<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
(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
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1513 WALNUT STREET, PHILADELPHIA, PA 19102
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(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>
State the Issuer's revenues for its most recent fiscal year. $9,986,399
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
of the bid and asked prices of such stock, as of a specified date within the
past 60 days. $6,357,194 based on the average of the bid and asked on the
National Association of Securities Dealers Automated Quotation System on
February 29, 1996.*
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date. 1,229,557 as of February 29,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be utilized in connection with the
Issuer's 1996 Annual Meeting of Shareholders presently scheduled to be held May
29, 1996 are incorporated by reference into Part III hereof.
* Includes 296,847 shares beneficially owned by First Fidelity
Bancorporation. Does not include 123,958 shares believed to be beneficially
owned by executive officers and directors of the issuer and its subsidiary.
2
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EXECUFIRST BANCORP, INC.
FORM 10-KSB
INDEX
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C>
Item 1 Description of Business. . . . . . . . . . . . . . . . . . . . . . 4
Item 2 Description of Properties. . . . . . . . . . . . . . . . . . . . . 6
Item 3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4 Submission of Matters to a Vote of Security Holders. . . . . . . . 8
PART II
Item 5 Market for Common Equity and Related Stockholder Matters . . . . . 9
Item 6 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . 10
Item 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 35
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . 36
PART III
Item 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . 36
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 36
Item 11 Security Ownership of Certain Beneficial Owners and Management . . 36
Item 12 Certain Relationships and Related Transactions . . . . . . . . . . 36
Item 13 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 36
</TABLE>
3
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
EXECUFIRST BANCORP, INC.
ExecuFirst Bancorp, Inc. (the "Company") is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. It was
incorporated under the laws of the Commonwealth of Pennsylvania on November 16,
1987. The Company became a bank holding company on November 2, 1988 when it
consummated the acquisition of all of the authorized capital stock of First
Executive Bank. The Company provides banking services through the Bank, and
does not presently engage in any activities other than banking activities. The
principal executive offices of the Company and the Bank are located at 1513
Walnut Street, Philadelphia, PA. Its telephone number is (215) 564-3300.
The Company and the Bank have a total of 40 employees.
FIRST EXECUTIVE BANK
First Executive Bank (the "Bank"), the Company's sole subsidiary,
commenced operations on November 3, 1988. The Bank is a commercial bank
chartered pursuant to the laws of the Commonwealth of Pennsylvania and is a
member of the Federal Reserve System and its primary federal regulator is the
Federal Reserve Board of Governors. The deposits held by the Bank are insured,
up to applicable limits, by the Federal Deposit Insurance Corporation. It
presently conducts its principal banking activities through its offices at 1513
Walnut Street, Philadelphia, PA. During 1992, the Bank established a branch
office located in the interior lobby of Graduate Hospital, 19th and Lombard
Streets, Philadelphia, PA..
As of December 31, 1995, the Bank had total assets of approximately
$129,663,000, total shareholders equity of approximately $7,782,000, total
deposits of approximately $120,267,000 and loans receivable outstanding of
approximately $77,529,000. The majority of such loans were made for commercial
purposes.
The Bank offers many consumer and commercial banking services,
including credit cards, money orders, travelers' checks and access to an
automated teller network, with an emphasis on serving the needs of individuals,
small and medium-sized businesses, executives, professionals and professional
organizations in its service area.
The Bank attempts to offer a high level of personalized service to
both its commercial and consumer customers. The Bank offers both commercial and
consumer deposit accounts, including checking accounts, interest-bearing "NOW"
accounts, insured money market accounts, certificates of deposit, savings
accounts and Individual Retirement Accounts.
The Bank offers a broad range of loan and credit facilities to the
businesses and residents of its service area, including secured and unsecured
loans, home improvement loans, bridge loans, mortgages, home equity lines of
credit, overdraft lines of credit and loans for tuition and the purchase of
marketable securities. The Bank actively solicits non-interest and interest-
bearing deposits from its borrowers.
4
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Management attempts to minimize the Bank's credit risk through loan
application evaluation, approval and monitoring procedures. Since its
inception, the Bank has had a senior officer monitor compliance of the Bank's
loan officers with the Bank's lending policies and procedures.
The Bank also maintains an investment securities portfolio.
Investment securities are purchased by the Bank within strict standards of the
Bank's Investment Policy, which is approved annually by the Bank's board of
directors. The Investment Policy addresses such issues as permissible
investment categories, credit quality of the investment, maturities and
concentrations of investments. At December 31, 1995 and 1994, approximately 97%
and 95%, respectively, of the aggregate dollar amount of the investment
securities consisted of either U.S. Government debt securities or U.S.
Government agency issued mortgage backed securities. Credit risk associated
with these U.S. Government debt securities and the U.S. Government Agency
securities are minimal, with risk-based capital weighting factors of 0% and 20%,
respectively.
The Bank's regulatory authorities have required the Bank to determine
appropriate liquidity ratios to insure that the Bank maintains available funds,
or can obtain available funds at reasonable rates, in order to satisfy
commitments to borrowers and the demands of depositors. In response to these
requirements, the Bank has formed a Finance Committee, comprised of certain
members of the Bank's board of directors and senior management who determines
such ratios. The purpose of the committee is, in part, to monitor the Bank's
liquidity and adherence to the ratios. The Finance Committee meets at least
quarterly. The Bank is currently in compliance with all required liquidity
ratios.
The Bank's lending activities are focused on small businesses within
the professional community. Real estate mortgage and commercial loans are the
most significant categories of the Bank's lending activities, representing
approximately 51% and 42%, respectively, of total loans outstanding at December
31, 1995. Repayment of these loans is in part, dependent on general economic
conditions affecting the community, and the various businesses within the
community. 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 loans made to borrowers considered to be of sufficient
strength to merit unsecured financing. This portion of the portfolio represents
the greatest risk of loss to the Bank. While management continues to follow
strict underwriting policies, and monitors loans through the Bank's loan review
officer, a credit risk is still inherent in the portfolio. Management has
further mitigated the credit risk within the loan portfolio by focusing on the
origination of collateralized loans, which represent a lower credit risk to the
Bank.
The Bank's primary service area is Philadelphia and the surrounding
area. The location of the Bank's executive offices places it within walking
distance from the core of the offices and social institutions of the city's
business community.
On November 17, 1995, the Company and Republic Bancorporation, Inc.
("Republic") entered into an Agreement and Plan of Merger pursuant to which
Republic will be merged with and into the Company (the "Merger"). Pursuant to
the terms of the Merger, each outstanding share of Republic common stock will be
exchanged for shares of the Company's common stock. The exchange ratio will be
determined by the relative per share book values of the Company and Republic at
the end of the quarter immediately preceding consummation of the Merger. The
Merger is subject to regulatory and shareholder approval and is intended to
qualify as a tax-free reorganization. The Merger is expected to be
5
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consummated during the second quarter of 1996. Following the Merger, the Bank
and Republic's bank subsidiary will merge and conduct business under a single
charter.
