market value of the stock as of the date of grant. All options granted will be
vested within a three month time period from the date of grant.
11 COMMITMENTS AND CONTINGENCIES
CASH AND DUE FROM BANKS NBSC is required to maintain an average reserve
balance with the FRB. The average amount of this reserve balance for the
Company for the year 1995 was approximately $300,000.
LITIGATION The Company, from time to time, may be a defendant in legal
proceedings relating to its business. In the judgment of management, the
consolidated financial position of the Company will not be affected materially
by the final outcome of any present legal proceedings or other contingent
liabilities and commitments.
COMMITMENTS WITH OFF-BALANCE SHEET RISK The consolidated balance sheets 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 Company'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. In the normal course of business,
the Company receives a fee for providing a commitment. The Company was
committed to advance $14,447,000 and $10,361,000 to its borrowers as of
December 31, 1995 and 1994, respectively, the majority of which expire within
one year. Included in NBSC's commitments to extend credit were fixed rate
commitments of $2,772,000 and $2,460,000 for 1995 and 1994, respectively.
49
<PAGE>
The fair value of a commitment to extend credit may be estimated by using
the fee currently charged to enter into similar agreements, taking into
account the remaining term of the agreement and the creditworthiness of the
parties. The contract amount and the estimated fair value for commitments to
extend credit and standby letters of credit follow for December 31, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
CONTRACT ESTIMATED CONTRACT ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commitments to extend credit............ $28,276 -- $19,316 --
Standby letters of credit............... $ 825 $ 9 $ 779 $ 1
</TABLE>
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. The Company has entered into
standby letter of credit contracts with its customers totaling $825,000 and
$779,000 as of December 31, 1995 and 1994, respectively, which generally
expire within one year.
NON-CANCELABLE LEASE OBLIGATIONS During 1988, NBSC sold certain banking and
other premises to FMI, Inc., a wholly owned subsidiary of Franklin Mutual
Insurance Co., a 6.7% shareholder of High Point. The president of FMI, Inc. is
also a member of the Board of Directors of High Point Financial Corp. The
banking premises were leased back to NBSC for periods ranging between 10 and
15 years. The Bank recognized a gain on this transaction, which has been
deferred and is being amortized into income over the applicable lease terms.
As of December 31, 1995 and 1994, the unamortized deferred gain was
approximately $509,000 and $655,000, respectively.
At December 31, 1995, NBSC was obligated under non-cancelable leases for its
Branchville, Stillwater, Wantage, Andover, Lafayette, Sparta, and Vernon
branch offices, and its human resources office for periods ranging from one to
ten years. The minimum rental commitment for 1996 through 2000 and thereafter
is $432,000, $377,000, $268,000, $159,000, $159,000 and $386,000,
respectively. The Company's minimum rental commitment includes commitments to
pay FMI, Inc. $370,000 per year in 1996 and 1997, $261,000 in 1998 and
$152,000 from 1999 through 2003. Rental expenses amounted to $457,000,
$454,000 and $453,000 for the years ended December 31, 1995, 1994 and 1993
respectively. The Company has made rental payments to FMI, Inc. of $370,000,
$370,000 and $357,000 in 1995, 1994 and 1993, respectively.
12 COMMON STOCK TRANSACTIONS
On September 28, 1994, High Point consummated a public offering of its
common stock (the Offering). The Offering consisted of two phases: a
shareholder preference period, which closed June 23, 1994, and a community
offering period, which closed on September 28, 1994. A total of 1,285,700
shares were sold for $3.50 per share for gross proceeds of $4.5 million. Of
the proceeds, $2.4 million was funded to NBSC by High Point as an additional
capital contribution.
The Company has a Dividend Reinvestment and Common Stock Purchase Plan and
has registered 102,113 shares of common stock with the Securities and Exchange
Commission for issuance to participating shareholders. As of December 31,
1995, 60,928 shares of common stock are reserved for issuance under this plan.
High Point has also issued shares in 1994 in connection with its cancelable
mandatory stock purchase contracts. See Note 15 on page 52.
In 1985, the Company sold 171,990 shares of its common stock to the Employee
Stock Ownership Plan (ESOP). The ESOP borrowed funds to purchase the stock
which is shown as a liability and a deduction from stockholders' equity in the
accompanying consolidated balance sheets at December 31, 1995 and 1994. In the
first quarter 1995, the final payment of $150,000 on the ESOP debt was made.
50
<PAGE>
Contributions by the Company to the ESOP in 1995, 1994 and 1993 amounted to
$200,000, $202,000 and $200,000, respectively, and are included in salaries
and employee benefits. Interest expense paid by the ESOP, which is not an
expense of the Company, amounted to $12,000 and $20,000 for the years ended
December 31, 1994 and 1993, respectively. As principal payments were made by
the ESOP, the corresponding liability was reduced and stockholders' equity was
increased. Principal payments were $150,000, $171,000 and $140,000 in 1995,
1994, and 1993, respectively.
13 DEPOSITS
Pursuant to the requirements of SFAS No. 107, the information regarding the
fair value of deposits is presented below.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-interest bearing demand............ $ 38,334 $ 38,334 $ 34,778 $ 34,778
Interest bearing demand................ 25,092 25,092 25,197 25,197
Savings and Money Market deposit
accounts.............................. 55,832 55,832 53,672 53,672
Certificates of deposit:
Maturing or repricing within six
months............................... 29,967 29,967 27,557 27,557
Maturing or repricing between six
months and one year.................. 11,059 11,059 10,785 10,785
Maturing or repricing between one and
five years........................... 15,741 16,145 10,644 10,769
Maturing or repricing beyond five
years................................ 2,300 3,340 2,939 3,661
-------- -------- -------- --------
$178,325 $179,769 $165,572 $166,419
======== ======== ======== ========
</TABLE>
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, interest bearing demand deposits, savings and money
market accounts, is equal to the amount payable on demand as of December 31,
1995. The fair value of the certificates of deposit due after one year is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
14 NOTE PAYABLE
On December 28, 1994, after receiving approval from the FRB, High Point
renegotiated its debt which is collateralized by land held for sale, and in
connection therewith, High Point made an $800,000 principal payment. In
February 1995, High Point began making principal payments of $6,000 monthly
and interest payments based on a prime plus 1% floating rate. In addition, an
accrued loan fee for a prior modification is being paid in fifteen monthly
installments of $7,000 each beginning February 1, 1995. The remainder of the
loan balance is due in a balloon payment on January 2, 1998. The interest rate
on the loan on December 31, 1995 was 9.5%. The net proceeds from any
additional sales of land will be used to make principal payments on the
outstanding debt.
