<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB/A
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1995 OR
----------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from __________________to____________________
Commission file number 0-17007
------------------------
EXECUFIRST BANCORP, INC.(Name of Small Business Issuer In Its Charter)
PENNSYLVANIA 23-2486815
- --------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1513 WALNUT STREET, PHILADELPHIA, PA 19102
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (215) 564-3300
Securities registered pursuant to Section 12(b) of the Act: None.
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -----------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
- ------------------------------------------------------------------------------
(Title of class)
(Title of class)
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, 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 [ ]
[Cover page 1 of 2 pages]
<PAGE>
Item 6 is hereby deleted in its entirety and the following inserted in its
stead:
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
RESULTS OF OPERATIONS
For the year ended December 31, 1995 the Company reported net income
of $503,000 or $.41 per share compared with a net loss of $834,000 or $.68 per
share for the year ended December 31, 1994. The increase in the Company's
results during 1995 was primarily the result of a reduction in the provision for
possible loan losses to $690,000 for the year ended December 31, 1995, from
$1,349,000 for the year ended December 31, 1994, a decrease of $659,000. This
decrease was due to a lower level of problem loans during 1995. In 1995 the
company also reported non-recurring gains on the sale of certain investment
securities of $178,000. Net interest income increased to $5,215,000 for the year
ended December 31, 1995 from $4,899,000 for the year ended December 31, 1994.
Additionally, the Company recognized an income tax benefit in the amount of
$246,500 primarily as the result of a reduction in the deferred tax asset
valuation allowance.
The Company's total assets increased 23% to approximately $129,663,000
at December 31, 1995 from $105,065,000 at December 31, 1994. Loans receivable
increased 3% to approximately $77,529,000 at December 31, 1995 from $75,125,000
at year-end 1994. Total investment securities increased 35% to $28,582,000 at
December 31, 1995, from $21,236,000 at December 31, 1994. Total deposits
increased 24% during the year to approximately $120,267,000 from approximately
$97,210,000 at December 31, 1994. Loans receivable at December 31, 1995,
represented approximately 60% of the Company's total assets compared to
approximately 72% at December 31, 1994. Loans receivable generally represent
the highest earning assets of a bank's portfolio. The ratio of loans receivable
to total deposits at December 31, 1995 was approximately 64% compared to 77% at
December 31, 1994. This reduction was the result of a decision by the Bank to
invest the Bank's incremental deposit growth in investment securities and
federal funds in order to increase the Bank's liquidity.
10
<PAGE>
Listed below is a comparative schedule of gross loans receivable as of December
31, 1995 and 1994. The loans are categorized based on bank regulatory
requirements, which categorizations are not necessarily indicative of the actual
type or purpose of the loans.
LOAN BREAKDOWN TABLE
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 December 31, 1994
AMOUNT % AMOUNT %
---------------------- --------------------
<S> <C> <C> <C> <C>
LOANS COLLATERALIZED BY
REAL ESTATE:
ONE TO FOUR FAMILY RESIDENTIAL $24,609 31.8% $21,929 29.2%
MULTI-FAMILY RESIDENTIAL 2,611 3.4% 2,371 3.2%
COMMERCIAL AND OTHER 13,517 17.4% 10,382 13.8%
------- ------ ------- ------
TOTAL LOANS COLLATERALIZED
BY REAL ESTATE 40,737 52.6% 34,682 46.2%
------- ------ ------- ------
COMMERCIAL BUSINESS LOANS 31,268 40.3% 36,623 48.7%
ALL OTHER LOANS 5,524 7.1% 3,820 5.1%
TOTAL LOANS $77,529 100.0% $75,125 100.0%
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
Of the approximately $77,529,000 loans outstanding as of December
31, 1995, approximately $49,919,000 were due in one year or less;
approximately $21,198,000 were due in one-to-five years; approximately
$5,792,000 were due after five years; and $620,000 were in non-accrual
status. Of the approximately $26,990,000 in loans due after one year,
approximately $6,571,000 are variable rate loans and approximately $
20,419,000 are fixed rate loans. The Bank's underwriting standards are
consistent with the banking industry. These standards are reviewed at least
annually by the Bank's board of directors, and modified as deemed
appropriate. The Bank believes that its past due loan ratios are also within
industry standards. Management continually strives to keep loan
delinquencies at a minimum. Although the majority of the Bank's loan
portfolio is secured with real estate or other collateral, a portion of the
commercial portfolio is unsecured, representing a greater risk of loss to
the Bank. In addition, loans which are secured by a second lien of real
estate may represent a greater risk of loss to the Bank than do unsecured loans.
Of the total daily average deposits of approximately $106,056,000 held
by the Bank during 1995, approximately $15,258,000, or 14%, represented
non-interest bearing deposits, compared to approximately $14,912,000, or 15%,
of approximately $100,733,000 total daily average deposits during 1994.
Total 1995 year-end deposits consisted of approximately $19,880,000 in
non-interest-bearing demand deposits, $5,923,000 in interest-bearing demand
deposits, $2,837,000 in savings deposits, $18,480,000 in money market
accounts and $56,003,000 in time deposits under $100,000, and $17,145,000 in
time deposits greater than $100,000. In general, the Bank
11
<PAGE>
pays higher interest rates on time deposits over $100,000 in principal amount.
Due to the nature of time deposits and changes in the interest rate market
generally, it should be expected that the Bank's deposit liabilities may
fluctuate from period-to-period. The following table represents the
contractual maturity of time deposits greater than $100,000 at December 31,
1995.
TIME DEPOSITS GREATER THAN $100,000. (IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C>
CONTRACTUAL MATURITY 0 - 90 DAYS 91 - 365 DAYS 1 TO 5 YEARS OVER 5 YEARS TOTAL
- -------------------------------------------------------------------------------------
AMOUNT $9,409 $7,635 $100 $0 $17,144
- -------------------------------------------------------------------------------------
</TABLE>
The Company's total interest income for fiscal year 1995 was
approximately $9,591,000 compared to $8,013,000 for fiscal year 1994, an
increase of approximately 20%. Total interest expense for fiscal year 1995 was
approximately $4,376,000 compared to $3,114,000 for the same period in 1994, an
increase of approximately 41%. As described in the Rate and Volume Variance
table below, the increase in interest income was principally the result of a
higher volume of interest earning assets in 1995. The ratio of interest expense
to interest income for 1995 was approximately 46% compared to a ratio of 39% for
1994.
The following tables set forth certain information relating to the
Company's average consolidated statement of financial condition and reflects the
weighted average yield on its assets and weighted average cost of its
liabilities for the periods ended December 31, 1995 and 1994. Such yields and
costs are derived by dividing actual income or expense by the daily average
balance of assets or liabilities, respectively, for the respective period. Non-
accrual loans are included in average loans receivable.