COMPETITION
There is substantial competition among financial institutions in the
Bank's service area. The Bank competes with new and established local
commercial banks, as well as numerous regionally-based commercial banks. In
addition to competing with new and well-established commercial banking
institutions for both deposits and loan customers, the Bank competes directly
with savings banks, savings and loan associations, finance companies, credit
unions, factors, mortgage brokers, insurance companies, securities brokerage
firms, mutual funds, money market funds, private lenders and other institutions
for deposits, mortgages and consumer and commercial loans, as well as other
services. Competition among financial institutions is based upon a number of
factors, including, but not limited to, the quality of services rendered,
interest rates offered on deposit accounts, interest rates charged on loans and
other credits, service charges, the convenience of banking facilities, locations
and hours of operation and, in the case of loans to larger commercial borrowers,
relative lending limits. It is the view of Management that a combination of
many factors, including, but not limited to, the level of market interest rates,
has increased competition for funds.
To maintain market share, the Bank has priced its time deposit
products within the top one-third of its competition. Similarly, loan products
have also been priced to attract new and existing borrowers, according to area
competition and credit considerations. Management has also increased its
emphasis on business development through the hiring of additional lending staff
and targeting the Bank's niche market segment of small businesses and
professionals. The Bank intends to continue its focus on professionals while
expanding its commercial real estate and small business efforts. Additionally,
in a further attempt to diversify its portfolio and increase its market
penetration, the Bank has begun to emphasize consumer lending. Media
advertising is employed to obtain deposit funding required to support the
increased in loan production. All such business development plans are highly
dependent upon the strength of the economic recovery in the Bank's market area,
as well as the specific businesses on which it focuses.
Many of the banks with which the Bank competes have more established
depositor and borrower relationships and greater financial resources than the
Bank and offer a wider range of deposit and lending instruments and possess
greater depth of management than the Bank. The Bank is subject to potential
intensified competition from new branches of established banks in the area as
well as new banks which could open in its trade area. Several de novo banks
with business strategies similar to those of the Bank have opened since the
Bank's inception. There are banks and other financial institutions which serve
surrounding areas and additional out-of-state financial institutions which
currently, or in the future, may compete in the Bank's market. The Bank
competes to attract deposits and loan applications both from customers of
existing institutions and from customers new to the greater Philadelphia area.
The Bank anticipates a continued increase in competition in its market area.
ITEM 2: DESCRIPTION OF PROPERTIES
The Company leases approximately 13,000 square feet on the first and
second floors, as well as the basement, of 1513 Walnut Street, Philadelphia,
Pennsylvania.
6
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The space is occupied by both the Company and the Bank. The
first floor contains a banking area, lobby, office space and a safe.
Administrative and executive offices are located on the second floor. The
basement has been renovated for use as an operations and storage area.
Management believes that its present space is adequate, but that future staffing
needs and the consummation of the Merger may require the Bank to secure
additional space and the Bank is presently exploring several options in this
area.
The initial term of the lease on such property expires on December 31,
1998 and contains one renewal option of five years. The annual rent at such
location for 1996 is $327,000 payable monthly.
In addition to the base rent and building operation expenses, the Company
is required to pay all real estate taxes, assessments, and sewer costs, water
charges, excess levies, license and permit fees under its lease and to maintain
insurance on the premises. Pursuant to the terms of its lease, the Company has
a right of first refusal to purchase the leased premises.
The Bank leases approximately 780 square feet in the lower level of
Pepper Pavilion at Graduate Hospital, 19th and Lombard Streets, Philadelphia,
Pennsylvania for its sole branch location. The space contains a banking area,
lobby, office, and a safe. The initial term on such lease expires June 30, 1997
and contains one renewal option of five years. The annual rental at such
location for 1996 is $ 23,000 payable monthly.
ITEM 3: LEGAL PROCEEDINGS
As of the date hereof, the Company is not aware of any legal actions
or proceedings presently pending against the Company or the Bank.
During their 1994 examination of the Bank, the Federal Reserve Bank of
Philadelphia (the "Federal Reserve Bank") and the Pennsylvania Department of
Banking (the "Department of Banking") identified certain deficiencies and
violations relating to (1) certain policies and procedures of the Bank with
respect to documentation, review and granting of loans; certain aspects of its
loan loss reserve; and certain other internal controls, (ii) the staff of the
Bank, and (iii) certain reporting requirements under the Currency and Foreign
Transaction Reporting Act. In order to remedy these alleged deficiencies and
violations, but without admitting such allegations, on May 24, 1995, the Company
and the Bank entered into Written Supervisory Agreements (the "Supervisory
Agreements") with each of the Federal Reserve Bank and the Department of
Banking, pursuant to which the Company and the Bank agreed to take the following
actions.
1. To receive prior approval of the Federal Reserve Bank and the Department
of Banking before paying any dividends.
2. To receive prior approval of the Federal Reserve Bank before incurring
any debt except in the ordinary course of business.
3. To submit to the Federal Reserve and the Department of Banking written
plans or reports with respect to (a) the capital position of the Bank; (b) the
Bank's proposed business activities for the balance of 1995 and each year
thereafter; (c) the performance of a review of executive management, the
information provided by executive management to the board of directors and the
procedures of the board of directors; and (d) the Bank's loan policies and
procedures and internal controls.
4. To establish a "Compliance Committee" composed of three (3) outside
directors of the Bank to ensure compliance with the supervisory Agreements.
7
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5. To file quarterly reports with the Federal Reserve Bank and the Department
of Banking with respect to compliance with the Supervisory Agreements.
As of the date hereof, the Company and the Bank have implemented, or are
in the process of implementing within the time periods set forth in the
Supervisory Agreements, the policies, procedures and internal controls
described above required by such agreements, including, but not limited to,
those relating to the documentation, review and granting of loans and the
establishment of the Compliance Committee. All plans and reports required to
be submitted to the Federal Reserve Bank and the Department of Banking have
been submitted or are expected by the Company to be submitted within the time
periods set forth in the Supervisory Agreements. These reports are not
expected to have a material impact on the Company's or the Bank's financial
operations.
The Supervisory Agreements do not mandate the imposition of civil of money
penalties and, other than set forth above, should have no immediate impact on
the operations of the Company or the Bank. Of the required actions noted above,
many measures, including, but not limited to, those set forth as nos. 3 and 4
above, were adopted at the behest of the Board and management following
discussions with regulators, which discussions were held prior to the
imposition of the Supervisory Agreements.
As of June 30, 1995, a joint examination was conducted by the Department of
Banking and the Federal Reserve Bank. The examination report indicated that the
Bank had made progress in addressing the deficiencies cited in the 1994
examination report and indicated that the Bank is in substantial compliance with
the terms of Supervisory Agreements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is listed for trading on the
National Association of Securities Dealers Automated Quotation System
Smallcap Market under the symbol "FXBC." As of February 29, 1996, there were
approximately 255 holders of record of the Company's common stock. The high
and low closing bid prices for the Company's common stock during each fiscal
quarter of 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995:
- ---------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
High Bid 3.875 4.250 5.500 6.500
Low Bid 3.000 3.500 3.500 4.250
1994:
- ---------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
High Bid 4.500 4.500 4.375 4.250
Low Bid 4.125 4.000 3.000 2.500
</TABLE>
Market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The Company has not paid any cash or stock dividends. Pursuant to the
Supervisory Agreements, the Bank cannot declare or pay any dividends on its
common stock unless it obtains approval from the Federal Reserve Bank and the
Department of Banking.
9
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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 3% 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
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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
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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
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<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 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%
--------------------------------------------
</TABLE>
13
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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 $620,000 and $212,427 respectively, which were classified
as non-accrual. At December 31, 1995 and 1994, these loans had approximately
$212,000 and $1,222,000 of Loan Loss Reserves allocated to them respectively.