High Point is required to maintain an equity level (as defined in the loan
agreement) of $10 million at the end of each quarter. If High Point is unable
to meet such minimum equity level, the lending bank may demand the payment of
all unpaid principal prior to its due date. High Point anticipates that it
will be able to meet such equity levels. High Point's equity, as defined, was
$15,069,000 on December 31, 1995.
Because the 9.5% floating rate of the Note Payable on December 31, 1995 and
1994 was a competitive market rate, the carrying value approximates the market
value of the Note Payable on such dates.
51
<PAGE>
15 REDEEMABLE SUBORDINATED DEBENTURES AND CANCELABLE MANDATORY STOCK PURCHASE
CONTRACTS
At December 31, 1995 and 1994, 8.5% Redeemable Subordinated Debentures (the
"Debentures") due March 1, 1997 with $511,000 principal were outstanding.
Interest on the Debentures is payable quarterly, and the Debentures will
mature on March 1, 1997 unless previously redeemed. Certain of the Debentures
secure Cancelable Mandatory Stock Purchase Contracts ("Equity Contracts")
requiring the purchase of $401,000 in common stock at a price of $19.17 (after
adjustment for stock dividends and certain other events) per share no later
than March 1, 1996. The purchase price under the Equity Contracts can be paid
by the surrender of Debentures with a principal amount equal to the amount of
common stock to be purchased.
In January 1994, High Point extended a private offer to the remaining
collateralized Equity Contract holders who do not have debentures to fulfill
their obligations by making a cash contribution to settle the Equity Contracts
at a reduced strike price from the prevailing $19.17 per share to a price of
$4.75 per share. From this offering, $100,000 in Equity Contracts were
converted by an officer of High Point. The offer expired on January 31, 1994,
and the remaining contract holders (who hold $380,000 in outstanding Equity
Contracts) continue to be obligated under the original terms of their
contracts.
The Debentures are redeemable and the Equity Contracts are cancelable at the
election of High Point upon 60 days written notice. The proceeds of the issue
of these instruments were used by High Point for capital contributions to NBSC
and for other corporate purposes. At December 31, 1995, 40,740 shares of
common stock were reserved for future issuance for the outstanding Equity
Contracts.
The carrying value of the remaining Debentures approximates their fair value
on December 31, 1995.
52
<PAGE>
16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the fair value versus the carrying value of
the Company's financial instruments. The recorded value for cash and cash
equivalents, federal funds purchased, interest bearing deposits with banks and
securities sold under agreements to repurchase approximate fair value because
they mature within one year and do not present unanticipated credit risks.
Loans that were previously accounted for as insubstance foreclosed loans are
now included in non-accrual loans and are recorded at their estimated fair
value per the requirements of SFAS No. 114. For the methodology of estimating
the fair value of other financial instruments, see the notes referred to in
the chart below. For the Company's policy regarding presentation of fair value
of financial instruments, see Note 1 on page 36.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents............. $ 22,440 $ 22,440 $ 17,118 $ 17,118
Interest bearing deposits with banks.. 125 125 124 124
Securities available for sale, at fair
value (Note 3)....................... 49,304 49,304 31,670 31,670
Securities held to maturity (Note 3).. 15,392 15,483 22,561 21,593
Loans held for sale, at fair value.... 628 628 427 427
Loans (Note 4)........................ 104,863 104,000 105,608 103,000
--------- --------- --------- ---------
Total financial assets............... $ 192,752 $ 191,980 $ 177,508 $ 173,932
========= ========= ========= =========
FINANCIAL LIABILITIES:
Deposits (Note 13).................... $ 178,325 $ 179,769 $ 165,572 $ 166,419
Federal funds purchased and securities
sold under agreements to repurchase.. 2,959 2,959 2,621 2,621
Note payable (Note 14)................ 1,270 1,270 1,482 1,482
Redeemable subordinated debentures
(Note 15)............................ 511 511 510 510
Commitments to extend credit.......... -- -- -- --
Standby letters of credit............. -- 9 -- 1
--------- --------- --------- ---------
Total financial liabilities.......... $ 183,065 $ 184,518 $ 170,185 $ 171,033
========= ========= ========= =========
</TABLE>
17 OTHER EXPENSES
Other non-interest expense for the years December 31, 1995, 1994 and 1993
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Legal fees................................................ $ 247 $ 569 $1,140
FDIC insurance assessment................................. 383 464 514
Appraisal fees............................................ 125 65 141
Other..................................................... 1,926 1,864 1,878
------ ------ ------
$2,681 $2,962 $3,673
====== ====== ======
</TABLE>
53
<PAGE>
18HIGH POINT FINANCIAL CORP. (PARENT COMPANY ONLY)
High Point Financial Corp. owns one wholly owned subsidiary, The National
Bank of Sussex County. The net income of NBSC is recognized by High Point
using the equity method of accounting. Accordingly, income or loss of NBSC is
recorded as an adjustment in High Point's investment in the subsidiary.
