SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for (fee required) for the fiscal year ended December 31, 1995.
Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________ to ____________.
Commission File Number 0-11526
FIRST COLONIAL GROUP, INC.
(Name of Small Business Issuer in its charter)
Pennsylvania 23-2228154
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 South Main Street, Nazareth, Pennsylvania 18064
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 610-746-7300
Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $5.00 Par Value
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
X
The Issuer's revenues for the fiscal year ended December 31, 1995 were
$24,170,000.
The aggregate market value of voting stock held by non-affiliates of the
registrant is $23,783,181. (1)
The number of shares of the Issuer's common stock, par value $5.00 per
share, outstanding as of March 18, 1996 was $1,474,028.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Certain portions of the 1996 Proxy Statement
(1) The aggregate dollar amount of the voting stock set forth equals the
number of shares of the registrant's Common Stock outstanding, reduced by the
amount of Common Stock held by executive officers, directors and shareholders
owning in excess of 10% of the registrant's Common Stock, multiplied by the last
sale price for the registrant's Common Stock on March 18, 1996. Includes an
aggregate of 149,230 shares, with an aggregate market value of $2,891,331, held
by the Trust Department of Nazareth National Bank & Trust Company in Trust for
persons other than executive officers, directors and 10% shareholders of the
registrant. The information provided shall in no way be construed as an
admission that any officer, director or 10% shareholder may be deemed an
affiliate of the registrant or that such person is the beneficial owner of the
shares reported as being held by him, and any such inference is hereby
disclaimed. The information provided herein is included solely for record
keeping purposes of the Securities and Exchange Commission.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
<PAGE>
PART I
Item 1. Description of Business
Investment Considerations
In analyzing whether to make or to continue an investment in the Company,
investors should consider, among other factors, the following:
Economic Conditions and Related Uncertainties. Commercial banking is
affected, directly and indirectly, by local, domestic, and international
economic and political conditions, and by governmental monetary and fiscal
policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, real estate values, international conflicts
and other factors beyond the Company's control, may adversely affect the
potential profitability of the Company. Any future rises in interest rates,
while increasing the income yield on the Company's earning assets, may adversely
affect loan demand and the cost of funds and, consequently, the profitability of
the Company. Any future decreases in interest rates may adversely affect the
Company's profitability because such decreases may reduce the amounts which the
Company may earn on its assets. Economic downturns could result in the
delinquency of outstanding loans. Management does not expect any one particular
factor to affect the Company's results of operations. However, a continued
downtrend in several areas, including real estate, construction and consumer
spending, could have an adverse impact on the Company's ability to remain
profitable.
Effect of Interest Rates on the Bank and the Company. The operations of
financial institutions such as the Company are dependent to a large degree on
net interest income which is the difference between interest income from loans
and investments and interest expense on deposits and borrowings. An
institution's net interest income is significantly affected by market rates of
interest which in turn are affected by prevailing economic conditions, by the
fiscal and monetary policies of the federal government and by the policies of
various regulatory agencies. At December 31, 1995 total interest earning assets
maturing or repricing within one year was less than total interest bearing
liabilities maturing or repricing during the same time period by $8,289,000,
representing a negative cumulative one year gap of .94%. If interest rates rise,
the Company could experience a decrease in net interest income. Like all
financial institutions, the Company's balance sheet is affected by fluctuations
in interest rates. Volatility in interest rates can also result in
disintermediation, which is the flow of funds away from financial institutions
into direct investments, such as U. S. Government and corporate securities and
other investment vehicles, including mutual funds, which, because of the absence
of federal insurance premiums and reserve requirements, generally pay higher
rates of return than financial institutions. See "Item 6, Management's
Discussion of Financial Condition and Results of Operations".
Federal and State Government Regulations. The operations of the Company and
the Bank are heavily regulated and will be affected by present and future
legislation and by the policies established from time to time by various federal
and state regulatory authorities. In particular, the monetary policies of the
<PAGE>
Federal Reserve Board have had a significant effect on the operating results of
banks in the past, and are expected to continue to do so in the future. Among
the instruments of monetary policy used by the Federal Reserve Board to
implement its objectives are changes in the discount rate charged on bank
borrowings and changes in the reserve requirements on bank deposits. It is not
possible to predict what changes, if any, will be made to the monetary policies
of the Federal Reserve Board or to existing federal and state legislation or to
existing federal and state legislation or the effect that such changes may have
on the future business and earnings prospects of the Company.
During the past several years, significant legislative attention has been
focused on the regulation and deregulation of the financial services industry.
Non-bank financial institutions, such as securities brokerage firms, insurance
companies and money market funds, have been permitted to engage in activities
which compete directly with traditional bank business.
Accounting Standards. The operations of the Company and the Bank are
affected by accounting standards issued by the Financial Accounting Standards
Board ("FASB") which the Company is required to adopt. The adoption of such
standards can have the effect of reducing the Company's earnings and capital.
Information on current FASB standards that affect the Company can be found in
the Notes to Financial Statements contained under the caption, "Item 7,
Financial Institutions.
Competition. The Company faces strong competition from many other banks,
savings institutions and other financial institutions which have branch offices
or otherwise operate in the Company's market area, as well as many other
companies now offering a range of financial services. Most of these competitors
have substantially greater financial resources than the Company including a
larger capital base which allows them to attract customers seeking larger loans
than the Bank is able to make. In addition, many of the Bank's competitors have
higher legal lending limits than does the Bank. Particularly intense
competition exists for sources of funds including savings and retail time
deposits and for loans, deposits and other services that the Bank offers.
Allowance for Loan Losses. The Company has established an allowance for
loan losses which management believes to be adequate to offset potential losses
on the Company's existing loans. However, there is no precise method of
predicting loan losses. There can be no assurance that any future declines in
real estate market conditions, general economic conditions or changes in
regulatory policies will not require the Company to increase its allowance for
loan losses through a charge to earnings resulting in reduced profitability.
Dividends. While the Board of Directors presently intends to follow a
policy of paying cash dividends, the dividend policy will be reviewed
periodically in light of future earnings, regulatory restrictions and other
considerations. No assurance can be given, therefore, that cash dividends will
be paid in the future. See the information contained under the caption in "Item
5", "Market for Common Equity and Related Stockholder Matters".
<PAGE>
Market for Common Stock. While the Company's common stock is listed on The
Nasdaq Stock Market, there is no assurance that an active trading market for the
Company's Common Stock will exist at a particular time.
"Anti-Takeover" and "Anti-Greenmail" Provisions and Management
Implications. The Articles of the Company presently contain certain provisions
which may be deemed to be "anti-takeover" and "anti-greenmail" in nature in that
such provisions may deter, discourage or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions. The
overall effects of the "anti-takeover" and" anti-greenmail" provisions may be to
discourage, make more costly or more difficult, or prevent a future takeover
offer, prevent shareholders from receiving a premium for their securities in a
takeover offer, and enhance the possibility that a future bidder for control of
the Company will be required to act through arms-length negotiation with the
Company's Board of Directors. Copies of the Company's Articles of the
Incorporation are on file with the SEC and Pennsylvania Department of State.
Stock Not an Insured Deposit. Investments in the shares of the Company's
Common Stock are not deposits insured against loss by the FDIC or any other
entity.
Bespeaks Caution Doctrine. Investor should be aware that the U. S. Court of
Appeals for the Third Circuit in In Re: Donald J. Trump Casino Securities
Litigation Taj Mahal, (No. 92-5350 filed October 14, 1993) adopted a legal
doctrine entitled the "Bespeaks Caution Doctrine" which may prevent them from
recovering from the Company based upon material misrepresentations or omissions
contained in the Company's disclosure documents to the extent that such
documents contained sufficient cautionary statements to apprise investors of the
risks of an investment in the Company's securities. The foregoing investment
considerations may have the effect of bringing this document, as well as other
Company disclosure documents, within the purview of the "Bespeaks Caution
Doctrine".
General
First Colonial Group, Inc. (the "Company) is a Pennsylvania business
corporation which is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"). The Company was
incorporated on December 30, 1982 for the purpose of acquiring Nazareth National
Bank and Trust Company (the "Bank") and thereby enabling the Bank to operate
within a bank holding company structure. The Company became an active bank
holding company on November 25, 1983 when it acquired the Bank. The Bank is a
wholly-owned subsidiary of the Company. In July, 1986, the Company established
another wholly-owned subsidiary, First C. G. Company, Inc. This subsidiary is a
Delaware business corporation formed for the purpose of investing in various
types of securities.
The Company's principal activities consist of owning and supervising the
Bank, which engages in a full service commercial and consumer banking and trust
<PAGE>
business. The Company, through the Bank, derives substantially all of its income
from the furnishing of banking and banking-related services. The Bank has its
principal banking office as well as three branch offices in Nazareth,
Pennsylvania. It also presently has two branch offices in Bethlehem,
Pennsylvania, three branch offices in Easton, Pennsylvania, one branch in
Brodheadsville, Pennsylvania, one branch in Stroudsburg, Pennsylvania and one
branch in Allentown, Pennsylvania. The Bank has twelve automated teller machines
(ATMs), one at each branch office (except the Main Street Nazareth and Hall
Square Nazareth branches) and free-standing machines at its operation center,
The First Colonial Building in the Bethlehem Business Park, Hanover Township,
Pennsylvania and at St. Luke's Hospital, Fountain Hill, Pennsylvania. On January
26, 1996, the Bank opened an additional free standing Automated Teller Machine
location at the Northampton Crossings Shopping Center, Easton Pennsylvania. This
new location contains four drive-up ATM's.
The Company is a legal entity separate and distinct from the Bank. The
rights of the Company, and thus the rights of the Company's creditors and
shareholders, to participate in distributions of the assets or earnings of the
Bank, are necessarily subject to the prior claims of creditors of the Bank,
except to the extent that claims of the Company itself as a creditor may be
recognized. Such claims on the Bank by creditors other than the Company include
obligations in respect of federal funds purchased and certain other borrowings,
as well as deposit liabilities.
The Company directs the policies and coordinates the financial resources
of the Bank. The Company provides and performs various technical, advisory and
auditing services for the Bank, coordinates the Bank's general policies and
activities, and participates in the Bank's major business decisions.
As of December 31, 1995, the Company, on a consolidated basis, had total
assets of $298,514,000, total deposits of $254,102,000, and total shareholders'
equity of $24,767,000.
<PAGE>
Nazareth National Bank and Trust Company
History and Business
The Bank was incorporated under the laws of the United States of America as
a national bank in 1897 under its present name. Since that time, the Bank has
operated as a banking institution doing business at several locations in
Northampton County, Pennsylvania. The Bank is a member of the Federal Reserve
System.
As of December 31, 1995, the Bank had total assets of $298,514,000, total
deposits of $254,102,000 and total shareholders' equity of $24,767,000. Its
deposits are insured by the Bank Insurance Fund ("BIF") maintained by the
Federal Deposit Insurance Corporation (the "FDIC") to the maximum extent
permitted by law.
The Bank engages in a full service commercial and consumer banking and
trust business. The Bank, with its main office at 76 South Main Street,
Nazareth, Pennsylvania, also provides services to its customers through its
branch network of eleven full service banks, which includes drive-in facilities
at most locations, ATMs at each branch office (except the Main Street Nazareth
and Hall Square Nazareth branches) and bank-by-mail services. Nine of the Bank's
full service offices are located in Northampton County, Pennsylvania. Two
offices are located in Monroe County, Pennsylvania. One office is located in
Lehigh County, Pennsylvania. The Bank also has free standing ATMs located in its
Operations Center, the First Colonial Building in the Bethlehem Business Park,
Hanover Township, Pennsylvania and in the lobby of St. Luke's Hospital in the
Borough of Fountain Hill, Pennsylvania.
On January 26, 1996 the Bank opened a free-standing, drive-up ATM location
at the Northampton Crossings Shopping Center, Routes 248 and 33, Lower Nazareth
Township, Easton, Northampton County, Pennsylvania. This location contains four
drive-up ATM units that are open twenty-four hours a day, seven days a week.
In November of 1995, the Bank purchased the Pointe North branch, including
approximately $6.3 million in deposits and $1.8 million in loans, in Hanover
Township, Northampton County, Pennsylvania from another commercial bank.
Concurrent with this purchase, the Bank closed its Park Plaza office and
transferred the Park Plaza accounts and staff to the Pointe North branch. The
new location will enable the Bank to improve operating efficiencies and provide
better access and service to its customers. This new branch provides full
banking and trust services, including safe deposit boxes and an ATM.
The Bank opened a new branch on March 1, 1995 which is located within the
Redner's Supermarket on Airport Road, Allentown, Lehigh County, Pennsylvania. A
second new branch was opened on December 8, 1995 within the Redner's Supermarket
at the Northampton Crossings Shopping Center at Routes 248 and 33, Lower
Nazareth Township, Easton, Northampton County, Pennsylvania. Both of these
branches are full service facilities that include an ATM and are open for
extended hours including evenings, Saturdays and Sundays.
<PAGE>
The Bank's services include accepting time, demand and savings deposits,
including NOW accounts (Flex Checking), regular savings accounts, money market
accounts, fixed rate certificates of deposit and club accounts, including the
Vacation Club, the College Club(R) and the Christmas Club. The Bank offers
Mastercard(R) and VISA(R), as well as a Constant Cash account (a pre-approved
line of credit activated by writing checks against a checking account) and the
First Colonial Club(R) (a deposit package program which provides for premium
interest rates on high balance interest-bearing checking accounts, money market
accounts and other related financial services). Its services also include making
secured and unsecured commercial and consumer loans, financing commercial
transactions either directly or through regional industrial development
corporations, making construction and mortgage loans, and renting safe deposit
facilities. Additional services include making residential mortgage loans (both
fixed rate and variable rate), home equity lines of credit, loans to purchase
manufactured homes, revolving credit loans with overdraft checking protection,
small business loans, student loans, recreational vehicles and new car and truck
loans.
The Bank's business loans include seasonal credit and collateral loans and
term loans as well as accounts receivable and inventory financing. Most of the
Bank's commercial customers are small to medium size businesses operating in
Northampton, Lehigh and Monroe Counties, Pennsylvania, with concentrations in
the Nazareth, Bethlehem, Brodheadsville, Easton, and Stroudsburg Pennsylvania
areas.
Trust services provided by the Bank include services as executor and
trustee under wills and deeds, as guardian, custodian and as trustee and
agent for pension, profit sharing and other employee benefit trusts as well as
various investment, pension and estate planning services. Trust services also
include service as transfer agent and registrar of stock and bond issues and as
escrow agent. In addition, the Bank provides discount brokerage through an
outside supplier of this service, and various tax services.
The Bank has a relatively stable deposit base and no material amount of
deposits is obtained from a single depositor or group of depositors (including
Federal, state and local governments). The Bank has not experienced any
significant seasonal fluctuations in the amount of its deposits.
Competition
All phases of the Bank's business are highly competitive. The Bank's market
area is the primary trade area of Northampton and Lehigh Counties, (known as the
Lehigh Valley) and Monroe County, Pennsylvania with concentrations in the
Nazareth, Bethlehem, Brodheadsville, Easton, and Stroudsburg Pennsylvania areas.
In order to keep pace with its competition and the continuing growth of these
areas, the Bank may, in the future, consider establishing additional new
branches, although no assurance can be given that any new branches will be
opened or if opened, that they will be successful. The Bank competes with local
commercial banks as well as other commercial banks with branches in the Bank's
market area. The Bank considers its major competition to be Lafayette Bank,
<PAGE>
headquartered in Easton, Pennsylvania, with a branch in Nazareth; First Union
Bank, headquartered in Charlotte, North Carolina, with branch offices in Easton
and Bethlehem, Pennsylvania; First Valley Bank, headquartered in Bethlehem,
Pennsylvania, with branches in Easton and Allentown, Pennsylvania; PNC Bank,
headquartered in Pittsburgh, Pennsylvania, with branches in Nazareth,
Brodheadsville, Easton, and Allentown, Pennsylvania; and Corestates Bank,
headquartered in Philadelphia, Pennsylvania, with branches in Bethlehem, Easton,
and Allentown, Pennsylvania.
The Bank, along with other commercial banks, competes with respect to its
lending activities as well as in attracting demand deposits, with savings banks,
savings and loan associations, insurance companies, regulated small loan
companies, credit unions and the issuers of commercial paper and other
securities, such as shares in money market funds. The Bank also competes with
insurance companies, investment counseling firms, mutual funds and other
business firms and individuals in the corporate trust and investment management
services. Many of the Bank's competitors have financial resources larger than
the Bank's.
Management believes that the Bank is generally competitive with all
competing financial institutions in its service areas with respect to interest
rates paid on time and savings deposits, service charges on deposit accounts and
interest rates charged on loans.
<PAGE>
First C. G. Company, Inc.
In July 1986, the Company established a wholly-owned subsidiary, First C.
G. Company, Inc., a Delaware corporation, for the purpose of investing in
various types of securities. As of December 31, 1995, First C. G. Company, Inc.
had total assets of $2,983,000, of which $1,631,000 was invested in tax-exempt
municipal obligations and most of the remaining assets were in other taxable
securities and interest-bearing bank deposits. The total shareholders' equity at
December 31, 1995 was $2,811,000.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of the Company and the Bank.
The Company
The Company is registered as a "bank holding company" under the Bank
Holding Act of 1956, as amended (the "Holding Company Act"), and is, therefore,
subject to regulation by the Board of Governors of the Federal Reserve Board
(the "Federal Reserve Board").
Under the Holding Company Act, the Company is required to secure the prior
approval of the Federal Reserve Board before it can merge or consolidate with
any other bank holding company or acquire all or substantially all of the assets
of any bank or acquire direct or indirect ownership or control of any voting
shares of any bank that is not already majority owned by it, if after such
acquisition, it would directly or indirectly own or control more than 5% of the
voting shares of such bank. See "Recent Legislation".
The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, non-banking activities unless the
Federal Reserve Board, by order or regulation, has found such activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determination, the Federal Reserve Board
considers whether the performance of these activities by a bank holding company
can reasonably be expected to produce benefits to the public which outweigh
possible adverse effects. The Federal Reserve Board has by regulation determined
that certain activities are closely related to banking within the meaning of the
Holding Company Act. These activities include, among other, operating a
mortgage, finance, credit card or factoring company; performing certain data
processing operations; providing investment and financial advice; acting as
insurance agent or underwriter for certain types of credit-related insurance;
leasing personal property on a full-payout, nonoperating basis; and, certain
stock brokerage and investment advisory services.
<PAGE>
Under the policy of the Federal Reserve Board with respect to bank holding
company operations, a bank holding company is deemed to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. Under the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "1991 Act"), a bank holding company is required to guarantee
that any "undercapitalized" (as such term is defined in the statute) insured
depository institution subsidiary will comply with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
which is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards as of the time the institution failed to
comply with such capital restoration plan.
Under the Holding Company Act, the Company is required to file periodic
reports and other information concerning its operations with, and is subject to
examination by, the Federal Reserve Board. In addition, under the Banking Code,
the Pennsylvania Department of Banking has the authority to examine the books,
records and affairs of any Pennsylvania bank holding company or to require any
documentation deemed necessary to ensure compliance with the Banking code.
The Company is under the jurisdiction of the Securities and Exchange
Commission and various state securities commissions for matters relating to the
offering and sale of its securities, and is subject to the Securities and
Exchange Commission's rules and regulations relating to periodic reporting,
reporting to shareholders, proxy solicitation and insider trading.
The Company, as an affiliate of the Bank within the meaning of the Federal
Reserve Act, is subject to certain restrictions under the Federal Reserve Act
regarding extensions of credit to it by the Bank, and the use of the stock or
other securities of the Company as collateral for loans by the Bank to any
borrower. Further, under the Federal Reserve Act and the Federal Reserve Board
regulations, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or provision of credit or provisions of any property or services. These
so-called "anti-tie-in provisions" generally provide that a bank may not extend
credit, lease or sell property, or furnish any service, or fix or vary the
consideration for any of the foregoing to, or obtain the same from, a customer
on the condition or requirement that the customer provide some additional
credit, property or service to the bank, to the bank's holding company or to any
other subsidiary of the bank's holding company or on the condition or
requirement that the customer not obtain other credit, property or service from
a competitor of the bank, the bank's holding company or any subsidiary of the
bank's holding company.
<PAGE>
The Bank
The Bank, as a national bank, is subject to The National Bank Act. The Bank
is also subject to the supervision of, and is regularly examined by, the Office
of the Comptroller of the Currency of the United States (the "OCC") and is
required to furnish quarterly reports to the OCC. The approval of the OCC is
required for the establishment of additional branch offices by any national
bank, subject to applicable state law restrictions. Under current Pennsylvania
law, banking institutions located in Pennsylvania, such as the Bank, may
establish branches within any county in the Commonwealth, subject to the prior
approval of the OCC.
As a national bank, the Bank is a member of the FDIC and a member of the
Federal Reserve System and, therefore, is subject to additional regulation by
these agencies. Some of the aspects of the lending and deposit business of the
Bank which are regulated by these agencies include personal lending, mortgage
lending and reserve requirements. The operations of the Bank are also subject to
numerous Federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to interest rates on
loans, the extension of credit, credit practices, the disclosure of credit terms
and discrimination in credit transactions.
Fair Value of Financial Instruments
The Financial Accounting Standards Board ("FASB") issued statement of
financial accounting standards (SFAS) No. 107, "Disclosures About Fair Value of
Financial Instruments", which requires all entities to disclose the estimated
fair value of its assets and liabilities considered to be financial instruments.
Financial instruments consist primarily of securities, loans and deposits. The
Company has provided these disclosures as of December 31, 1995 and 1994 in Note
U of the Notes to Consolidated Financial Statements contained under the caption,
"Item 7, Financial Statements".
Accounting for Investment Securities
The Company adopted on December 31, 1993 the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". This statement provides that
the Company classify its debt and equity securities in three categories:
Trading, available-for-sale and held-to-maturity. Trading securities are
measured at fair value with unrealized holding gains and losses included in
income. The Company had no trading securities in 1995 and 1994.
Available-for-sale securities are measured at fair value with the net unrealized
gains an dlosses reported in equity. Held-to-maturity securities are carried at
amortized cost and identified as Investment Securities in the financial
statements. The classification of securities can be found in Note B of the Notes
to Consolidated Financial Statements contained under the caption, "Item 7,
Financial Statements".
<PAGE>
Capital Regulation
Banking regulators require bank holding companies and banks to maintain
certain capital levels, through risk-based capital standards by which all bank
holding companies and banks are evaluated in terms of capital adequacy. These
capital standards relate a banking company's capital to the risk profile of its
assets. The risk-based capital standards now require all banks to have Tier 1
capital of at least 4% and total capital, Tier 1 and Tier 2, of 8% of
risk-adjusted assets. Tier 1 capital includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings. Tier 2 capital may be comprised of limited life preferred
stock, qualifying debt instruments, and a limited amount of the allowance for
possible loan losses.