During 1995, there were $-0- 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 accrued. 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 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
</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>
ITEM 7: FINANCIAL STATEMENTS:
Attached at pages F-1 through F-26 are the financial statements
identified in Item 13 hereof.
35
<PAGE>
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by reference from the
definitive proxy materials of the Company to be filed with the Commission in
connection with the Company's 1996 annual meeting of shareholders scheduled for
May 29, 1996.
ITEM 10: EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
definitive proxy materials of the Company to be filed with the Commission in
connection with the Company's 1996 annual meeting of shareholders scheduled for
May 29, 1996.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by this Item is incorporated by reference from the
definitive proxy materials of the Company to be filed with the Commission in
connection with the Company's 1996 annual meeting of shareholders scheduled for
May 29, 1996.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
definitive proxy materials of the Company to be filed with the Commission in
connection with the Company's 1996 annual meeting of shareholders scheduled for
May 29, 1996.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets dated respectively, December 31, 1995 and
December 31, 1994.
Consolidated Statements of Operations for the years ended December 31,
1995, December 31, 1994 and December 31, 1993.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, December 31, 1994 and December 31, 1993.
Consolidated Statements of Cash Flows for the years ended December 31,
1995, December 31, 1994 and December 31, 1993.
Notes to Consolidated Financial Statements.
36
<PAGE>
(b) EXHIBITS
The following Exhibits are filed as part of this report. (Exhibit
numbers correspond to the exhibits required by Item 601 of
Regulation S-B for an annual report on Form 10-KSB)
<TABLE>
<CAPTION>
PAGE NO. IN SEQUENTIAL
EXHIBIT NO. NUMBERING SYSTEM
- ----------------- ---------------------
<S> <C>
3(a) Amended and Restated Articles of Incorporation N/A
of the Company, as amended.*
3(b) Amended and Restated Bylaws of the Company.* N/A
4(b)(i) Amended and Restated Articles of Incorporation N/A
of the Company, as amended.*
4(b)(ii) Amended and Restated Bylaws of the Company.* N/A
10 Material Contracts.* N/A
10(a) Employment Agreement between the Company N/A
and Zvi H. Muscal.*
10(b) Agreement and Plan of Merger by and between the Company and Republic
Bancorporation, Inc. dated November 17, 1995.**
21 Subsidiaries of the Company.
27 Financial Data Schedule.
</TABLE>
All other schedules and exhibits are omitted because they are not
applicable or because the required information is set out in the
financial statements or the notes thereto.
* Incorporated by reference from the Registration Statement on Form
S-1 of the Company, as amended, Registration No. 33-22492; and from
the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
** Incorporated by reference from the Company's Quarterly Report on Form
10-QSB/A for the quarter ended September 30, 1995.
REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during the fourth
quarter of 1995.
37
<PAGE>
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
38
<PAGE>
In accordance with the Securities Exchange Act of 1934, this Report has
been duly signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
March 29, 1996 /s/ Zvi H. Muscal
-------------------------------------
Zvi H. Muscal, Chairman of the
Board, President, Chief Executive
Officer (Principal Executive
Officer)
March 29, 1996 /s/ Michael J. Bradley
-------------------------------------
Michael J. Bradley, Director
March 29, 1996 /s/ John F. D'Aprix
-------------------------------------
John F. D'Aprix
March 29, 1996 /s/Sheldon E. Goldberg
-------------------------------------
Sheldon E. Goldberg, Director
March 29, 1996 /s/Gerald Levinson
-------------------------------------
Gerald Levinson, Director
March 29, 1996 /s/ John M. O'Donnell, Ph.D.
-------------------------------------
John M. O'Donnell, Director
39
<PAGE>
March 29, 1996 /s/James E. Schleif
-------------------------------------
James E. Schleif
March 29, 1996 /s/Sheldon E. Goldberg
-------------------------------------
Sheldon E. Goldberg
March 29, 1996 /s/Allen L. Kramer
-------------------------------------
Allen L. Kramer
40
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF EXECUFIRST BANCORP, INC.
Page
Report of Independent Accountants F-1
Consolidated Balance Sheets , December 31, 1995,
and December 31, 1994 F-2
Consolidated Statements of Operations for the
years ended December 31, 1995
December 31, 1994 and December 31, 1993 F-3
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1995, December 31, 1994 and
December 31, 1993 F-4
Consolidated Statements of Cash Flows for
the years ended December 31, 1995
December 31, 1994 and December 31, 1993 F-5
Notes to Consolidated Financial Statements. F-6
41
<PAGE>
EXECUFIRST BANCORP, INC.
AND SUBSIDIARY
REPORT ON AUDITS OF CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of ExecuFirst Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of ExecuFirst
Bancorp, Inc. and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ExecuFirst
Bancorp, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for investment securities in 1994.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 26, 1996
F-1
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and due from banks $ 4,644,099 $ 3,168,634
Interest - bearing deposits with banks 990,000 -
Federal funds sold 17,050,000 5,250,000
Securities available for sale, at fair value (amortized cost of
$28,130,089 and $15,573,340, respectively) 28,261,035 14,894,754
Securities held to maturity at amortized cost (fair value of
$5,925,770) - 6,019,105
Federal reserve bank stock, at cost 321,400 322,400
Loans, net 76,093,157 73,768,848
Premises and equipment, net 277,059 221,432
Real estate owned 81,093 100,000
Accrued income and other assets 1,944,740 1,319,482
------------- -------------
$ 129,662,583 $ 105,064,655
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest-bearing $ 19,880,306 $ 16,217,323
Demand - interest-bearing 5,922,555 6,304,341
Money market and savings 21,316,543 21,574,278
Time 56,003,003 35,332,792
Time over $100,000 17,144,601 17,780,919
------------- -------------
Total deposits 120,267,008 97,209,653
Federal income taxes payable 3,500 -
Accrued expenses and other liabilities 1,609,784 1,341,135
------------- -------------
Total liabilities 121,880,292 98,550,788
------------- -------------
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none issued - -
Common stock, par value $.01 per share; authorized 20,000,000
shares issued and outstanding 1,226,057 shares 12,260 12,260
Capital in excess of par 11,483,018 11,483,018
Accumulated deficit (3,799,411) (4,302,825)
Unrealized gain (loss) on securities available for sale,
net of deferred tax in 1995 86,424 (678,586)
------------- -------------
Total shareholders' equity 7,782,291 6,513,867
------------- -------------
$ 129,662,583 $ 105,064,655
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-2
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,130,580 $ 6,787,338 $ 6,077,377
Interest on federal funds sold 637,157 385,028 277,132
Interest on deposits in banks 85,165 - 16,706
Interest on investments 1,737,724 840,802 724,080
------------ ------------ ------------
9,590,626 8,013,168 7,095,295
------------ ------------ ------------
Interest expense:
Demand - interest-bearing 150,909 152,660 115,306
Money market and savings 558,633 619,548 733,363
Time 2,724,818 1,543,520 1,480,335
Time over $100,000 941,591 798,448 669,074
------------ ------------ ------------
4,375,951 3,114,176 2,998,078
------------ ------------ ------------
Net interest income 5,214,675 4,898,992 4,097,217
Provision for possible loan losses 690,000 1,349,133 352,428
------------ ------------ ------------
Net interest income after provision for possible
loan losses 4,524,675 3,549,859 3,744,789
------------ ------------ ------------
Noninterest income:
Service fees 180,616 100,103 87,270
Other income 37,239 22,657 11,485