Condensed financial statements of the parent company only follow:
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
ASSETS 1995 1994
- ------ ------- -------
<S> <C> <C>
Cash........................................................... $ 13 $ 38
Federal funds sold............................................. 500 737
Interest bearing deposits with banks (escrow with lending
bank)......................................................... 125 124
Securities available for sale (primarily marketable equity se-
curities of
other financial institutions at fair value)................... 214 476
Investment in bank subsidiary.................................. 13,344 10,106
Land held for sale (Note 14)................................... 2,135 2,534
Other assets................................................... 57 198
------- -------
TOTAL ASSETS................................................. $16,388 $14,213
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Other liabilities.............................................. $ 49 $ 108
Employee Stock Ownership Plan debt............................. -- 150
Note payable (Note 14)......................................... 1,270 1,482
Redeemable subordinated debentures............................. 511 510
Stockholders' equity........................................... 14,558 11,963
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $16,388 $14,213
======= =======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
INCOME 1995 1994 1993
- ------ -------- --------- -------
<S> <C> <C> <C>
Gain on sale of land.............................. $ -- $ -- $ 306
Gain (loss) on sale of securities available for
sale............................................. 19 (1) 10
Unrealized gain on securities available for sale.. -- -- 69
Other income...................................... 54 42 72
-------- --------- ------
TOTAL INCOME.................................... 73 41 457
-------- --------- ------
EXPENSES
- --------
Interest expense.................................. 180 266 316
Non-interest expenses............................. 283 153 14
-------- --------- ------
TOTAL EXPENSES.................................. 463 419 330
-------- --------- ------
Income (loss) before benefit for income taxes and
cumulative effect
for change in accounting principle............... (390) (378) 127
Benefit for income taxes (Notes 1 and 8).......... -- -- 7
-------- --------- ------
Income (loss) before cumulative effect for change
in accounting principle.......................... (390) (378) 120
Cumulative effect of change in accounting princi-
ple.............................................. (370) 0 0
-------- --------- ------
Income (loss) before equity in undistributed in-
come (loss) of subsidiaries...................... (760) (378) 120
Equity in undistributed income (loss) of subsidi-
aries............................................ 1,465 (737) 34
-------- --------- ------
NET INCOME (LOSS)................................. $ 705 $(1,115) $ 154
======== ========= ======
</TABLE>
54
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $ 705 $(1,115) $ 154
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... -- -- 1
Amortization on securities......................... (1) -- 2
Provision for deferred income taxes................ -- -- 7
Unrealized (gain) loss on securities available for
sale.............................................. -- -- (75)
(Gain) loss on sale of securities.................. (19) 1 (4)
Unrealized loss on land held for sale.............. 399 -- --
Gain on sale of property........................... -- -- (306)
(Increase) decrease in other assets................ 140 (23) (55)
Increase (decrease) in other liabilities........... (58) 32 4
Equity in undistributed (income) losses of
subsidiaries...................................... (1,465) 737 (34)
------- ------- ------
NET CASH USED IN OPERATING ACTIVITIES............... (299) (368) (306)
------- ------- ------
INVESTING ACTIVITIES
Proceeds from sale and maturity of securities
available for sale................................ 263 -- 88
Purchase of securities............................. (13) (197) --
(Increase) decrease in interest bearing deposits... (1) 83 (176)
Sale or disposal of premises and equipment......... -- -- 1,012
Additional capital contribution to NBSC............ -- (2,400) --
------- ------- ------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES......................................... 249 (2,514) 924
------- ------- ------
FINANCING ACTIVITIES
Repayments of long-term debt....................... (212) (891) (757)
Net proceeds from stock offering................... -- 4,391 --
Proceeds from equity contract conversion........... -- 100 --
Other.............................................. -- -- 2
------- ------- ------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES......................................... (212) 3,600 (755)
------- ------- ------
Net increase (decrease) in cash and cash
equivalents........................................ (262) 718 (137)
Cash and cash equivalents, beginning of year........ 775 57 194
------- ------- ------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 513 $ 775 $ 57
======= ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
INTEREST PAID...................................... $ 180 $ 265 $ 316
INCOME TAXES REFUNDED.............................. -- -- $ 88
</TABLE>
55
<PAGE>
19 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following quarterly financial information for the two years ended
December 31, 1995 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected.
Results of operations for the periods are not necessarily indicative of the
results of the entire year or any other interim period.
<TABLE>
<CAPTION>
1995
-----------------------------------------------
MARCH 31(1) JUNE 30 SEPTEMBER 30 DECEMBER31
----------- ------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total interest income.......... $3,272 $3,349 $3,508 $ 3,524
Net interest income............ 1,990 1,988 2,064 2,061
Provision for possible loan
losses........................ 175 50 -- --
Net income (loss) before
cumulative effect for change
in accounting principle....... 31 36 336 672
Cumulative effect of change in
accounting principle.......... 370 -- -- --
Net income (loss).............. (339) 36 336 672
Net income (loss) per share
before cumulative effect for
change in accounting
principle..................... 0.01 0.01 0.09 0.18
Cumulative Effect per share for
change in accounting
principle..................... 0.10 -- -- --
Net income (loss) per share.... $(0.09) $ 0.01 $ 0.09 $ 0.18
<CAPTION>
1994
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31(2)
----------- ------- ------------ --------------
<S> <C> <C> <C> <C>
Total interest income.......... $2,807 $2,926 $3,053 $ 3,231
Net interest income............ 1,681 1,820 1,939 2,085
Provision for possible loan
losses........................ -- -- -- 1,327
Net income (loss).............. 34 93 101 (1,343)
Net income (loss) per share.... $ 0.01 $ 0.04 $ 0.03 $ (0.36)
</TABLE>
- --------
(1) The Company adopted SFAS No. 121 in the fourth quarter 1995 and recorded
an unrealized impairment loss of $370,000 on its land held for sale. In
accordance with this new accounting standard, the Company retroactively
restated the impact of adoption to the first quarter, 1995. See Note 7 on
page 45.
(2) NBSC obtained information during March 1995 which indicated that the
Sussex County region is experiencing only a limited economic recovery. In
this regard, NBSC provided $540,000 for identified losses for loans and
other real estate and an additional $1,250,000 to its general reserves for
loans and other real estate valuation adjustments in the fourth quarter of
1994 to give appropriate consideration of these changes in facts
identified subsequent to the date of the accompanying financial
statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
information contained under the heading "Election of Directors" on pages 1
through and including 3 and under the heading "Certain Filings" on page 10 of
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders and the information set forth in response to Item 4A of this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information contained under the headings "Executive Compensation and Other
Information," "Stock Option Plans," "Change of Control Agreements" and
"Compensation of Directors" on pages 6 through and including 10 of the
Company's
56
<PAGE>
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders,
provided, however, such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item 402
(a) (8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information contained under the heading "Security Ownership of Certain
Beneficial Owners, Directors and Management" on pages 4 through and including
5 of the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information contained under the heading "Transactions with Directors and
Management" on page 10 of the Company's definitive Proxy Statement for the
1996 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)3.Exhibits Required by Item 601 of Regulation S-K
<TABLE>
<C> <S>
3(a) Restated Certificate of Incorporation of High Point Financial Corp.
incorporated by reference to Exhibit 4(a) to the Registration
Statement on Form S-3 filed by the Company on October 30, 1987 (No.
33-18226) and Amendment No. 2 thereto, filed by the Company on
March 24, 1988.
3(b) By-laws of High Point Financial Corp., as amended, February 20,
1996.
4(a) Indenture (including the forms of Debentures), dated as of March 1,
1987, between High Point Financial Corp. and New Jersey National
Bank, Trustee--incorporated by reference to Exhibit 4(c) to the
Registration Statement on Form S-2 filed by the Company on February
26, 1987 (No. 33-12243), and Amendment No. 1 thereto, filed by the
Company on March 13, 1987.