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
YEAR ENDED DECEMBER 31,
1995 1994
-------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST EARNING ASSETS:
LOANS RECEIVABLE $71,559,033 7,130,580 9.96% $78,810,123 6,787,338 8.61%
DEPOSITS WITH BANKS 1,358,671 85,165 6.27% 0 0 0.00%
INVESTMENT SECURITIES:
AVAILABLE-FOR-SALE(1) 18,938,447 1,249,938 6.60% 12,981,562 520,324 4.01%
HELD-TO-MATURITY 8,116,477 487,786 6.01% 5,826,879 320,478 5.50%
FEDERAL FUNDS SOLD 10,835,558 637,157 5.88% 9,479,748 385,028 4.06%
TOTAL-INTEREST EARNING
ASSET 110,808,186 9,590,626 8.66% 107,098,312 8,013,168 7.48%
NON-INTEREST EARNING
ASSETS 3,747,500 2,766,857
TOTAL ASSETS $114,555,686 $109,865,169
--------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
DEMAND-INTEREST BEARING $5,960,033 $150,909 2.53% $5,876,835 $152,660 2.60%
MONEY MARKET & SAVINGS 19,501,476 558,633 2.86% 23,472,356 619,548 2.64%
OTHER TIME DEPOSITS 65,335,194 3,666,409 5.61% 56,469,986 2,341,968 4.15%
FEDERAL FUNDS
PURCHASED/REPOS 0 0 0.00% 0 0 0.00%
----------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 90,796,703 4,375,951 4.82% 85,819,177 3,114,176 3.63%
OTHER NON-INTEREST
BEARING LIABILITIES 16,409,245 16,075,528
------------------------------------------------
TOTAL LIABILITIES 107,205,948 101,894,705
SHAREHOLDERS' EQUITY 7,349,738 7,970,464
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $114,555,686 $109,865,169
--------- ---------
--------- ---------
NET INTEREST INCOME/RATE
SPREAD $5,214,675 3.84% $4,898,992 3.85%
-----------------------------------------------------------
NET INTEREST-EARNING
ASSETS/NET YIELD ON
INTEREST EARNING ASSETS 20,011,483 4.71% 21,279,135 4.57%
------------------------------------------------------------------------
INTEREST-EARNING ASSETS
AS A PERCENT OF INTEREST-
BEARING LIABILITIES 122% 125%
--------------------------------------------
(1) Average balances are stated at historical cost for purposes of
calculating average yields.
</TABLE>
13
<PAGE>
The following table analyzes the rate and volume variances between the Bank's
interest-earning assets and interest-bearing liabilities for the fiscal years
1995 and 1994.
<TABLE>
<CAPTION>
RATE VOLUME ANALYSIS
- ---------------------------------------------------------------------------------------
CAUSED BY
- ---------------------------------------------------------------------------------------
TOTAL VARIANCE RATE VOLUME MIX
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans Receivable $343,242 $1,065,785 $(624,483) (98,060)
Deposits With Banks 85,165 - - 85,165
INVESTMENT SECURITIES:
AVAILABLE-FOR-SALE 729,614 336,459 238,763 154,392
HELD-TO-MATURITY 167,308 29,707 125,928 11,673
Federal Funds Sold 252,129 172,404 55,067 24,658
-------------------------------------------------------
Total-Interest Earning Assets 1,577,458 1,604,355 (204,725) 177,828
-------------------------------------------------------
INTEREST EXPENSE
Demand-Interest-bearing $(1,751) $(3,858) $2,161 $ (54)
Money Market & Savings (60,915) 52,832 (104,811) (8,936)
Other Time Deposits 1,324,442 826,954 367,665 129,822
Federal Funds
Purchased/Repos - - - -
-------------------------------------------------------
Total Interest-Bearing
Liabilities $1,261,775 $875,928 $265,015 $120,832
-------------------------------------------------------
NET INTEREST INCOME $5,214,675
---------
</TABLE>
Interest on federal funds sold represented approximately 7% of the
Bank's gross interest income for the year ended December 31, 1995 compared to 5%
for the year ended December 31, 1994. Interest on investments as a percentage
of total interest income was approximately 18% for the year ended December 31,
1995 compared to 10% for the year ended December 31, 1994. Interest on loans
outstanding represented 74% of gross interest income during 1995 compared to 85%
during 1994. Management believes that, in the future, interest on loans will
continue to provide the largest percentage of its gross interest income.
Interest income and non-interest income as a percentage of gross revenues
(excluding non-recurring gains on the sale of investment securities) for the
year ended December 31, 1995 were 98% and 2%, respectively, unchanged from the
same period in 1994.
14
<PAGE>
Non-interest income totaled approximately $218,000, excluding gains
realized on the sale of investment securities during 1995. This is an increase
of $95,000 over the other non-interest income reported for the year ended
December 31, 1994 of $123,000. This is the result of an increase in pricing of
certain Bank services as well as an increase in related account activity. In
addition, non-recurring gains on investment securities sold for the year ended
December 31, 1995 increased to $178,000 as compared to a $3,000 loss for the
year ended December 31, 1994. At December 31, 1995, the investment security
portfolio had approximately $86,424 of net unrealized gains, net of deferred
taxes.
Salaries and employee benefits of approximately $2,246,000 for the
year ended December 31, 1995 represented approximately 25% of total expenses for
the year, as compared to 19% or $1,731,000 for the year ended December 31 1994.
This increase was the result of additions in staffing as well as non-recurring
costs of severance.
Occupancy expenses of approximately $594,000 for the year ended
December 31, 1995 represented 7% of total expenses, compared to $553,000 or 6%
for the same period in 1994. These expenses were comprised mainly of rent
expense of approximately $312,000, each year. Professional fees declined to
$468,000 from $532,000 as the result of management's efforts to reduce the use
of outside legal and consultants.
Other expenses totaled approximately $728,000, or 8% of total
expenses, during the year ended December 31, 1995, compared to approximately
$1,059,000, or 23% of total expenses, during the year ended December 31, 1994.
Major components of this category included advertising, costs associated with
the administration of problem assets and general/administrative expenses. The
year-to-year decrease of $331,000 was due primarily to management's efforts to
reduce administration costs.
Management believes that continued profitable operations will be
contingent on several factors, both external and internal. Examples of internal
factors include Management's ability (i) to attract additional deposits to allow
further expansion of the Bank's loan and investment programs; (ii) to make
accurate credit analyses upon origination of loans; (iii) to deal expeditiously
and efficiently with non-performing assets; and (iv) to control or reduce non-
interest expenses. In response to such external factors, the Company is
actively pursuing collection of non-performing assets through the institution of
legal proceedings, has intensified its marketing program, expanded the types of
loans offered and increased the internal loan review function. External factors
over which the Company has little or no control include the interest rate
environment and the strength, or weakness, of the economy in the Company's
market area. Management believes that the general economy in its market area
will not experience a decline to any material extent in the near term. See -
"Management's Discussion and Analysis - Liquidity".