Net gain on sale of securities 177,918 - 97,689
------------ ------------ ------------
395,773 122,760 196,444
------------ ------------ ------------
Noninterest expenses:
Salaries and wages 1,828,063 1,240,911 980,970
Employee benefits 417,665 490,468 278,200
Occupancy expenses 594,114 552,873 543,471
Professional fees 468,114 532,182 337,692
Data processing 225,445 190,751 150,270
FDIC premiums 215,953 259,736 219,841
Pennsylvania shares tax 87,268 91,968 91,307
Insurance 99,370 88,170 83,828
Other expenses 727,542 1,059,899 839,608
------------ ------------ ------------
4,663,534 4,506,958 3,525,187
------------ ------------ ------------
Income (loss) before income taxes 256,914 (834,339) 416,046
------------ ------------ ------------
Provision (benefit) for income taxes (246,500) - -
------------ ------------ ------------
Net income (loss) $ 503,414 $ (834,339) $ 416,046
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share $ .41 $ (.68) $ .34
------------ ------------ ------------
------------ ------------ ------------
Average common shares outstanding 1,226,057 1,226,057 1,226,057
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-3
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Capital on Securities
Common Stock In Excess Accumulated Available
Shares Amount of Par Deficit for Sale Total
----------- ---------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 1,226,057 $ 12,260 $ 11,483,018 $ (3,884,532) - $ 7,610,746
Net income for the year - - - 416,046 - 416,046
---------- ---------- ------------ ------------ ------------ -----------
Balance, December 31, 1993 1,226,057 12,260 11,483,018 (3,468,486) - 8,028,792
Cumulative effect of change in
accounting princile - - - - $ 43,617 43,617
Net loss for the year - - - (834,339) - (834,339)
Change in unrealized gain (loss)
on securities available for sale - - - - (722,203) (722,203)
---------- ---------- ------------ ------------ ------------ -----------
Balance, December 31, 1994 1,226,057 12,260 11,483,018 (4,302,825) (678,586) 6,513,867
Net income for the year - - - 503,414 - 503,414
Change in unrealized gain (loss)
on securities available for sale - - - - 765,010 765,010
---------- ---------- ------------ ------------ ------------ -----------
Balance, December 31, 1995 1,226,057 $ 12,260 $ 11,483,018 $ (3,799,411) $ 86,424 $ 7,782,291
---------- ---------- ------------ ------------ ------------ -----------
---------- ---------- ------------ ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 503,414 $ (834,339) $ 416,046
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-down of real estate owned 18,908 50,000 25,000
Loss on sale of other real estate owned - 32,152 -
Provision for possible loan losses 690,000 1,349,133 352,428
Depreciation and amortization 94,908 79,454 76,878
Amortization of securities (31,397) 34,759 55,893
Net (gain) loss on sale of securities (177,918) - (97,689)
(Increase) decrease in accrued income and
other assets (625,257) (226,790) (219,113)
Increase (decrease) in accrued expenses
and other liabilities 227,626 290,066 124,636
----------- ------------ -----------
Net cash provided by operating activities 700,284 774,435 734,079
----------- ------------ -----------
Cash flows from investing activities:
Net (increase) decrease in time deposits with banks (990,000) 40,000 851,000
Purchase of securities:
Investment securities - - (27,040,447)
Available for sale (20,881,585) (16,912,105) -
Held to maturity (4,840,491) (4,985,936) -
Proceeds from sales of securities:
Investment securities - - 35,195,749
Available for sale 12,749,114 - -
Held to maturity 3,598,268 - -
Proceeds from maturities and calls of securities:
Investment securities - - -
Available for sale 1,500,000 6,000,000 -
Held to maturity - - -
Principal receipts on securities available for sale 1,547,364 1,333,886 -
Net (increase) decrease in loans (3,014,309) 6,741,137 (11,986,023)
Proceeds from the sale of other real estate owned - 142,357 -
Premises and equipment expenditures (150,535) (31,200) (23,550)
----------- ------------ -----------
Net cash used in investing activities (10,482,174) (7,671,861) (3,003,271)
----------- ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in demand, money
market and savings deposits 3,023,462 1,039,386 (64,424)
Net increase (decrease) in time deposits 20,033,893 (7,444,060) 14,736,704
----------- ------------ -----------
Net cash provided (used in)
financing activities 23,057,355 (6,404,674) 14,672,280
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents 13,275,465 (13,302,100) 12,403,088
Cash and cash equivalents, beginning of period 8,418,634 21,720,734 9,317,646
----------- ------------ -----------
Cash and cash equivalents, end of period $21,694,099 $ 8,418,634 $21,720,734
----------- ------------ -----------
----------- ------------ -----------
Supplemental disclosure:
Interest paid $ 4,563,059 $ 3,061,350 $ 3,010,257
----------- ------------ -----------
----------- ------------ -----------
Noncash transactions
Net transfers to real estate owned from loans - - $ 150,000
----------- ------------ -----------
----------- ------------ -----------
Transfer of investment securities from held-to-maturity
to investment securities available-for-sale $ 7,328,971 - -
----------- ------------ -----------
----------- ------------ -----------
Changes in unrealized gain (loss) on securities available
for sale $ 765,010 $ (678,586) -
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
ExecuFirst Bancorp, Inc. is a one-bank holding company organized and
incorporated under the laws of the Commonwealth of Pennsylvania. Its
wholly-owned subsidiary, First Executive Bank, offers a variety of banking
services to individuals and businesses throughout the Greater Philadelphia
and South Jersey area through its office and branches in Philadelphia,
Pennsylvania.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the accounts
of ExecuFirst Bancorp, Inc. and its wholly-owned subsidiary, First
Executive Bank ("the Bank"). All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
RISKS AND UNCERTAINTIES AND CERTAIN SIGNIFICANT ESTIMATES:
The earnings of the Company depend on the earnings of the Bank. The Bank
is dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earning assets, such as
loans and investments, and the interest paid on its interest-bearing
liabilities, such as deposits and borrowings. Accordingly, the operations
of the Bank are subject to risks and uncertainties surrounding its exposure
to change in the interest rate environment.
In addition, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
significant estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These significant
estimates include the allowance for possible loan losses and the valuation
allowance on the deferred tax asset. Actual results could differ from
those estimates.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers all
cash and due from banks and federal funds sold to be cash and cash
equivalents. The bank is required to maintain certain average reserve
balances as established by the Federal Reserve Board. The amounts of those
balances for the reserve computation periods which included December 31,
1995 and 1994 were $553,000 and $495,000, respectively. These requirements
were satisfied through the restriction of vault cash and a balance at the
Federal Reserve Bank of Philadelphia.
INVESTMENT SECURITIES:
The Company adopted Statement of Financial Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115") on
January 1, 1994. SFAS 115 requires debt and equity securities to be
classified in one of three categories, as applicable, and to be accounted
for as follows: debt securities which the Company has positive intent and
ability to hold to maturity are classified as "securities held to maturity"
and are reported at amortized cost; debt and equity securities that are
bought and sold in the near term are classified as "trading" and are
reported at fair value with unrealized gains and losses included in
earnings; and debt and equity securities not classified as either held to
maturity and or trading securities are classified as "securities available
for sale" and are reported at fair value with unrealized gains and losses
reported as a separate component of shareholders' equity.