4(b) Equity Contract Agency Agreement (including form of Cancellable
Mandatory Stock Purchase Contracts), dated as of March 1, 1987
between High Point Financial Corp. and the United Jersey
Bank/Commercial Trust--incorporated by reference to Exhibit 4(d) to
the Registration Statement on Form S-2 filed by the Company on
February 26, 1987 (No. 33-12243), and Amendment No. 1 thereto,
filed by the Company on March 13, 1987.
10(a) Executive Supplemental Income Agreement, between The National Bank
of Sussex County and Gregory W. A. Meehan, incorporated by
reference to Exhibit 10(e) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1986.**
10(b) Directors Deferred Income Agreement, between High Point Financial
Corp. and C. Edward McCracken, incorporated by reference to Exhibit
10(f) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.**
10(c) Directors Deferred Income Agreement, between High Point Financial
Corp. and Richard M. Roy, incorporated by reference to Exhibit
10(g) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.**
10(d) Directors Deferred Income Agreement, between The National Bank of
Sussex County and Larry R. Condit, incorporated by reference to
Exhibit 10(j) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.**
10(e) Directors Deferred Income Agreement, between The National Bank of
Sussex County and C. Edward McCracken, incorporated by reference to
Exhibit 10(i) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.**
</TABLE>
- --------
* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
**Indicates a management contract or compensatory plan or arrangement
57
<PAGE>
<TABLE>
<C> <S>
10(f) Directors Deferred Income Agreement, between The National Bank of
Sussex County and Richard M. Roy, incorporated by reference to
Exhibit 10(k) to Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.**
10(g) Directors Deferred Income Agreement, between The National Bank of
Sussex County and William A. Dolan, II, incorporated by reference
to Exhibit 10(m) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1986.**
10(h) Loan and Pledge Agreement, dated September 20, 1985, between the
Trust for The National Bank of Sussex County Employee Stock
Ownership Plan and First National Bank of Central Jersey,
incorporated by reference to Exhibit 10(o) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1986.
10(i) 1987 Incentive Stock Option Plan of High Point Financial Corp.,
incorporated by reference to Exhibit 10(r) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1987.**
10(j) Executive Supplemental Income Agreement, between High Point
Financial Corp. and Michael A. Dickerson, incorporated by reference
to Exhibit 10(q) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.**
10(k) Lease Agreement, dated June 23, 1988, between The National Bank of
Sussex County and FMI, Inc., incorporated by reference to Exhibit
10(s) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
10(l) Change of Control Agreement, dated October 11, 1989, between High
Point Financial Corp. and Michael A. Dickerson, incorporated by
reference to Exhibit 10(t) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.**
10(m) Change of Control Agreement, dated October 11, 1989, between High
Point Financial Corp. and Gregory W. A. Meehan, incorporated by
reference to Exhibit 10(v) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1989.**
10(n) The High Point Financial Corp. 1990 Employee Stock Option Incentive
Plan, incorporated by reference to Exhibit 28(a) to the
Registration Statement on Form S-8 filed by High Point on November
6, 1990 (No. 33-37621).**
10(o) Amendment to the Executive Supplemental Income Agreement, between
The National Bank of Sussex County and Gregory W. A. Meehan,
effective July 1, 1991, incorporated by reference to Exhibit 10(x)
to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.**
10(p) Amendment to the Executive Supplemental Income Agreement, between
High Point Financial Corp. and Michael A. Dickerson, effective July
1, 1991, incorporated by reference to Exhibit 10(y) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.**
10(q) Consolidated Loan and Security Agreement dated December 31, 1991,
between High Point Financial Corp. and National Westminster Bank
NJ, incorporated by reference to Exhibit 10(z) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.
10(r) Amendment to the Executive Supplemental Income Agreement, between
High Point Financial Corp. and Michael A. Dickerson, effective
January 1, 1993, incorporated by reference to Exhibit 10(s) to the
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.**
10(s) Amendment to the Change of Control Agreement, effective January 1,
1993, between High Point Financial Corp. and Michael A. Dickerson,
incorporated by reference to Exhibit 10(t) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.**
</TABLE>
- --------
* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
**Indicates a management contract or compensatory plan or arrangement
58
<PAGE>
<TABLE>
<C> <S>
10(t) Amendment to the Change of Control Agreement, effective January 1,
1993, between High Point Financial Corp. and Gregory W. A. Meehan,
incorporated by reference to Exhibit 10(u) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.**
10(u) February, 1993 Modification to Consolidated Loan and Security
Agreement between High Point Financial Corp. and National
Westminster Bank, New Jersey, dated February 26, 1993,
incorporated by reference to Exhibit 10(v) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
10(v) Amendment to the Directors Deferred Income Agreement, between The
National Bank of Sussex County and Larry R. Condit, dated April 1,
1993, incorporated by reference to Exhibit 10(w) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.**
10(w) Amendment to the Directors Deferred Income Agreement, between The
National Bank of Sussex County and C. Edward McCracken, dated
April 1, 1993, incorporated by reference to Exhibit 10(x) to the
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.**
10(x) Amendment to the Directors Deferred Income Agreement, between High
Point Financial Corp. and C. Edward McCracken, dated April 1,
1993, incorporated by reference to Exhibit 10(y) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.**
10(y) Amendment to the Directors Deferred Income Agreement, between The
National Bank of Sussex County and Richard M. Roy, dated April 1,
1993, incorporated by reference to Exhibit 10(z) to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.**
10(z) Amendment to the Directors Deferred Income Agreement, between High
Point Financial Corp. and Richard M. Roy, dated April 1, 1993,
incorporated by reference to Exhibit 10(aa) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.**
10(aa) Amendment to the Directors Deferred Income Agreement, between The
National Bank of Sussex County and William A. Dolan, II, dated
April 1, 1993, incorporated by reference to Exhibit 10(ab) to the
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.**
10(ab) Modified Term Note dated December 28, 1994 between High Point
Financial Corp. and National Westminster Bank, NJ., incorporated
by reference to Exhibit 10(ac) to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
11 Statement of computation of per share earnings.
21 List of subsidiaries.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
- --------
* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
**Indicates a management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of the period
covered by this report.
59
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
High Point Financial Corp.