Banking regulators also require bank holding companies and banks to
maintain a certain Tier 1 leverage ratio. The leverage ratio requirement is
measured as the ratio of Tier 1 capital to adjusted average assets. The
following tables provide a comparison of the Company's and Bank's risk-based
capital ratios and leverage ratio to the minimum regulatory guidelines for the
periods indicated.
Capital Ratios of the Company
<TABLE>
Minimum
Company Regulatory Requirement
at December 31, 1995 1994 1996, 1995 and 1994
<S> <C> <C> <C>
Tier 1 Leverage Ratio 8.20% 8.43% 3.00% - 5.00%
Risk-Based Capital Ratio
Tier 1 Capital 14.62% 14.82% 4.00%
Total Capital 15.86% 16.06% 8.00%
</TABLE>
Capital Ratios of the Bank
<TABLE>
Minimum
Bank Regulatory Requirement
at December 31, 1995 1994 1996, 1995 and 1994
<S> <C> <C> <C>
Tier 1 Leverage Ratio 6.80% 7.23% 3.00% - 5.00%
Risk-Based Capital Ratio
Tier 1 Capital 12.41% 12.77% 4.00%
Total Capital 13.66% 14.23% 8.00%
</TABLE>
The 1991 Banking Law requires each federal Banking agency including the
Board of Governors of the Federal Reserve Bank to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of non-traditional activities,
as well as reflect the actual performance and expected risk of loss on
multi-family mortgages. All of the bank regulatory agencies recently issued a
<PAGE>
final rule that amends their capital guidelines for interest rate risk and
requires such agencies to consider in their evaluation of a bank's capital
adequacy the exposure of a bank's capital and economic value to changes in
interest rates. This final rule does not establish an explicit supervisory
threshold. The agencies intend, at a subsequent date, to incorporate explicit
minimum requirements for interest rate risk based capital standards and have
proposed a supervisory model to be used together with bank internal models to
gather data and hopefully propose at a later date explicit minimum requirements.
This law also requires each federal Banking agency, including the Federal
Reserve Board, to specify, by regulation, the levels at which an insured
institution would be considered "well-capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", or "critically
undercapitalized".
Recent Legislation
On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act").
Among other things, the Interstate Act permits bank holding companies to acquire
banks in any state one year after enactment. Pennsylvania law was recently
amended to authorize any out-of-state bank holding company to accquire control
of any state bank or national bank located in Pennsylvania afater it receives
written approval from the Pennsylvania Department of Banking. Beginning June 1,
1997, a bank may merge with a bank in another state so long as both states have
not opted out of interstate branching between the date of enactment of the
Interstate Act and May 31, 1997. States may enact laws opting out of interstate
branching before June 1, 1997, subject to certain conditions. States may also
enact laws permitting interstate merger transactions before June 1, 1997 and
host states may impose conditions on a branch resulting from an interstate
merger transaction that occurs before June 1, 1997, if the conditions do not
discriminate against out-of-state banks, are not preempted by Federal law and do
not apply or require performance after May 31, 1997. Pennsylvania has recently
enacted a law opting in immediately to interstate merger and interstate
branching transactions. Interstate acquisitions and mergers would both be
subject, in general, to certain concentration limits and state entry rules
relating to the age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended to
permit the responsible Federal regulatory agency to approve the acquisition of a
branch of an insured bank by an out-of-state bank or bank holding company
without the acquisition of the entire bank or the establishment of a "de novo"
branch only if the law of the state in which the branch is located permits
out-of-state banks to acquire a branch of a bank without acquiring the bank or
permits out-of-state banks to establish "de novo" branches. Pennsylvania
recently enacted such a law.
On September 23, 1994, the President signed into law the "Riegle Community
Development and Regulatory Improvement Act of 1994" (the "Development Act").
Among other things, the Development Act establishes a $382 million fund (the
"Fund") to promote economic development and credit availability in underserved
communities by providing financial and technical assistance to community
development financial institutions ("CDFI's").
<PAGE>
CDFI's include banks, savings associations and bank holding companies which
have a primary mission of promoting community development. Institutions
receiving monies from the Fund will be required to provide matching funds dollar
for dollar. Under the Fund, a CDFI may receive up to $5 million over a 3-year
period, with affiliates in other states not presently served eligible to receive
up to an additional $3.75 million over 3 years.
One third of the Fund will be used to finance the Bank Enterprise Act, an
existing (but previously unfunded) incentive program designed to encourage
depository institutions to increase funding in distressed neighborhoods.
In addition to the above, the Development Act contains provisions relating
to, among others, small business capital formation, small business loan
securitization, consumer protection for "reverse mortgages", paperwork reduction
and reform of the national flood insurance program.
The foregoing necessarily is a summary and general description of certain
provisions of each of the Interstate Act, the Development Act and the recently
enacted Pennsylvania law, and does not purport to be complete. Many of the
provisions of each will be implemented through the adoption of regulations by
the various Federal and state banking agencies. Moreover, many of the
significant provisions of the legislation have not yet become effective. As of
the date hereof, the Company is continuing to study the legislation and
regulations relating to the legislation but cannot yet assess its impact on the
Company.
National Monetary Policy
In addition to being affected by general economic conditions, the earnings
and growth of the Bank and, therefore, the earnings and growth of the Company,
are affected by the policies of regulatory authorities, including the OCC, the
Federal Reserve Board and the FDIC. An important function of the Federal Reserve
Board is to regulate the money supply, credit conditions and interest rates.
Among the instruments used to implement these objectives are open market
operations in United States Government securities, setting the discount rate and
changes in reserve requirements against bank deposits. These instruments are
used in varying combinations to influence overall growth and distribution of
credit, bank loans, investments and deposits, and their use may also affect
interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve Board have had
a significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future. The effects of such
policies upon the future business, earnings and growth of the Company and the
Bank cannot be predicted.
<PAGE>
Employees
As of December 31, 1995, the Company had approximately 196 employees, of
whom 52 were part-time. The Company considers its relationship with its
employees to be good.
Additional Information
The tables listed below, which are set forth on pages 17 through 23 herein,
contain unaudited information relevant to the business of the Company and the
Bank:
Investment Securities
Investment Securities Yield by Maturity
Loan Portfolio by Type
Loan Maturities and Interest Sensitivity
Allocation of Allowance for Possible Loan Losses
Average Deposit Balances
Maturities of Certificates of Deposit over $100,000
<PAGE>
INVESTMENT SECURITIES
(Unaudited)
Summary of Available-for-Sale and Held-to-Maturity Securities at December 31,
<TABLE>
1995 1994 1993
Avail-for-Sale Securities Carrying Carrying Carrying
Amount at Amount at Amount at
Amort Cost Fair Val Amort Cost Fair Val Amort Cost Fair Val
<S> <C> <C> <C> <C> <C> <C>
U. S. Treas $ 7,002 $ 7,050 $ 2,999 $ 2,922 $ 9,574 $ 9,598
U. S. Govt Agc 17,066 17,159 13,246 12,807 2,841 2,861
States and Political
Subdivisions 6,638 6,689 4,507 4,431 4,121 4,225
Mtg Backed Sec 24,529 24,689 21,759 20,720 15,609 15,796
Other Debt Sec 300 307 -- -- -- --_
------- ------- ------- ------- ------- -------
Equity Securities 2,727 3,155 2,666 2,730 2,406 2,587_
------- ------- ------- ------- ------- -------
Total Avail-for-Sale
Securities $58,262 $59,049 $45,177 $43,610 $34,551 $35,067
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
1995 1994 1993
Held-to-Maturity Securities Carrying Carrying Carrying
Amount at Amount at Amount at
Amort Cost Fair Val Amort Cost Fair Val Amort Cost Fair Val
<S> <C> <C> <C> <C> <C> <C>
U. S. Treas $ 2,997 $ 3,007 $ 8,071 $ 7,653 $ 4,108 $ 4,151
U. S. Govt Agc 6,524 6,539 5,386 5,026 3,900 3,893
States and Political
Subdivisions 2,086 2,118 4,025 3,741 2,904 2,917
Mtg Backed Sec 8,447 8,524 18,535 17,479 15,311 15,246
Other Debt Sec -- -- 508 499 637 636
------- ------- ------- ------- ------- -------
Total Held-to-Mat
Securities $20,054 $20,188 $36,525 $34,398 $26,860 $26,843
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
INVESTMENT SECURITIES YIELD BY MATURITY
The maturity distribution and weighted average yield of the investment
portfolio of the Company at December 31, 1995 are presented in the following
table. Weighted average yields on tax-exempt obligations have been computed on a
fully taxable equivalent basis assuming a tax rate of 34%. All average yields
were calculated on the book value of the related securities. Stocks having no
stated maturity have been included in the "After 10 Years" category.
Available-for-Sale and Held-to-Maturity Investment Securities
Yield by Maturity, at December 31, 1995
<TABLE>
AVAILABLE-FOR-SALE
AT FAIR VALUE After 1 But After 1
(Dollars in Within 1 Yr Within 5 Yrs Within 10 Yrs After 10 Yrs Total
Thousands,
Unaudited) Amt Yld Amt Yld Amt Yld Amt Yld Amt Yld
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US Treas $2,018 5.76% $ 5,032 5.51% $ -- --% $ -- --% $ 7,050 5.58%
US Gvt Agcy -- -- 8,561 6.31 5,693 6.58 2,905 7.98 17,159 6.68
Mtge-backed
Securities 1 7.82 2,872 5.96 2,062 4.99 19,754 6.89 24,689 6.62
State and Pol
Subdivisions 856 4.04 2,704 5.56 1,477 4.72 2,282 4.93 6,689 4.97
Other Debt Sec -- -- 307 6.64 -- -- -- -- 307 6.64
Equity Sec -- -- -- -- -- -- 3,155 4.95 3,155 4.95
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
TOTAL AVAIL-
FOR-SALE
SECURITIES $2,875 5.25% $18,846 5.97% $9,232 5.93% $28,096 6.63% $59,049 6.24%
====== ==== ======= ==== ====== ==== ======= ==== ======= ====
Average Of
Avail-for-Sale
Sec in yrs 0.67 3.59 7.53 24.24 12.68
==== ==== ==== ===== =====
HELD-TO-MATURITY
AT AMORTIZED COST After 1 But After 1
(Dollars in Within 1 Yr Within 5 Yrs Within 10 Yrs After 10 Yrs Total
Thousands,
Unaudited) Amt Yld Amt Yld Amt Yld Amt Yld Amt Yld
US Treas $1,000 4.39% $1,997 5.34% $ -- --% $ -- --% $ 2,997 5.02%
US Govt Agcy -- -- 1,895 5.36 4,629 7.00 -- -- 6,524 6.52
Mtg-backed
Securities -- -- 69 9.75 991 6.27 7,387 6.61 8,447 6.60
State and Pol
Subdivisions -- -- 1,307 4.72 319 4.95 460 5.29 2,086 4.88
------ ---- ------ --- ------ ---- ------ ---- ------- ----
TOTAL HELD-
TO-MATURITY
SECURITIES $1,000 4.39% $5,268 5.2% $5,939 6.77% $7,847 6.53% $20,054 6.16%
====== ==== ====== === ====== ==== ====== ==== ======= ====
Average Of Held
- -to-Maturity
Securities
in years 0.23 3.37 8.41 22.68 12.18
==== ==== ==== ===== =====
</TABLE>
<PAGE>
LOAN PORTFOLIO BY TYPE
The loan portfolio by type is summarized in the following table for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991.
<TABLE>
Loan Portfolio by Type (Unaudited)
(Dollars in Thousands) For the Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Real Estate - Resid $122,293 $117,205 $102,481 $124,778 $113,522
Real Estate - Const 4,959 2,861 2,557 2,353 2,793
Real Estate - Comm 35,316 35,673 36,371 30,686 30,849
Consumer/Installment 27,685 24,626 20,743 16,337 12,347
Commercial (non-RE)
and Agricultural 5,403 7,503 7,168 8,515 9,152
State and Political
Subdivisions 1,290 288 476 744 1,315
Other 13 18 22 264 16
------- ------- ------- ------- -------
TOTAL GROSS LOANS 196,959 188,174 169,818 183,677 169,994
Unearned Income (3,829) (2,959) (1,252) (445) (262)
------- ------- ------- ------- -------
Total Loans 193,130 185,215 168,566 183,232 169,732
Allowance for Possible
Loan Losses (2,443) (2,187) (1,953) (1,840) (1,702)
------- ------- ------- ------- -------
NET LOANS $190,687 $183,028 $166,613 $181,392 $168,030
======== ======== ======== ======== ========
</TABLE>
At December 31, 1995 there were no categories of loans exceeding 10% of
total loans which is not otherwise disclosed as a category of loans in the above
table.
<PAGE>
LOANS MATURITIES AND INTEREST SENSITIVITY
The maturity ranges of items in the loan portfolio (excluding residential
mortgages of 1 to 4 family residences and consumer loans) of the Bank and the
amount of loans with predetermined interest rates and floating interest rates
due after one year, as of December 31, 1995, are summarized in the table set
forth below. The determination of maturities included in the table are based
upon contract terms. Demand loans that do not have a defined repayment term are
reported as maturing within one year. In situations where a rollover is
appropriate, the Bank's policy in this regard is to evaluate the credit for
collectibility consistent with the normal loan evaluation process. This policy
is used primarily in evaluating ongoing customers' use of their lines of credit
with the Bank that are at floating interest rates. Management continues to
emphasize the granting of floating interest rate loans to better match the
interest sensitivity of deposits.
Loan Maturity and Interest Sensitivity (Unaudited)
<TABLE>
Due in Due in Due in
As of December 31, 1995 One Year One to Over
(Dollars in Thousands) or Less Five Years Five Year Total
<S> <C> <C> <C> <C>
Real Estate - Construction $ 1,801 $ 237 $ 2,921 $ 4,959
Real Estate - Commercial 2,350 6,339 26,627 35,316
Commercial (Non-Real Estate)
and Agricultural 2,871 1,753 779 5,403
------- ------- ------- -------
TOTAL $ 7,022 $ 8,329 $30,327 $45,678
======= ======= ======= =======
Loan Maturity After 1 Year With:
Predetermined Interest Rate $ 463 $ 2,427
Floating Interest Rate 7,866 27,900
----- ------
TOTAL $ 8,329 $30,327
======= =======
</TABLE>
<PAGE>
The following table details the Allocation of the Allowance for Possible
Loan Losses by the various loan categories. The allocation is not necessarily
indicative of the categories in which future loan losses will occur, and the
entire allowance is available to absorb losses in any category of loans.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
(Unaudited)
As of December 31,
1995 1994 1993 1992 1991
Loan Categories (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $1,049 $1,142 $ 815 $ 754 $ 799
Real Estate- Construction 3 69 80 59 15
Real Estate - Residential 184 143 78 82 87
Consumer/Installment 534 451 393 254 214
Unallocated 673 382 587 691 587
------ ------ ------ ------ ------
TOTAL $2,443 $2,187 $1,953 $1,840 $1,702
====== ====== ====== ====== ======
</TABLE>
PERCENTAGE OF TOTAL LOANS IN EACH CATEGORY TO TOTAL LOANS
<TABLE>
Loan Categories (Dollars in Thousands)
As of December 31,
1995 1994 1993 1992 1991
Loan Categories (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial 21.33% 23.11% 26.12% 20.50% 24.32%
Real Estate - Construction 2.52 1.52 1.52 1.31 1.64
Real Estate - Residential 62.09 62.28 60.80 72.08 66.78
Consumer/Installment 14.06 13.09 11.56 6.11 7.26
------ ------ ------ ------ ------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
The average balances of deposits for each of the years ended December 31,
1995, 1994 and 1993 are presented in the following table.
AVERAGE DEPOSIT BALANCE BY MAJOR CLASSIFICATION
(Unaudited)
<TABLE>
For the Year Ended December 31,
1995 1994 1993
Average Average Average
Balance Rate Balance Rate Balance Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits
Non-Interest Bearing $ 23,782 --- % $ 23,347 --- % $ 19,778 --- %
Interest Bearing 42,955 1.84 43,636 1.72 36,482 2.25
Money Market Deposits 17,639 2.81 20,383 2.40 22,802 2.62
Savings & Club Accounts 65,452 2.67 70,442 2.66 61,456 3.06
Certificates of Deposit
under $100,000 90,925 5.47 79,650 4.55 78,796 4.97
Certificates of Deposit
of $100,000 or more 6,184 5.24 2,961 3.75 3,523 3.78
----- ----- -----
Total Deposits $246,937 $240,419 $222,837
======== ======== ========
</TABLE>
MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
(Unaudited)
<TABLE>
At December 31,
(Dollars in Thousands) 1995 1994
<S> <C> <C>
Three Months or Less $1,800 $2,623
Over Three, Through Six Months 2,312 1,131
Over Six, Through Twelve Months 1,064 671
Over Twelve Months 1,447 705
------ ------
TOTAL $6,623 $5,130
====== ======
</TABLE>
There were no brokered deposits at December 31, 1995 and 1994.
<PAGE>
Item 2. Description of Property
The principal banking office of the Bank and the executive offices of the
Bank and the Company are located at 76 South Main Street in the Borough of
Nazareth, Northampton County, Pennsylvania, which building is owned by the Bank.
In addition, the Bank owns additional properties located at 29 South Broad
Street, Nazareth, Pennsylvania (Mortgage and Instalment Loan Center); 553
Nazareth Drive, Nazareth, Pennsylvania (Branch Office); 33 S. Broad Street,
Nazareth (Branch Office), 2000 Sullivan Trail, Easton, Pennsylvania (Branch
Office), 3864 Adler Place, Bethlehem Business Park, Bethlehem, Pennsylvania
(First Colonial Building, Computer and Operations Center), Rt. 209
Brodheadsville, Pennsylvania (Branch Office), and 3856 Easton-Nazareth Highway
(Route 248), Lower Nazareth Township, Easton, Pennsylvania (free-standing,
drive-up ATM location).
The Bank also leases facilities for its branch office located at 44 East
Broad Street, Bethlehem, Pennsylvania; its branch office located at 4510 Bath
Pike in Hanover Township (Bethlehem), Pennsylvania; its branch office located at
101 South Third Street, Easton, Pennsylvania; its branch office located at 1125
N. Ninth Street, Stroudsburg, Pennsylvania; its branch office located in the
Hall Square Retirement Center, 175 W. North Street, Nazareth, Pennsylvania; its
branch office located within Redner's Supermarket, Airport Road, Allentown,
Pennsylvania; and its branch office located within Redner's Supermarket,
Northampton Crossings Shopping Center, Lower Nazareth Township, Pennsylvania.
Item 3. Legal Proceedings
Neither the Company, the Bank nor any of their properties is subject to
other material legal proceedings, nor are any such proceedings known to be
contemplated by any governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of shareholders during the fourth quarter
of the fiscal year covered by this report.
<PAGE>
Appendix A to Part I: Executive Officers of the Registrant
The following table sets forth certain information, as of March 18, 1996,
concerning the executive officers of the Company and certain executive officers
of the Bank. All executive officers are elected by the respective Boards of
Directors of the Company and the Bank and hold office at the discretion of such
Boards.
Name/Age Positions Positions
with the Company with the Bank
John J. Schlamp Chairman of the Board Chairman of the Board
70 (a) since January, 1987 since 1984
S. Eric Beattie President and Chief President since 1984;
49 (b) Executive Officer since Chief Executive Officer
January, 1987 January, 1987
Reid L. Heeren Treasurer since January, Senior Vice President and
54 (c) 1987; Vice President since Chief Financial Officer since
April, 1985 January, 1987; Cashier since
November, 1984
Gerald E. Kemmerer None Senior Vice President and
64 (d) Senior Loan Officer since
July, 1994
Arthur Williams None Senior Vice President,
50 (e) Administration since
November, 1988
Barbara A. Seifert None Vice President,
42 (f) Senior Trust Officer
since December, 1985
(a) Mr. Schlamp was previously (i) President and Chief Executive
Officer of the Company from 1983 to January, 1987, (ii) President
of the Bank from 1976 to 1984 and (iii) Chief Executive Officer
of the Bank from 1976 to January, 1987.
<PAGE>
(b) Mr. Beattie was previously (i) Executive Vice President of the
Company from 1983 to January, 1987, (ii) Chief Operating Officer
of the Bank from 1984 to January, 1987, (iii) a Senior Vice President
of the Bank from 1981 to 1984 and (iv) a Senior Trust Officer of the Bank
from 1979 to 1981.
c) Mr. Heeren was previously Vice President, Finance of the Bank
from November, 1984 to January, 1987. Prior to November, 1984, Mr. Heeren
was employed by the American Bank and Trust Company, headquartered in
Reading, Pennsylvania, as Vice President for Financial Management
(September, 1982 to November, 1984) and as Vice President, Community
Banking, Chester County, Pennsylvania (March, 1982 to September, 1982).
(d) Mr. Kemmerer was previously Executive Vice President, Chief
Lending Officer of Twin Rivers Community Bank from June, 1990 to July,
1994. Prior to June, 1990 Mr. Kemmerer was employed by Merchants Bank,
N.A. (successor to Easton National Bank & Trust Co.) from September, 1949,
retiring in December, 1989. During those years, Mr. Kemmerer served by
bank in many different capacities and at the time of retirement was Senior
Vice President, Senior Lender at Merchants.
(e) Mr. Williams was previously Vice President of the Bank, serving
as branch administrator with business development and commercial lending
duties, from April 1985 to November, 1988. Prior to April 1985, Mr.
Williams was a Vice President of United Penn Bank, serving as Regional
Administrator of its Northern Region (March 1980 to March 1985).
(f) Ms. Seifert was previously Senior Trust Officer of the Bank from
1984 to December, 1985. Prior to 1984, Ms. Seifert held various officer
positions in the Trust Division of the Bank beginning in December, 1981.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
First Colonial Group, Inc. common stock trades on the Nasdaq Stock Market
under the trading symbol FTCG. In newspaper listings First Colonial Group, Inc.
shares are frequently listed as "First Colnl" or "First Col Group". At the close
of business on December 31, 1995 there were 808 shareholders of record.
The declaration and payment of dividends is at the sole discretion of the
Board of Directors and their amount depends upon the earnings, financial
condition, and capital needs of the Company and the Bank and certain other
factors including restrictions arising from Federal banking laws and regulations
(see "Note S- Regulatory Matters" in the "Notes to Consolidated Financial
Statements" contained in "Item 7, Financial Statements") and a certain loan
agreement (see "Note H - Long-Term Debt" in the "Notes to Consolidated Financial
Statements" contained in "Item 7, Financial Statements").
The following table sets forth for the periods indicated high and low sale
prices reported for the Company's common stock and the respective dividends
declared per common share. The last sale price was $18.00 in December 1995 and
$15.50 in December 1994. Stock prices and dividends per share have been restated
to reflect the 5% stock dividend of June 1994 (see "Note T Equity Transactions"
in the "Notes to Consolidated Financial Statements" contained in "Item 7,
Financial Statements").