LOAN LOSS RESERVE
As of December 31, 1995, the Bank's allowance for loan losses equaled
approximately 1.5% of outstanding loans receivable, including non-accrual loans,
as compared to approximately 1.8% at year-end 1994. During 1995, additions made
to the loan loss reserve resulted in a charge to earnings of approximately
$690,000 compared to a charge of $1,349,000 for the year ended December 31,
1994. The Company's aggregate reserve for loan losses were approximately
$1,436,000 as of December 31, 1995 compared to $1,356,000 as of December 31,
1994. Of such reserve for loan losses, management has allocated approximately $
755,000 for commercial purpose loans, and approximately $ 527,000 for loans
collateralized by real estate. The balance of $153,000 is unallocated.
15
<PAGE>
The chart below shows an analysis of the Allowance for Loan Losses
for the years ended December 31, 1995 and 1994. During 1995, the Bank
recognized charge-offs against its allowance for loan losses in the aggregate
amount of approximately $815,000. Substantially all of such charged-off
amounts related to loans which had previously been classified as non-accrual
loans. The charge-offs were comprised of a number of credits, with two
commercial loans representing nearly 50% of the charge-offs totaling $250,000
and $150,000, respectively. Subsequently, during 1995 the $150,000
charge-off was recovered. The ratio of gross charge-offs to average loans
outstanding during 1995 was 1.1%. The same ratio for 1994 was 2.4%. There
were loans in the aggregate amount of approximately $1,853,000 charged-off
during 1994.
16
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/95 12/31/94
----------------------------------------
<S> <C> <C>
BALANCE AT THE BEGINNING OF PERIOD $1,355,935 $1,351,007
CHARGE-OFFS:
COMMERCIAL 677,963 1,629,590
REAL ESTATE MORTGAGE 137,000 223,387
-------- ----------
814,963 1,852,977
-------- ----------
RECOVERIES:
COMMERCIAL 194,639 505,527
REAL ESTATE MORTGAGE 9,890 3,245
-------- ----------
NET CHARGE-OFFS 610,324 1,344,205
-------- ----------
ADDITIONS CHARGED
TO OPERATIONS 690,000 1,349,133
BALANCE AT THE
END OF PERIOD $1,435,501 $1,355,935
-------- ----------
-------- ----------
AVERAGE LOANS OUTSTANDING $71,559,033 $78,810,123
RATIO OF NET CHARGE-OFFS DURING
THE PERIOD TO AVERAGE LOANS
OUTSTANDING DURING THE PERIOD 0.85% 1.71%
</TABLE>
17
<PAGE>
As of December 31, 1995 and 1994, the Bank had loans outstanding,
totaling approximately $728,000 and $2,074,000 respectively, which were
classified as non-accrual. The decrease in non-accruing loans resulted from
charge-offs of $807,000 and payments net of non-accruing loans of $539,000 in
1995. At December 31, 1995 and 1994, these loans had approximately $229,000
and $1,222,000 of Loan Loss Reserves allocated to them respectively. During
1995, there were $807,000 charge-offs related to Non-Accrual Loans, and
$1,419,000 for the same period in 1994. However, Management is actively
pursuing collection of such loans through the legal process. While it is
expected that a sizable portion of such loans may be uncollectible, it is
uncertain as to the amount of any actual loss that may be incurred in
connection with these loans. Had these loans been performing throughout
fiscal year 1995 an additional $40,000 in interest income would have been a
ccrued. Interest income on non-accrual loans included in income during 1995 was
$263. The Company has a policy of classifying as non-accrual, any loan for
which payment of either principal or interest, on a contractual basis, is not
received for a period of 90 days, or any loan classified by the Bank or
regulators such that full repayment of principal or interest is considered
doubtful. In addition to the non-accrual and charged-off loans described above,
as of December 31, 1995 and 1994, the Bank's delinquency list of loans (i) 30
to 59 days past due, consisted of 13 and 6 loans respectively in the aggregate
principal amount of $607,296 and $161,702 respectively, which were contractually
overdue in the aggregate amount of approximately $27,013 and $19,000
respectively; and (ii) 60 to 89 days past due, consisted of 4 and 1 loan in the
aggregate principal amount of $ 145,730 and $141,838 respectively, which were
contractually overdue in the amount of approximately $4,362 and $5,000
respectively. In addition, the Bank has classified certain loans as special
mention, substandard, and doubtful. At December 31, 1995 and 1994, special
mention loans totaled approximately $1,938,000 and $-0- respectively;
substandard loans of approximately $1,493,000 and $2,259,000 respectively; and
doubtful loans of approximately $341,000 and $2,311,000 respectively.
The following table is an analysis of the change in Other Real Estate Owned for
the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Balance at January 1 $ 100,000 $ 325,000
Charge-offs 19,000 225,000
--------- ---------
Balance at December 31, $ 81,000 $ 100,000
--------- ---------
--------- ---------
</TABLE>
The Company continued a loan review program which monitors the loan
portfolio on an ongoing basis. Loan review is conducted by a loan review
officer and is reported quarterly to the Loan Review Committee of the Board of
Directors. The Bank's board of directors reviews the findings of the loan
review program on a monthly basis. Based on the recommendations of this
program, past performance of the Bank's loan portfolio and general economic
conditions, management believes that the reserve for loan losses is reasonable
and would be adequate to absorb potential losses related to problem assets.
18
<PAGE>
CAPITAL RESOURCES
The shareholders' equity of the Company as of December 31, 1995
totaled approximately $7,782,000 compared to approximately $6,514,000 as of
December 31, 1994.
Book value per share of the Company's common stock increased from
$5.31 as of December 31, 1994 to $6.35 as of December 31, 1995. The increase
was attributable to net income of $.41 per share and the increase in fair value
of securities available-for-sale, net of deferred income taxes of $.63 per
share for the year ended December 31, 1995.
REGULATORY CAPITAL REQUIREMENTS
THE FOLLOWING TABLE PRESENTS THE BANK'S CAPITAL RATIOS AT DECEMBER 31,
1995:
<TABLE>
<S> <C>
TIER I CAPITAL $7,688,000
TIER II CAPITAL 1,038,000
TOTAL CAPITAL $8,726,000
TOTAL AVERAGE QUARTERLY ASSETS $123,786,000
TOTAL RISK-WEIGHTED ASSETS(1) 82,931,000
TIER I RISK-BASED CAPITAL RATIO(2) 9.27%
REQUIRED TIER I RISK-BASED CAPITAL RATIO 4.00%
EXCESS TIER I RISK-BASED CAPITAL RATIO 5.27%
TOTAL RISK BASED CAPITAL RATIO(3) 10.52%
REQUIRED TOTAL RISK BASED CAPITAL RATIO 8.00%
EXCESS TOTAL RISK BASED CAPITAL RATIO 2.52%
TIER I LEVERAGE RATIO(4) 6.21%
REQUIRED TIER I LEVERAGE RATIO 5.00%
EXCESS TIER I LEVERAGE RATIO 1.21%
<FN>
(1) Includes off-balance sheet items at credit-equivalent values.