The cumulative effect of adopting SFAS 115 resulted in a $43,617 increase
in shareholders' equity. As of December 31, 1994, shareholders' equity was
reduced by $678,586. This amount represents the difference between the
amortized cost and the estimated market value of available for sale
securities as of December 31, 1994. A deferred tax asset of $230,719 was
fully offset by a valuation allowance. As of December 31, 1995,
shareholders' equity was increased by $765,010 to $86,424. A deferred tax
liability of approximately $45,000 was recorded in the financial
statements.
Investment securities classified as held to maturity are carried at
amortized cost, and are adjusted for amortization of premiums and accretion
of discounts over the life of the related security on a level yield method.
Investments securities that are held for an indefinite period of time are
classified as available for sale, and are carried at fair value. Such
items include those management intends to use as part of its asset-
liability matching strategy or that may be sold in response to changes in
interest rates or other factors. Realized gains and losses on the sale of
investment securities are recognized using the specific identification
method.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVESTMENT SECURITIES, CONTINUED:
On May 30, 1995, the Company sold two securities from its held-to-maturity
portfolio, a structured note and a mortgage-backed security, because of
increased regulatory scrutiny and additional reporting requirements
required for holding these types of investments. At May 30, 1995, the
structured note and mortgage-backed security had amortized costs of
$2,247,242 and $1,192,564, respectively, and gains of approximately $30,000
and $65,000, respectively, were realized on the sales.
Subsequent to the sale of these securities from the held-to-maturity
portfolio, the Company transferred its remaining held-to-maturity portfolio
to the available-for-sale portfolio. As of May 31, 1995 the amortized
cost and market value of the securities transferred were $7,328,971 and
$7,382,352, respectively. Gross unrealized gains and losses of $54,413 and
$1,032, respectively, were recorded as a separate component of
shareholders' equity. As of December 31, 1995, the entire investment
portfolio is classified as available-for-sale.
LOANS:
Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs. Income is accrued on the principal amount outstanding.
Accrual of interest is discontinued when, in management's judgment,
collection of interest or principal is questionable.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is classified as nonaccrual.
Loans that are on a current payment status or past due less than 90 days
may also be classified as nonaccrual if repayment in full of principal
and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual or as an impaired loan and the
future collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to principal
outstanding. When the future collectibility of the recorded loan balance
is expected, interest income may be recognized on a cash basis. In the
case where a nonaccrual loan had been partially charged off, recognition of
interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Cash interest receipts in excess of that amount are recorded as recoveries
to the allowance for loan losses until prior charge-offs have been fully
recovered.
Impaired loans are charged off when, in management's opinion, they are no
longer in the process of collection and there is a shortfall in the
collateral.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is established through a provision
for possible loan losses charged to operations. Loans are charged against
the allowance when management believes that the collectibility of the loan
principal is unlikely. Recoveries on loans previously charged off are
credited to the allowance.
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, the results of the
most recent regulatory examination, current economic conditions and trends
that may affect the borrower's ability to pay. While management uses the
best information available to make such evaluations, future adjustments to
the allowance may be necessary if circumstances differ substantially from
assumptions used in making evaluations.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") on January
1, 1995. SFAS 114 requires an adjustment to the carrying value of a loan
through the provision for possible credit losses when it is "probable" that
a creditor will be unable to collect all amounts due according to the
contractual terms of the loan. An insignificant delay, those less than 90
days, or insignificant shortfall in amount of payments does not necessarily
result in the loan being identified as impaired. SFAS 114 was subsequently
amended by Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure"
("SFAS 118") to allow a creditor to use existing methods for recognizing
interest income on an impaired loan. The adoption of FAS 114 did not have
a material impact on financial position or the results of operations.
The Company considers residential mortgage loans and consumer loans,
including home equity lines of credit, to be small balance homogeneous
loans. These loan categories are collectively evaluated for impairment.
Commercial business loans and commercial real estate loans are individually
measured for impairment based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral dependent loans are measured for impairment based on the fair
value of the collateral.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of furniture and equipment is calculated over
the estimated useful life of the asset using the straight-line method.
Leasehold improvements are amortized over the shorter of their estimated
useful lives or terms of their respective leases, using the straight-line
method.
Repairs and maintenance are charged to current operations as incurred, and
renewals and betterments are capitalized.
F-9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REAL ESTATE OWNED:
Real estate owned consists of foreclosed assets and is stated at the lower
of cost or estimated fair value minus estimated costs to sell the property.
INCOME TAXES:
Deferred income taxes are recorded for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. In addition, a deferred tax asset is recorded to reflect the
future benefit of net operating loss carryforwards. A valuation allowance
may be recorded to reduce deferred tax assets to their net realizable value
(see Note 8).
EARNINGS PER SHARE:
Net income (loss) per common share is computed by using the weighted
average number of common shares outstanding during each period presented.
The effect of stock options and warrants has not been reflected as the
impact is not material.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122 "Accounting for
Mortgage Servicing Rights" which is effective for the Company beginning
January 1, 1996. The statement requires the recognition of separate assets
relating to the rights to service mortgage loans for others based on their
fair value if it is practicable to estimate the value. The statement
applies prospectively to transactions entered into in 1996, therefore there
will be no cumulative effect upon adoption of this statement. In addition,
this statement is not expected to have a significant effect on the
financial position or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation," which is effective for the Corporation beginning January 1,
1996. SFAS No. 123 provides an alternative method of accounting for stock-
based compensation arrangements, based on fair value of the stock-based
compensation utilizing various assumptions regarding the underlying
attributes of the options and the Corporation's stock, rather than the
existing method of accounting for stock based compensation which is
provided in Accounting Principles Board Opinion No. 25, "Accounting for
Stock issued to Employees" (APB 25). The FASB encourages entities to adopt
the fair value based method, but does not require the adoption of this
method. For those entities that continue to apply APB 25, proforma
disclosure of the effect, if adopted, of SFAS 123 on net income and
earnings per share would be required in the 1996 notes to consolidated
financial statements. The Company anticipates that it will continue its
current accounting policy; however, if adopted, SFAS 123 will not have a
material impact on financial position or results of operations.
F-10
<PAGE>
3. INVESTMENT SECURITIES:
Investment securities available for sale as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Treasuries $ 5,503,111 $ 30,578 $ 5,533,689
Agencies 21,666,978 139,405 $ 39,037 21,767,346
Corporate Bonds 960,000 - - 960,000
----------- ----------- ----------- -----------
Total $28,130,089 $ 169,983 $ 39,037 $28,261,035
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Company held an investment in stock of the Federal Reserve Bank in
accordance with regulatory requirements in the amounts of $321,400 and $322,400
as of December 31, 1995 and 1994, respectively.