1994 High Low Cash Dividends
Declared
First Quarter $19.05 $16.19 $ 0.1619
Second Quarter 17.26 15.48 0.1619
Third Quarter 19.75 17.00 0.1700
Fourth Quarter 19.25 15.50 0.1700
---------
TOTAL $ 0.6638
=========
1995
First Quarter $17.25 $15.75 $ 0.1700
Second Quarter 17.00 14.38 0.1700
Third Quarter 18.25 15.75 0.1700
Fourth Quarter 19.00 17.25 0.1700
---------
TOTAL $ 0.6800
=========
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following financial review and analysis is intended to assist in
understanding and evaluating the major changes in the financial condition and
earnings performance of First Colonial Group, Inc. (the "Company") with a
primary focus on the analysis of operating results for the years ended December
31, 1995, 1994 and 1993. The Company's consolidated earnings are derived
primarily from the operations of Nazareth National Bank and Trust Company (the
"Bank") and First C. G. Company, Inc. ("First C. G."). The information below
should be read in conjunction with the Company's consolidated financial
statements and accompanying notes thereto, and other detailed information
appearing elsewhere in this report. Additional financial information can be
found in the Company's Form 10-KSB report, a copy of which may be obtained upon
request. During the two most recent fiscal years there have been no changes in
or disagreements with the Company's accountants on accounting and financial
disclosure.
Forward Looking Statements
The information contained in this Annual Report contains forward looking
statements (as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements as to the
allowance and provision for possible loan losses, future interest rates and
their effect on the Company's financial condition or results of operations, the
classification of the Company's investment portfolio and other statements as to
management's beliefs, expectations or opinions. Such forward looking statements
are subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the forward
looking statements. Certain of these risks, uncertainties and other factors are
discussed in this Annual Report or in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, a copy of which may be obtained from the
Company upon request and without charge (except for the exhibits thereto).
Financial Performance Summary
Consolidated net income in 1995 was $1,401,000 as compared to $2,342,000 in
1994, a decrease of $941,000 or 40.2%. In 1994, net income increased by $434,000
or 22.7% from net income of $1,908,000 in 1993. Earnings per share were $0.98 in
1995 compared to $1.66 in 1994 and $1.55 in 1993. The average shares of common
stock outstanding in 1995, 1994 and 1993 were 1,432,753, 1,411,046 and
1,233,543, respectively.
The 1995 earnings decrease is principally attributable to a loss of
$1,264,000 due to the overdrafts of a certain customer. These overdraft losses
were the primary reason for the increase in the provision for possible loan
losses of $1,378,000. Also affecting earnings was an increase in total other
expenses of $1,120,000 offset in part by a $810,000 increase in net interest
income and an increase of $244,000 in total other income.
The increase in the provision for possible loan losses is principally due
to overdrafts of a certain customer. The Company has taken legal action to
recover these funds (see discussion on "Allowance and Provision for Possible
Loan Losses"). Total operating expenses increased due to higher salary and
<PAGE>
occupancy expenses as a result of a full year's operation of the
Stroudsburg branch acquired in October 1994, the opening of the two supermarket
branches in 1995 (Airport Road in March and Northampton Crossings in December)
and the acquisition of the Pointe North branch in November 1995 combined with
the concurrent closing of the Park Plaza branch. Also increasing operating
expenses were higher legal expenses related to the overdrafts, and additional
advertising expenses resulting from the new branches. These increases in
expenses were partially offset by a decrease in Federal Deposit Insurance
premiums (see discussion on "Other Expenses" and Note I of the "Notes to
Consolidated Financial Statements"). Net interest income was $12,644,000 in 1995
as compared to $11,834,000 in 1994. This increase of 6.8% is due in part to the
new branches and growth in loans and deposits (see discussion on "Net Interest
Income"). Total other income including service charges on deposits, trust
revenues, net securities gains, and gains on the sale of mortgage loans was
$2,274,000 in 1995 as compared to $2,030,000, a gain of 12.0% in 1994. Most of
this increase was in service charges on deposit accounts (see discussion on
"Service Charges and Other Income"). The net gains on the sale of securities was
$22,000 in 1995 versus $97,000 in 1994 (see discussion on "Securities
Available-for-Sale").
The gain on the sale of mortgage loans held-for-sale for 1995 was $22,000
as compared to $37,000 in 1994 (see discussion on "Mortgage Loans
Held-for-Sale"). Federal income taxes decreased by $503,000 in 1995 from
$1,018,000 in 1994 to $515,000 as a result of the lower earnings.
The improvement in 1994 net income reflected higher net interest income,
increases in trust revenues, service charges on deposit accounts and reductions
in the provision for possible loan losses partially reduced by higher operating
expenses and reductions in net security gains and gains on the sale of mortgage
loans. Net interest income for 1994 was $11,834,000 as compared to $10,957,000
for 1993, an increase of $877,000 or 8.0%. Total other income declined in 1994
by $300,000 or 12.8% to $2,030,000 from the 1993 amount of $2,330,000. Included
in this decrease are a $380,000 reduction in gains on the sale of mortgage loans
from $417,000 in 1993 to $37,000 in 1994 and a reduction in net gains on the
sale of securities of $111,000 from $208,000 in 1993. Service charges on deposit
accounts increased in 1994 by $154,000 or 23.9%. Trust revenues increased by
$10,000 in 1994 and other operating income increased by $27,000. The provision
for possible loan losses was $420,000 for 1994 which is $345,000 or 45.1% lower
than the 1993 provision of $765,000. The decline in the provision for possible
loan losses was the result of lower charge-offs in 1994. Total other expenses
for 1994 were $10,084,000 as compared to $9,845,000 in 1993. This increase of
$239,000 or 2.4% is primarily attributable to the acquisition of new branches
and normal expense increases. Federal income tax increased by $249,000 in 1994
to a total of $1,018,000 as compared to $769,000 in 1993. This increase is the
result of higher net income before taxes.
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
(Dollars in Thousands,
except per share data)
For the Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest Income $ 21,896 $ 18,986 $ 18,525 $ 19,649 $ 20,645
Interest Expense 9,252 7,152 7,568 9,346 11,467
--------- --------- --------- --------- ---------
Net Interest Income 12,644 11,834 10,957 10,303 9,178
Provision for Possible
Loan Losses 1,798 420 765 1,119 810
Gains on the Sale of
Mortgage Loans 22 37 417 --- ---
Other Income, Excluding
Securities and Loan
Sale Gains 2,230 1,896 1,705 1,554 1,423
Securities Gains, Net 22 97 208 216 50
Other Expense 11,204 10,084 9,845 10,351 8,364
--------- --------- --------- --------- ---------
Income Before Income Taxes
and Cumulative Effect of
Accounting Method Change 1,916 3,360 2,677 603 1,477
Applicable Income Taxes 515 1,018 769 22 260
--------- --------- --------- --------- ---------
Income Before Cumulative Effect
of Accounting Method Change 1,401 2,342 1,908 581 1,217
Cumulative Effect of Accounting
Method Change(1) --- --- --- 117 ---
--------- --------- --------- --------- ---------
Net Income $ 1,401 $ 2,342 $ 1,908 $ 698 $ 1,217
--------- --------- --------- --------- ---------
Cash Dividends Paid $ 972 $ 936 $ 812 720 $ 715
Cash Dividends Paid Per Share 0.68 0.66 0.65 0.65 0.65
Dividends Paid to Net Income 69.38% 39.97% 42.56% 103.15% 58.75%
PER SHARE DATA:
Income Before Cumulative Effect
of Accounting Method Change $ 0.98 $ 1.66 $ 1.55 $ 0.52 $ 1.10
Cumulative Effect of Accounting
Method Change --- --- --- .11 ---
Net Income 0.98 1.66 1.55 .63 1.10
Average Common Shares
Outstanding 1,432,753 1,411,046 1,233,543 1,112,680 1,104,327
CONSOLIDATED BALANCE SHEET DATA:
Total Assets $298,514 $284,553 $268,738 $246,072 $226,003
Loans (Net of
Unearned Discount) 193,130 185,215 168,566 183,232 169,732
Mortgage Loans Held-for-Sale 1,006 69 15,378 --- ---
Deposits 254,102 247,532 235,565 218,378 198,753
Securities Sold Under
Agreements to Repurchase 6,096 9,027 4,711 3,533 3,520
Debt (Short-Term and Long-Term) 7,643 1,612 1,331 1,132 1,550
Shareholders' Equity 24,767 22,400 21,994 16,058 15,912
Book Value Per Share 16.84 15.39 15.26 14.37 14.35
SELECTED CONSOLIDATED RATIOS:
Net Income To:
Average Total Assets .48% .85% .76% .29% .55%
Average Shareholders' Equity 5.98% 10.51% 10.43% 4.27% 7.84%
Average Shareholders' Equity
to Average Assets 8.00% 8.10% 7.24% 6.81% 6.98%
</TABLE>
(1) See Notes A7 and J to the Consolidated Financial Statements.
<PAGE>
CONSOLIDATED COMPARATIVE STATEMENT ANALYSIS
(Dollars inThousands)
For the Year Ended
December 31, 1995 1994 1993
Int Avg Int Avg Int Avg
Avg Inc/ Yld Avg Inc/ Yld Avg Inc/ Yld
Bal Exp Rate Bal Exp Rate Bal Exp Rate
ASSETS
INTEREST-EARNING
ASSETS
Interest-Bearing
Balances with
Banks $2,313 $ 133 5.75% $3,507 $ 158 4.49% $3,649 $ 123 3.40%
Fed Fds Sold 139 6 4.32 1,471 57 3.86 1,430 42 2.94
Inv. Sec
Taxable 73,712 4,477 6.07 66,967 3,439 5.13 45,301 2,372 5.24
Non-Tax (1) 8,408 583 6.94 7,516 527 7.02 7,118 580 8.15
Loans (1) (2 190,874 16,927 8.87 178,624 15,012 8.40 180,850 15,632 8.64
Allowance for
Loan Losses (2,708) --- --- (2,084) --- --- (1,938) --- ---
------- ------ ------- ------ ------- ------
Net Loans 188,166 16,927 9.00 176,540 15,012 8.50 178,912 15,632 8.59
------- ------ ------- ------ ------- ------
Total Int-
Earn Assets 272,738 22,126 8.11 256,001 19,193 7.50 236,410 18,749 7.93
Non-Interest
Earning Assets 20,466 --- --- 19,247 --- --- 16,181 --- ---
------- ------ ------- ------ ------- ------
TOTAL ASSETS,
INT INC $293,204 22,126 7.55 $275,248 19,193 6.97 $252,591 18,749 7.42
------- ------ ------- ------ ------- ------
LIABILITIES
INT-BEARING
LIABILITIES
Int-Bearing Dep
Demand Dep $ 42,955 $ 791 1.84 $ 43,636 752 1.72 $ 36,482 821 2.25
Money Market
Deposits 17,639 496 2.81 20,383 490 2.40 22,802 598 2.62
Svgs & Club
Deposits 65,452 1,750 2.67 70,442 1,876 2.66 61,456 1,883 3.06
CD's over
$100,000 6,184 324 5.24 2,961 111 3.75 3,523 133 3.78
All Other
Time Deposits 90,925 4,970 5.47 79,650 3,624 4.55 78,796 3,916 4.97
------- ------ ------- ------ ------- ------
Total Int-
Bear Dep $223,155 8,331 3.73 217,072 6,853 3.16 203,059 7,351 3.62
Securities Sold
Under Agree
to Repurchase 9,298 346 3.72 6,428 161 2.51 4,078 85 2.08
Other Short-Term
Borrowing 5,743 338 5.89 177 8 4.44 317 15 4.73
Long-Term Debt 2,207 236 10.69 1,075 130 12.08 1,133 117 10.33
------- ------ ------- ------ ------- ------
Total Int-
Bear Liab 240,403 9,251 3.85 224,752 7,152 3.18 208,587 7,568 3.63
NON-INT
BEARING LIAB
Non-Int
Bear Dep 23,782 --- --- 23,347 --- --- 19,778 --- ---
Other Liab 5,575 --- --- 4,855 --- --- 5,929 --- ---
------- ------ ------- ------ ------- ------
TOTAL LIAB 269,760 9,251 3.43 252,954 7,152 2.83 234,294 7,568 3.23
SHAREHOLDERS'
EQUITY 23,444 --- --- 22,294 --- --- 18,297 --- ---
------- ------ ------- ------ ------- ------
TOTAL LIAB &
SHAREHOLDERS'
EQUITY,
INT EXP $293,204 9,251 3.16 $275,248 7,152 2.60 $252,591 7,568 3.00
------- ------ ------- ------ ------- ------
NET INT INC $12,875 $12,041 $11,181
------ ------ ------
Net Int
Spread (3) 4.26 4.37 4.30
Effect of
Int-Free
Sources Used to
Fund Earn Assets 0.46 0.33 .43
NET INTEREST MARGIN (4) 4.72% 4.70% 4.73%
---- ---- ----
<PAGE>
(1) The indicated interest income and average yields are presented on a taxable
equivalent basis. The taxable equivalent adjustments included above are
$231,000, $207,000 and $224,000 for the years 1995, 1994 and 1993,
respectively. The effective tax rate used for the taxable equivalent
adjustment was 34%.
(2) Loan fees of $101,000, $406,000 and $728,000 for the years 1995, 1994 and
1993, respectively, are included in interest income. Average loan balances
include non-accruing loans and average loans held-for-sale of $682,000,
$2,462,000 and $42,000 for 1995, 1994 and 1993, respectively.
(3) Net interest spread is the arithmetic difference between yield on
interest-earning assets and the rate paid on interest-bearing liabilities.
(4) Net interest margin is computed by dividing net interest income by
averaging interest-earning assets.
<PAGE>
Average Balances
The Consolidated Comparative Statement Analysis on page 8 sets forth a
comparison of average daily balances, interest income and interest expense on a
fully taxable equivalent basis and interest rates calculated for each major
category of interest-earning assets and interest-bearing liabilities. For
purposes of this analysis, the computations in the Consolidated Comparative
Statement Analysis were prepared using the Federal statutory rate of 34%; there
are no state or local taxes on income applicable to the Company. For further
information relating to the effective income tax rate of the Company, see Note J
of "Notes to Consolidated Financial Statements". Interest income on loans
includes loan fees of $101,000, $406,000 and $728,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Net Interest Income
Net interest income is the difference between the interest income on loans,
investments and other interest-earning assets, and the interest paid on deposits
and other interest-bearing liabilities. Net interest income is the primary
source of earnings for the Company. Therefore, increases in this category are
considered by management to be essential to the continued growth in the overall
net income of the Company. The net interest income, on a fully taxable
equivalent basis, amounted to $12,875,000 for 1995, an increase of 6.9% or
$834,000 over $12,041,000 in 1994. As shown in the "Rate/Volume Analysis" table,
the increase in net interest income in 1995 was attributable to higher net
interest income from changes in volume of $579,000 and changes in rates of
$255,000. The volume-related change resulted primarily from increased average
balances for investments, loans (including mortgage loans held-for-sale; see
discussion on Loans and Mortgages Held-for-Sale) and an increase in certificates
of deposit over $100,000 and other time deposits, partially offset by declines
in interest-bearing demand deposits, money market deposits, savings and club
deposits (see discussion on Deposits). The rate-related change was primarily the
result of the increase of interest paid on deposits being less than the increase
on interest earned on investments and loans. Net interest income, on a fully
taxable equivalent basis, in 1994 increased 7.7% or $860,000 over the 1993
figure of $11,181,000. This increase was the result of an increase in
investments partially reduced by a decline in loans (including mortgage loans
held-for-sale) as an increase in average demand, savings, club and time
deposits. Also affecting 1994 net interest income was a decline of interest
earned on loans and investments that was less than the decline on interest paid
on deposits.
The net interest margin, a measure of net interest income performance, is
determined by dividing net interest income by total interest-earning assets. The
net interest margin was 4.72% for 1995, 4.70% for 1994 and 4.73% for 1993. The
increase in 1995 was the result of interest-earning assets increasing at a
greater rate than non-interest earning assets which was partially offset by a
decrease in the net interest spread, the difference of interest earned on assets
less the interest paid on deposits and debt. The interest spread was 4.26%,
4.37% and 4.30% for 1995, 1994 and 1993, respectively.
<PAGE>
The following table sets forth a rate/volume analysis, which segregates in
detail the major factors that contributed to the changes in net interest income
for the years ended December 31, 1995 and 1994, as compared to the respective
previous periods, into amounts attributable to both rate and volume variances.
In calculating the variances, the changes were first segregated into (1) changes
in volume (change in volume times the old rate), (2) changes in rates (change in
rate times the old volume) and (3) changes in rate/volume (changes in rate times
the change in volume). The latter, changes in rate/volume, has been allocated in
its entirety to the change in rates. The interest income included in the
rate/volume analysis table has been adjusted to a fully taxable equivalent
amount using the Federal Statutory tax rate of 34%. Non-accruing loans have been
used in the daily average balances to determine changes in interest income due
to volume. Loan fees included in the interest income calculation are not
material.
<TABLE>
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
(Fully Taxable Equivalent)
Increase (Decrease) in Year Ended December 31,
1995 to 1994 1994 to 1993
Change Due to: Change Due To:
TOTAL RATE VOLUME TOTAL RATE VOLUME
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest-Bearing
Balances With Banks $ (25) $ 29 $ (54) $ 34 $ 39 $ (5)
Federal Funds Sold (51) -- (51) 15 14 1
Investment Securities 1,094 688 406 1,014 (229) 1,243
Loans 1,915 720 1,195 (618) (217) (401)
----- --- --- ----- ---- -----
Total Interest Income 2,933 1,437 1,496 445 (393) 838
----- --- --- ----- ---- -----
Interest Expense
Demand Deposits,
Savings & Clubs (81) 114 (195) (184) (559) 375
Time Deposits 1,559 903 656 (313) (327) 14
Federal Funds Purchased
and Securities Sold
Under Agreements
to Repurchase 185 113 72 76 27 49
Short-Term Borrowings 344 97 247 (7) -- (7)
Long-Term Borrowings 92 (45) 137 13 19 (6)
----- --- --- ----- ---- -----
Total Interest Expense 2,099 1,182 917 (415) (840) 425
----- --- --- ----- ---- -----
Increase in Net
Interest Income $ 834 $ 255 $ 579 $ 860 $ 447 $ 413
----- --- --- ----- ---- -----
</TABLE>
<PAGE>
Interest Rate Sensitivity
Interest rate sensitivity is a measure of the extent to which net interest
income would change due to changes in the level of interest rates. The objective
of interest rate sensitivity management is to reduce a company's vulnerability
to future interest rate fluctuations and to enhance consistent growth of net
interest income. The Bank's Asset/Liability Management Committee meets
semi-monthly to examine, among other subjects, interest rates for various
products and interest sensitivity.
Rate sensitivity arises from the difference between the volumes of assets
which are rate-sensitive as compared to the volumes of liabilities which are
rate-sensitive. A comparison of interest rate-sensitive assets to interest
rate-sensitive liabilities is monitored by the Bank on a regular basis using
several time periods. The mismatch of assets and liabilities in a specific time
frame is referred to as interest sensitivity gap. Generally, in an environment
of rising interest rates, a negative gap will decrease net interest income, and
in an environment of falling interest rates, a negative gap will increase net
interest income.
While using this analysis is a useful management tool as it considers the
quantity of assets and liabilities subject to repricing in a given time period,
it does not consider the relative sensitivity to market interest-rate changes
that are characteristic of various interest rate-sensitive assets and
liabilities. Consequently, even though the Company maintains a negative gap
position because of the unequal sensitivity of these assets and liabilities,
this position does not materially impact earnings in a changing rate
environment. For example, changes in the prime rate on variable commercial loans
may not result in an equal change in the rate of money market deposits or
short-term certificates of deposit. A simulation model is therefore used to
estimate the impact of various changes, both upward and downward, in market
interest rates and volumes of assets and liabilities on the Bank's net income.
By using a simulation model which takes into account these factors combined with
the current negative gap position as indicated in the "Interest Sensitivity"
table, management believes there is no significant impact on net interest income
in both rising and declining interest-rate environments. This strategy is
believed by the Bank to minimize the overall interest-rate risk.
Assets and liabilities are allocated to a specific time period based on
their scheduled repricing date or on an historical basis. At December 31, 1995,
assets of $124,779,000 (41.8% of total assets) were subject to interest rate
changes within one year. This compares to assets subject to interest rate
changes within one year of $127,565,000 (44.8% of total assets) at the end of
1994 and $134,906,000 (50.2% of total assets) at the end of 1993. Liabilities
subject to rate change within one year were $133,068,000, $146,710,000 and
$136,858,000 in 1995, 1994 and 1993, respectively. A negative one-year gap
position of $8,289,000 existed as of December 31, 1995. The gap positions at
December 31, 1994 and 1993 were negative $19,145,000 and negative $1,952,000,
respectively. The ratio of rate-sensitive assets to rate-sensitive liabilities
for the one-year time frame was .94 at the end of 1995, compared to .87 at the
end of 1994 and .99 at the end of 1993. The "Interest Sensitivity Analysis"
table on page below presents a sensitivity gap analysis of the Company's assets
and liabilities at December 31, 1995 for five time-intervals. The Company's
liability sensitive position decreased in 1995 as a result of an increase in
longer term certificates of deposit combined with a reduction of money market
and savings deposits. This change in the deposit mix was due to higher interest
rates early in the year and customer anticipation of lower interest rates in the
future. Also affecting an increase in the liability sensitive position were some
increases in some longer term loans. Management intends to continue to purchase
adjustable rate securities, make adjustable rate loans and market longer-term
certificates of deposit to maintain an acceptable gap position.