Dated: March 19, 1996
/s/ Gregory W. A. Meehan /s/ Rita A. Myers
By: _______________________________ By: ______________________
GREGORY W. A. MEEHAN, VICE RITA A. MYERS
PRESIDENT AND TREASURER COMPTROLLER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ William A. Dolan, II Chairman of the March 19, 1996
- ------------------------------------- Board
(WILLIAM A. DOLAN, II)
/s/ Michael A. Dickerson President, Chief March 19, 1996
- ------------------------------------- Executive Officer
(MICHAEL A. DICKERSON) and Director
/s/ Gregory W. A. Meehan Vice President and March 19, 1996
- ------------------------------------- Treasurer
(GREGORY W. A. MEEHAN) (Principal
Financial Officer)
/s/ Rita A. Myers Comptroller March 19, 1996
- ------------------------------------- (Principal
RITA A. MYERS Accounting Officer)
/s/ Larry R. Condit Vice Chairman and March 19, 1996
- ------------------------------------- Director
(LARRY R. CONDIT)
/s/ George H. Guptill, Jr. Director March 18, 1996
- -------------------------------------
(GEORGE H. GUPTILL, JR.)
/s/ Charles L. Lain Director March 19, 1996
- -------------------------------------
(CHARLES L. LAIN)
/s/ C. Edward McCracken Director March 19, 1996
- -------------------------------------
(C. EDWARD MCCRACKEN)
/s/ Harold E. Pellow Director March 19, 1996
- -------------------------------------
(HAROLD E. PELLOW)
/s/ Richard M. Roy Director March 19, 1996
- -------------------------------------
(RICHARD M. ROY)
/s/ Charles L. Tice Director March 19, 1996
- -------------------------------------
(CHARLES L. TICE)
60
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3(a) Restated Certificate of Incorporation of High Point Financial *
Corp. incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-3 filed by the Company on
October 30, 1987 (No. 33-18226) and Amendment No. 2 thereto,
filed by the Company on March 24, 1988.
3(b) By-laws of High Point Financial Corp., as amended, February 20, *
1996.
4(a) Indenture (including the forms of Debentures), dated as of March *
1, 1987, between High Point Financial Corp. and New Jersey
National Bank, Trustee--incorporated by reference to Exhibit 4(c)
to the Registration Statement on Form S-2 filed by the Company on
February 26, 1987 (No. 33-12243), and Amendment No. 1 thereto,
filed by the Company on March 13, 1987.
4(b) Equity Contract Agency Agreement (including form of Cancellable *
Mandatory Stock Purchase Contracts), dated as of March 1, 1987
between High Point Financial Corp. and the United Jersey
Bank/Commercial Trust--incorporated by reference to Exhibit 4(d)
to the Registration Statement on Form S-2 filed by the Company on
February 26, 1987 (No. 33-12243), and Amendment No. 1 thereto,
filed by the Company on March 13, 1987.
10(a) Executive Supplemental Income Agreement, between The National *
Bank of Sussex County and Gregory W. A. Meehan, incorporated by
reference to Exhibit 10(e) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1986.**
10(b) Directors Deferred Income Agreement, between High Point Financial *
Corp. and C. Edward McCracken, incorporated by reference to
Exhibit 10(f) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1986.**
10(c) Directors Deferred Income Agreement, between High Point Financial *
Corp. and Richard M. Roy, incorporated by reference to Exhibit
10(g) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1986.**
10(d) Directors Deferred Income Agreement, between The National Bank of *
Sussex County and Larry R. Condit, incorporated by reference to
Exhibit 10(j) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1986.**
10(e) Directors Deferred Income Agreement, between The National Bank of *
Sussex County and C. Edward McCracken, incorporated by reference
to Exhibit 10(i) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1986.**
10(f) Directors Deferred Income Agreement, between The National Bank of *
Sussex County and Richard M. Roy, incorporated by reference to
Exhibit 10(k) to Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.**
10(g) Directors Deferred Income Agreement, between The National Bank of *
Sussex County and William A. Dolan, II, incorporated by reference
to Exhibit 10(m) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1986.**
10(h) Loan and Pledge Agreement, dated September 20, 1985, between the *
Trust for The National Bank of Sussex County Employee Stock
Ownership Plan and First National Bank of Central Jersey,
incorporated by reference to Exhibit 10(o) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1986.
10(i) 1987 Incentive Stock Option Plan of High Point Financial Corp., *
incorporated by reference to Exhibit 10(r) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.**
10(j) Executive Supplemental Income Agreement, between High Point *
Financial Corp. and Michael A. Dickerson, incorporated by
reference to Exhibit 10(q) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.**
</TABLE>
- --------
* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
**Indicates a management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
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<C> <S> <C>
10(k) Lease Agreement, dated June 23, 1988, between The National Bank *
of Sussex County and FMI, Inc., incorporated by reference to
Exhibit 10(s) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
10(l) Change of Control Agreement, dated October 11, 1989, between *
High Point Financial Corp. and Michael A. Dickerson,
incorporated by reference to Exhibit 10(t) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.**
10(m) Change of Control Agreement, dated October 11, 1989, between *
High Point Financial Corp. and Gregory W. A. Meehan,
incorporated by reference to Exhibit 10(v) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.**
10(n) The High Point Financial Corp. 1990 Employee Stock Option *
Incentive Plan, incorporated by reference to Exhibit 28(a) to
the Registration Statement on Form S-8 filed by High Point on
November 6, 1990 (No. 33-37621).**
10(o) Amendment to the Executive Supplemental Income Agreement, *
between The National Bank of Sussex County and Gregory W. A.
Meehan, effective July 1, 1991, incorporated by reference to
Exhibit 10(x) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.**
10(p) Amendment to the Executive Supplemental Income Agreement, *
between High Point Financial Corp. and Michael A. Dickerson,
effective July 1, 1991, incorporated by reference to Exhibit
10(y) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.**
10(q) Consolidated Loan and Security Agreement dated December 31, *
1991, between High Point Financial Corp. and National
Westminster Bank NJ, incorporated by reference to Exhibit 10(z)
to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10(r) Amendment to the Executive Supplemental Income Agreement, *
between High Point Financial Corp. and Michael A. Dickerson,
effective January 1, 1993, incorporated by reference to Exhibit
10(s) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.**
10(s) Amendment to the Change of Control Agreement, effective January *
1, 1993, between High Point Financial Corp. and Michael A.
Dickerson, incorporated by reference to Exhibit 10(t) to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1992.**
10(t) Amendment to the Change of Control Agreement, effective January *
1, 1993, between High Point Financial Corp. and Gregory W. A.