(2) Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I Capital
to Total Risk-Weighted Assets.
(3) Total Risk-Based Capital Ratio is defined as the ratio of Tier I and Tier
II Capital to Total Risk-Weighted Assets.
(4) Tier I Leverage Ratio is defined as the ratio of Tier I Capital to Total
Average Quarterly Assets.
</TABLE>
THE BANK'S ABILITY TO MAINTAIN THE REQUIRED LEVELS OF CAPITAL IS
SUBSTANTIALLY DEPENDENT UPON THE SUCCESS OF THE BANK'S CAPITAL AND BUSINESS
PLANS, THE IMPACT OF FUTURE ECONOMIC EVENTS ON THE BANK'S LOAN CUSTOMERS, THE
BANK'S ABILITY TO MANAGE ITS INTEREST RATE RISK AND CONTROL ITS GROWTH AND OTHER
OPERATING EXPENSES.
In addition to the above minimum capital requirements, the Federal Reserve
Bank approved a rule that became effective on December 19, 1992 implementing a
statutory requirement that federal banking regulators take specified "prompt
corrective action" when an insured institution's capital level falls below
certain levels. The rule defines five capital categories based on several of
the above capital ratios. The Bank currently exceeds the levels required for a
bank to be classified as "well capitalized". However, the Federal Reserve Bank
may consider other criteria when determining such classifications which
consideration could result in a downgrading in such classifications.
19
<PAGE>
The Company's capital-to-assets ratio declined from 6.2% as of December 31,
1994 to 6.0% as of December 31, 1995. The Company's daily average capital-to-
assets ratio for calendar year 1995 was 6.4%. Management anticipates that its
capital-to-assets ratio will be maintained at approximately the current level.
The Company's daily average return on equity for 1995 was 6.8%; and its daily
average return on assets was 0.4% for 1995.
LIQUIDITY
The Bank's target and actual liquidity levels are determined and managed
based on Management's comparison of the maturities and marketability of the
Bank's interest-earning assets with its projected future maturities of deposits
and other liabilities. Management currently believes that floating rate
commercial loans, short-term market instruments, such as 2-year United States
Treasury Notes, adjustable rate mortgage-backed securities issued by government
agencies, and federal funds, are the most appropriate approach to satisfy the
Bank's liquidity needs. The Bank has established collateralized lines of credit
from correspondents to assist in managing the Bank's liquidity position. Said
lines of credit total $15.5 million in the aggregate. No amount was outstanding
in this regard as of December 31, 1995. The Company's Board of Directors has
appointed a Finance Committee to assist Management in establishing parameters
for investments.
Cash flows from operations have consistently provided a source of liquidity to
the Bank for the last two years. Operating cash flows are primarily derived from
cash provided from net income during the year. Cash used in investment
activities for the years ended December 31, 1995 and 1994 were primarily due to
the investing of excess funds into investment securities, as deposits have
increased during 1995 and 1994, while loan balances have reflected an increase
of only $2.4 million during 1995. Cash provided by financing activities have
increased during 1995 and 1994, as the Bank had grown its deposit base to fund
anticipated loan growth.
The maturity distribution and weighted average yield of securities
available-for-sale at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
MATURITY
IN ONE YEAR 1 TO 5 YEARS OVER 5 YEARS TOTAL
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES AFS:
AMORTIZED COST $5,996 $2,165 $19,969 $28,130
- ------------------------------------------------------------------------------
MARKET VALUE $6,030 $2,178 $20,053 $28,261
- ------------------------------------------------------------------------------
UNREALIZED GAIN/(LOSS) $34 $13 $84 $131
- ------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD 6.31% 7.27% 6.64% 6.63%
- ------------------------------------------------------------------------------
NOTE: DOLLARS IN THOUSANDS
- --------------------------
</TABLE>
The Bank's Finance Committee also acts as an Asset/Liability
Management Committee which is responsible for managing the liquidity position
and interest sensitivity of the Bank. Such committee's primary objective is to
maximize net interest margin in an ever changing rate environment, while
balancing the Bank's interest-sensitive assets and liabilities and providing
adequate liquidity for projected needs.
20
<PAGE>
Management presently believes that the effect on the Bank of any
future rise in interest rates, reflected in higher cost of funds, would be
beneficial since the Bank has the ability to quickly increase yield on its
interest earning assets, primarily federal funds and floating rate commercial
loans. However, a decrease in interest rates generally could have a negative
effect on the Bank, due to the timing difference between repricing the Bank's
liabilities, primarily certificates of deposit, and the largely automatic
repricing of its existing interest-earning assets. As of December 31, 1995,
39% of the Bank's interest-bearing deposits were to mature, and be repriceable,
within three months, and an additional 16% were to mature, and be repriceable,
within three to six months. Therefore, management believes that such an effect
would be minimal.
The table following presents the interest rate sensitivity of the
Company as of December 31, 1995 by listing major categories of interest-
sensitive assets and compares them to interest-sensitive liabilities for various
time periods. The repricing intervals primarily are determined by the first
opportunity for the Company to change the interest rate on the subject
instrument. Also, the interest-bearing demand and Savings Accounts are
classified to reflect that, although the Company has the right to change the
interest rate more frequently, in practice such interest rates are stable for
long periods of time. The table shows the difference between interest-sensitive
assets and interest-sensitive liabilities, or GAP, for each repricing interval
and a cumulative GAP and certain calculations based on such information. The
Bank's one year cumulative GAP was (1.2%) at December 31, 1995. This GAP
position indicates that if interest rates fall, the Bank's net interest income
would increase and if interest rates rise, the Bank's net interest income would
decrease. However, since the Bank's cumulative GAP is only (1.2%), effects of
interest rate changes on net income would not be material.