<PAGE>
<TABLE>
Interest Sensitivity Analysis
(Dollars in Thousands) as of December 31, 1995
0-90 91-180 181-365 1-5
Days Days Days Years Over 5 years Totals
<S> <C> <C> <C> <C> <C> <C>
Int-Bearing Dep
with Banks $ 538 $ 99 $ -- $ 198 $ -- $ 835
Federal Funds Sold 3,600 -- -- -- -- 3,600
Inv Sec 17,816 11,624 14,360 27,803 7,500 79,103
Loans Held for Sale 1,006 -- -- -- -- 1,006
Loans 28,863 12,765 22,159 54,425 72,475 190,687
Other Assets 11,949 -- -- -- 11,334 23,283
------- -------- ------- ------- -------- --------
TOTAL ASSETS $63,772 $ 24,488 $36,519 $ 82,426 $91,309 $298,514
------- -------- ------- ------- -------- --------
Non-Interest-Bearing
Deposits $26,690 $ -- $ -- $ -- $ -- $ 26,690
Int-Bearing Dep 49,895 20,131 22,613 43,066 91,707 227,412
Sec Sold Under
Agreements
to Repurchase 6,096 -- -- -- -- 6,096
Long-Term Debt 643 -- -- -- -- 643
Short-Term Borrowing 7,000 -- -- -- -- 7,000
Other -- -- -- -- 5,906 5,906
Capital -- -- -- -- 24,767 24,767
------- -------- ------- ------- -------- --------
TOTAL LIABILITIES
AND CAPITAL $90,324 $ 20,131 $22,613 $43,066 $122,380 $298,514
------- -------- ------- ------- -------- --------
Net Interest
Sensitivity Gap $(26,552) $ 4,357 $13,906 $39,360 $(31,071) $ --
Cumulative Interest
Sensitivity Gap $(26,552) $(22,195) $(8,289) $31,071 $ -- $ --
</TABLE>
<PAGE>
Service Charges and Other Income
Service charge income amounted to $1,034,000 in 1995 compared to $798,000
in 1994 and $644,000 in 1993. In 1995 the service charges increased by $236,000
or 29.6% over 1994 and the 1994 increase over 1993 was $154,000 or 23.9%. The
increase in 1995 was primarily the result of increases in the number of deposit
accounts and the increase in some deposit related fees. The increase in 1994
over 1993 was due primarily to increases in deposit volume and the establishment
of a fee for automated teller machine services.
In 1995 the Company had gains on the sale of mortgage loans of $22,000
which were $15,000 or 40.5% less than the 1994 gains of $37,000. The decrease in
1995 was due to a lower volume of mortgage loan sales (see discussion on
Mortgage Loans Held-for-Sale).
Other income was $560,000 in 1995, an increase of $73,000 or 15.0% compared
to $487,000 in 1994. Other income for 1993 was $460,000. These increases are the
result of higher loan fees due to larger volumes and increases in miscellaneous
non-deposit service fees.
Trust Department
Revenue from the Bank's Trust Department operations was $636,000 in 1995,
representing an increase of $25,000 or 4.1% over revenue of $611,000 in 1994. In
comparison, the Trust Department revenue for 1994 increased by 1.7% or $10,000
over the 1993 revenue of $601,000. Trust assets are held by the Bank for its
customers in a fiduciary or agency capacity, and thus are not included in the
financial statements of the Company. Trust Department assets were $173,435,000
and $150,053,000 at December 31, 1995 and 1994, respectively.
A new investment product was developed in 1995 by the Trust Department.
Smart Accessible Money ("SAM") is a money market mutual fund program which
provides daily liquidity and market rates of interest to customers with
investable balances in excess of $50,000. The balances are invested through a
trust custody account. The total amount invested in the SAM program at the end
of 1995 was $5,838,000.
Other Expenses
Salaries and employee benefits represent a significant portion of
non-interest expense. These expenses, amounting to $5,132,000, increased by
$492,000 or 10.6 % in 1995 compared to $4,640,000 in 1994. These expenses in
1994 amounted to an increase of 8.0% over the $4,295,000 reported in 1993. The
increase in 1995 was primarily due to salary increases of approximately 4%,
added staff as a result of the purchase of the Stroudsburg branch, the opening
of the two new supermarket branches, and modest other staff additions. Salary
expense in 1994 increased due to normal salary increases of approximately 3% and
some staff additions including the new Brodheadsville and Stroudsburg branches.
Occupancy and equipment expenses were $1,991,000 in 1995, which was a 17.3%
or a $293,000 increase from $1,698,000 in 1994. The 1994 amount was 9.8% more
than the 1993 occupancy and equipment expense of $1,547,000. Most of the
increase in 1995 was due to the establishment of two new supermarket branches
(Airport Road and Northampton Crossings), the purchase of the Pointe North
branch and concurrent closing of the Park Plaza branch, and scheduled increases
in building rent. The additional occupancy and equipment expenses in 1994 are
primarily due to the purchase of our Stroudsburg branch, major maintenance
projects in several branches and scheduled increases in building rent. Occupancy
and equipment expenses are expected to increase by approximately $260,000 in
<PAGE>
1996 as the result of the planned purchase of additional computer equipment, a
full year of expenses for the new supermarket branches and scheduled rent
increases.
Other operating expenses (such as litigation costs, deposit insurance
premiums, data processing fees, legal, accounting, supplies, postage, telephone,
advertising and publicity) for 1995 were $4,081,000, in relation to $3,746,000
for 1994 and $4,003,000 for 1993. The increase in 1995 of $335,000 or 8.9% was
primarily due to higher legal fees as a result of the overdrafts of a customer,
increases in advertising, postage and data processing expenses offset in part by
lower Federal Deposit Insurance premiums. The decrease in 1994 of $257,000 or
6.4% was the result of reduced legal fees, insurance premiums and State taxes
partially offset by increases in loan collection costs, postage, advertising,
supplies and Federal Deposit Insurance premiums. The AICPA's Accounting
Standards Executive Committee issued Statement of Position (SOP) 93-7,
"Reporting on Advertising Costs", which requires disclosures regarding an
entity's advertising activities. The Company's advertising costs are expensed as
incurred. Advertising costs were $294,000 and $228,000 for the years ended
December 31, 1995 and 1994, respectively (see Notes A.14 and I of the "Notes to
Consolidated Financial Statements").
Investment Securities
The Company classifies its debt and marketable securities into three
categories: trading, available-for-sale, and held-to-maturity as provided by the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115). The Company adopted SFAS No. 115 as of December 31, 1993.
Trading securities are measured at fair value with unrealized holding gains and
losses included in income. The Company had no trading securities in 1995 and
1994. Available-for-sale securities are stated separately on the financial
statements and are discussed in the following section "Securities
Available-for-Sale". Held-to-maturity securities are carried at amortized cost
and identified as investment securities in the financial statements (see Notes
A.2. and B of the "Notes to Consolidated Financial Statements").
Held-to-maturity securities totaled $20,054,000 at December 31, 1995 and
$36,525,000 at December 31, 1994. The Company has the intent and ability to hold
these securities until maturity. The fair value of these securities was
$20,188,000 and $34,398,000 at December 31, 1995 and 1994, respectively.
The Company, at December 31, 1995 and 1994, did not hold any securities
identified as derivatives in the form of Collateralized Mortgage Obligations
(CMOs), Planned Amortization Class (PAC), Real Estate Mortgage Investment
Conducts (REMICs), Stripped-Mortgage-Backed Securities, interest rate swaps,
futures or options. At December 31, 1995, the Company did hold $7,500,000 in
various U. S. Agency Step-up or Multi Step-up securities ($5,000,000 in
available-for-sale and $2,500,000 in held-to-maturity). At December 31, 1994 the
Company held $8,000,000 of Step-up securities ($5,000,000 in available-for-sale
and $3,000,000 in held-to-maturity). These Step-up securities are direct
obligations of U. S. Government Agencies that have a fixed coupon for an
established time period with a call option at the end of that time period. The
initial yield is higher than another security with the same end maturity but
without the call/step-up feature. If the security is not called, it will step-up
to a higher pre-determined coupon that may be below the current market yield at
the time of the step-up. Management understands the characteristics of these
<PAGE>
securities and monitors their performance in comparison to U. S. Treasury
securities. The Company held adjustable rate mortgage-backed securities issued
by U. S. Government Agencies totaling $23,213,000 at December 31, 1995
($18,152,000 in available-for-sale and $5,061,000 in held-to-maturity) and
$29,199,000 at December 31, 1994 ($16,527,000 in available-for-sale and
$12,672,000 in held-to-maturity). The interest rates on most of these securities
are tied to various indexes, are subject to various caps, and adjust annually.
The Company also held fixed rate mortgage-backed securities issued by U. S.
Government Agencies totaling $9,762,000 at December 31, 1995 ($6,375,000 in
available-for-sale and $3,387,000 in held-to-maturity) and $11,093,000 at
December 31, 1994 ($5,231,000 in available-for-sale and $5,862,000 in
held-to-maturity).
Securities Available-for-Sale
The Company had $59,049,000 of securities available-for-sale at December
31, 1995 as compared to $43,610,000 at December 31, 1994. At December 31, 1995
the net unrealized gain on these securities was $520,000, net of the tax effect
of $267,000. There was a net unrealized loss of $1,034,000, net of the tax
effect of $533,000 on the available-for-sale securities at December 31, 1994.
The net unrealized gain or loss is included in shareholders' equity (see Notes
A.2 and B of the "Notes to Consolidated Financial Statements").
These securities are being held to meet the liquidity needs of the Company
and to provide flexibility to support earnings in changing interest rate
environments. The tax-free municipal securities in the available-for-sale
category will also be used to assist in managing the Company's Federal Tax
position. While management has the intent to hold available-for-sale securities
on a long-term basis or to maturity, they may sell these securities under
certain circumstances. Such occurrences could include, but are not limited to,
meeting current liquidity needs, adjusting maturities or repricing periods to
reduce interest rate risk, reducing Federal Income Tax liability, improving
current or future interest income, adjusting risk based capital position,
changing portfolio concentrations, and providing funds for increased loan demand
or deposit withdrawals. Upon the sale of an available-for-sale security, the
actual gain or loss is included in income.
During 1995, $10,844,000 of securities available-for-sale were sold
resulting in a net gain of $22,000, which was recorded in income. The securities
sold were primarily U. S. Treasury, U. S. Agency and municipal bonds held by the
Bank and equity securities held by First C. G. These sales were executed to
provide liquidity and improve future interest income. Securities purchased by
the Company in 1995 totaled $21,144,000. Included in these purchases were
$14,262,000 in U. S. Agency fixed rate bonds, $1,945,000 in U. S. Treasury
bonds, $2,877,000 in municipal securities and $2,060,000 in U. S. Agency
Mortgage-Backed bonds and other securities. The securities sold in 1994 totaling
$4,790,000 were primarily U. S. Treasury bonds and equity securities held by
First C. G. The 1994 sales resulted in net gains of $97,000 and were made to
improve future interest income. Security purchases in 1994 amounted to
$37,770,000 which were primarily U. S. Agency Step-up and Adjustable Rate bonds.
In 1993, a net gain on security transactions of $208,000 was recorded on sales
of $13,146,000.
<PAGE>
Loan Portfolio
At December 31, 1995, total gross loans of $196,959,000 were $8,785,000, or
4.7% higher than the 1994 amount of $188,174,000. The growth in loans in 1995
was primarily the result of an increase of $5,088,000 or 4.3% in residential
real estate loans, an increase of $3,059,000 or 12.4% in consumer loans and an
increase of $2,098,000 or 73.3% in real estate construction loans. Total
residential real estate loans were $122,293,000 at December 31, 1995 as compared
to $117,205,000 at December 31, 1994. Consumer loans totaled $27,685,000 and
$24,626,000 at December 31, 1995 and 1994, respectively. At December 31, real
estate construction loans were $4,959,000 in 1995 versus $2,861,000 in 1994.
Also contributing to the growth in loans during 1995 was an increase in
municipal loans of $1,002,000 to a total at December 31, 1995 of $1,290,000 as
compared to the December 31, 1994 total of $288,000. These increases were
partially offset by decreases in commercial loans of $2,100,000 or 28.0%,
commercial real estate loans of $357,000 or 1.0% and other loans of $5,000 or
2.8%. The Company's primary geographic area for its lending activities includes
Monroe, Northampton and Lehigh Counties, Pennsylvania.
Making loans to businesses and individuals entails risks to the Company,
including ascertaining cash flows, evaluating the credit history, assets and
liabilities of a potential borrower and determining the value of the various
types of collateral pledged as security. Lending involves determining risks,
managing those risks and charging an appropriate interest rate to compensate for
taking such risks, and to cover the cost of funds.
The unearned discount on loans was $3,829,000 and $2,959,000 in 1995 and
1994, respectively. The loan to deposit ratio was 76.0% at December 31, 1995 and
74.8% at December 31, 1994. Funds used by the increase in loans were provided
primarily by the increase in deposits. Additional information concerning loans
is shown in Note C of the "Notes to Consolidated Financial Statements".
Mortgage Loans Held-for-Sale
In 1995, management continued a program of selling most of its newly
originated residential real estate loans in the secondary market. The purpose of
this plan is to reduce the Company's interest rate risk and to provide funds to
support a higher level of loan originations.
The sales of residential real estate loans in the secondary market for 1995
amounted to $6,336,000. The amount of these loans originated in 1995 was
$6,267,000 with the remaining $69,000 being originated in prior years and
identified as held-for-sale at December 31, 1994. A net gain of $22,000 was
recorded on these sales. In addition, $1,006,000 of residential real estate
loans was identified as held-for-sale at December 31, 1995. All of these loans
were originated during the second half of 1995. An unrealized loss of $4,000 on
these loans is included in other operating expenses for 1995.
In 1994, the Company originated $4,548,000 of residential real estate loans
which were sold in the secondary market. In addition, during 1994, $15,378,000
of these loans that were originated in prior years were sold. Net gains of
$37,000 were recognized on these sales in 1994. At December 31, 1994, $69,000 of
residential real estate loans were identified as held-for-sale. Included in
other operating expense in 1994 is an unrealized loss of $1,000 on these loans.
During 1993, the Company had net gains of $417,000 on the sale of $30,278,000 of
residential real estate loans. The other operating expenses for 1993 include an
unrealized loss of $70,000 on mortgage loans held-for-sale of $15,378,000 at
year-end 1993.
<PAGE>
The Company will continue to originate residential real estate loans in
1996 and intends to sell most of them in the secondary market. The Company
services all of its sold residential mortgage loans and plans to continue this
practice.
The Financial Accounting Standards Board (FASB) issued a new standard, SFAS
No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB
Statement No. 65", which requires that a mortgage banking enterprise recognize
as a separate asset rights to service mortgage loans for others, however those
servicing rights are acquired. In circumstances where mortgage loans are
originated, separate asset rights to service mortgage loans are only recorded
when the enterprise intends to sell such loans. The adoption of this new
statement is not expected to have a material impact on the Company's financial
position or results of operations. The Company will be required to adopt this
standard for its year ended December 31, 1996.
Non-Performing Loans
The following discussion relates to the Bank's non-performing loans which
consist of those on a non-accrual basis and accruing loans which are past due
ninety days or more.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. The Company views these loans as non-accrual, but considers the
principal to be substantially collectible because the loans are protected by
adequate collateral or other resources. Interest on these loans is recognized
only when received. The table "Non-Accrual Loans" on page 14 shows the balance
and the effect on interest income of non-accrual loans for each of the periods
indicated. There were $2,181,000 of loans on a non-accrual status at December
31, 1995. The increase in non-accrual loans during 1995 of $457,000 resulted
from the deteriorating financial position of a few borrowers.
The Company does not have any significant loans that qualify as "Troubled
Debt Restructuring" as defined by SFAS No. 15 "Accounting for Debtors and
Creditors for Troubled Debt Restructuring" at December 31, 1995 and 1994.
<PAGE>
<TABLE>
Non-Accrual Loans
(Dollars in Thousands)
at December 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans on
a cash basis $ 2,181 $ 1,724 $ 1,569 $ 1,395 $ 1,564
------- ------- ------- ------- -------
Non-accrual loans as a
percentage of total loans 1.13% .93% .93% .76% .92%
------- ------- ------- ------- -------
Interest which would have
been recorded at
original rate $ 214 $ 168 $ 134 $ 87 $ 116
Interest that was
reflected in income 44 -- -- -- 7
------- ------- ------- ------- -------
Net impact on
interest income $ (170) $ (168) $ (134) $ 87) $ (109)
</TABLE>
Set forth below are the amounts of loans outstanding as of the end of each
of the periods indicated that are 90 days and over past due and are on an
accrual basis and are not included in the table above. Management continues to
accrue interest on these loans since they are secured and in the process of
collection and expects they will eventually be paid in full.
<TABLE>
Accruing Loans Past Due 90 Days or More
(Dollars in Thousands)
at December 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accruing loans past due
90 days or more $1,115 $1,069 $672 $1,563 $1,427
Accruing loans past due
90 days or more as a
percentage of total loans .58% .58% .40% .85% .84%
</TABLE>
<PAGE>
On January 1, 1995 the Company adopted SFAS No. 114, "Accounting for
Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS
No. 114 requires that a creditor measure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable. SFAS No. 118 allows creditors
to use existing methods for recognizing interest income on impaired loans.
The Company has identified a loan as impaired when it is probable that
interest and principal will not be collected according to the contractual terms
of the loan agreement. The accrual of interest is discontinued in such loans and
no income is recognized until all recorded amounts of interest and principal are
recovered in full.
Loan impairment is measured by estimating the expected future cash flows
and discounting them at the respective effective interest rate or by valuing the
underlying collateral. The recorded investment in these loans and the valuation
for credit loses related to loan impairment at December 31, 1995 are as follows:
(Dollars in Thousands) at December 31, 1995
----
Principal amount of impaired loans $2,035
Accrued interest ---
Deferred loan costs 4
2,039
-----
Less valuation allowance at December 31, 1995 238
-----
$1,801
On January 1, 1995 a valuation for credit losses related to impaired loans
was established. The activity in this allowance account for 1995 is as follows:
(Dollars in Thousands) for the year ended 1995
----
Valuation allowance at January 1, 1995 $160
Provision for loan impairment 187
Direct charge-offs 125
Recoveries 16
----
Valuation allowance at December 31, 1995 $238
Total cash collected on impaired loans during 1995 was $182,000, of which
$138,000 was credited to the principal balance outstanding on such loans and
$44,000 was recognized as interest income. Interest that would have been accrued
on impaired loans during 1995 was $214,000. The valuation allowance for impaired
<PAGE>
loans of $238,000 at December 31, 1995 is included in the "Allowance for
Possible Loan Losses" which amounts to $2,443,000 at December 31, 1995.
Shown in the following table is the amount of "Other Real Estate Owned" as
of the end of each of the periods indicated recorded as an asset on the
Company's books as the result of the foreclosure of certain non-performing real
estate loans.
OTHER REAL ESTATE OWNED
(Dollars in Thousands) at December 31, 1995 1994 1993 1992 1991
Other Real Estate Owned $ 364 $ 373 $ 738 $ 124 $ 285
Allowance and Provision for Possible Loan Losses
The allowance for possible loan losses constitutes the amount available to
absorb estimated losses within the loan portfolio. As of December 31, 1995, the
allowance for possible loan losses was $2,443,000 as compared to the December
31, 1994 amount of $2,187,000 and the December 31, 1993 amount of $1,953,000.
The allowance for possible loan losses as a percentage of total loans
outstanding as of December 31, 1995 was 1.26%. This compares to 1.18% at the end
of 1994 and 1.16% at the end of 1993. The increase in the allowance for possible
loan losses of $256,000 was the result of management's review of non-performing
loans (the sum of non-accrual loans and accruing loans past due 90 days or more)
of $3,296,000 as of December 31, 1995 as compared to $2,793,000 as of December
31, 1994 (see tables on page 14). Net charge-offs as detailed in the tables on
page 16 were $1,542,000 in 1995 or $1,356,000 greater than the 1994 amount of
$186,000. Net loans charged-off in 1993 were $652,000. The increase in net
charge-offs in 1995 is primarily the result of a net loss of $1,264,000 (net of
recoveries) due to the overdrafts of a certain customer. The Company has filed
criminal charges and instituted litigation to recover these funds. There is no
assurance that such litigation will result in additional recoveries. Net
charge-offs related to loans in 1995 totaled $278,000 (net of recoveries). These
charge-offs were primarily due to higher consumer loan losses. The reduction of
charge-offs in 1994 is due to lower charge-offs of commercial and consumer
loans. The ratio of net loan charge-offs to average loans outstanding was .81%,
.10% and .36% in 1995, 1994 and 1993, respectively.
The provision for loan losses for the year ended December 31, 1995 was
$1,798,000 as compared to $420,000 for the year ended December 31, 1994 and
$765,000 for the year ended December 31, 1993. The increase in 1995 from 1994
was $1,378,000. This increase was principally the result of the increase in net
charge-offs for 1995 due to the overdraft loss. In 1994, the decrease in the
provision was $345,000 or 45.1% over 1993. This decrease was due to lower loan
losses in 1994.
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
(Dollars in Thousands)
For the Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses
at Beginning of Year $ 2,187 $ 1,953 $ 1,840 $ 1,702 $ 1,465
-------- -------- -------- -------- --------
Loans Charged-Off
by Category:
Commercial 161 259 392 600 374
Real Estate - Construction -- -- -- -- --
Real Estate - Residential -- 35 3 72 30
Consumer/Installment 319 144 348 337 244
Other 1,278 -- -- -- --
-------- -------- -------- -------- --------
1,758 438 743 1,009 648
-------- -------- -------- -------- --------
Loans Recovered
by Category:
Commercial 105 170 57 22 67
Real Estate - Construction -- -- -- -- --
Real Estate - Residential -- -- -- -- --
Consumer/Installment 97 82 34 6 8
Other 14 -- -- -- --
-------- -------- -------- -------- --------
216 252 91 28 75
-------- -------- -------- -------- --------
Net Loans Charged-Off 1,542 186 652 981 573
-------- -------- -------- -------- --------
Provision Charged to Expense 1,798 420 765 1,119 810
-------- -------- -------- -------- --------
Allowance for Loan Losses
at End of Period $ 2,443 $ 2,187 $ 1,953 $ 1,840 $ 1,702
======== ======== ======== ======== ========
Total Loans
Average $190,192 $178,624 $180,850 $177,842 $167,206
ear-End $193,130 $185,215 $168,566 $183,232 $169,732
Net Loans Charged Off to:
Average Loans .81% .10% .36% .55% .34%
Loans at Year-End .80% .10% .39% .54% .34%
Allowance to Possible
Loan Losses at Year-End 63.12% 8.50% 33.38% 53.32% 33.67%
Provision for Possible
Loan Losses 85.76% 44.29% 85.23% 87.67% 70.74%
Allowance for Possible
Loan Losses at Year-End to:
Average Loans 1.28% 1.22% 1.08% 1.03% 1.02%
Loans at Year-End 1.26% 1.18% 1.16% 1.00% 1.00%
</TABLE>
<PAGE>
The allowance for possible loan losses is established through a provision
for possible loan losses charged to expenses. Loans are charged against the
allowance for possible loan losses when management believes that the
collectibility of the principal is unlikely. The risk characteristics of the
loan portfolio are managed through various control processes, including credit
evaluations of individual borrowers, periodic reviews, diversification by
industry, and the establishment of lending targets to various segments of the
portfolio. Risk is further mitigated through the application of lending
procedures such as the holding of adequate collateral and the establishment of
contractual guarantees. Management believes that these procedures provide
adequate assurances against the adverse impact from any event or set of
conditions, and that the level of the allowance for possible loan losses is
sufficient to meet the present and potential risk characteristics of the loan
portfolio including the current level of non-performing and past-due loans.
Management ranks loans or portions thereof which present unfavorable
factors according to the degree of collectibility. Such analysis and
examinations form the principal foundation on which management makes an ongoing
evaluation as to the adequacy of the allowance for possible loan losses.