Meehan, incorporated by reference to Exhibit 10(u) to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1992.**
10(u) February, 1993 Modification to Consolidated Loan and Security *
Agreement between High Point Financial Corp. and National
Westminster Bank, New Jersey, dated February 26, 1993,
incorporated by reference to Exhibit 10(v) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(v) Amendment to the Directors Deferred Income Agreement, between *
The National Bank of Sussex County and Larry R. Condit, dated
April 1, 1993, incorporated by reference to Exhibit 10(w) to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.**
10(w) Amendment to the Directors Deferred Income Agreement, between *
The National Bank of Sussex County and C. Edward McCracken,
dated April 1, 1993, incorporated by reference to Exhibit 10(x)
to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.**
10(x) Amendment to the Directors Deferred Income Agreement, between *
High Point Financial Corp. and C. Edward McCracken, dated April
1, 1993, incorporated by reference to Exhibit 10(y) to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.**
</TABLE>
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* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
** Indicates a management contract or compensatory plan or arrangement.
<PAGE>
<TABLE>
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<C> <S> <C>
10(y) Amendment to the Directors Deferred Income Agreement, between *
The National Bank of Sussex County and Richard M. Roy, dated
April 1, 1993, incorporated by reference to Exhibit 10(z) to
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.**
10(z) Amendment to the Directors Deferred Income Agreement, between *
High Point Financial Corp. and Richard M. Roy, dated April 1,
1993, incorporated by reference to Exhibit 10(aa) to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.**
10(aa) Amendment to the Directors Deferred Income Agreement, between *
The National Bank of Sussex County and William A. Dolan, II,
dated April 1, 1993, incorporated by reference to Exhibit
10(ab) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.**
10(ab) Modified Term Note dated December 28, 1994 between High Point *
Financial Corp. and National Westminster Bank, NJ, incorporated
by reference to Exhibit 10(ac) to the Annual Report on Form 10-
K for the fiscal year ended December 31, 1994.
11 Statement of computation of per share earnings
21 List of subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
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* Exhibit has been heretofore filed with the Securities & Exchange Commission
and is incorporated herein as exhibit by reference.
** Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of the
period covered by this report.
<PAGE>
BY-LAWS
of
HIGH POINT FINANCIAL CORP.
A Corporation Organized
Under the Laws of the State of
New Jersey
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be
established and maintained at Broad Street, in the Borough of Branchville, in
the County of Sussex and State of New Jersey. or such other place as the Board
of Directors may designate from time to time.
SECTION 2. OTHER OFFICES. The Company may have other offices, either
within or without the State of New Jersey, at such place or places as the Board
of Directors may from time to time appoint or the business of the Company may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING: DATE OF MEETING. The regular annual meeting
of the shareholders of the Company, for the election of directors and for the
transaction of such other business as properly may come before the meeting,
shall be held at the principal office of the Company, or any other convenient
place designated by the Board of Directors, at ten o'clock in the forenoon, on
the first Tuesday in April of each year or such other date or time as may be
fixed by the Board of Directors. When the meeting date falls upon a holiday,
the meeting shall be held on the first day thereafter not a legal holiday.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
held at the principal office of the Company, or any other convenient place duly
authorized by the Board of Directors, whenever called in writing, or by vote, by
a majority of the Board of Directors. Upon the request in writing delivered to
the Chairman or secretary, of three or more shareholders owning, in the
aggregate not less than 10% of all the shares outstanding and entitled to vote,
it shall be the duty of the Chairman or secretary to call a special meeting of
the shareholders. Such request shall state the purpose or purposes of the
meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and the purposes of the meeting, shall be mailed to
each shareholder entitled to vote at the meeting at his address as it appears on
the records of the Company, not less than ten nor more than sixty days before
the date of the meeting.
<PAGE>
SECTION 4. QUORUM. At any meeting of the shareholders the holders of a
majority of all the shares of the common stock of the Company issued,
outstanding and entitled to vote, present in person or requested by proxy, shall
constitute a quorum of the shareholders for all purposes, shall constitute a
quorum of the shareholders for all purposes, unless the representation of a
larger number shall be required by law, and, in that case, the representation of
the number so required shall constitute a quorum.
SECTION 5. ADJOURNMENT OF MEETINGS. If those in attendance at a meeting
shall not constitute a quorum, a majority of those in attendance may adjourn,
from time to time, without notice other than by announcement at the meeting,
until holders of the amount requisite to constitute a quorum shall attend. At
any adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 6. ORGANIZATION: CHAIRMAN. The Chairman or, in his absence, the
president, shall call meetings of the shareholders to order, and shall act as
chairman of such meetings. In the absence of the Chairman and of the president,
a chairman shall be chosen by the shareholders present.
SECTION 7. SECRETARY. The secretary of the Company shall act as secretary
at all meetings of the shareholders; but, in the absence of the secretary at any
meeting of the shareholders, the presiding officer may appoint any person to act
as secretary of the meeting.
SECTION 8. VOTING. On all matters, each shareholder shall, at every
meeting of the shareholders, be entitled to one vote in person or by proxy for
each share having voting powers held by such shareholder. No proxy shall be
voted upon after three (3) years from its date of execution. Unless the proxy
is coupled with an interest, it shall be revocable at will. Transferees of
shares which are transferred on the books of the Company within ten (10) days
next preceding the date of such meeting shall be entitled to vote at such
meeting except where the transfer books of the Company have been closed or an
earlier date has been fixed as a record date for the determination of its
shareholder entitled to vote. Upon the demand of any shareholder, the votes for
directors and the votes upon any question before the meeting shall be by ballot.
SECTION 9. INSPECTORS OF ELECTION. At each election of the directors,
upon the request by a shareholder entitled to vote at such meeting, the polls
shall be opened and closed, the proxies and ballots shall be received and taken
in charge, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes, shall be decided
by two inspectors. Such inspectors shall be appointed by the presiding officer
at or prior to the meeting.
2
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. MANAGEMENT. The business and the property of the Company
shall be managed and controlled by the Board of Directors, who are also
authorized to provide for reasonable fees and/or compensation for themselves.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent or otherwise,
and receiving compensation therefor.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of not
less than five (5) nor more than fifteen (15) shareholders. The directors shall
be elected at the annual meeting of the shareholders, and each director shall be
elected to serve until his successor shall be elected and shall qualify.