Investment securities available for sale as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Treasuries $ 4,953,563 - $ (66,381) $ 4,887,182
Agencies 10,619,777 - (612,205) 10,007,572
----------- ----------- ---------- -----------
Total $1,5573,340 - $ (678,586) $14,894,754
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
Investment securities held to maturity as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Treasuries $ 4,989,105 - $ (93,335) $ 4,895,770
Corporate Bonds 1,030,000 - - 1,030,000
----------- ----------- ---------- -----------
Total $ 6,019,105 - $ (93,335) $ 5,925,770
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
F-11
<PAGE>
3. INVESTMENT SECURITIES, CONTINUED:
The maturity distribution of the amortized cost and estimated market value
of investment securities by contractual maturity at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Due in 1 year or less $ 5,995,664 $ 6,029,875
After 1 year to 5 years 2,164,814 2,177,884
After 5 years to 10 years 4,959,822 4,996,510
Mortgage-backed securities 15,009,789 15,056,766
FRB stock 321,400 321,400
------------ ------------
Total $ 28,451,489 $ 28,582,435
------------ ------------
------------ ------------
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without
prepayment penalties.
In 1995 and 1993 the Company realized proceeds from the sale and maturity
of investment securities of $17,847,382 and $35,195,749, respectively,
resulting in gains of $177,918 and $97,689, respectively. No securities
were sold during 1994, however, three U.S. treasuries matured during the
year with an aggregate par value of $6,000,000.
At December 31, 1995, investment securities in the amount of approximately
$14,276,000 were pledged as collateral for public deposits and certain
other deposits as required by law.
4. LOANS:
The detail of the loan portfolio at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial $ 32,252,963 $ 38,280,783
Real estate - mortgage 39,752,000 32,951,000
Installment loans 5,468,000 3,893,000
Deferred loan origination costs 55,695 -
------------ ------------
77,528,658 75,124,783
------------ ------------
Less allowance for possible
loan losses (1,435,501) (1,355,935)
------------ ------------
$ 76,093,157 $ 73,768,848
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
4. LOANS, CONTINUED:
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with FAS 114 totaled $728,000, of which
$202,106 related to loans with no valuation allowance because the loans
have been partially written down through charge-offs, and $525,894 related
to loans with a corresponding valuation allowance of $419,015. For the
year ended December 31, 1995, the average recorded investment in impaired
loans was approximately $1,220,500. The Bank recognized $0 of interest on
impaired loans.
As of December 31, 1995 and 1994, there were loans of approximately
$728,000 and $2,074,000, respectively, which were nonperforming. If these
loans were performing under their original contractual rate, interest
income on such loans would have approximated $40,000, $198,000 and $276,000
for 1995, 1994 and 1993, respectively.
The majority of loans are with borrowers in the Company's marketplace,
Philadelphia and surrounding suburbs, including southern New Jersey. The
Company has loans to customers whose assets and businesses are concentrated
in real estate and healthcare. Repayment of these loans is in part
dependent upon general economic conditions affecting these industries. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained is based on management's credit
evaluation of the customer. Collateral value varies but primarily includes
residential and income-producing properties.
Included in loans are loans due from directors and other related parties of
$2,093,988 and $1,999,406 at December 31, 1995 and 1994, respectively. Of
loans due from directors and other related parties, approximately
$2,047,493 and $1,934,731 were collateralized at December 31, 1995 and
1994, respectively. The following presents the activity in amounts due
from directors and other related parties for the year ended December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,999,406 $ 3,701,000 $ 4,822,000
Additions 721,715 128,800 240,000
Repayments (627,133) (409,253) (862,000)
Loans to former directors - (1,421,141) (499,000)
----------- ----------- -----------
Balance at end of year $ 2,093,988 $ 1,999,406 $ 3,701,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-13
<PAGE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An analysis of the changes in the allowance for possible loan losses for
the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,355,935 $ 1,351,007 $ 2,454,773
Charge-offs (814,963) (1,852,977) (1,664,187)
Recoveries 204,529 508,772 207,993
Provision for possible loan losses 690,000 1,349,133 352,428
------------ ------------ ------------
Balance at end of year $ 1,435,501 $ 1,355,935 $ 1,351,007
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
6. PREMISES AND EQUIPMENT:
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Furniture and equipment $ 498,400 $ 385,480
Leasehold improvements 253,798 216,183
----------- -----------
752,198 601,663
Less accumulated depreciation
and amortization (475,139) (380,231)
----------- -----------
$ 277,059 $ 221,432
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense on premises and equipment amounted to
$94,908, $79,454 and $76,878 in 1995, 1994 and 1993, respectively.
The Company has entered into noncancelable lease agreements for its main banking
facility and branch, expiring through December 31, 1998. The leases are
accounted for as operating leases. The minimum annual rental payments required
under these leases are as follows:
Year ending
December 31, Amount
------------ ------
1996 $ 350,000
1997 360,000
1998 380,000
----------
$1,090,000
----------
----------
F-14
<PAGE>
6. PREMISES AND EQUIPMENT, CONTINUED:
The Company incurred rent expense of $312,363, $311,732 and $311,288 in
1995, 1994 and 1993, respectively. Such rent expense has been computed in
accordance with generally accepted accounting principles which require rent
expense to be charged to expense on a straight-line basis rather than as
paid.
Rental payments for a five year option period commencing January 1, 1999,
on the main banking facility lease, will be based upon fair market value.
The lease also requires the Company to pay its pro rata share of all
operating expenses such as maintenance, insurance and taxes.
During 1992, the Company entered into a five year noncancelable lease
agreement for its branch location. The Company has an option of renewing
the lease for an additional five years.
7. SHORT-TERM BORROWINGS:
The Company has lines of credit of $500,000 available for the purchase of
federal funds from corresponding banks. In addition, the Company has a
$15,000,000 collateralized line of credit with Prudential Securities. As
of December 31, 1995 and 1994, there were no amounts outstanding on both
lines.
8. FEDERAL INCOME TAXES:
At December 31, 1995, the Company was subject to the alternative minimum
tax provisions of the Internal Revenue Code. The alternative minimum tax
limits the amount of net operating losses that can be deducted against
alternative minimum taxable income. The component of the provision for
income taxes is as follows:
1995 1994 1993
---- ---- ----
Federal income taxes currently payable $ 3,500 - -
The Company has recorded a deferred tax asset of $3,500 relating to
alternative minimum tax credits that can be carried forward as a credit
against regular taxes payable.
F-15
<PAGE>
8. FEDERAL INCOME TAXES, CONTINUED:
The approximate tax effect of each type of temporary difference and
carryforward that gives rise to net deferred tax assets at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Allowance for loan losses $ 122,000 $ (14,000)
Loss carryforward 798,000 1,170,000
Deferred compensation 176,000 135,000
Contributions 87,000 82,000
Other 144,000 66,000
Unrealized loss on securities available for sale - 231,000
----------- -----------
Gross deferred tax asset 1,327,000 1,670,000
Valuation allowance (1,077,000) (1,670,000)
Unrealized (gain) loss on securities
available for sale (45,000) -
----------- -----------
Deferred tax asset, net $ 205,000 -
----------- -----------
----------- -----------
</TABLE>
The change in the valuation allowance, in 1995, of ($593,000) is due to the
decrease in net deferred tax assets associated with temporary differences,
particularly actual and anticipated utilization of the net operating loss
carryforward. At December 31, 1994, gross deferred tax assets have been
fully offset by a valuation allowance.