Deposits
Deposits are the primary source of the Company's funds. During 1995
deposits increased by $6,570,000 or 2.7% to a total of $254,102,000 at December
31, 1995 from a total of $247,532,000 at December 31, 1994. Average deposits for
1995 were $246,937,000, an increase of $6,518,000 or 2.7% over the average total
deposits for 1994 of $240,419,000. The major reason for this growth was the
purchase of $6,200,000 in deposits with the Pointe North branch from another
commercial bank. Also contributing to the increase in deposits was the strong
growth of certificates of deposit as consumers moved to lock in higher interest
rates and a modest growth in non-interest bearing checking deposits as a result
of the introduction by the Bank in 1995 of two new non-interest checking
services, "Value Checking" and "Just Checking". "Value Checking" provides
unlimited check writing with no minimum balance requirement, monthly statements
and the availability of an automated teller machine card for a small monthly
fee. "Just Checking" is a no service charge, no minimum balance requirement
non-interest bearing checking account with unlimited check writing and a
quarterly statement. An automated teller machine card is not available with a
"Just Checking" account. The deposit growth in certificates of deposit and
non-interest bearing deposits was partially offset by declines in savings
accounts, money market accounts and interest bearing checking accounts,
including the First Colonial Club(R) products (interest-bearing checking
accounts which include a package of services from discount pharmacy, discount
travel, to free money order and travelers checks). The slower growth of deposits
seen by the Company and the banking industry in general is due primarily to the
flow of funds into mutual funds and other investment options. In 1995, the
Company began offering a money market mutual fund product to its customers
through the Bank's Trust Department (see discussion on Trust Department).
Approximately $2,500,000 of deposit balances were transferred to this money
market mutual fund in 1995.
The Bank's time deposits, including certificates of deposit under $100,000,
increased in 1995 with averages balances of $90,925,000 which is $11,275,000 or
14.2% higher than the 1994 average balance of $79,650,000. Average certificates
<PAGE>
of deposit over $100,000 were $6,184,000 in 1995 as compared to $2,961,000 in
1994, an increase of $3,223,000 or 108.8%. The new "Just Checking" and "Value
Checking" products accounted for most of the growth in non-interest bearing
deposits in 1995. Non-interest bearing deposits averaged $23,782,000 in 1995 as
compared to $23,347,000 in 1994, an increase of $435,000 or 1.9%. Offsetting
some of this growth were declines in average savings and club deposits of
$4,990,000 or 7.1% from an average balance of $70,442,000 in 1994 to an average
balance of $65,452,000 in 1995, and declines in average money market deposits
which averaged $17,639,000 in 1995 as compared to $20,383,000 in 1994, a
decrease of $2,744,000 or 13.5%. In addition, there was a $681,000 or 1.6%
decline in interest-bearing demand deposits with average balances of $42,955,000
in 1995 as compared to the 1994 average of $43,636,000.
Short-Term Borrowings
The Company had securities sold under agreements to repurchase totaling
$6,096,000 at December 31, 1995 and $9,027,000 at December 31, 1994. There were
also short-term borrowings in the form of Federal Home Loan Bank borrowings of
$7,000,000 December 31, 1995 and $750,000 at December 31, 1994. At December 31,
1995 and 1994, there were no borrowings in the form of Federal Funds purchased
or Federal Reserve Bank discount borrowings. Additional information relating to
short-term borrowings can be found in Note G of the "Notes to Consolidated
Financial Statements".
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to raise funds to support
asset growth, meet deposit withdrawal and other borrowing needs, maintain
reserve requirements and otherwise operate the Company on an ongoing basis. The
Company manages its assets and liabilities to maintain liquidity and earnings
stability. Among the sources of asset liquidity are money market investments,
short-term investment securities, and funds received from the repayment of loans
and short-term borrowings. At year-end 1995, cash, due from banks, Federal funds
sold and interest-bearing deposits with banks totaled $16,384,000, and
securities maturing within one year totaled $4,955,000. At year-end 1994, cash,
due from banks, Federal funds sold, and interest-bearing deposits with banks
totaled $11,070,000, and securities maturing within one year were $3,858,000.
The Bank is a member of the Federal Home Loan Bank of Pittsburgh,
Pennsylvania. The Bank had interest-bearing deposits at the Federal Home Loan
Bank of Pittsburgh in the amount of $538,000 at December 31, 1995 and $4,000 at
December 31, 1994. These deposits are included in interest-bearing deposits with
banks on the Company's financial statements. As a result of this relationship,
the Company places most of its short-term funds at the Federal Home Loan Bank of
Pittsburgh in place of other banks. The Federal Home Loan Bank of Pittsburgh
provides the Bank with a line of credit in the amount of $27,666,000, all of
which was available at December 31, 1995.
Cash flows for the year ended December 31, 1995 consisted of Cash Provided
by Operating Activities of $3,840,000 and Cash Provided by Financing Activities
of $9,082,000, offset in part by Cash Used in Investing Activities of $8,042,000
resulting in a net increase in cash and cash equivalents of $4,880,000. The Cash
Provided by Operating Activities was comprised principally of net income of
$1,401,000, proceeds from the sale of mortgage loans of $6,336,000, a provision
for possible loan losses of $1,798,000, depreciation and amortization of
$624,000, an increase in accrued interest payable of $743,000 resulting from
<PAGE>
increases in certificates of deposit balances, reduced by mortgage loans
originated for sale of $7,273,000 and an increase in accrued interest income of
$130,000 as a result of higher loan balances. The Cash Provided by Financing
Activities was comprised of increases in certificates of deposit of $19,125,000
and increases in short-term borrowings of $6,250,000. The sale of common shares
pursuant to the Dividend Reinvestment Plan resulted in proceeds of $252,000.
Partially offsetting these increases were decreases in interest and non-interest
bearing demand and savings accounts of $12,555,000, a decrease of $2,931,000 in
repurchase agreements and cash dividends paid of $972,000. The Cash Used in
Investing Activities was primarily for the purchase of $19,306,000 of
available-for-sale securities and $2,836,000 of held-to-maturity securities, a
net increase of loans to customers of $9,937,000 and the purchase of premises
and equipment of $1,508,000, primarily due to the acquisition of the new Pointe
North branch, the opening of the two supermarket branches at Airport Road and
Northampton Crossings, and the drive-up Automated Teller Machines located at
Northampton Crossings. Offsetting these cash uses in investing activities were
proceeds from the maturities of available-for-sale securities of $11,055,000,
and held-to-maturity securities of $3,284,000 and the proceeds from the sales of
available-for-sale securities of $11,177,000 and the sale of other real estate
of $463,000.
The Company recognizes the importance of maintaining adequate capital
levels to support sound, profitable growth and to encourage depositor and
investor confidence. Shareholders' equity at December 31, 1995 was $24,767,000
as compared to $22,400,000 on December 31, 1994, for an increase of $2,367,000
or 10.6%. This increase was primarily attributable to retained earnings, the
sale of common shares pursuant to the Dividend Reinvestment Plan and unrealized
gains on securities available-for-sale of $520,000 (net tax effect of $267,000)
at December 31, 1995. Included in shareholders' equity at December 31, 1994 was
$1,034,000 (net of tax effect of $533,000) of unrealized losses on securities
available-for-sale (see discussion on Securities Available-for-Sale).
On June 28, 1994, the Company paid a 5% stock dividend on its common stock
from authorized but unissued shares to all shareholders of record at the close
of business on June 6, 1994. Fractional shares were paid in cash based on a per
share price of $17.31. The number of average shares and per share information in
this report has been restated to reflect this 5% stock dividend.
The Company maintains a Dividend Reinvestment and Stock Purchase Plan. In
1995, 15,573 new common shares were purchased from authorized and unissued
shares at an average price of $15.99 for proceeds of $249,000. In 1994, 14,744
new common shares were purchased from authorized and unissued shares at an
average price of $16.48 per share for proceeds of $243,000.
A Non-Employee Director Stock Option Plan was adopted by the shareholders
at the Annual Meeting in April 1994. This plan provides for the awarding of
stock options to the Company's non-employee directors. Pursuant to this plan, in
1995, options to purchase 2,100 shares of the Company's common stock at a price
of $15.75 per share were granted to certain non-employee directors. Options
totaling 8,400 shares were granted to non-employee directors under this plan in
1994 at a price of $16.19 per share.
The Company also has a Stock Option Plan that was adopted in 1986 which
provides for the granting of options to acquire company common stock to officers
and key employees. There were no options granted in 1995. In 1994, under this
<PAGE>
plan, options for 5,750 shares were granted to officers at a price of $16.75.
Total options outstanding under this plan at December 31, 1995 were 16,168 at an
average price of $18.11.
At December 31, 1995, the total of all options under both plans to acquire
shares were 26,578 at an average price of $17.32 per share. There were 24,568
options to acquire shares at an average price of $17.45 per share outstanding at
December 31, 1994. No options have been exercised under the stock option plans.
Authorized shares available for future option grants were 60,243 and 62,253 at
December 31, 1995 and 1994, respectively. The Financial Accounting Standards
Board issued a new standard, SFAS No. 123, "Accounting for Stock-Based
Compensation", which contains a fair value-based method for valuing stock-based
compensation that entities may use which measures compensation cost at the grant
date based on the fair value of the award. Compensation is then recognized over
the service period, which is usually the vesting period. Alternatively, the
standard permits entities to continue accounting for employee stock options and
similar equity instruments under APB Opinion 25, "Accounting for Stock Issue to
Employees". Entities that continue to account for stock options using APB
Opinion 25 are required to make pro forma disclosures of net income and earnings
per share, as if the fair value-based method of accounting defined in SFAS No.
123 had been applied. The Company has not determined which method it will follow
in the future, but anticipates following APB Opinion 25. The Company will be
required to adopt the new standard for its year ended December 31, 1996 (see
Notes A. 8. and N of the "Notes to Consolidated Financial Statements").
Banking regulators require bank holding companies and banks to maintain
certain capital levels through risk-based capital standards by which all bank
holding companies and banks are evaluated in terms of capital adequacy. These
capital standards relate a banking company's capital to the risk profile of its
assets. The risk-based capital standards now require all banks to have Tier 1
capital of at least 4% and total capital, Tier 1 and Tier 2, of 8% of
risk-adjusted assets. Tier 1 capital includes common shareholders' equity and
qualifying perpetual preferred stock together with related surpluses and
retained earnings. Tier 2 capital may be comprised of limited life preferred
stock, qualifying debt instruments, and the allowance for possible loan losses.
Banking regulators also require bank holding companies and banks to
maintain a certain Tier 1 leverage ratio. The leverage ratio requirement is
measured as the ratio of Tier 1 capital to adjusted average assets. The
following tables provide a comparison of the Company's and Bank's risk-based
capital ratios and leverage ratio to the minimum regulatory guidelines for the
periods indicated.
<PAGE>
<TABLE>
Capital Ratios of the Company
Minimum
Company Regulatory Requirement
at December 31, 1995 1994 1996, 1995 and 1994
<S> <C> <C> <C>
Tier 1 Leverage Ratio 8.20% 8.43% 3.00% - 5.00%
Risk-Based Capital Ratio
Tier 1 Capital 14.62% 14.82% 4.00%
Total Capital 15.86% 16.06% 8.00%
</TABLE>
<TABLE>
Capital Ratios of the Bank
Minimum
Bank Regulatory Requirement
at December 31, 1995 1994 1996, 1995 and 1994
<S> <C> <C> <C>
Tier 1 Leverage Ratio 6.80% 7.23% 3.00% - 5.00%
Risk-Based Capital Ratio
Tier 1 Capital 12.41% 12.77% 4.00%
Total Capital 13.66% 14.23% 8.00%
</TABLE>
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became law in December 1991, required each federal banking
agency, including the Board of Governors of the Federal Reserve System ("FRB"),
to revise its risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risks of non-traditional activities, as well as to reflect the actual
performance and expected risk of loss on multifamily mortgages. This law also
requires each federal banking agency, including the FRB, to specify, by
regulation, the levels at which an insured institution would be considered "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", or "critically undercapitalized".
All of the bank regulatory agencies recently issued a final rule that
amends their capital guidelines for interest rate risk and requires such
agencies to consider in their evaluation of a bank's capital adequacy the
exposure of a bank's capital and economic value to changes in interest rates.
This final rule does not establish an explicit supervisory threshold. The
agencies intend, at a subsequent date, to incorporate explicit minimum
requirements for interest rate risk into their risk based capital standards and
have proposed a supervisory model to be used together with bank internal models
to gather data and hopefully propose at a later date explicit minimum
requirements.
The Company is not aware of any known trends, events or uncertainties that
will have a material effect on the Company's liquidity, capital resources or
operations. The Company is not under any agreement with the regulatory
authorities nor is it aware of any current recommendation by regulatory
authorities which, if they were implemented, would have a material effect on
liquidity, capital, resources, or the operations of the Company.
<PAGE>
Impact of Inflation and Changing Prices
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate
equity-to-assets ratio. Another significant effect of inflation is on other
expenses, which tend to rise during periods of general inflation.
Management believes the most significant impact on financial results is the
Company's ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between interest-sensitive assets and liabilities in order to protect
against wide interest-rate fluctuations.
Employers' Accounting for Employee Stock Ownership Plans
The Company has established an Employee Stock Ownership Plan (ESOP)
covering eligible employees with one year of service as defined by the plan.
Effective January 1, 1994, the Company adopted new accounting for its ESOP in
accordance with Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" ("SOP 93-6"), of the Accounting Standards Division of the
American Institute of Certified Public Accountants issued in November 1993. SOP
93-6 requires that the employer record compensation expense in an amount equal
to the fair value of the shares committed to be released from the ESOP to
employees. The adoption of SOP 93-6 had no material effect on the Company's
financial statements (see Notes A.8. and K of "Notes to Consolidated Financial
Statements").
Employers' Accounting for Post-retirement Benefits Other Than Pensions
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" (SFAS 106) in December 1990. This Statement
significantly changes the Company's practice of accounting for non-pension
post-retirement benefits from a pay-as-you-go (cash) basis to an accrual basis.
The Company studied this statement to determine its effect on the financial
statements. If the Company had elected to record the full amount of its
estimated accumulated post-retirement benefits obligation other than pensions,
the result would have been a one-time charge to earnings in 1993 of
approximately $308,000. The Company, however, elected the option under SFAS 106
to amortize the obligation over 20 years which resulted in a charge to earnings
in 1995 and 1994 of approximately $45,000 and $41,000, respectively (see Note M
of "Notes to Consolidated Financial Statements").
Accounting for the Impairment of Long-Lived Assets
The Financial Accounting Standards Board issued a new standard, SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which provides guidance on when to recognize and how
to measure impairment losses of long-lived assets and certain identifiable
intangibles and how to value long-lived assets to be disposed of. The adoption
of this new statement is not expected to have a material impact on the Company's
financial position or results of operation. The Company is required to adopt
this new standard for its year ended December 31, 1996.
<PAGE>
Quarterly Financial Data (Unaudited)
The following represents summarized quarterly financial data of the
Company, which, in the opinion of management, reflects all adjustments
(comprising only normal recurring accruals) necessary for a fair presentation.
Net income per share of common stock has been restated to reflect retroactively
the 5% stock dividend of June 1994.
<TABLE>
Dollars in Thousands,
except per share data Three Months Ended
1995 Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C>
Interest income $ 5,602 $ 5,620 $ 3,110 $ 3,174
------- ------- ------- -------
Provision (credit)
for possible loan losses 100 100 (172) 1,770
------- ------- ------- -------
Net gain (losses) on sale
of securities and mortgages 20 25 18 (19)
------- ------- ------- -------
Income (loss) before
income taxes 908 949 1,116 (1,057)
------- ------- ------- -------
Net income (loss) $ 634 $ 659 $ 771 $ (663)
======= ======= ======= =======
Net income (loss)
per share of common stock $ 0.44 $ 0.46 $ 0.54 $ (0.46)
======= ======= ======= =======
1994 Dec. 31 Sept. 30 June 30 March 31
Interest income $ 5,027 $ 4,812 $ 4,562 $ 4,585
Net interest income 3,137 3,028 2,844 2,825
------- ------- ------- -------
Provision for possible
loan losses 120 100 100 100
------- ------- ------- -------
Net gain (losses) on sale
of securities and mortgages (34) (6) 80 94
------- ------- ------- -------
Income before income taxes 868 804 813 875
Net income $ 605 $ 561 $ 568 $ 608
======= ======= ======= =======
Net income per share
of common stock $ 0.43 $ 0.40 $ 0.40 $ 0.43
======= ======= ======= =======
</TABLE>
<PAGE>
Item 7. Financial Statements
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Dollars in Thousands) At December 1995 1994
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 11,949 $ 10,669
Federal Funds Sold 3,600 --
--------- ---------
Total Cash and Cash Equivalents 15,549 10,669
Interest-Bearing Deposits With Banks 835 401
Investment Securities
(Fair Value: 1995 - $20,188;
1994 - $34,398) 20,054 36,525
Securities Available-for-Sale at Fair Value 59,049 43,610
Mortgage Loans Held-for-Sale 1,006 69
Total Loans, Net of Unearned Discount 193,130 185,215
Less: Allowance for Possible Loan Losses (2,443) (2,187)
--------- ---------
Net Loans 190,687 183,028
Premises and Equipment 6,763 5,862
Accrued Interest Income 1,878 1,748
Other Real Estate Owned 364 373
Other Assets 2,329 2,268
--------- ---------
TOTAL ASSSETS $ 298,514 $ 284,553
========= =========
LIABILITIES
Deposits
Non-Interest Bearing Deposits $ 26,690 $ 25,028
Interest-Bearing Deposits
(Includes Certificates of Deposit in Excess
of $100: 1995 - $6,623; 1994 - $5,130) 227,412 222,504
--------- ---------
Total Deposits 254,102 247,532
Securities Sold Under
Agreements to Repurchase 6,096 9,027
Short-Term Borrowing 7,000 750
Long-Term Debt 643 862
Accrued Interest Payable 3,425 2,682
Other Liabilities 2,481 1,300
--------- ---------
TOTAL LIABILITIES 273,747 262,153
--------- ---------
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $5.00 a share -- --
Authorized - 500,000 shares, none issued
Common Stock, Par Value $5.00 a share
Authorized - 10,000,000 shares
Issued and outstanding - 1995, 1,471,100 shs;
1994, 1,455,427 shs 7,355 7,277
Additional Paid-in Capital 7,056 6,882
Retained Earnings 10,479 10,050
Employee Stock Ownership Plan Debt (643) (775)
Net Unrealized Gain (Loss)
on Securities Available-for-Sale 520 (1,034)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 24,767 22,400
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 298,514 $ 284,553
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
(Dollars in Thousands, except per share data)
For the Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 16,896 $ 14,984 $ 15,605
Interest on Investment Securities
Taxable 4,477 3,439 2,372
Tax-Exempt 384 348 383
Interest on Other Investments
Deposits with Banks 133 158 123
Federal Funds Sold 6 57 42
--------- --------- ---------
Total Interest Income 21,896 18,986 18,525
--------- --------- ---------
INTEREST EXPENSE
Interest on Deposits 8,332 6,853 7,351
Interest on Short-Term Borrowings . 684 169 100
Interest on Long-Term Debt 236 130 117
--------- --------- ---------
Total Interest Expense 9,252 7,152 7,568
--------- --------- ---------
NET INTEREST INCOME 12,644 11,834 10,957
Provision for Possible Loan Losses 1,798 420 765
--------- --------- ---------
Net Interest Income After Provision
for Possible Loan Losses 10,846 11,414 10,192
--------- --------- ---------
OTHER INCOME
Trust Revenue 636 611 601
Service Charges on Deposit Accounts 1,034 798 644
Investment Securities Gains, Net .. 22 97 208
Gains on the Sale of Mortgage Loans 22 37 417
Other Operating Income 560 487 460
--------- --------- ---------
Total Other Income 2,274 2,030 2,330
--------- --------- ---------
OTHER EXPENSES
Salaries and Employee Benefits 5,132 4,640 4,295
Net Occupancy and Equipment Expense 1,991 1,698 1,547
Other Operating Expenses 4,081 3,746 4,003
--------- --------- ---------
Total Other Expenses 11,204 10,084 9,845
--------- --------- ---------
Income Before Income Taxes 1,916 3,360 2,677
Applicable Income Taxes 515 1,018 769
--------- --------- ---------
NET INCOME $ 1,401 $ 2,342 $ 1,908
========= ========= =========
PER SHARE DATA
Net Income $ 0.98 $ 1.66 $ 1.55
Cash Dividends 0.68 0.66 0.65
Average Shares Outstanding 1,432,753 1,411,046 1,233,543
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
Unreal Net
Gain(Loss)
Common Capital Retained ESOP on Sec
Stock Surplus Earnings Debt Avail-for-Sale Total
<S> <C> <C> <C> <C> <C> <C>
Bal at Jan 1, 1993 $5,320 $3,166 $ 7,895 $ (323) $ --- $16,058
1993
Net Income 1,908 1,908
Sale of Common Stk
under Div Reinv
Plan (8,262 shares) 41 94 135
Sale of Common Stk
under Stk Off
(300,000 shares) 1,500 3,448 4,948
Cash Div Paid (812) (812)
Proceeds from
ESOP Loan (650) (650)
ESOP Loan Payment 67 67
Unrealized Net Gain
on Sec Avail-for-Sale 340 340
----- ----- ----- ---- --- ------
Dec 31, 1993 6,861 6,708 8,991 (906) 340 21,994
1994
Net Income 2,342 2,342
Sale of Common Stk
under Div Reinv
Plan (14,401 shs) 72 171 243
Cash Dividends Paid (936) (936)
Stock Dividend of 5%
(68,793 shares) 344 (344) ---
Cash in Lieu of
Fractional Shares (3) (3)
ESOP Loan Payment 131 131
Unalloc ESOP Shs
Committed to
Employees
(4,724 shares) 3 3
Unrealized Net Loss
on Sec Avail-for-Sale (1,374) (1,374)
----- ----- ------ ---- ------ ------
Bal at
Dec 31, 1994 7,277 6,882 10,050 (775) (1,034) 22,400
1995
Net Income 1,401 1,401
Sale of Common Stk
under Div Reinv
Plan (15,573 shs) 78 171 249
Cash Dividends Paid (972) (972)
ESOP Loan Payment 132 132
Unalloc ESOP Shs
Committed to
Employees (4,724 shs) 3 3
Unrealized Net Gain on
Sec Avail-for-Sale 1,554 1,554
------ ------ ------- ------ ------ -------
Bal at
Dec 31, 1995 $7,355 $7,056 $10,479 $ (643) $ 520 $24,767
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
(Dollars in Thousands)
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,401 $ 2,342 $ 1,908
Adjustments to Reconcile
Net Income to Net Cash Provided by
Operating Activities:
Provision for Possible Loan Losses 1,798 420 765
Depreciation and Amortization 624 458 353
Amortization of Security Discounts (152) (98) (57)
Amortization of Security Premiums 186 261 221
Deferred Taxes (156) 3 568
Amortization of Deferred Fees on Loans 48 (238) (561)
Investment Securities Gains, Net (22) (97) (208)
Gain on Sale of Mortgage Loans (22) (37) (417)
Mortgage Loans Originated for Sale (7,273) (4,548) (9,984)
Mortgage Loan Sales 6,336 19,926 30,278
Unrealized Loss on Mortgage
Loans Held for Sale -- -- 70
Changes in Assets and Liabilities:
(Increase) Decrease in Accr Int Inc (130) (354) 77
Increase (Decrease) in Accr Int Pay 743 (292) (1,027)
Net Decrease (Increase) in Other Assets 78 (154) (671)
Net Increase (Decrease) in Other Liab 381 (156) (871)
----- ------ ------
Net Cash Provided by Operating Activities 3,840 17,436 20,444
----- ------ ------
INVESTING ACTIVITIES
Proceeds from Mat of Sec Avail-for-Sale 11,055 8,453 --
Proceeds from Mat of Sec Held-to-Maturity 3,284 4,760 11,598
Proceeds from Sales of Sec Avail-for-Sale 11,177 4,790 13,146
Purchase of Sec Available-for-Sale (19,306) (23,963) --
Purchase of Securities Held-to-Maturity (2,836) (14,396) (38,249)
Net (Inc) Dec in Int Bearing Dep With Banks (434) 245 544
Net Increase in Loans (9,937) (17,235) (21,562)
Purchase of Premises and Equipment (1,508) (1,446) (3,318)
Proceeds from Sale of Other RE Owned 463 1,092 198
----- ------ ------
Net Cash Used in Investing Activities (8,042) (37,700) (37,643)
----- ------ ------
FINANCING ACTIVITIES
Net (Dec) Inc in Int and Non-Interest
Bearing Demand Dep and Savgs Accounts (12,555) 8,538 17,424
Net Inc (Dec) in Certificates of Deposit 19,125 3,429 (237)
Repayments of Long-Term Debt (87) (338) (384)
Net Inc (Dec) in Repurchase Agreements (2,931) 4,316 1,178
Net Increase in Short-Term Borrowings 6,250 750 --
Proceeds from Issuance of Common Stock 252 246 5,083
Cash Dividends Paid (972) (936) (812)
Cash in Lieu of Fractional Shares -- (3) --
----- ------ ------
Net Cash Provided by Financing Activities 9,082 16,002 22,252
----- ------ ------
Inc (Dec) in Cash and Cash Equivalents 4,880 (4,262) 5,053
Cash and Cash Equivalents, January 1, 10,669 14,931 9,878
----- ------ ------
Cash and Cash Equivalents, December 31, $ 15,549 $ 10,669 $ 14,931
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts presented in the tables are in thousands)
December 31, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES
First Colonial Group, Inc. (the Company) is a one bank holding company of
Nazareth National Bank and Trust Company (the Bank). The Bank is an independent
community bank providing retail and commercial banking services throughout its
twelve offices in Northampton, Lehigh, and Monroe counties in Northeastern
Pennsylvania.