Subject to the limitations set forth in the first sentence of this Section 2 and
any additional limitations prescribed by law or the Company's Certificate of
Incorporation, the number of directors constituting the Board of Directors shall
be fixed from time to time by either (i) the Board of Directors pursuant to a
resolution adopted by at least 70% of the entire Board, or (ii) the affirmative
vote of the holders of at least 80% of the voting power of all the shares of the
Company entitled to vote generally in the election of directors, voting together
as a single class.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman or secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation, disqualification, increase in the size of the Board
or other cause, the remaining directors in office, though less in number than a
quorum, by affirmative vote of a majority thereof, may elect a successor to hold
office until the next annual meeting of the shareholders and until a successor
has been elected and qualified.
SECTION 5. PLACE OF MEETING, ETC. The directors may hold their meetings,
and may have an office and keep the books of the Company (except as otherwise
may be provided for by law) in such place or places in or out of the State of
New Jersey as the Board, from time to time, may determine.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the office of the Company on the second Tuesday of each third
month. When the meeting date falls on a holiday, the meeting shall be held on
the first day thereafter not a legal holiday. No notice shall be required for
any such regular meeting of the Board.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman or the President (if
not the Chairman), or at the request of one-third of the directors in office,
and shall be held at such place or places as may be determined by the directors
or as shall be stated in the call of the meeting.
3
<PAGE>
SECTION 8. NOTICE REQUIRED. The secretary shall give notice of each
special meeting and the purpose or purposes of the meeting by mailing the same
at least three (3) days before the meeting, except for special meetings dealing
with emergent matters when it may not be practical or feasible to give three
days' notice, in which case notice shall be given to each member by telephone or
telegraph or in person. At any meeting at which every director shall be
present, even though without notice, any business may be transacted. At the
request of not less than 25% of the directors present any matter will be voted
upon by secret ballot.
SECTION 9. QUORUM. A majority of the directors shall constitute a quorum
for the transaction of business, but if at any meeting of the board there be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time.
SECTION 10. ORDER OF BUSINESS. At meetings of the Board of Directors
business shall be transacted in such order as, from time to time, the Board may
determine by resolution.
SECTION 11. PRESIDING OFFICER. At all meetings of the Board of Directors
the Chairman shall preside. In his absence or in the event of a vacancy in the
office of Chairman, the following shall perform the duties of Chairman (in the
order stated): President; such other member of the Board as may be designated
by the Board.
ARTICLE IV
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the Company
shall be a chairman of the Board of Directors ("Chairman"), president, a
treasurer and a secretary, all of whom shall be elected by the Board of
Directors. One or more vice presidents may also, at the option of the
directors, be elected by the Board of Directors. A person may hold more than
one office. The Chairman and President must be members of the Board.
SECTION 2. OTHER OFFICERS. Other officers shall be appointed by the
President with the consent and concurrence of the Board to hold their offices,
respectively, during the pleasure of the Board.
SECTION 3. TERM OF OFFICE. All officers elected by the Board shall hold
office for a term of one year and until a successor is elected and has
qualified. All officers elected by the Board shall be subject to removal at any
time by the affirmative vote of a majority of the whole Board of Directors.
Each other officer shall hold office at the discretion of the officer appointing
him or any superior of such appointing officer.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman shall preside
at all meetings of the Board of Directors and shall have such other powers, and
shall perform such other duties as may be assigned to him by the Board of
Directors.
4
<PAGE>
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. The President shall have
the responsibility for carrying out the policies of the Board and, subject to
the supervision of the Board, shall have general supervision over the business
and affairs of the Company. He shall be an ex-officio member of all standing
committees of the Board.
The President shall have such other powers as are prescribed by these By-
Laws and as may be assigned to him by the Board.
SECTION 6. VICE PRESIDENTS. Each vice president shall have such powers,
and shall perform such duties as may be assigned to him by the Board of
Directors.
SECTION 7. POWERS AND DUTIES OF TREASURER. The treasurer shall have
custody of all the funds and securities of the Company which may have come into
his hands and he shall perform all acts incident to the position of treasurer,
subject to the control of the Board of Directors and the president.
SECTION 8. ASSISTANT TREASURERS. The Board of Directors may appoint an
assistant treasurer or more than one assistant treasurer and each assistant
treasurer shall have such powers and shall perform such duties as may be
assigned to him by the Board of Directors.
SECTION 9. POWERS AND DUTIES OF SECRETARY. The secretary shall keep the
minutes of all meetings of the shareholders and the directors, and also the
minutes of all committees, in books provided for that purpose; he shall attend
to the giving and serving of all notices of the Company; he may sign with the
president, in the name of the Company, all deeds, mortgages, leases, and
contracts authorized by the Board of Directors, and, when so ordered by the
Board of Directors, he shall affix the seal of the Company thereto; he shall
have charge of the certificate books, transfer books and stock ledgers and such
other books and papers as the Board of Directors may direct, all of which shall,
at all reasonable times, be open to the examination of any director upon
application at the office of the Company during business hours; and he shall in
general perform all duties incident to the office of secretary subject to the
control of the Board of Directors. The offices of secretary and treasurer may
be held by one and the same person.
SECTION 10. ASSISTANT SECRETARIES. The Board of Directors may appoint one
assistant secretary or more than one assistant secretary. Each assistant
secretary shall have such powers and shall perform such duties as may be
assigned to him by the Board of Directors.
SECTION 11. VOTING UPON STOCK OWNED IN OTHER COMPANIES. Unless otherwise
ordered by the Board of Directors, the President or his designee shall have full
power and authority in behalf of the Company to attend and to act and to vote at
any meetings of stockholders of any corporation in which the Company may hold
stock, and at any such meetings of stockholders of any corporation in which the
Company may hold stock, and at any such meeting shall possess and may exercise
any and all rights and powers incident to the ownership of such stock, and
which, as the owner thereof, the Company might have possessed and exercised if
present. The Board of Directors, by resolution, from time to time, may confer
like powers upon any other person or persons.
5
<PAGE>
ARTICLE V
COMMITTEES
SECTION 1. APPOINTMENT OF COMMITTEES. For the proper conduct of the
business of the Company, the Chairman shall appoint such committees from time to
time as the Chairman deems appropriate, subject to the approval of the majority
of the entire Board. Committee memberships may include persons who are not
Directors.