21
<PAGE>
INTEREST RATE SENSITIVITY REPORT
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1 - 90 91 - 180 181 - 365 1 - 5 5 Yrs &
DAYS DAYS DAYS YEARS OVER TOTAL
<S> <C> <C> <C> <C> <C>
Interest Sensitive Assets:
Interest Bearing Balances
Due From Banks $0 $990 $0 $0 $0 $990
Federal Funds Sold 17,050 0 0 0 0 17,050
Investment Securities 999 12,109 4,001 3,374 7,778 28,261
Net Loans 47,171 524 2,224 21,198 5,792 76,909
----------------------------------------------------------------
Totals 65,220 13,623 6,225 24,572 13,570 123,210
----------------------------------------------------------------
Cumulative Totals 65,220 78,843 85,068 109,640 123,210
----------------------------------------------------------------
Interest Sensitive Liabilities:
Demand Interest Bearing 2,961 0 0 1,481 1,481 5,923
Savings Accounts 1,419 0 0 0 1,418 2,837
Money Market Accounts 9,240 0 0 4,620 4,620 18,480
Time Deposits 28,508 11,908 32,632 100 0 73,148
----------------------------------------------------------------
Totals 42,128 11,908 32,632 6,201 7,519 100,388
----------------------------------------------------------------
Cumulative Totals $42,128 $54,036 $86,668 $92,869 $100,388
----------------------------------------------------------------
----------------------------------------------------------------
GAP 23,092 1,715 (26,407) 18,371 6,051 22,822
Cumulative GAP 23,092 24,807 (1,600) 16,771 22,822 0
----------------------------------------------------------------
Interest Sensitive Assets/
Interest Sensitive Liabilities 1.5 1.5 1.0 1.2 1.2
Cumulative GAP/
Total Earning Assets 18.7% 20.0% (1.2%) 13.6% 18.5%
Total Earning Assets $123,210
</TABLE>
22
<PAGE>
1994 COMPARED TO 1993
RESULTS OF OPERATIONS
For the year ended December 31, 1994 the Company reported a net loss
of $834,000 or $.68 per share compared with a net profit of $416,000 or $.34 per
share for the year ended December 31, 1993. The decline in the Companys
results during 1994 was primarily the result of net charge-offs in the
commercial loan portfolio. The Company recorded provisions for possible loan
losses of approximately $1,349,000 for the year ended December 31, 1994,
compared to approximately $352,000 at December 31, 1993.
During the year ended December 31, 1994, the Company's total assets
decreased 7% to approximately $105,065,000 from approximately $112,692,000 at
December 31, 1993. Loans receivable declined 10% to approximately $75,125,000
from approximately $83,210,000 at year-end 1993. The Company's average loan
size as of December 31, 1994 was approximately $92,000 compared to $90,000 as of
December 31, 1993. Total deposits decreased during the year to approximately
$97,210,000 from approximately $103,614,000 at December 31, 1993, a decrease of
6%. Loans receivable at December 31, 1994, represented approximately 72% of the
Company's total assets, compared to approximately 74% at December 31, 1993.
Loans receivable generally represent the highest earning assets of a bank's
portfolio. The ratio of loans receivable to total deposits at December 31, 1994
was approximately 77% compared to 80% at December 31, 1993. This ratio is an
indication of Management's ability to utilize available funds to their highest
earning capacity. Both such ratios are in keeping with Management's
expectations. Management does not expect that loans receivable will materially
increase as a percentage of total assets during 1995.
Listed below is a comparative schedule of gross loans receivable as of
December 31, 1994 and 1993. The loans are categorized based on bank regulatory
requirements, which categorizations are not necessarily indicative of the actual
type or purpose of the loans. For instance, $297,000 of the Bank's loans
receivable as of December 31, 1994 indicated as being collateralized by one-to-
four family residential real estate reflect purchase money or refinance
mortgages, the remainder reflect loans collateralized by mortgage liens filed
for collateral purposes in accordance with the Bank's lending policies. The
primary lending activity of the Bank is to originate loans to individuals and
business entities for business related purposes, as indicated. In 1993, the
Bank began to offer residential purchase money and refinance mortgages. It is
the present intention of the Bank only to make residential mortgage loans which
it will be able to and will sell in the secondary market.
23
<PAGE>
LOAN BREAKDOWN TABLE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
AMOUNT % AMOUNT %
--------------------------------------------
<S> <C> <C> <C> <C>
LOANS COLLATERALIZED BY
REAL ESTATE:
ONE-TO-FOUR FAMILY RESIDENTIAL $21,929 29.2% $31,426 37.8%
MULTI-FAMILY RESIDENTIAL 2,371 3.2% 1,843 2.2%
COMMERCIAL AND OTHER 10,382 13.8% 3,010 3.6%
-------------------------------------
TOTAL LOANS COLLATERALIZED
BY REAL ESTATE $34,682 46.2% $36,279 43.6%
COMMERCIAL BUSINESS LOANS 36,623 48.7% 46,516 55.9%
ALL OTHER LOANS 3,820 5.1% 415 .5%
-------------------------------------
TOTAL LOANS $75,125 100.0% $83,210 100.0%
</TABLE>
Of the approximately $75,125,000 loans outstanding as of December 31,
1994, approximately $44,498,000 were due in one year or less; approximately
$24,896,000 were due in one-to-five years; approximately $3,657,000 were due
after five years; and $2,074,000 were in non-accrual status. Of the
approximately $28,553,000 in loans due after one year, approximately $10,756,000
are variable rate loans and approximately $17,797,000 are fixed rate loans.
Of the total daily average deposits of approximately $100,733,000 held by
the Bank during 1994, approximately $14,912,000, or 15%, represented non-
interest bearing deposits, compared to approximately $12,229,000, or 13%, of
approximately $94,724,000 total daily average deposits during 1993. Total 1994
year-end deposits consisted of approximately $16,217,000 in non-interest-bearing
demand deposits, $6,304,000 in interest-bearing demand deposits, $1,707,000 in
savings deposits, $19,867,000 in money market accounts and $35,333,000 in time
deposits, and $17,781,000 in time deposits greater than $100,000. In general,
the Bank pays higher interest rates on time deposits over $100,000 in principal
amount. Due to the nature of time deposits and changes in the interest rate
market generally, it should be expected that the Bank's deposit liabilities may
fluctuate from period-to-period.
The Company's total interest income for fiscal year 1994 was
approximately $8,013,000 compared to $7,095,000 for fiscal year 1993, an
increase of approximately 13%. Total interest expense for fiscal year 1994 was
approximately $3,114,000 compared to $2,998,000, an increase of approximately
4%. As described in the Rate and Volume Variance table below, the increase in
interest income was principally the result of higher market interest rates
during 1994. The ratio of interest expense to interest income for 1994 was
approximately 39% compared to a ratio of 42% for 1993. As the Bank's
24
<PAGE>
interest-bearing deposit base shrinks in relationship to its interest earning
assets, the ratio of interest expense to total interest income will also
shrink proportionately.