The Bank competes with other banking and financial institutions in it's
primary market communities, including financial institutions with resources
substantially greater than it's own. Commercial banks, savings banks, savings
and loan associations, credit unions and money market funds actively compete for
savings and time deposit and for types of loans. Such institutions, as well as
consumer finance and insurance companies, may be considered competitors of the
Bank with respect to one or more of the services it renders.
The Company and the Bank are subject to regulations of certain state and
federal agencies, and accordingly, they are periodically examined by those
regulatory agencies. As a consequence of the extensive regulation of commercial
banking activities, the Bank's business is particularly susceptible to being
affective by state and federal legislation and regulation which may have the
effect of increasing the cost of doing business.
1. Principles of Consolidation
The consolidated financial statements include the accounts of First
Colonial Group, Inc. (the Company) and its wholly-owned subsidiaries, Nazareth
National Bank and Trust Company (the Bank) and First C. G. Company, Inc. All
significant inter-company balances and transactions have been eliminated.
2. Investment Securities
The Company adopted, on December 31, 1993, Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", issued in May 1993. SFAS No. 115 specifies that the
Company classify its debt and marketable equity securities in three categories:
trading securities, available-for-sale and held-to-maturity securities. Trading
securities are measured at fair value, with unrealized holding gains and losses
included in income. The Company does not engage in security trading.
Available-for-sale securities are measured at fair value, with unrealized gains
and losses, net of tax effect, reported in equity. Held-to-maturity securities
are carried at amortized cost, and the Company has the positive intent and
ability to hold such securities until maturity. The Company's classification of
its investment securities into these categories is detailed in "Note B
Investment Securities".
Investment securities held-to-maturity that are principally debt securities
are carried at cost, net of unamortized premiums and discounts, which are
recognized in interest income using the interest method over the period to
maturity.
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
3. Mortgages Held-for-Sale
Mortgage loans held-for-sale are carried at the lower of aggregate cost or
fair value. Unrealized losses are included in other operating expenses. Realized
gains and losses from mortgage loan sales are included in total other income.
Interest and fee income earned during the holding period are included in
interest and fees on loans. The Financial Accounting Standards Board (FASB)
issued a new standard, SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65", which requires that a mortgage banking
enterprise recognize as a separate asset rights to service mortgage loans for
others, however those servicing rights are acquired. In circumstances where
mortgage loans are originated, separate asset rights to service mortgage loans
are only recorded when the enterprise intends to sell such loans. The adoption
of this new statement is not expected to have a material impact on the Company's
financial position or results of operations. The Company will be required to
adopt this standard for its year ended December 31, 1996.
<PAGE>
4. Loans and Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for possible loan losses. Interest income on loans is
accrued using various methods which approximate a constant yield.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful. Upon such discontinuance, all unpaid accrued interest is reversed.
The allowance for possible loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the allowance for
possible loan losses when management believes that the collectibility of
principal is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible loan losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay.
The Bank adopted SFAS No. 114, "Accounting for Creditors for Impairment of
a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures" on January 1, 1995. This new standard
requires that a creditor measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable. The adoption of SAFS No. 114,
as amended by SFAS No. 118, on January 1, 1995 did not have a material impact on
the Company's financial condition or results of operations (see Note E).
5. Loan Fees and Related Costs
Certain origination and commitment fees, and certain direct loan
origination costs are deferred and amortized over the contractual life of the
related loans. This results in an adjustment of the related loan's yield.
6. Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of buildings and land improvements is computed
principally on the straight-line method, and of equipment, principally on an
accelerated method, over the estimated useful lives of the assets.
7. Income Taxes
The Company adopted, effective January 1, 1992, SFAS No. 109, "Accounting
for Income Taxes". Under the liability method specified by SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax assets
and liabilities. The principal types of differences between assets and
liabilities for financial statement and tax return purposes are accumulated
depreciation, loan origination fees, provision for possible loan losses,
unrealized gains and deferred expenses.
The deferred method, used in years prior to 1992, required the Company to
provide for deferred tax expense based on certain items of income and expense
which were reported in different years in the financial statements and the tax
returns as measured by the tax rate in effect for the year the difference
occurred.
8. Employee Benefit Plans
The Company has established an Employee Stock Ownership Plan (ESOP)
covering eligible employees with one year of service as defined by the ESOP.
Effective January 1, 1994, the Company adopted new accounting for its ESOP in
accordance with Statement of Position 93-6, "Employer's Accounting for Employee
Stock Ownership Plans" ("SOP 93-6"), issued by the Accounting Standards Division
of The American Institute of Certified Public Accountants in November 1993. The
adoption of SOP 93-6 was applied to shares acquired by the ESOP after December
31, 1992, which did not have a material effect on the Company's financial
statements. For issuances of stock to the ESOP after December 15, 1989, but
prior to December 31, 1992, the shares allocated method is used to recognize
expense in the Company's financial statements. For issuances of stock prior to
December 15, 1989, Company will continue the cash contribution method of
recognizing expense to the extent that it exceeds the cumulative expense that
would be recognized under the shares allocated method (see Note K).
<PAGE>
Employees who qualify may elect to participate in a deferred salary savings
(401k) plan. The Company contributes $.50 for each $1.00 up to the first 5% that
each employee contributes. The Company also has an executive compensation plan
which provides additional death, medical and retirement benefits to certain
officers (see Note L).
Under stock option plans, options to acquire shares of common stock are
granted to certain officers and directors. The Company has a deferred
compensation plan involving the Directors of the Company. This plan provides
defined annual payments for 15 years beginning at age 65 or death in exchange
for the Directors deferring the payment of a portion of their fees (see Note N).
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employer's
Accounting for Post-retirement Benefits Other Than Pensions", whereby the
Company began to record the cost of post-retirement medical benefits on the
accrual basis as employees render service to earn the benefits and recorded a
liability for the unfunded accumulated post-retirement benefit obligation.
Previously, the Company recognized the cost of providing these benefits by
expensing the annual medical premiums as they were incurred. As permitted by
SFAS No. 106, the transition obligation, representing the unfunded and
unrecognized accumulated past-service benefit obligation for all plan
participants, will be amortized on a straight-line basis over a 20-year period.
Adoption of this statement did not have a material impact on the Company (see
Note M).
9. Trust Assets and Revenue
Assets held by the Trust Department of the Bank in fiduciary or agency
capacities for its customers are not included in the accompanying consolidated
balance sheets since such assets are not assets of the Company. Operating
revenue and expenses of the Trust Department are included under their respective
captions in the accompanying consolidated statements of income and are recorded
on the accrual basis.
10. Per Share Information
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Average common shares outstanding
in 1994 includes issued shares less 36,558 of average weighted unallocated
shares held by the ESOP. The exclusion of these unallocated shares held by the
ESOP in 1994 is due to the Company's adoption of "SOP 93-6" (see Note A.8).
Prior to 1994, unallocated shares held by the ESOP were included in weighted
average number of common shares. Average weighted unallocated common shares
related to the ESOP loan of August 1993 held by the ESOP were 15,057 at the end
of December 1993.
The potential dilutive effect from the exercise of stock options is not
material.
Per share information and weighted average shares outstanding have been
restated to reflect the 5% stock dividend of June 1994.
11. Statement of Cash Flows
The Company considers cash, due from banks and Federal funds sold as cash
equivalents for the purposes of the Consolidated Statements of Cash Flows.
Cash paid for interest was $8,509,000, $7,444,000 and $8,595,000, for the
years ended December 31, 1995, 1994 and 1993, respectively. Cash paid for taxes
was $440,000 in 1995, $845,000 in 1994 and $300,000 in 1993.
12. Financial Instruments
The estimated fair value as of December 31, 1995 and 1994 of the Company's
assets and liabilities considered to be financial instruments which consist
primarily of securities, loans and deposits as required by SFAS 107, "Disclosure
About Fair Value of Financial Instruments", are provided in Note U.
13. Contributions
In 1995 the Company adopted SFAS No. 116, "Accounting for Contributions
Received and Made". This statement requires that unconditional promises to make
contributions be recognized as expenses in the period the promise is made. At
December 31, 1995 the present value of contribution commitments was $38,000.
This amount was included in the Company's 1995 total contribution expense of
$142,000.
14. Advertising Costs
The AICPA's Accounting Standards Executive Committee issued Statement of
Position (SOP) 93-7, "Reporting on Advertising Costs", which requires
disclosures regarding an entity's advertising activities. The Company's
advertising costs are expensed as incurred. Advertising costs were $294,000 and
$228,000 for the years ended December 31, 1995 and 1994, respectively.
<PAGE>
15. Intangibles
The Financial Accounting Standards Board issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", which provides guidance on when to recognize and how to measure impairment
losses of long-lived assets and certain identifiable intangibles and how to
value long-lived assets to be disposed of. The adoption of this new statement is
not expected to have a material impact on the Company's financial position or
results of operation. The Company is required to adopt this new standard for its
year ended December 31, 1996.
16. Reclassifications
Certain amounts from prior periods have been reclassified for comparative
purposes.
<PAGE>
NOTE B - INVESTMENT SECURITIES
The Company classifies debt and marketable equity securities in three
categories: trading, available-for-sale, and held-to-maturity as provided by
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company adopted this
method of accounting for certain debt and equity securities on December 31,
1993. Trading securities are measured at fair value, with unrealized holding
gains and losses included in income. The Company had no trading securities in
1995, 1994 and 1993. Available-for-sale securities are measured at fair value,
with net unrealized gains and losses reported, net of tax, as a component in
equity.
In 1995, the Financial Accounting Standards Board (FASB) issued a special
report "A Guide to Implementation of SFAS No. 115". In this guide, FASB stated
it was permitting a one-time opportunity to reassess the appropriateness of the
designation of securities. The guide provided that any resulting
reclassification must occur between November 15, 1995 and December 31, 1995. The
Company completed this reassessment and reclassified $15,134,000 of securities
from the held-to-maturity to available-for-sale effective December 19, 1995.
Available-for-sale securities had unrealized holding gains of $520,000 (net
of the tax effect of $267,000) in 1995 and unrealized holding losses of
$1,034,000 (net of the tax effect of $533,000) in 1994. Held-to-maturity
securities are carried at amortized cost. At December 31, the equity securities
in the available-for-sale category include Federal Reserve Bank stock in the
amount of $220,000 in 1995 and 1994, and Federal Home Loan Bank stock in the
amount of $1,660,000 in 1995 and $1,578,000 in 1994 which are carried at cost.
The amortized cost, unrealized gains and losses, and fair value of the
Company's available-for-sale and held-to-maturity securities at December 31,
1995 and 1994 are summarized as follows:
<PAGE>
<TABLE>
1995 1994
Gross Gross Gross Gross
Amort Unreal Unreal Fair Amort Unreal Unreal Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Avail-for-Sale Sec
U. S. Treasury $ 7,002 $ 69 $ 21 $ 7,050 $ 2,999 $ --- $ 77 $ 2,922
U. S. Govt Agcy 17,066 129 36 17,159 13,246 2 441 12,807
State and Political
Subdivisions 6,638 66 15 6,689 4,507 13 89 4,431
Mtge-Backed Sec 24,529 270 110 24,689 21,759 1 1,040 20,720
Other Debt Sec 300 7 --- 307 --- --- --- ---
Equity Securities 2,727 429 1 3,155 2,666 122 58 2,730
------- ---- ----- ------- ------- ----- ------ -------
Total $58,262 $970 $ 183 $59,049 $45,177 $ 138 $1,705 $43,610
</TABLE>
<TABLE>
1995 1994
Gross Gross Gross Gross
Amort Unreal Unreal Fair Amort Unreal Unreal Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Mat Sec
U. S. Treasury $ 2,997 $ 14 $ 4 $ 3,007 $ 8,071 $ --- $ 418 $ 7,653
U. S. Govt Agcy 6,524 44 29 6,539 5,386 --- 360 5,026
State and Political
Subdivisions 2,086 36 4 2,118 4,025 4 288 3,741
Mtg-Backed Sec 8,447 98 21 8,524 18,535 7 1,063 17,479
Other Debt Sec --- --- --- --- 508 --- 9 499
------- ---- ---- ------- ------- ----- ------ -------
Total $20,054 $192 $ 58 $20,188 $36,525 $ 11 $2,138 $34,398
</TABLE>
<PAGE>
The following table lists the maturities of debt securities at December 31,
1995 and 1994, classified as available-for-sale and held-to-maturity. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
1995 1994
Available- Held-to-Mat Available- Held-to-Mat
for-Sale Carrying for-Sale Carrying
Fair Value Value Fair Value Value
<S> <C> <C> <C> <C>
Due in one year
or less $ 2,874 $ 1,999 $ 3,558 $ 300
Due after one year
through five years 15,974 4,201 13,280 10,683
Due after five years
through ten years 7,170 4,947 1,818 6,547
Due after ten years 5,187 460 1,504 460
------ ----- ------ ------
31,205 11,607 20,160 17,990
Mortgage-backed sec 24,689 8,447 20,720 18,535
Equity securities 3,155 -- 2,730 --
------ ----- ------ ------
Total Investments $59,049 $20,054 $43,610 $36,525
</TABLE>
Investment securities with a carrying amount of $14,043,000 and $14,006,000
at December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, to qualify for fiduciary powers and for other purposes required or
permitted by law. There were no securities held other than U. S. Treasury or U.
S. Agencies from a single issuer which represented more than 10% of
shareholders' equity. Proceeds from sales of investments in debt and equity
securities during 1995, 1994 and 1993 were $11,177,000, $4,790,000, and
$13,146,000 respectively. Gross gains of $93,000 and gross losses of $71,000
were realized on those sales in 1995. Gross gains of $108,000 and gross losses
of $11,000 were realized on the sales in 1994. In 1993, gross realized gains
were $279,000 and gross realized losses were $71,000.
<PAGE>
NOTE C - LOANS
Major classifications of loans at December 31, 1995 and 1994 are as
follows:
<TABLE>
1995 1994
<S> <C> <C>
Real Estate/Residential $ 122,293 $ 117,205
Real Estate/Construction 4,959 2,861
Real Estate/Commercial 35,316 35,673
Consumer/Installment 27,685 24,626
Commercial (Non-Real Estate)
and Agricultural 5,403 7,503
State and Political Subdivisions 1,290 288
Other 13 18
--------- ---------
Total Gross Loans 196,959 188,174
Less Unearned Discount (3,829) (2,959)
--------- ---------
Total Loans $ 193,130 $ 185,215
</TABLE>
Included in total gross loans are unamortized loan fees totaling $229,000
at December 31, 1995 and $226,000 at December 31, 1994. There were loans
totaling $2,181,000 on which the accrual of interest has been discontinued or
reduced at December 31, 1995. During 1995 an average of $1,893,000 of loans were
on non-accrual status. Non-accrual loans at December 31, 1994 amounted to
$1,724,000 and averaged $1,698,000 during 1994. Loans 90 days and over past due
totaled $1,115,000 at December 31, 1995 and $1,069,000 at December 31, 1994.
<PAGE>
NOTE D - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Beginning Balance $ 2,187 $ 1,953 $ 1,840
Additions
Provisions for loan losses
charged to operating expenses 1,798 420 765
Recoveries of loans 216 252 91
------- ------- -------
Total Additions 2,014 672 856
Deduction
Loans charged-off (1,758) (438) (743)
------- ------- -------
Ending Balance $ 2,443 $ 2,187 $ 1,953
</TABLE>
NOTE E - IMPAIRED LOANS
On January 1, 1995 the Company adopted SFAS No. 114, "Accounting for
Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". The
Company has identified a loan as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the loan
agreement. The accrual of interest is discontinued in such loans and no income
is recognized until all recorded amounts of interest and principal are recovered
in full.
Loan impairment is measured by estimating the expected future cash flows
and discounting them at the respective effective interest rate or by valuing the
underlying collateral. The recorded investment in these loans and the valuation
for credit loses related to loan impairment are as follows:
<TABLE>
At December 31, 1995
<S> <C>
Principal amount of impaired loans $ 2,035
Accrued interest --
Deferred loan costs 4
-------
2,039
Less valuation allowance (238)
-------
$ 1,801
</TABLE>
<PAGE>
On January 1, 1995 a valuation for credit losses related to impaired loans
was established as a part of the allowance for possible loan losses. The
activity in this allowance account is as follows:
<TABLE>
Year ended December 31, 1995
<S> <C>
Valuation allowance at January 1, 1995 $ 160
Provision for loan impairment 187
Direct charge-offs (125)
Recoveries 16
-----
Valuation allowance at December 31, 1995 $ 238
</TABLE>
Total cash collected on impaired loans during 1995 was $182,000, of which
$138,000 was credited to the principal balance outstanding on such loans and
$44,000 was recognized as interest income. Interest that would have been accrued
on impaired loans during 1995 was $214,000. The valuation allowance for impaired
loans of $238,000 at December 31, 1995 is included in the "Allowance for
Possible Loan Losses" which amounts to $2,443,000 at December 31, 1995.
NOTE F - PREMISES AND EQUIPMENT
Major classifications of these assets at December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
1995 1994
<S> <C> <C>
Land $ 939 $ 476
Premises 6,512 5,878
Equipment 3,707 3,437
-------- --------
11,158 9,791
Accumulated depreciation
and amortization (4,395) (3,929)
-------- --------
Total Premises and Equipment $ 6,763 $ 5,862
</TABLE>
Depreciation and amortization expense amounted to $624,000, $458,000 and
$353,000 in 1995, 1994 and 1993, respectively.
The Financial Accounting Standards Board issued new standard, SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", which provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and certain identifiable intangibles and
how to value long-lived assets to be disposed of. The adoption of this new
statement is not expected to have a material impact on the Company's financial
position or results of operation. The Company's required to adopt this new
standard for it's year ended December 31, 1996.
<PAGE>
NOTE G - SHORT-TERM BORROWINGS
<TABLE>
FEDERAL RESERVE DISCOUNT BORROWINGS
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Balance outstanding at December 31, $ -- $ -- $ --
Maximum amount outstanding at
any month-end during the year $ -- $ -- $ --
Average amount outstanding
during the year $ -- $ 59 $ --
Average interest rate during
the year ---% 3.19% ---%
</TABLE>
<TABLE>
FEDERAL HOME LOAN BANK BORROWINGS
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Balance outstanding at December 31, $ 7,000 $ 750 $ --
Maximum amount outstanding at any
month-end during the year $11,000 $ 750 $ 5,263
Average amount outstanding
during the year $ 6,109 $ 118 $ 317
Average interest rate during
the year 6.34% 5.19% 3.31%
</TABLE>
There were no short-term borrowings in the form of Federal Funds
purchased at December 31, 1995, 1994 and 1993.
<TABLE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Balance outstanding at December 31, $ 6,096 $ 9,027 $
4,711
Maximum amount outstanding at any
month-end during the year $12,332 $12,347 $ 6,572
Average amount outstanding
during the year $ 9,298 $ 6,428 $ 4,078
Average interest rate during
the year 3.72% 2.51% 2.08%
</TABLE>
<PAGE>
NOTE H - LONG-TERM DEBT
Long-term debt consists of the Company's obligation as a party to the
Employee Stock Ownership Plan debt which is discussed in Note K. The principal
payments due on the ESOP debt at December 31, 1995 are as follows:
<TABLE>
ESOP
Debt
<S> <C> <C>
1996 $132
1997 121
1998 65
1999 65
2000 65
2001 and beyond 195
----
Total $643
</TABLE>
NOTE I - OTHER OPERATING EXPENSES
The following items which are greater than 1% of the aggregate of "Total
Interest Income" and "Total Other Income" are included in "Other Operating
Expenses" for the respective years indicated.