The following table accounts for the difference between the actual tax
provision and the amount obtained by applying the statutory U.S. Federal
income tax rate of 34% to income (loss) before income taxes for the years
ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax (benefit) provision computed at
Statutory rate $ 87,350 $ (283,675) $ 141,000
Change in valuation allowance (362,000) 272,000 (148,000)
Other 28,150 11,675 7,000
----------- ------------- ------------
Provision (benefit) for income taxes $ (246,500) - -
----------- ------------- ------------
----------- ------------- ------------
</TABLE>
At December 31, 1995, the Company has available approximately $2,347,000 of
net operating loss carryforwards and approximately $1,698,000 of
alternative minimum tax net operating carryforwards for income tax
reporting purposes which expire from 2003 through 2009.
F-16
<PAGE>
9. COMMITMENTS AND CONTINGENCIES:
The Company 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. These instruments involve to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
Credit risk is defined as the possibility of sustaining a loss due to the
failure of the other parties to a financial instrument to perform in
accordance with the terms of the contract. The maximum exposure to credit
loss under commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The Company
uses the same underwriting standards and policies in making credit
commitments as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent potential credit
risk are commitments to extend credit of approximately $12,241,000 and
$12,467,052 and standby letters of credit of approximately $2,659,010 and
$2,511,010 at December 31, 1995 and 1994, respectively.
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 many require the 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 Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is based
on management's credit evaluation of the customer. Collateral held varies
but may include real estate, marketable securities, pledged deposits,
equipment and accounts receivable.
Standby letters of credit are conditional commitments issued that guarantee
the performance of a customer to a third party. The credit risk and
collateral policy involved in issuing letters of credit is essentially the
same as that involved in extending loan commitments. The amount of
collateral obtained is based on management's credit evaluation of the
customer. Collateral held varies but may include real estate, marketable
securities, pledged deposits, equipment and accounts receivable.
The Company has entered into an employment agreement with the Company's
Chief Executive Officer, which provides for the payment of base salary and
certain benefits for a period of four years after notice of termination.
The aggregate commitment for future salaries and benefits under this
employment agreement at December 31, 1995 is approximately $880,000. The
Company has also entered into an employment agreement with the Chief
Operating Officer, which provides for the payment of base salary and
certain benefits through the year 1997. The aggregate commitment for
future salaries and benefits under this employment agreement at December
31, 1995 is approximately $210,000.
F-17
<PAGE>
10. RELATED PARTIES:
The Company paid approximately $17,223, $7,500 and $11,000 for consulting
fees in 1995, 1994 and 1993, respectively, to an entity in which one of its
directors has an equity interest.
11. SHAREHOLDERS' EQUITY:
In accordance with the Pennsylvania Banking Code, cash dividends by the
Bank may be declared and paid only out of accumulated net earnings, as
defined by the Code. At December 31, 1995, the Bank was prohibited from
any payment of cash dividends.
The Bank is subject to the Federal Reserve Board's risk-based capital
leverage ratio guidelines. These guidelines require all state-chartered
member banks to maintain total capital equal to at least 8% of risk-
weighted total assets, Tier 1 capital (common stock, additional paid-in
capital and retained earnings) equal to 4% of risk-weighted total assets,
and a Tier 1 leverage ratio of 5%. At December 31, 1995, the
aforementioned ratios are:
Actual Required
------ --------
Tier 1 Capital to risk-weighted
assets 9.27% 4%
Total Capital to risk-weighted
assets 10.52% 8%
Tier 1 leverage ratio 6.21% 4%
The Company has a stock option plan pursuant to which it may grant up to an
aggregate of 200,000 shares of the Company's common stock at prices no less
than fair market value on date of grant. The following is a summary of
transactions under the Plan:
Weighted
Average
Number Option
of Options Price
---------- --------
Balance at December 31, 1993 and 1994 139,000 5.34
Options forfeited 69,500 4.75
--------
Balance at December 31, 1995 69,500 4.31
--------
--------
The options expire ten years after the date of grant. As of December 31,
1995, all options are exercisable and no options have been exercised. The
range of exercise prices are from $4.00 to $4.75.
On January 1, 1995, all stock warrants issued to certain officers,
directors and significant shareholders expired. There are no outstanding
stock warrants at December 31, 1995.
F-18
<PAGE>
12. RETIREMENT PLAN:
PENSION PLAN:
The Company maintains a Supplemental Retirement Plan for its Chief
Executive Officer which provides for payments of approximately $120,000 a
year, commencing for a ten-year period upon retirement or death. A life
insurance contract has been purchased to insure against all or a portion of
the payments which may be required prior to the anticipated retirement date
of the officer. For the years ended December 31, 1995, 1994 and 1993,
approximately $115,738, $122,000 and $96,000, respectively (including the
net premium on the life insurance contract), of expense was incurred
related to this Plan.
The Bank has a defined contribution plan pursuant to the provision of
401(k) of the Internal Revenue Code. The Plan covers all full-time
employees who meet age and service requirements. The plan provides for
elective employee contributions up to 10% of compensation and a 50%
matching company contribution limited to 4%. The total expense relating to
the plan was $19,637, $17,504 and $22,942 for 1995, 1994 and 1993,
respectively.
13. PENNSYLVANIA SHARES TAX:
Effective July 1, 1989, Pennsylvania enacted legislation creating the bank
shares tax and a new bank tax credit allowing a one-time tax credit for
banks chartered after January 1, 1979. The maximum amount of the credit
that can be used in any year is limited to 80% of the tax liability for
that year. Under the revised statute, the Bank's share of the tax
liability was reduced by aggregate credits of approximately $605,000 for
the years 1989 through 1991.
Subsequent to July 1989, several lawsuits were brought against the
Pennsylvania Department of Revenue requesting the new bank shares tax and
new bank tax credit be declared invalid. The Bank has joined with a group
of other banks formed after January 1, 1979 to protect its interests. This
group has retained counsel and is actively asserting its position. During
1994, the Commonwealth Court ruled that the amended bank shares tax was
constitutional and the new bank tax credit was unconstitutional. That
ruling has been appealed to the Pennsylvania Supreme Court.
In April 1995, the Pennsylvania Department of Revenue negotiated a
settlement with the bank allowing in full the maximum amount of credit to
be applied to the tax liability. The Pennsylvania Department of Revenue,
however, indicated that the bank's liability, after applying the credits,
is approximately $115,000 representing a difference in treatment of certain
aspects of capital calculations. The bank is disputing the amount and is
currently appealing to the Board of Finance and Revenue. In the opinion of
management, the outcome of this litigation will not have a material adverse
effect on the Company's financial position; however, it could have a
material impact on the results of operations of a subsequent quarter or
year.
F-19
<PAGE>
14. REGULATORY ACTIONS:
On May 24, 1995, the Company and the Bank entered into Written Supervisory
Agreements (the "Supervisory Agreements") with each of the Federal Reserve
Bank of Philadelphia (the "Federal Reserve Bank") and the Pennsylvania
Department of Banking ("the Department of Banking"). As of the date
hereof, the Company and the Bank have implemented, or are in the process of
implementing the policies, procedures and internal controls required by
such agreements, including, but not limited to, those relating to the
documentation, review and granting of loans and the establishment of the
Compliance Committee. All plans and reports required to be submitted to
the Federal Reserve Bank or the Department of Banking have been submitted
or are expected to be submitted. Additionally, during the quarter ended
September 30, 1995, a joint examination was conducted by the Pennsylvania
Department of Banking and the Federal Reserve Bank of Philadelphia.