The following tables set forth certain information relating to the
Company's average consolidated statement of financial condition and reflects the
weighted average yield on its assets and weighted average cost of its
liabilities for the periods ended December 31, 1994 and 1993. Such yields and
costs are derived by dividing actual income or expense by the daily average
balance of assets or liabilities, respectively, for the respective period. Non-
accrual loans are included in average loans receivable.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
--------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD
BALANCE INTEREST COST BALANCE INTEREST COST
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
LOANS RECEIVABLE $ 78,810,123 $6,787,338 8.61% $77,847,364 $6,077,378 7.81%
DEPOSITS WITH BANKS 0 0 0.00% 362,218 16,864 4.66%
INVESTMENT SECURITIES:
HELD-FOR-SALE 0 0 0.00% 14,127,010 723,923 5.12%
AVAILABLE-FOR-SALE(1) 12,981,562 520,324 4.01% 0 0 0.00%
HELD-TO-MATURITY 5,826,879 320,478 5.50% 0 0 0.00%
FEDERAL FUNDS SOLD 9,479,748 385,028 4.06% 9,400,922 277,131 2.95%
--------------------------- -----------------------
TOTAL INTEREST-EARNING ASSETS 107,098,312 8,013,168 7.48% 101,737,514 7,095,296 6.97%
---------- ----------
NON INTEREST-EARNING ASSETS 2,766,857 1,914,705
-------------------------------------------------
TOTAL ASSETS $109,865,169 $103,652,219
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
DEMAND-INTEREST BEARING $5,876,835 $ 152,660 2.60% $ 4,268,333 $ 115,306 2.70%
MONEY MARKET AND SAVINGS $23,472,356 619,548 2.64% 25,805,234 733,362 2.84%
OTHER TIME DEPOSIT S56,469,986 2,341,968 4.15% 52,423,000 2,149,411 4.10%
FEDERAL FUNDS PURCHASED/REPOS 0 0 0.00% 0 0 0.00%
--------------------------- -----------------------
TOTAL INTEREST-BEARING LIABILITIE S85,819,177 3,114,176 3.63% 82,496,567 2,998,079 3.63%
---------- ----------
OTHER LIABILITIES 16,075,528 13,126,476
-------------------------------------------------
TOTAL LIABILITIES 101,894,705 95,623,043
SHAREHOLDERS' EQUITY 7,970,464 8,029,176
-------------------------------------------------
$109,865,169 $103,652,219
--------------------------------------------------
NET INTEREST INCOME/RATE SPREAD $4,898,992 3.85% $4,097,217 3.34%
---------------------------------------
NET INTEREST-EARNING ASSETS/NET
YIELD ON AVERAGE INTEREST-
EARNING ASSETS $ 21,279,135 4.57% $19,240,947 4.03%
----------------------------------------------------------
INTEREST-EARNING ASSETS AS A
(1) Average balances are stated at historical cost for purposes of calculating
average yields.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF INTEREST-
BEARING LIABILITIES 125.00% 123.00%
</TABLE>
26
<PAGE>
The following table analyzes the rate and volume variances between the Bank's
interest-earning assets and interest-bearing liabilities for the fiscal years
1994 and 1993.
RATE AND VOLUME VARIANCE ANALYSIS
1994 OVER/UNDER 1993
<TABLE>
<CAPTION>
TOTAL CAUSED BY
VARIANCE RATE VOLUME MIX
-------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 709,960 $ 627,045 $75,161 $7,754
Deposits with banks (16,864) 0 (16,864) 0
Investment Securities:
Held-For-Sale (723,923) 0 (723,923) 0
Available-For-Sale 520,324 0 520,324 0
Held-To-Maturity 320,478 0 320,478 0
Federal funds sold 107,897 104,695 2,324 878
-------------------------------------------------
Total Interest-earning Assets 917,872 731,740 177,500 8,632
INTEREST EXPENSE
Demand-interest bearing 37,354 ( 4,429) 43,453 ( 1,670)
Money market & savings ( 113,814) ( 52,238) (66,298) 4,722
Other time deposits 192,557 24,717 165,932 1,908
Federal funds purchased 0 0 0 0
-------------------------------------------------
Total interest-bearing liabilities 116,097 (31,950) 143,087 4,960
-------------------------------------------------
-------------------------------------------------
Net interest income 801,775 671,293 157,429 (26,947)
</TABLE>
27
<PAGE>
Interest on federal funds sold represented approximately 5% of the
Bank's gross interest income for the year ended December 31, 1994 compared to 4%
for the year ended December 31, 1993. Interest on investments represented 10%
of gross interest income during 1994, the same as in 1993. Interest on loans
outstanding represented 85% of gross interest income during 1994, compared to
86% for 1993. Management believes that, in the future, interest on loans will
continue to provide the largest percentage of its gross interest income.
Non-interest income totaled approximately $123,000 for the year ended
December 31, 1994, a decrease of approximately $73,000 compared to approximately
$196,000 in fiscal year 1993. Non-interest income during 1993 included a gain
on sale of securities of approximately $98,000. The service fee and other
income components of non-interest income increased approximately $27,000 during
1994.
Salaries and employee benefits of approximately $1,731,000 for the
year ended December 31, 1994 represented 23% of total expenses, as compared to
approximately $1,259,000 or 19% of total expenses in fiscal year 1993. The
year-to-year increase of approximately $472,000 was due to; additional staffing
at the Bank s main branch; year-end severance accruals; and substantially lower
loan origination costs in 1994, which are used to offset salary expense.
Occupancy expenses of approximately $553,000 during fiscal year 1994
represented 7% of total expenses and were comprised primarily of rent expense of
approximately $312,000. Included in this amount was a credit to rent expense of
$11,000, in conformity with generally accepted accounting principles, for future
rent payments due under the terms of the lease for the Company's and the Bank's
offices. During fiscal year 1993, occupancy expenses were approximately
$543,000 or 8% of total expenses. The increase of approximately $10,000, or
approximately 2% on a year-to-year comparison, is attributable to increases in
real estate taxes, insurance premiums, and maintenance expenses.
Other expenses totaled approximately $2,223,000, or 29% of total
expenses, during the year ended December 31, 1994, compared to approximately
$1,723,000, or 26% of total expenses, during the year ended December 31, 1993.
Major components of this category included advertising, printing and supplies,
travel and entertainment, insurance, professional fees and data processing. The
year-to-year increase of approximately $500,000 was due primarily to higher
professional fees incurred in connection with collection efforts on delinquent
loans; a one time loss in connection with a consumer loan accounting adjustment;
higher data processing costs commensurate with the growth in the number of Bank
customers and costs of maintaining other real estate owned.
Management believes that resumption of profitable operations will be
contingent on several factors, both external and internal. Examples of internal
factors include Management's ability (i) to attract additional deposits to allow
further expansion of the Bank's loan and investment programs; (ii) to make
accurate credit analyses upon origination of loans; (iii) to deal expeditiously
and efficiently with non-performing assets; and (iv) to control or reduce non-
interest expenses. External factors over which the Company has little or no
control include the interest rate environment and the strength, or weakness, of
the economy in the Company's market area. Management believes that the general
economy in its market area will not experience a decline to any material extent
in the near term. Interest rates increased during 1994. Management believes
that additional interest rate increases are possible in the near future. Such
interest rate changes are caused, in part, by the actions of the Federal Reserve
Bank in its efforts to improve the economy in general and cannot be predicted in
advance with any certainty (See discussion on Liquidity).