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Litigation Costs and Consulting and Legal Fees $681 $470 $411
Data Processing Services $515 $361 $332
Printing, Stationery and Supplies $299 $303 $287
Advertising $294 $228 $174
Federal Deposit Insurance Premium $288 $536 $499
Postage $258 $226 $193
Loan Collection $201 $258 $141
</TABLE>
<PAGE>
NOTE J - INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Applicable income tax expense (benefit) in the consolidated statements of
income is as follows:
<TABLE>
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Federal
Current $ 671 $1,015 $ 201
Deferred (benefit) (156) 3 568
------ ------ ------
Total $ 515 $1,018 $ 769
</TABLE>
The income tax provision reconciled to the tax computed statutory federal
rate was:
<TABLE>
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Federal tax expense
at statutory rate $ 651 $ 1,142 $ 910
Increase (decrease)
in taxes resulting from:
Tax-exempt investment
securities income (124) (112) (123)
Tax-exempt interest
on loans (19) (17) (16)
Other, net 7 5 (2)
------- ------- -------
Applicable Income Taxes $ 515 $ 1,018 $ 769
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
At December 31, 1995 1994
<S> <C> <C>
Deferred Tax Assets:
Loan Loss Reserve $ 540 $ 477
Deferred compensation 502 428
Deferred loan fees 81 117
Unrealized securities losses -- 533
------ ------
Total $1,123 $1,555
====== ======
Deferred Tax Liability:
Depreciation of property
and equipment $ 19 $ 51
Unrealized securities gains 302 71
Other 13 --
------ ------
Total $ 334 $ 122
------ ------
Net $ 789 $1,433
====== ======
</TABLE>
Based on management's evaluation of the likelihood of realization, no
valuation allowance has been provided.
<PAGE>
NOTE K- EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership Plan (ESOP or Plan) for
the benefit of eligible employees.
In 1985, the ESOP borrowed $350,000 from a bank payable over twelve years.
The interest rate on this loan is 87.5% of that bank's prime rate plus 1/4% (for
an interest rate of 7.69% at December 31, 1995 and December 31, 1994). In 1987,
the ESOP borrowed $385,000 from a commercial bank. The loan is payable over ten
years with interest and principal due quarterly. The loan bears interest at a
current interest rate of 92% of prime (for an interest rate of 7.82% at December
31, 1995 and December 31, 1994). The ESOP borrowed an additional $650,000 in
August 1993 from a commercial bank. This loan is payable over ten years with
interest and principal due quarterly. The loan bears interest at a current
interest rate of prime plus 1.25% (for an interest rate of 9.75% at December 31,
1995 and December 31, 1994). The proceeds of this loan were used by the ESOP to
exercise its rights and purchase 40,152 shares of the Company's common stock
from the stock offering completed on August 27, 1993 (see Note T). The ESOP's
total outstanding debt at December 31, 1995 and 1994 was $643,000 and $775,000,
respectively. These obligations have been recorded as a liability on the books
of the Company and are collateralized by stock of Nazareth National Bank and
Trust Company.
Interest expense represents the actual interest paid by the ESOP. The
interest incurred on ESOP debt was $67,000, $69,000 and $33,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Compensation expense related to the Plan amounted to $178,000, $153,000 and
$125,000 for the years ended December 31, 1995, 1994 and 1993, respectively. As
provided by SOP 93-6 (see Note A.8.), the ESOP compensation expense includes
$3,000 in 1995 and 1994 which is the fair market value of the shares related to
the August 1993 loan that were allocated to the employees during these years.
The number of shares released were 4,724 in 1995 and 1994.
Dividends on unallocated shares used for debt service were $37,000, $42,000
and $31,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The total shares held by the ESOP were 195,481 and 191,931 at December 31,
1995 and 1994, respectively. ESOP shares have been restated to reflect the 5%
stock dividend of June 1994.
NOTE L - OTHER BENEFIT PLANS
Employees who qualify may elect to participate in a deferred salary savings
(401k) plan. A participating employee may contribute a maximum of 8% of his or
her compensation. The Company will contribute $.50 for each $1.00 up to the
first 5% that each employee contributes. Company payments are charged to current
operating expense. These contributions were $55,000, $57,000 and $53,000 in
1995, 1994 and 1993, respectively.
The Company also has an executive compensation plan (Officers' Supplemental
Retirement Plan) which provides additional death, medical and retirement
benefits to certain officers.
The Company has a deferred compensation plan (Deferred Directors' Plan)
involving Directors of the Company. The plan requires defined annual payments
for 15 years beginning at age 65 or death. The annual benefit is based upon the
amount deferred plus interest. The Company has recorded the deferred
compensation liabilities using the present value method.
<PAGE>
The following table sets forth the funded status of the officers'
supplemental retirement plan and the deferred directors' plan and the amounts
recognized in the Company's balance sheets at December 31, 1994 and 1993.
Actuarial present value of benefit obligations:
<TABLE>
Officers' Deferred
Supplemental Directors'
Retirement Plan Plan
at December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Accumulated benefit obligation, all of
which is vested $ 64 $ 59 $ 498 $ 491
Projected benefit obligation
for service rendered to date $(221) $(192) $(498) $(491)
Plan assets at fair value -- -- -- --
----- ----- ----- -----
Projected benefit obligation
in excess of plan assets (221) (192) (498) (491)
Unrecognized net (gain) loss from past
experience different from that assumed
and effects of changes in assumptions (165) (176) 6
(2)
Prior service cost not yet recognized
in net periodic pension cost -- -- -- --
Unrecognized net assets at December 31,
being recognized over 15 years (6) (6) -- --
Adjustment to recognize
additional minimum liability -- -- (6) --
----- ----- ----- -----
Accrued Pension Cost $(392) $(374) $(498) $(493)
</TABLE>
The weighted average assumed discount rate and weighted average rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligation were 7.0% and 6.0%, respectively, in
1995, 7.75% and 6.0%, respectively, in 1994 and 7.0% and 7.0%, respectively in
1993. The weighted average expected long-term rate of return on assets was 8.0%
for 1995, 8.0% for 1994 and 9.0% for 1993 for the Officers' Supplemental
Retirement Plan and 9.0% in each of those years for the Deferred Directors'
Plan.
<PAGE>
Net pension cost included the following components:
<TABLE>
Officers' Deferred
Supplemental Directors'
Retirement Plan Plan
at December 31, 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Service cost - benefits
earned during the period $ 14 $ 33 $-- $--
Interest cost on projected
benefit obligation 15 20 36 35
Net amortization and deferral (11) (1) -- --
---- ---- ---- ----
Net Periodic Pension Cost $ 18 $ 52 $ 36 $ 35
</TABLE>
NOTE M - POST-RETIREMENT BENEFIT
The Company sponsors a post-retirement plan that covers a certain number of
retired employees and a limited group of current employees. This plan provides
medical insurance benefits to a group of previously qualified retirees and
spouses and to current full-time employees who were 60 years of age or older on
January 1, 1992 and who retire from the Company after attaining age 65 and are
fully vested in the "Employee Stock Ownership Plan" at the time of retirement.
This plan is currently unfunded.
Effective as of the beginning of fiscal 1993, the Company adopted SFAS No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pension".
The Standard's provisions were adopted prospectively and accordingly, earnings
for 1992 have not been restated. As permitted by SFAS No. 106, the Company
elected to delay the recognition of the transition obligation aggregating
$308,000 at January 1, 1993, and amortize this amount on a straight-line basis
over 20 years. This election is recorded in the financial statements as a
component of net periodic post-retirement benefit cost. Prior to 1993, the
Company recognized the cost of retiree health care as benefits premiums were
paid.
The Company has determined the actuarially computed expense associated with
this benefit for 1995 and 1994. The components of the net periodic
post-retirement benefit cost for the years ended December 31, were:
<TABLE>
Year Ended December 31,
1995 1994
<S> <C> <C>
Service cost - benefits earned during the period $ 5 $ 5
Interest cost on accumulated benefit obligation 25 21
Amortization of transition obligation 15 15
--- ---
Net periodic post-retirement benefit cost $45 $41
</TABLE>
The assumptions used to develop the net periodic post-retirement benefit
cost and the accrued post-retirement benefit cost were:
<TABLE>
1995 1994
<S> <C> <C>
Discount rate 7.00% 7.75%
Medical care cost trend rate 12.00% 13.00%
</TABLE>
The medical care cost trend rate used in the actuarial computation
ultimately is reduced to 7.0% in the year 2000 and subsequent years. This was
accomplished using 1.0% decrements for the years 1993 through 2000.
<PAGE>
The table of actuarially computed plan assets and benefit obligations for
the Company is presented below:
<TABLE>
At December 31,
1995 1994
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 303 $ 256
Active, eligible employees -- 37
Active, not-yet-eligible employees 53 --
---- ----
Accumulated post-retirement benefit obligation 356 293
Plan assets at fair value -- --
---- ----
Accumulated benefit obligation in excess of plan assets 356 293
Unrecognized transition obligation (262) (278)
Unrecognized net gain (37) 21
---- ----
Accrued post-retirement $ 57 $ 36
</TABLE>
At December 31, 1995 $127,000 of the accrued post-retirement benefit cost
is included in the total other liabilities. The effect of a one percentage point
increase in each future year's assumed medical care cost trend rate, holding all
other assumptions constant, would have been to increase the net periodic
post-retirement benefit cost by $30,000 and the accrued post-retirement benefit
cost by $2,000.
Health care benefits are provided to certain retired employees. The cost of
providing these benefits was approximately $28,000, $25,000 and $22,000 in 1995,
1994 and 1993, respectively. The cost is accrued over the service periods of
employees expected to receive benefits. Past service costs are being amortized
principally over 30 years.
NOTE N - STOCK OPTIONS
The Company adopted a stock option plan in 1986. Under the stock option
plan, options to acquire shares of common stock may be granted to the officers
and key employees. The stock option plan provides for the granting of options at
the fair market value of the Company's common stock at the time the options are
granted. Each option granted under the stock option plan may be exercised within
a period of ten years from the date of grant. However, no option may be
exercised within one year from date of grant. No options were granted in 1995.
Options totaling 5,750 shares were granted to officers under this plan in 1994
at a price of $16.75 per share. Options outstanding under this plan totaled
16,168 shares at an average price per share of $18.11 at December 31, 1995 and
1994.
In 1994, a Non-Employee Directors Stock Option Plan was adopted. This plan
provides for the awarding of stock options to the Company's Directors. Pursuant
to this plan, on May 1, 1994 each non-employee director of the Company was
automatically granted an option to purchase 1,050 shares of the Company's common
stock at the fair market value of the Company's common stock of $16.19 per
share. The plan additionally provides that any non-employee director who is
first elected by the shareholders as a director of the Company or any subsidiary
after May 1, 1994 shall, as of that date of such election, automatically be
granted an option to purchase 1,050 shares of the Company's common stock. In
addition, on the fifth anniversary of the initial option grant, persons who
continue to be non-officer directors shall each be granted additional options to
purchase 1,050 shares of the Company's common stock. Pursuant to this plan, in
1995, options to purchase 2,100 shares of the Company's common stock at a price
of $15.75 were granted to certain non-employee directors. Options totaling 8,400
shares were granted to non-employee directors under this plan in 1994 at a price
of $16.19 per share.
At December 31, 1995, the total of all options to acquire shares were
26,578 at an average price of $17.32 per share. There were 24,568 options to
acquire shares at an average price of $17.45 per share outstanding at December
31, 1994. No options have been exercised under the stock option plans.
Authorized shares available for future option grants were 60,243 and 62,253 at
December 31, 1995 and 1994, respectively. Shares and price per share data has
been restated to reflect the 5% stock dividend of June 1994.
The Financial Accounting Standards Board issued a new standard, SFAS No.
123, "Accounting for Stock-Based Compensation", which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, the standard permits entities to
<PAGE>
continue accounting for employee stock options and similar equity instruments
under APB Opinion 25, "Accounting for Stock Issued to Employees". Entities that
continue to account for stock options using APB Opinion 25 are required to make
pro forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied. The
Company has not determined which method it will follow in the future, but
anticipates following APB Opinion 25. The Company will be required to adopt the
new standard for its year ended December 31, 1996.
NOTE O - COMMITMENTS AND CONTINGENCIES
The Company has non-cancellable operating lease agreements in excess of one
year with respect to various buildings and equipment. The minimum annual rental
commitments at December 31, 1995 are payable as follows:
<TABLE>
Operating Leases
<S> <C>
1996 $ 528
1997 383
1998 249
1999 238
2000 246
2001 and beyond 1,541
-------
Total $ 3,185
</TABLE>
The total rental expense was $594,000, $543,000 and $573,000 in 1995, 1994
and 1993, respectively.
The Company does not anticipate any material losses as a result of the
commitments and contingent liabilities.
<PAGE>
NOTE P - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The Bank
exposure to credit loss in the event of non-performance by the other party to
the financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
The contract or notional amounts as of December 31, 1995 are as follows:
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 1,549
Standby letters of credit $11,078
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support contracts entered into by customers. Most guarantees
extend for one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
When deemed necessary, collateral held by the Bank for financial
instruments varies, but may include personal or commercial real estate, accounts
receivable, inventory, equipment, certificates of deposit or marketable
securities. The extent of collateral held for any one financial instrument
ranges up to 100%. The average collateral held on financial instruments was
85.7% as of December 31, 1995.
NOTE Q - CONCENTRATIONS OF CREDIT RISK
The Bank grants commercial, real estate and installment loans to customers
primarily in Northampton, Monroe and Lehigh Counties, Pennsylvania. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the economy of Northampton,
Monroe and Lehigh Counties.
At December 31, 1995, the Bank had residential real estate loans
outstanding totaling $122,293,000 which is 63.3% of total loans. The Bank also
had loans outstanding at December 31, 1995 to various residential apartment
building owners totaling $10,187,000 which is 28.9% of the Bank's total real
estate commercial loans.
NOTE R - RELATED PARTY TRANSACTIONS
The amount of loans by the Company to its directors and executive officers
was approximately $2,788,000 and $2,595,000 at December 31, 1995 and 1994,
respectively. These loans were made in the ordinary course of business at
substantially the same terms and conditions as those with other borrowers.
An analysis of the 1995 activity of these loans follows:
<TABLE>
<S> <C>
Balance, January 1, 1995 $ 2,595
New loans 373
Repayments (180)
-------
Balance, December 31, 1995 $ 2,788
</TABLE>
<PAGE>
NOTE S - REGULATORY MATTERS
The Bank, as a National Bank, is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, the Bank may
not, without the prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings (as defined) plus
the retained earnings (as defined) from the prior two years. The dividends, as
of December 31, 1995 that the Bank could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $1,823,000. The Bank is
also required to maintain minimum amounts of capital to total "risk weighted"
assets, as defined by the banking regulators. At December 31, 1995, the Bank was
required to have minimum Tier 1 and total capital ratios of 4.0% and 8.0%,
respectively. The Bank's actual ratios at December 31, 1995 were 12.4% and
13.6%, respectively. The Bank's leverage ratio at December 31, 1995 was 6.8%.
Restrictions on cash and due from bank accounts are placed upon the banking
subsidiary by the Federal Reserve Bank. Certain amounts of reserve balances are
required to be on hand or on deposit at the Federal Reserve Bank based upon
deposit levels and other factors. The average and year-end amount of the reserve
balance for 1995 was approximately $2,990,000 and $3,285,000, respectively. For
1994, the average reserve balance was $2,816,000 and the year-end amount was
$3,511,000.
NOTE T - EQUITY TRANSACTIONS
On June 28, 1994 the Company paid a 5% stock dividend on its common stock
from authorized but unissued shares to all shareholders of record at the close
of business on June 6, 1994. The number of shares and earnings per share as
stated in the following discussion of the offering of August 1993 and shares
issued under the Dividend Reinvestment and Stock Purchase Plan have been
restated to reflect this 5% stock dividend.
On August 27, 1993 the Company completed an offering of 315,000 shares of
common stock at a price of $16.19 per share. This offering resulted in proceeds
to the Company of $4,948,000, net of expenses of $152,000. The Company
contributed $4,700,000 of these funds to its Bank subsidiary.
A Dividend Reinvestment and Stock Purchase Plan was established in 1988.
The Plan provides the holders of common stock with a method to invest their cash
dividends and voluntary cash payments of not less than $100 or more than $1,000
per quarter in additional shares of the Company's common stock. Under this plan,
shares are sold, in general, at a discounted price of 5% below the average of
the high bid and asked price for the Company's common stock on the trading day
immediately preceding the investment date. In 1994, the Dividend Reinvestment
and Stock Purchase Plan purchased 14,744 new common shares from authorized and
unissued shares at an average cost of $16.48 per share for proceeds of $243,000.
In 1995, the Dividend Reinvestment and Stock Purchase Plan purchased 15,573 new
common shares from authorized and unissued shares at an average cost of $15.99
for proceeds of $249,000.
NOTE U - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of their assets and
liabilities considered to be financial instruments. For the Company, as for most
financial institutions, the majority of its assets and liabilities are
considered financial instruments as defined in SFAS No. 107. However, many such
instruments lack an available trading market as characterized by a willing buyer
and willing seller engaging in an exchange transaction. Also, it is the
Company's general practice and intent to hold its financial instruments to
maturity and to not engage in trading or sales activities. Therefore, the
Company had to use significant estimations and present value calculations to
prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.
Fair values have been estimated using data which management considered the
best available, as generally provided in the Company's FRY-9C Regulatory
Reports, and estimation methodologies deemed suitable for the pertinent category
of financial instrument. The estimation methodologies and resulting fair values,
and recorded carrying amounts at December 31, 1995 and 1994 were as follows:
<PAGE>
Fair value of loans and deposits with floating interest rates is generally
presumed to approximate the recorded carrying amounts.
Fair value of financial instruments actively traded in a secondary market
has been estimated using quoted market prices.
<TABLE>
1995 1994
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
<S> <C> <C> <C> <C>
Cash and cash equivalents $15,549 $15,549 $10,669 $10,669
Investment securities 20,188 20,054 34,398 36,525
Securities available-for-sale 59,049 59,049 43,610 43,610
Mortgage loans held-for-sale 1,006 1,006 69 69
</TABLE>
Fair value of financial instruments with stated maturities has been
estimated using present value cash flow, discounted at a rate approximating
current market for similar assets and liabilities.
<TABLE>
1995 1994
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
<S> <C> <C> <C> <C>
Assets:
Int-bearing dep with banks $ 835 $ 835 $ 402 $ 401
Liabilities:
Deposits with stated mat 106,532 106,939 85,812 87,729
Sec sold under agreements
to repurchase 6,096 6,096 9,027 9,027
Short-term borrowings 6,992 7,000 750 750
Long-term debt 643 643 862 862
</TABLE>
Fair value of financial instrument liabilities with no stated maturities
have been estimated to equal the carrying amount (the amount payable on demand).
<TABLE>
1995 1994
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
<S> <C> <C> <C> <C>
Dep with no stated mat $ 147,163 $ 147,163 $ 159,803 $ 159,803
</TABLE>
The fair value of the net loan portfolio has been estimated using present
value cash flow, discounted at the approximate current market rates adjusted for
non-interest operating costs and giving consideration to estimated prepayment
risk and credit loss factors.
<TABLE>
1995 1994
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
<S> <C> <C> <C> <C>
Total loans $ 195,162 $ 193,130 $ 181,278 $185,215
</TABLE>
There is no material difference between the carrying amount and the
estimated fair value of off-balance-sheet items totaling $12,627,000 at December
31, 1995 and $11,465,000 at December 31, 1994 which are primarily comprised of
unfunded loan commitments which are generally priced at market at the time of
funding.
The Company's remaining assets and liabilities are not considered financial
instruments. No disclosure of the relationship value of the Company's deposits
is required by SFAS No. 107.
<PAGE>
NOTE V - FIRST COLONIAL GROUP, INC. (PARENT COMPANY ONLY).
<TABLE>
Condensed Balance Sheets
December 31, 1995 1994
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 56 $ 88
Interest-Bearing Deposits
with Banks 290 196
Loan to Banking Subsidiary 1,600 1,600
Investment in Banking Subsidiary 20,717 18,890
Investment in Other Subsidiary 2,811 2,516
Other Assets 2 42
------- -------
TOTAL ASSETS $25,476 $23,332
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-Term Debt $ 643 $ 862
Other Liabilities 66 70
------- -------
TOTAL LIABILITIES 709 932
SHAREHOLDERS' EQUITY 24,767 22,400
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $25,476 $23,332
</TABLE>
<PAGE>
Condensed Statement of Income
<TABLE>
For the Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
INCOME
Dividends from Subsidiaries $ 829 $ 990 $ 876
Interest on Loan to Subsidiary 149 122 104
Interest on Deposits with Banks 5 6 14
------- ------- -------
Total Income 983 1,118 994
------- ------- -------
EXPENSES
Interest on Long-Term Debt 67 83 68
Other Expenses 77 90 110
------- ------- -------
Total Expenses 144 173 178
------- ------- -------
Income Before Taxes and
Equity in Undistributed Net
Earnings of Subsidiaries 839 945 816
Federal Income Tax (Credit) 3 (13) (20)
------- ------- -------
Income Before Equity in Undistributed
Net Earnings of Subsidiaries 836 958 836
Equity in Undistributed Net
Earnings of Subsidiaries 565 1,384 1,072
------- ------- -------
NET INCOME $ 1,401 $ 2,342 $ 1,908
</TABLE>
<PAGE>
Condensed Statement of Cash Flows
<TABLE>
For The Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,401 $ 2,342 $ 1,908
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Distribution in Excess of Undistributed
Net Earnings of Subsidiaries (565) (1,384) (1,072)
Changes in Assets and Liabilities:
(Increase) Decrease in Interest-Bearing
Deposits with Banks (94) 26 24
(Increase) Decrease in Other Assets 40 (18) (2)
Increase (Decrease) in Other Liabilities (7) (17) 24
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 775 949 882
------- ------- -------
INVESTING ACTIVITIES
Capital contribution to Bank Subsidiary -- -- (4,700)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES -- -- (4,700)
------- ------- -------
FINANCING ACTIVITIES
Repayment of Long-Term Debt (87) (338) (300)
Proceeds from Issuance of Common Stock 252 246 5,083
Cash Dividends Paid (972) (936) (812)
Cash in Lieu of Fractional Shares -- (3) --
------- ------- -------
Net Cash (Used in) Provided by Financing Activities (807) (1,031) 3,971
(Decrease) Increase in Cash and Cash Equivalents (32) (82) 153
Cash and Cash Equivalents, January 1, 88 170 17
------- ------- -------
Cash and Cash Equivalents, December 31, $ 56 $ 88 $ 170
------- ------- -------
</TABLE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16 (a) of the Exchange Act
The information contained under the captions "Election Of Directors" and
"Compliance with Section 16 (a) of the Securities Exchange Act of 1934" in the
Company's 1996 Proxy Statement and "Executive Officers of the Registrant" in
Appendix A to Part I of this Form 10-KSB is incorporated herein by reference
therefrom.