SECTION 2. STANDING COMMITTEES. A "standing committee" is a committee
which is anticipated to exist perpetually even though its name, the scope of its
activities and responsibilities may be, by action of the Board of Directors,
varied from time to time, but at least annually designate the standing
committees, adopt written descriptions of the purposes and powers of each,
approve memberships of each, approve a regular schedule of the meetings of each
and such restrictions on the activities of each as it deems appropriate. Such
action shall be by majority of the entire Board.
SECTION 3. SPECIAL COMMITTEES. The Chairman may, with the consent and
approval of a majority of the entire Board, appoint such special committees for
such special purposes as the Chairman determines appropriate. Each such
committee shall be composed of not less than three (3) members of the Board.
ARTICLE VI
CAPITAL STOCK
SEAL
SECTION 1. CERTIFICATES OF SHARES. The certificates for shares of the
capital stock of the Company shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be prepared or be approved by the Board
of Directors. The certificates shall be signed by the president or a vice
president and also by the secretary or an assistant secretary, personally or by
facsimile.
All certificates shall be consecutively numbered. The name of the person
owning the shares represented thereby, with the number of such shares and the
date of issue, shall be entered on the Company's books.
SECTION 2. TRANSFER OF SHARES. Shares in the capital stock of the Company
shall be transferred only on the books of the Company by the holder thereof in
person, or by his attorney, upon surrender and cancellation of certificates for
a like number of shares.
SECTION 3. RECORD HOLDER OF STOCK TREATED AS HOLDER IN FACT. The Company
shall be entitled to treat the holder of record of any share or shares as the
holder in fact and need not be bound to recognize any equitable or other claim
or interest in such share on the part of any other person.
6
<PAGE>
SECTION 4. REGULATIONS. The Board of Directors also shall have power and
authority to make all such rules and regulations as they may deem expedient,
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Company.
SECTION 5. TRANSFER AGENT: REGISTRAR. The Board of Directors may appoint
a transfer agent and a registrar of transfers, and may require all stock
certificates to bear the signature of such transfer agent or registrar of
transfers, or the signatures of both.
SECTION 6. CLOSING OF TRANSFER BOOKS. The stock transfer books may be
closed for the meetings of the shareholders, and for the payment of dividends,
during such periods as, from time to time, may be fixed by the Board of
Directors not to exceed fifty (50) days, and during such periods no stock shall
be transferable.
SECTION 7. DIVIDENDS. The Board of Directors shall by vote declare
dividends from the earnings and profits or the surplus of the Company whenever
in its opinion the condition of the Company's affairs renders it appropriate for
such dividends to be declared.
Dividends upon the capital stock of the Company shall be payable on such
date or dates as may from time to time be specified by the Board of Directors.
SECTION 8. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Company, which seal shall be in charge
of the secretary.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Company for the year 1982
shall begin on the effective date of the Certificate of Incorporation and shall
end on December 31, 1982. Thereafter the fiscal year of the Company shall be
January 1 to December 31.
SECTION 2. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated; and any notice so required shall be deemed to be sufficient if given by
depositing the same in a post-office box in a sealed postpaid envelope,
addressed to the person entitled thereto at his last known post-office address,
and such notice shall be deemed to have been given on the day of such mailing.
Notice of the time, place and purpose of any shareholders' meeting may be
dispensed with if every shareholder shall either attend in person or by proxy,
or, if absent, shall by writing, filed with the records of the meeting, waive
such notice. Notice of any directors' meeting may be in like manner waived by
any director. Any notice required to be given under these By-Laws may be waived
by the persons entitled thereto.
7
<PAGE>
SECTION 3. MAJORITY VOTE.
A. At all meetings of the shareholders of the Company, provided a quorum
is present, any action taken upon any matter by a majority of the votes of the
shareholders present at such meeting, except as otherwise provided in the
Certificate of Incorporation, shall be binding upon the Company with the same
force and effect as if adopted by the vote of a majority of all the shareholders
of the Company.
B. At all meetings of the Board of Directors of the Company, the
affirmative vote of a majority of the entire Board of Directors shall be
required to take any action upon any matter presented to the Board.
SECTION 4. INTERPRETATION. In these By-Laws, unless there shall be
something in the subject or context inconsistent therewith:
"Shareholders" means the registered owner of a share or shares of the
common stock.
In provisions relating to meeting of shareholders, "majority" means a
majority in interest, and "present" means present in person or represented by
proxy.
"Board", the "Board of Directors" and "directors" mean the directors of the
Company for the time being duly convened in a regular or special meeting.
Words importing the singular number include the plural and vice versa;
words importing males include females; and words importing natural persons
include corporations.
SECTION 5. ROBERTS RULES OF ORDER. When not otherwise provided or where
not in conflict with these, the most recently revised edition of Roberts Rules
of Parliamentary Procedure, commonly referred to as Roberts Rules, shall be
applicable in determining deliberations and actions in the nature of procedure
to be followed by the Board in regarding to any meeting, vote or deliberation of
the Board of Directors of this Company.
ARTICLE VIII
AMENDMENTS
SECTION 1. POWER OF DIRECTORS TO AMEND. These By-Laws may be amended upon
vote of a majority of the entire Board of Directors at any meeting of the Board,
provided ten (10) days' notice of the proposed amendment has been given to each
member of the Board of Directors.
8
<PAGE>
EXHIBIT 11. STATEMENT OF COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Income (loss) applicable to common stock... $ 705,000 $(1,115,000) $ 154,000
Weighted average number of common shares
outstanding............................... 3,745,760 3,065,786 2,437,908
---------- ----------- ----------
Net income (loss) per common share and
common share equivalents.................. $0.19 $(0.36) $0.06
</TABLE>
- --------
(1) The after tax interest expense related to the assumed reduction of
outstanding debt and the number of shares issuable on conversion of
mandatory stock purchase contracts and exercise of stock options
classified as common share equivalents are excluded from the computations
since their effect is either antidilutive or immaterial.
<PAGE>
EXHIBIT 21
List of Subsidiaries
Name of Subsidiary Jurisdiction of Incorporation
The National Bank of Sussex County New Jersey
<PAGE>
EXHIBIT 23
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 19, 1996 included in this Form 10-K, into
High Point Financial Corp.'s previously filed Registration Statement No. 2-97635
on Form S-3, Registration Statement No. 33-12243 on Form S-2, Registration
Statement No. 33-18227 on Form S-8, Registration Statement No. 33-18226 on Form
S-3, Registration Statement No. 33-22288 on Form S-3, Registration Statement No.
33-37621 on Form S-8 and Registration Statement No. 33-76296 on Form S-2.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Roseland, New Jersey
March 28, 1996
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