Preliminary findings have recognized the continued progress management has
demonstrated in addressing the deficiencies cited in the prior examination
report and indicated that the Company and its Bank is in substantial
compliance with the Supervisory Agreements.
15. PENDING MERGER:
On November 17, 1995, the Company and Republic Bancorporation, Inc.
("Republic") entered into an Agreement and Plan of Merger pursuant to which
Republic will be merged with and into the Company. Pursuant to the terms
of the ("Merger"), each outstanding share of common stock of Republic will
be exchanged for shares of common stock of the Company. The exchange ratio
will be determined by the relative per share book values of the Company and
Republic at the end of the quarter immediately preceding consummation of
the Merger. The Merger is subject to regulatory and stockholder approval
and is intended to qualify as a tax-free reorganization. The Merger is
expected to be consummated during the second quarter of 1996 and will be
recorded on a purchase accounting basis based on the fair market value of
ExecuFirst's Common Stock at a price of $5.75 per share, the estimated
market value of the stock for a reasonable period before and after November
17, 1995, the announcement date of the Merger. Upon consummation of the
Merger, shareholders of Republic will own approximately 1,358,190 shares of
Company Common Stock (based on an Exchange Ratio of 1.71 calculated based
on the ExecuFirst and Republic book values per share on December 31, 1995).
As a result, the Merger will be accounted for as a reverse acquisition of
ExecuFirst by Republic. Solely for accounting and financial reporting
purposes, Republic will be considered to be the acquiring entity
notwithstanding the fact that, the Company (as ExecuFirst is referred to
herein with respect to post-Merger activities) will be the surviving entity
and the entity issuing common stock.
F-20
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practical to estimate fair value. In cases
where quoted market prices are not available, fair values are based on
assumptions including future cash flows and discount rates. Accordingly,
the fair value estimates cannot be substantiated, may not be realized, and
do not represent the underlying value of the Company.
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENT:
The carrying value is a reasonable estimate of fair value.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE:
For investment securities with a quoted market price, fair value is equal
to quoted market prices. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
LOANS:
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair value is the carrying value. For other
homogeneous categories of loans such as residential mortgages and consumer
loans, fair value is estimated based on discounting the estimated future
cash flows using the current rates at which similar loans would be made to
borrowers with similar collateral and credit ratings and for similar
remaining maturities.
DEPOSIT LIABILITIES:
For checking, savings and money market accounts, fair value is the amount
payable on demand at the reporting date. For time deposits, fair value is
estimated using the rates currently offered for deposits of similar
remaining maturities.
F-21
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:
For commitments and standby letters of credit, the recorded fee amount is a
reasonable estimate of fair value because the majority of the Bank's
commitments to extend credit and standby letters of credit carry current
market rates if converted to loans.
At December 31, 1995, the carrying amount and the estimated fair value of
the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 21,694,099 $ 21,694,099
Interest-bearing deposits with banks 990,000 990,000
Investment securities available for sale 28,261,035 28,261,035
FRB Stock 321,400 321,400
Loans, net 76,093,157 76,531,197
Financial liabilities:
Deposits:
Demand, savings, and money market accounts 47,119,404 47,119,404
Time 73,147,604 73,466,069
Off balance sheet financial instruments:
Commitments to extend credit 12,241,000 12,241,000
Standby letters of credit 2,659,010 2,659,010
</TABLE>
F-22
<PAGE>
17. FINANCIAL STATEMENTS OF EXECUFIRST BANCORP, INC.
(PARENT COMPANY ONLY):
The following financial statements for ExecuFirst Bancorp, Inc. (Parent
Company only) should be read in conjunction with the consolidated financial
statements and the other notes related to the consolidated financial
statements.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,434 $ 7,289
Investment in subsidiary, at equity 7,774,857 6,506,578
------------- ------------
$ 7,782,291 $ 6,513,867
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities - -
------------- ------------
Shareholders' equity:
Preferred stock - -
Common stock 12,260 12,260
Capital in excess of par 11,483,018 11,483,018
Accumulated deficit (3,799,411) (4,302,825)
Unrealized gain/(loss) on securities available for sale 86,424 (678,586)
------------- ------------
Total shareholders' equity 7,782,291 6,513,867
------------- ------------
$ 7,782,291 $ 6,513,867
------------- ------------
------------- ------------
</TABLE>
F-23
<PAGE>
17. FINANCIAL STATEMENTS OF EXECUFIRST BANCORP, INC.
(PARENT COMPANY ONLY), CONTINUED:
STATEMENTS OF OPERATIONS AND CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income $ 145 $ 143 $ 157
Expenses - - 1,236
------------- -------------- --------------
Gain/(Loss) before equity in undistributed
income (loss) of subsidiary 145 143 (1,079)
Equity in undistributed income (loss) of
subsidiary 503,269 (834,482) 417,125
------------- -------------- --------------
Net income (loss) 503,414 (834,339) 416,046
Shareholders' equity, beginning of year 6,513,867 8,026,792 7,610,746
Unrealized gain (loss) on securities available
for sale, net of deferred tax in 1995 765,010 (678,586) -
------------- -------------- --------------
Shareholders' equity, end of year $ 7,782,291 $ 6,513,867 $ 8,026,792
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 503,414 $ (834,339) $ 416,046
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Equity in undistributed (income) loss of
subsidiary 503,269 834,482 (417,125)
Amortization of organization costs - - 1,236
------------- -------------- --------------
Net cash provided by operating
activities 145 143 157
------------- -------------- --------------
Increase in cash 145 143 157
------------- -------------- --------------
Cash, beginning of period 7,289 7,146 6,989
------------- -------------- --------------
Cash, end of period $ 7,434 $ 7,289 $ 7,146
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
F-24
<PAGE>
Ex. 21
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
First Executive Bank (the "Bank"), the Company's sole subsidiary,
commenced operations on November 3, 1988. The Bank is a commercial bank
chartered pursuant to the laws of the Commonwealth of Pennsylvania and is a
member of the Federal Reserve System and its primary federal regulator is the
Federal Reserve Board of Governors.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,644,099
<INT-BEARING-DEPOSITS> 990,000
<FED-FUNDS-SOLD> 17,050,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,261,035
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 77,528,658
<ALLOWANCE> 1,435,501
<TOTAL-ASSETS> 129,662,583
<DEPOSITS> 120,267,008
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,609,784
<LONG-TERM> 0
0
0
<COMMON> 1,226,057
<OTHER-SE> 7,770,031
<TOTAL-LIABILITIES-AND-EQUITY> 129,662,583
<INTEREST-LOAN> 7,130,580
<INTEREST-INVEST> 1,737,724
<INTEREST-OTHER> 722,322
<INTEREST-TOTAL> 9,590,626
<INTEREST-DEPOSIT> 709,542
<INTEREST-EXPENSE> 4,375,951
<INTEREST-INCOME-NET> 5,214,675
<LOAN-LOSSES> 690,000
<SECURITIES-GAINS> 177,918
<EXPENSE-OTHER> 727,542
<INCOME-PRETAX> 256,914
<INCOME-PRE-EXTRAORDINARY> 256,914
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503,414
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> .047
<LOANS-NON> 620,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 620,000
<ALLOWANCE-OPEN> 1,355,935
<CHARGE-OFFS> 814,963
<RECOVERIES> 204,529
<ALLOWANCE-CLOSE> 690,000
<ALLOWANCE-DOMESTIC> 1,435,501
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