Item 10. Executive Compensation
The information contained under the caption "Executive Compensation" in the
Company's 1996 Proxy Statement is incorporated herein by reference therefrom.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information contained under the caption "Voting Securities and
Principal Holders Thereof" in the Company's 1996 Proxy Statement is incorporated
herein by reference therefrom.
Item 12. Certain Relationships and Related Transactions
The information contained under the caption "Certain Relationships and
Related Transactions" in the Company's 1996 Proxy Statement is incorporated
herein by reference therefrom.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Documents Filed as Part of this Report:
1. Financial Statements: The Consolidated Financial Statements of the Company
and the Report of Independent Certified Public Accountants thereon, as
listed below, have been filed under "Item 7, Financial Statements".
Report of Independent Certified Public Accountants
Consolidated Balance Sheets for the Years Ended
12/31/95 and 12/31/94
Consolidated Statements of Income for the Years Ended
12/31/95, 12/31/94 and 12/31/93
Consolidated Statement of Changes in Shareholders' Equity
for the Years Ended 12/31/95, 12/31/94 and 12/31/93
Consolidated Statements of Cash Flows for the Years Ended
12/31/95, 12/31/94 and 12/31/93
Notes to Consolidated Financial Statements
<PAGE>
3. Exhibits:
Number Title Page No.
3.1 (7) Restated Articles of Incorporation of the Company, as
amended.
3.2 (7) Bylaws of the Company, as amended.
4.1 (1) Specimen Common Stock Certificate of the Company.
*10.1 (1) Deferred Compensation Plan for Directors.
10.2 (2) Intentionally omitted.
*10.3 (1) Form of Executive Benefit Program Agreement.
*10.4 (6) Employee Stock Ownership Plan.
10.5 (1) Loan Agreement (including Exhibits thereto), dated
October 5, 1984, by and between the Company and
Commonwealth Bank and Trust Company, N.A.
*10.6 (3) First Colonial Group, Inc. Stock Option Plan.
10.7 (2) Loan Agreement, dated July 17, 1987, by and between
the Company and Commonwealth Bank and Trust Company,
N.A.
*10.8 (8) Restated Optional Deferred Salary Plan (401(k)).
*10.9 (10) 1994 Stock Option Plan for Non-Employee Directors, as
amended
*10.10 (9) Severance areeement dated July 19, 1994 by and
between the Bank and S. Eric Beattie
*10.11 (9) Severance agreement dated July 19, 1994 by and
between the Bank and Reid L. Heeren
<PAGE>
Number Title Page No.
*10.12 (9) Severance agreement dated July 19, 1994 by and
between the Bank and Arthur Williams
*10.13 (9) Severance dated July 19, 1994 by and between the
Bank and Gerald E. Kemmerer
*10.14 (10) Amendment No. 1 dated September 27, 1994 to the
Bank's Employee Stock Ownership Plan
*10.15 (10) Amendment No. 1 dated September 22, 1994 to the
Optional Deferred Salary Plan (401K)
*10.16 Amendment Number 1 to the 1994 Stock Option Plan for
Non-Employee Directors
*10.17 1996 Employee Stock Option Plan
11.1 Computation of Earnings per Share
21.1 (3) Subsidiaries of the Company.
23.1 Consent of Accountants.
27.1 Financial Data Schedule
* Represents a Management Contract or Compensatory Plan, Contract or Agreement.
<PAGE>
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-4908), as filed on
April 16, 1986.
(2) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-20319), as filed on
February 25, 1988.
(3) Incorporated by reference from the Company's Annual
Report on Form 10-K (File No. 0-11526) for the fiscal year ended
December 31, 1986.
(4) Incorporated by reference from the Company's Annual
Report on Form 10-K (File No. 0-11526) for the fiscal year ended
December 31, 1988.
(5) Incorporated by reference from the Company's Current
Report on Form 8-K dated June 20, 1989 (File No. 0-11526).
(6) Incorporated by reference from the Company's Annual
Report on Form 10-K (File No. 0-11526) for the fiscal year ended
December 31, 1991.
(7) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-64816), as filed on
June 22, 1993.
(8) Incorporated by reference from the Company's Annual
Report on Form 10-KSB (File No. 0-11526) for the fiscal year
ended December 31, 1993.
(9) Incorporated by reference from the Company's Quarterly
Report on Form 10-QSB (File No. 0-11526) for the quarter ended
June 30, 1994.
(10) Incorporated by reference from the Company's Annual Report on Form
10-KSB (File No. 0-11526) for the fisscal year ended December 31, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of the year ended
December 31, 1995.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST COLONIAL GROUP, INC.
Dated: March 21, 1996 By: /s/ S. Eric Beattie
S. ERIC BEATTIE, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ John J. Schlamp
JOHN J. SCHLAMP Chairman of the Board
and Director March 21, 1996
By: /s/ S. Eric Beattie
S. ERIC BEATTIE President, Chief Executive Officer
and Director (Principal Executive Officer)
March 21, 1996
By: /s/ Reid L. Heeren
REID L. HEEREN Senior Vice President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
March 21, 1996
By: /s/ Robert J. Bergren
ROBERT J. BERGREN
Director
March 21, 1996
<PAGE>
By: /s/ Paul A. Lentz
PAUL A. LENTZ
Director March 21, 1996
By: /s/ Gordon Mowrer
GORDON MOWRER
Director March 21, 1996
By: /s/ Daniel B. Mulholland
DANIEL B. MULHOLLAND
Director March 21, 1996
By:
ROBERT C. NAGEL
Director March __, 1996
By:
RICHARD STEVENS
Director March __, 1996
By:
MARIA ZUMAS THULIN
Director March __, 1996
Amendment No. 1 to
Non-Employee Director Stock Option Plan of
First Colonial Group, Inc.
RESOLVED, that the Directors of the Corporation have determined that it is
in the best interest of the Corporation and its shareholders that the
Non-Employee Director Stock Option Plan (the "Director Plan") be amended by
deleting the second sentence of Section 3 and inserting in lieu thereof the
following (the "Amendment"):
"Each person who (a) is not a director of the Company or any subsidiary
corporation as of May 1, 1994, and (b) is not an employee of the Company or
any subsidiary corporation and who on or after May 1, 1994 is first elected
or appointed as a director of the Company or any subsidiary corporation,
shall, as of the date of such election or appointment, automatically be
granted an option to purchase 1,000 shares of the Company's Common Stock
(such figure to be subject to adjustment for the same events described in
Section 2 hereof); provided, however, that any non-employee director who is
first appointed as a director after May 1, 1994 and prior to the 1995
Annual Meeting of Shareholders shall receive such automatic grant of
options on the date of the 1995 Annual Meeting of Shareholders."
RESOLVED, that the Amendment is adopted and approved and the President of
the Corporation is authorized and directed to submit the Amendment to the
shareholders for their approval at the 1995 Annual Meeting of Shareholders; and
further
RESOLVED, that the appropriate officers of the Corporation are hereby
authorized and directed to take all such actions and to execute and file, under
the corporate seal of the Corporation, all such certificates, instruments and
documents as they may deem necessary or appropriate to carry out the purposes
and intent of each of the foregoing resolutions.
EXHIBIT A
FIRST COLONIAL GROUP, INC.
1996 EMPLOYEE STOCK OPTION PLAN
1. Purpose of Plan
The purpose of the 1996 Employee Stock Option Plan (the "Plan") is to
provide additional incentive to officers and other key employees of First
Colonial Group, Inc. (the "Company") and each present or future parent or
subsidiary corporation by encouraging them to invest in shares of the Company's
common stock, $5.00 par value ("Common Stock"), and thereby acquire a
proprietary interest in the Company and an increased personal interest in the
Company's continued success and progress, to the mutual benefit of officers,
employees and shareholders.
2. Aggregate Number of Shares
250,000 shares of the Company's Common Stock shall be the aggregate number
of shares which may be issued under this Plan. Notwithstanding the foregoing, in
the event of any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Compensation Committee (defined in Section 4(a)), deems
in its sole discretion to be similar circumstances, the aggregate number and
kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Compensation
Committee. Reacquired shares of the Company's Common Stock, as well as unissued
shares, may be used for the purpose of this Plan. Common Stock of the Company
subject to options which have terminated unexercised, either in whole or in
part, shall be available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options; Limitations
All officers and key employees of the Company and of any present or future
parent or subsidiary corporation of the Company are eligible to receive an
option or options under this Plan. The individuals who shall, in fact, receive
an option or options shall be selected by the Compensation Committee, in its
sole discretion, except as otherwise specified in Section 4 hereof. During the
term of this Plan, no optionee under this Plan shall be entitled to be granted
options to purchase shares of the Company's Common Stock in excess of the total
number of shares set forth in Section 2 of this Plan (as adjusted pursuant to
Section 2).
A-1
<PAGE>
4. Administration of Plan
(a) This Plan shall be administered by the Compensation Committee
("Committee") appointed by the Company's Board of Directors. The Committee shall
consist of a minimum of two and a maximum of seven members of the Board of
Directors, each of whom shall be a "disinterested person" within the meaning of
Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended, or
any future corresponding rule. The Committee shall, in addition to its other
authority and subject to the provisions of this Plan, determine which
individuals shall in fact be granted an option or options, whether the option
shall be an Incentive Stock Option or a Non-Qualified Stock Option (as such
terms are defined in Section 5(a)), the number of shares to be subject to each
of the options, the time or times at which the options shall be granted, the
rate of option exercisability, and, subject to Section 5 hereof, the price at
which each of the options is exercisable and the duration of the option.
(b) The Committee shall adopt such rules for the conduct of its business
and administration of this Plan as it considers desirable. A majority of the
members of the Committee shall constitute a quorum for all purposes. The vote or
written consent of a majority of the members of the Committee on a particular
matter shall constitute the act of the Committee on such matter. The Committee
shall have the right to construe the Plan and the options issued pursuant to it,
to correct defects and omissions and to reconcile inconsistencies to the extent
necessary to effectuate the Plan and the options issued pursuant to it, and such
action shall be final, binding and conclusive upon all parties concerned. No
member of the Committee or the Board of Directors shall be liable for any act or
omission (whether or not negligent) taken or omitted in good faith, or for the
exercise of an authority or discretion granted in connection with the Plan to a
Committee or the Board of Directors, or for the acts or omissions of any other
members of a Committee or the Board of Directors. Subject to the numerical
limitations on Committee membership set forth in Section 4(a) hereof, the Board
of Directors may at any time appoint additional members of the Committee and may
at any time remove any member of the Committee with or without cause. Vacancies
in the Committee, however caused, may be filled by the Board of Directors, if it
so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"Incentive Stock Option" is an option which satisfies all of the requirements of
A-2
<PAGE>
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of the
Company's Common Stock on the date of the grant of the option. The option price
for Non-Qualified Stock Options issued under this Plan may, in the sole
discretion of the Compensation Committee, be less than the fair market value of
the Company's Common Stock on the date of the grant of the option. The fair
market value of the Company's Common Stock on any particular date shall mean the
last reported sale price of a share of the Company's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no sale
took place on such day, the last such date on which a sale took place, or if the
Common Stock is not then quoted on the NASDAQ National Market System or Small
Cap NASDAQ, or listed or admitted to trading on any stock exchange, the average
of the bid and asked prices in the over-the-counter market on such date, or if
none of the foregoing, a price determined by the Committee.
(b) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Incentive Stock Options issued pursuant to this Plan shall be issued
substantially in the form set forth in Appendix I hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Non-Qualified Stock Options issued pursuant to this Plan shall be issued
A-3
<PAGE>
substantially in the form set forth in Appendix II hereof, which form is
hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Non-Qualified Stock
Options shall expire ten years and 30 days after the date they are granted,
unless terminated earlier under the option terms. At the time of granting a
Non-Qualified Stock Option hereunder, the Committee may, in its discretion,
amend or supplement any of the option terms contained in Appendix II for any
particular optionee.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section 422
of the Code and the regulations thereunder; (ii) any optionee does not obtain
the tax treatment pertaining to an Incentive Stock Option; or (iii) any option
granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration of
ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan in any way, or to suspend or terminate
it, effective as of such date, which date may be either before or after the
taking of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not affect options granted under the Plan prior
to the actual date on which such action occurred. If a amendment or supplement
of this Plan is required by the Code or the regulations thereunder to be
approved by the shareholders of the Company in order to permit the granting of
"Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the amended or supplemented Plan, such
amendment or supplement shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such submission
shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.
A-4
<PAGE>
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to this
Plan shall confer upon any employee the right to continue in the employ of the
Company or any affiliated or subsidiary corporation or interfere in any way with
the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
the employee, regardless of when the option is actually delivered to the
employee or acknowledged or agreed to by him.
(c) The terms "parent corporation" and "subsidiary corporation" as used
throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(d) References in this Plan to the Code shall be deemed to also refer to
the corresponding provisions of any future United States revenue law.
(e) The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
A-5
<PAGE>
APPENDIX I
INCENTIVE STOCK OPTION
To:____________________________________________________________________________
_______________________________________________________________________________
Name
_______________________________________________________________________________
_______________________________________________________________________________
Address
Date of Grant:_________________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $5.00 par value ("Common Stock"), of
First Colonial Group, Inc. (the "Company") at a price of $_____ per share
pursuant to the Company's 1996 Employee Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date of
grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 25% of the total
number of shares subject to the option minus the number of shares previously
purchased by exercise of the option (as adjusted for any change in the
outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
25% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after four years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
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<PAGE>
In the event of a "change of control" (as hereafter defined) of the
Company, your option may, from and after the date of the change of control, and
notwithstanding the foregoing paragraph, be exercised for up to 100% of the
total number of shares then subject to the option minus the number of shares
previously purchased upon exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Compensation Committee deems in its sole discretion to be similar
circumstances). A "change of control" shall be deemed to have occurred upon the
happening of any of the following events:
1. A change within a twelve-month period in a majority of the members of
the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than 50% of
the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change of control" by the
Compensation Committee.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check, and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Compensation Committee) certificates representing
shares of Common Stock of the Company, which will be valued by the Secretary of
the Company at the fair market value per share of the Company's Common Stock (as
determined in accordance with the Plan) on the date of delivery of such
certificates to the Company, accompanied by an assignment of the stock to the
Company; or (c) (unless prohibited by the Compensation Committee) any
combination of cash and Common Stock of the Company valued as provided in clause
(b). Any assignment of stock shall be in a form and substance satisfactory to
the Secretary of the Company, including guarantees of signature(s) and payment
of all transfer taxes if the Secretary deems such guarantees necessary or
desirable.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of retirement at age 65 (or such earlier
retirement age as the Compensation Committee may approve), disability as defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
A-7
<PAGE>
"Code"), and theregulations thereunder, or death, in which case your option
will terminate one year from the date of termination of employment due to
retirement, disability or death (but in no event later than the Scheduled
Termination Date). After the date your employment is terminated, as aforesaid,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date your employment terminated. If you
are employed by a Company subsidiary corporation, your employment shall be
deemed to have terminated on the date your employer ceases to be a Company
subsidiary corporation, unless you are on that date transferred to the Company
or another the Company subsidiary corporation. Your employment shall not be
deemed to have terminated if you are transferred from the Company to a Company
subsidiary corporation, or vice versa, or from one the Company subsidiary
corporation to another the Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Compensation Committee deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price of such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Compensation Committee.
This option is not transferable otherwise than by Will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
A-8
<PAGE>
not have any rights as a shareholder of the Company. The Company reserves
the right not to deliver to you the shares purchased by virtue of the exercise
of this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is approved by
the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable;
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell;
or
(d) Until you have paid or made suitable arrangements to pay (i) all
federal, state and local income tax withholding required to be withheld by the
Company in connection with the option exercise and (ii) the employee's portion
of other federal, state and local payroll and other taxes due in connection with
the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of
A-9
<PAGE>
counsel acceptable to the Company to the effect that the proposed transaction
will be exempt from such registration. The optionee shall execute such
instruments, representations, acknowledgements and agreements as the Company
may, in its sole discretion, deem advisable to avoid any violation of federal,
state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not
be offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion of
counsel acceptable to the Company that the proposed transaction will be
exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
A-10
<PAGE>
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
A-11
<PAGE>
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
FIRST COLONIAL GROUP, INC.
By:____________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
_______________________________________
(Signature)
_______________________
(Date)
A-12
<PAGE>
APPENDIX II
NON-QUALIFIED STOCK OPTION
To:____________________________________________________________________________
_______________________________________________________________________________
Name
_______________________________________________________________________________
_______________________________________________________________________________
Address
Date of Grant:_________________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase _________ shares of common stock, $5.00 par value ("Common Stock"), of
First Colonial Group, Inc. (the "Company") at a price of $_____ per share
pursuant to the Company's 1996 Employee Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date of
grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 25% of the total
number of shares subject to the option minus the number of shares previously
purchased by exercise of the option (as adjusted for any change in the
outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
25% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after four years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
A-13
<PAGE>
In the event of a "change of control" (as hereafter defined) of the
Company, your option may, from and after the date of the change of control, and
notwithstanding the foregoing paragraph, be exercised for up to 100% of the
total number of shares then subject to the option minus the number of shares
previously purchased upon exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Compensation Committee deems in its sole discretion to be similar
circumstances). A "change of control" shall be deemed to have occurred upon the
happening of any of the following events:
1. A change within a twelve-month period in a majority of the members of
the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than 50% of
the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change of control" by the
Compensation Committee.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check, and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Compensation Committee) certificates representing
shares of Common Stock of the Company, which will be valued by the Secretary of
the Company at the fair market value per share of the Company's Common Stock (as
determined in accordance with the Plan) on the date of delivery of such
certificates to the Company, accompanied by an assignment of the stock to the
Company; or (c) (unless prohibited by the Compensation Committee) any
combination of cash and Common Stock of the Company valued as provided in clause
(b). Any assignment of stock shall be in a form and substance satisfactory to
the Secretary of the Company, including guarantees of signature(s) and payment
of all transfer taxes if the Secretary deems such guarantees necessary or
desirable.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of retirement at age 65 (or such earlier
retirement age as the Compensation Committee may approve), disability as defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
A-14
<PAGE>
"Code"), and the regulations thereunder, or death, in which case your
option will terminate one year from the date of termination of employment due to
retirement, disability or death (but in no event later than the Scheduled
Termination Date). After the date your employment is terminated, as aforesaid,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date your employment terminated. If you
are employed by a Company subsidiary corporation, your employment shall be
deemed to have terminated on the date your employer ceases to be a Company
subsidiary corporation, unless you are on that date transferred to the Company
or another Company subsidiary corporation. Your employment shall not be deemed
to have terminated if you are transferred from the Company to a Company
subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Compensation Committee deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price of such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Compensation Committee.
This option is not transferable otherwise than by Will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
A-15
<PAGE>
not have any rights as a shareholder of the Company. The Company reserves
the right not to deliver to you the shares purchased by virtue of the exercise
of this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is approved by
the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell;
or
(d) Until you have paid or made suitable arrangements to pay (i) all
federal, state and local income tax withholding required to be withheld by the
Company in connection with the option exercise and (ii) the employee's portion
of other federal, state and local payroll and other taxes due in connection with
the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
A-16
<PAGE>
laws or an opinion of counsel acceptable to the Company to the effect that
the proposed transaction will be exempt from such registration. The optionee
shall execute such instruments, representations, acknowledgements and agreements
as the Company may, in its sole discretion, deem advisable to avoid any
violation of federal, state, local or securities exchange rule, regulation or
law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not
be offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion of
counsel acceptable to the Company that the proposed transaction will be
exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this option shall not be an
"Incentive Stock Option" as that term is used in Section 422 of the Code and the
regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
A-17
<PAGE>
arbitration you will attempt to resolve any disputes or disagreements with
the Company over this option amicably and informally, in good faith, for a
period not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
FIRST COLONIAL GROUP, INC.
By:_____________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option and, having
read it hereby signify my understanding of, and my agreement with, its terms and
conditions.
A-18
<PAGE>
_________________________________________
(Signature)
________________________
(Date)
A-19
Exhibit 11.1
First Colonial Group, Inc. and Subsidiaries
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
Year Ended December 31
1995 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Primary
Net Income $ 1,401 $ 2,342 $ 1,908
--------- --------- ---------
Shares
Weighted average number of
common shares outstanding 1,432,753 1,411,046 1,233,543
Primary earnings per common share $ 0.98 $ 1.66 $ 1.55
========= ========= =========
Assuming full dilution
Net Income $ 1,401 $ 2,342 $ 1,908
--------- --------- ---------
Shares
Weighted average number of
common shares outstanding 1,432,753 1,411,046 1,233,543
Assuming exercise of option
reduced by the number of shares
which could have been purchased
with the proceeds from exercise
of such options 285 ** **
Weighted average number of common
shares outstanding as adjusted 1,433,038 1,411,046 1,233,543
--------- --------- ---------
Net Income per common share
assuming full dilution $ 0.98 $ 1.66 $ 1.55
========= ========= =========
</TABLE>
* See note A10 of the notes to financial statements.
** Restated to reflect the 5% stock dividend of June 1994.
*** The stock options are not included since the option price on the stock
options outstanding was greater than the average market price and the
year-end market price.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 18, 1996 accompanying the
consolidated financial statements included in the 1995 Annual Report to
Shareholders which is incorporated by reference in the Annual Report of First
Colonial Group, Inc. and Subsidiaries on Form 10-KSB for the year ended December
31, 1995. We hereby consent to the incorporation by reference of said report in
the Registration Statement of First Colonial Group, Inc. and Subsidiaries on
Form S-3 (File No. 33-21126, effective July 6, 1989) and on Form S-8 File No.
33-84400, effective September 27, 1994).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714719
<NAME> FIRST COLONIAL GROUP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,949
<INT-BEARING-DEPOSITS> 835
<FED-FUNDS-SOLD> 3,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,049
<INVESTMENTS-CARRYING> 20,054
<INVESTMENTS-MARKET> 20,188
<LOANS> 194,136
<ALLOWANCE> 2,443
<TOTAL-ASSETS> 298,514
<DEPOSITS> 254,102
<SHORT-TERM> 13,096
<LIABILITIES-OTHER> 5,906
<LONG-TERM> 643
0
0
<COMMON> 7,355
<OTHER-SE> 17,412
<TOTAL-LIABILITIES-AND-EQUITY> 298,514
<INTEREST-LOAN> 16,896
<INTEREST-INVEST> 4,861
<INTEREST-OTHER> 139
<INTEREST-TOTAL> 21,896
<INTEREST-DEPOSIT> 8,332
<INTEREST-EXPENSE> 9,252
<INTEREST-INCOME-NET> 12,644
<LOAN-LOSSES> 1,798
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 11,204
<INCOME-PRETAX> 1,916
<INCOME-PRE-EXTRAORDINARY> 1,401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,401
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 4.72
<LOANS-NON> 2,181
<LOANS-PAST> 1,115
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,187
<CHARGE-OFFS> 1,758
<RECOVERIES> 216
<ALLOWANCE-CLOSE> 2,443
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,443
</TABLE>