28
<PAGE>
LOAN LOSS RESERVE
As of December 31, 1994, the Bank's allowance for loan losses equaled
approximately 1.8% of outstanding loans receivable, including non-accrual loans,
as compared to approximately 1.6% at year-end 1993. During 1994, additions made
to the loan loss reserve resulted in a charge to earnings of approximately
$1,349,000 for the year ended December 31, 1994 compared to a charge of
approximately $352,000 for 1993. This provision for loan losses and charges
against the allowance for loan losses, as detailed below, had the net effect of
increasing the Company's aggregate reserve for loan losses to approximately
$1,356,000 as of December 31, 1994, as compared to approximately $1,351,000 at
December 31, 1993. Of such reserve for loan losses, management has allocated
approximately $503,000 for commercial purpose loans, and approximately $184,000
for loans collateralized by real estate. The balance of $669,000 is
unallocated.
The chart below shows an analysis of the Allowance for Loan Losses for the
years ended December 31, 1994 and 1993. For the year ended December 31, 1994,
the Bank recognized charge-offs against its allowance for loan losses in the
aggregate amount of approximately $1,853,000, of which approximately $1,646,000
was recognized in December 1994. A substantial portion of such charge-offs in
December 1994 (approximately $500,000) related to a large credit in which the
customer filed a petition in bankruptcy in mid October, 1994. An additional
$350,000 resulted from a customer whose collateral primarily consisted of
marketable securities in a corporation which also filed for bankruptcy. While
certain circumstances arose concerning such borrower's financial condition which
caused the Company to place such loan in the non-accruing category, it could not
be anticipated at the time that such loan was placed on non-accrual status that
the subsequent bankruptcy referred to above would occur and result in the
charge-off recorded. Additional charge-offs resulted from discussions between
management and regulatory authorities following the conclusion of an examination
in November 1994. Substantially all of such charged-off amounts related to
loans which had previously been classified as non-accrual loans. The ratio of
gross charge-offs to average loans outstanding during 1994 was 2.4%. The same
ratio for 1993 was 2.1%. There were loans in the aggregate amount of
approximately $1,664,000 charged-off during 1993.
29
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDING YEAR ENDING
12/31/94 12/31/93
--------------- ---------------
<S> <C> <C>
Balance at beginning
of period: $1,351,007 $2,454,773
Charge-offs:
Commercial 1,629,590 316,034
Real estate mortgage 223,387 1,348,153
--------------- ---------------
$1,852,977 $1,664,187
Recoveries:
Commercial 505,527 3,193
Real estate mortgage 3,245 204,800
--------------- ---------------
Net charge-offs $1,344,205 $1,456,194
--------------- ---------------
Additions charged
to operations $1,349,133 $ 352,428
--------------- ---------------
Balance at the end
of period $1,355,935 $1,351,007
Average Loans Outstanding $78,810,000 $77,847,000
Ratio of net charge-offs during the period to
average loans outstanding during the period 1.71% 1.87%
</TABLE>
As of December 31, 1994, the Bank had loans outstanding, totaling
approximately $2,074,000, which were classified as non-accrual. However,
Management is actively pursuing collection of same through legal process. While
it is expected that a sizable portion of such loans may be uncollectible, it is
uncertain as to the amount of any actual loss that may be incurred in connection
with these loans. Had these loans been performing throughout fiscal year 1994
an additional $198,000 in interest income would have been accrued. The Company
has a policy of classifying as non-accrual, any loan for which payment of either
principal or interest, on a contractual basis, is not received for a period of
90 days, or any loan for which a petition in bankruptcy has been filed by, or on
behalf of, a borrower or any loan classified by the Bank or regulators such that
full repayment of principal or interest is considered doubtful. In addition to
the non-accrual and charged-off loans described above, as of December 31, 1994,
the Bank's delinquency list of loans (i) 30 to 59 days past due, consisted of 6
loans in the aggregate principal amount of $161,702, which were contractually
overdue in the aggregate amount of approximately $19,000; and (ii) 60 to 89 days
past due, consisted of 1 loan in the aggregate principal amount of $141,383,
which was contractually overdue in the amount of approximately $5,000.
Management intends to increase the Bank's allowance for loan losses during 1995
by a charge to earnings in an amount equal to 1.25% of net new loans outstanding
until such time as other circumstances regarding a specific borrower or loan are
brought to its attention that would necessitate an additional increase. In
1994, the Company continued a loan review program which monitors the loan
portfolio on an ongoing basis. Loan review is conducted by a loan review
officer and is reported quarterly to a Loan Review Committee of the Board of
Directors.
30
<PAGE>
CAPITAL RESOURCES
The shareholders' equity of the Company as of December 31, 1994
totaled approximately $6,514,000 compared to approximately $8,027,000 as of
December 31, 1993.
Book value per share of the Company's common stock decreased from
$6.55 as of December 31, 1993 to $5.31 as of December 31, 1994. Such decrease
was attributable to a net loss of $.68 per share and unrealized losses on
securities available-for-sale of $.56 per share for the year ended December 31,
1994.
REGULATORY CAPITAL REQUIREMENTS
The following table presents the Bank s capital ratios at December 31,
1994:
<TABLE>
<S> <C>
Tier I Capital $7,185,000
Tier II Capital 1,308,000
------------
Total Capital $8,493,000
Total Average Quarterly Assets $109,478,000
Total Risk-Weighted Assets(1) 79,868,000
Tier I Risk-Based Capital Ratio(2) 9.00%
Required Tier I Risk-Based Capital Ratio 4.00%
-----
Excess Tier I Risk-Based Capital Ratio 5.00%
Total Risk Based Capital Ratio(3) 10.63%
Required Total Risk Based Capital Ratio 8.00%
-----
Excess Total Risk Based Capital Ratio 2.63%
Tier I Leverage Ratio(4) 6.56%
Required Tier I Leverage Ratio 4.00%
-----
Excess Tier I Leverage Ratio 2.56%
<FN>
(1) Includes off-balance sheet items at credit-equivalent values.
(2) Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I Capital
to Total Risk- Weighted Assets.
(3) Total Risk-Based Capital Ratio is defined as the ratio of Tier I and Tier
II Capital to Total Risk-Weighted Assets.
(4) Tier I Leverage Ratio is defined as the ratio of Tier I Capital to Total
Average Quarterly Assets.
</TABLE>
THE BANK'S ABILITY TO MAINTAIN THE REQUIRED LEVELS OF CAPITAL IS
SUBSTANTIALLY DEPENDENT UP ON THE SUCCESS OF THE BANK S CAPITAL AND BUSINESS
PLANS, THE IMPACT OF FUTURE ECONOMIC EVENTS ON THE BANK' S LOAN CUSTOMERS, THE
BANK'S ABILITY TO MANAGE ITS INTEREST RATE RISK AND CONTROL ITS GROWTH AND OTHER
OPERATING EXPENSES.
In addition to the above minimum capital requirements, the Federal
Reserve Bank approved a rule that became effective on December 19, 1992
implementing a statutory requirement that federal banking regulators take
specified "prompt corrective action" when an insured institution's capital level
falls below certain levels. The rule defines five capital categories based on
several of the above capital ratios. The Bank currently exceeds the levels
required for a bank to be classified as "well capitalized". However, the
Federal Reserve Bank may consider other criteria when determining such
classifications which consideration could result in a downgrading in such
classifications.
31
<PAGE>
The Company's capital-to-assets ratio declined from 7.1% as of December 31, 1993
to 6.2% as of December 31, 1994. The Company's daily average capital-to-assets
ratio for calendar year 1994 was 7.3%. Management anticipates that its capital-
to-assets ratio will continue to decline in the event that the Company's assets
grow. During 1994, the Company's assets declined approximately $7,600,000
primarily as a result of a decline in overall loan demand of approximately
$8,100,000. This reduction in loan demand results from increased competition in
the markets which the Bank serves and the overall lackluster loan demand in the
Bank's general economic area. Based upon increased competitive pressures and
the continued lackluster loan demand in the Company's general economic area,
management cannot predict the level of growth, if any, in the Bank's overall
assets. The Company's daily average return on equity for 1994 was (10.5%); and
its daily average return on assets was (.76%) reflecting that the Company
realized a net loss during 1994.
LIQUIDITY
The Bank's target and actual liquidity levels are determined and
managed based on Management's comparison of the maturities and marketability of
the Bank's interest-earning assets with its projected future maturities of
deposits and other liabilities. Management currently believes that floating
rate commercial loans, short-term market instruments, such as 2-year United
States Treasury Notes, adjustable rate mortgage-backed securities issued by
government agencies, and federal funds, are the most appropriate approach to
satisfy the Bank's liquidity needs. The Bank has established lines of credit
from correspondent banks to effect the purchase of federal funds, on an
overnight basis, to assist in managing the Bank's liquidity position. Said
lines of credit total $500,000 in the aggregate. No amount was outstanding in
this regard as of December 31, 1994. The Company's Board of Directors has
appointed a Finance Committee to assist Management in establishing parameters
for investments.
The maturity distribution and weighted average yield of securities
available-for-sale at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
MATURITY
--------------
IN ONE YEAR 1 TO 5 YEARS OVER 5 YEARS TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Agencies AFS:
Amortized Cost $3,955 $ 998 $10,620 $15,573
Market Value 3,917 970 10,008 14,895
-------------------------------------------
Unrealized Gain/(Loss) $ (38) $ (28) $ (612) $ (678)
-------------------------------------------
Weighted Average Yield 5.46% 4.81% 3.68% 4.54%
</TABLE>
Note: Dollars in thousands
32
<PAGE>
The maturity distribution and weighted average yields of investment
securities held-to-maturity at December 31, 1994 were as follows: (dollars in
thousands).
<TABLE>
<CAPTION>
MATURITY
IN ONE 1 TO 5 5 TO 10
YEAR YEARS YEARS 10 YEARS TOTAL
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government and Agencies-HTM:
Amortized Cost $0 $4,989 $0 $0 $4,989
yOther Debt Securities-HTM:
Amortized Cost $0 $260 $770 $322 $1,352
-----------------------------------------
Total Amortized Cost $0 $5,249 $770 $322 $6,341
-----------------------------------------
Weighted Average Yield 0% 6.05% 6.28% 6.00% 6.07%
</TABLE>
The Bank's Finance Committee also acts as an Asset/Liability
Management Committee which is responsible for managing the liquidity position
and interest sensitivity of the Bank. Such committee's primary objective is to
maximize net interest margin in an ever changing rate environment, while
balancing the Bank's interest-sensitive assets and liabilities and providing
adequate liquidity for projected needs.
Management presently believes that the effect on the Bank of any
future rise in interest rates, reflected in higher cost of funds, would be
beneficial since the Bank has the ability to quickly increase yield on its
interest earning assets, primarily federal funds and floating rate commercial
loans. However, a decrease in interest rates generally could have a negative
effect on the Bank, due to the timing difference between repricing the Bank's
liabilities, primarily certificates of deposit, and the largely automatic
repricing of its existing interest-earning assets. As of December 31, 1994, 39%
of the Bank's interest-bearing deposits were to mature, and be repriceable,
within three months, and an additional 13% were to mature, and be repriceable,
within three to six months. Therefore, Management believes that such an effect
would be minimal.
The table following presents the interest rate sensitivity of the
Company as of December 31, 1994 by listing major categories of interest-
sensitive assets and compares them to interest-sensitive liabilities for various
time periods. The repricing intervals primarily are determined by the first
opportunity for the Company to change the interest rate on the subject
instrument. Also, the Demand-interest bearing and Savings Accounts are
classified to reflect that, although the Company has the right to change the
interest rate more frequently, in practice such interest rates are stable for
long periods of time. The table shows the difference between interest-sensitive
assets and interest-sensitive liabilities, or GAP, for each repricing interval
and a cumulative GAP and certain calculations based on such information.
33
<PAGE>
INTEREST RATE SENSITIVITY REPORT
AS OF DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1-90 91-180 181-365 1-5 5 YRS. &
DAYS DAYS DAYS YEARS OVER TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS
Federal Funds Sold $ 5,250 $ 0 $ 0 $ 0 $ 0 $5,250
Net Loans 54,007 1,69 565 16,108 1,391 73,769
Investment Securities 7,287 998 7,310 5,997 322 21,915
----------------------------------------------------------------------
Totals $ 66,544 $ 2,697 $7,875 $ 22,105 $1,713 $100,934
Cumulative Totals $ 66,544 $ 69,241 $ 77,116 $99,221 $100,934
INTEREST-SENSITIVE LIABILITIES
Demand-Interest bearing $ 3,152 $ -0- $ -0- $ 1,576 $ 1,576 $ 6,304
Savings Accounts 854 -0- -0- -0- 854 1,708
Money Market Accounts 9,933 -0- -0- 4,967 4,967 19,866
Time Deposits 17,531 10,534 21,570 3,479 -0- 53,114
----------------------------------------------------------------------
Totals $ 31,470 $ 10,534 $ 21,570 $ 10,022 $ 7,397 $ 80,992
Cumulative Totals $ 31,470 $ 42,004 $ 63,574 $ 73,595 $ 80,992
Gap $ 35,075 $(7,837) $(13,695) $ 12,083 $ (5,684)
Cumulative Gap $ 35,075 $ 27,237 $ 13,542 $ 25,625 $ 19,942
Interest-sensitive assets/
Interest-sensitive
liabilities (cumulative) 2.1 1.6 1.2 1.3 1.2
Cumulative Gap/
total earning assets 34.8 27.0% 13.4% 25.4% 19.8%
Total Earning Assets $ 100,934
</TABLE>
34
<PAGE>
The signature pages are deleted in their entirety and the following signature
pages inserted in their stead:
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania.
EXECUFIRST BANCORP, INC.
By: /s/ Zvi H. Muscal
-------------------------------------
Date: Zvi H. Muscal, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ George S. Rapp
-------------------------------------
Date: George S. Rapp,
Chief Operations Officer
Chief Financial Officer
Chief Accounting Officer
38
