<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1996
COMMISSION FILE NUMBER: 000-17007
ExecuFirst Bancorp, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania #23-2486815
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(State or other jurisdiction of IRS Employer Identification
incorporation or organization) Number
1513 Walnut Street, Philadelphia, Pennsylvania 19102
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(Address of principal executive offices) (Zip code)
215-564-3300
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(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES X NO ____
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
1,243,557 shares of Issuer's Common Stock, par value
$.01 per share, issued and outstanding as of May 8, 1996
Page 1 of 23
Exhibit index appears on page 15
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
See Annex "A"
2
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
________________________________________________________________________________
ExecuFirst Bancorp, Inc. (the "Company") and its wholly owned subsidiary,
First Executive Bank (the "Bank") commenced banking operations in November,
1988. The Bank conducts its principal banking activities through its offices at
1513 Walnut Street, Philadelphia, PA and its branch office in the interior lobby
of the Pepper Pavilion, Graduate Hospital, 19th and Lombard Streets,
Philadelphia, PA.
CAPITAL RESOURCES:
During the three months ended March 31, 1996, the Company reported net
income of $216,275. After reflecting unrealized gains on securities "available
for sale," in accordance with Financial Accounting Standards Board Statement 115
in the amount of $17,000, total Shareholders' Equity increased to $7,944,000
from $7,782,291 at year-end 1995. Total Shareholders' Equity was $7,038,280 at
March 31, 1995.
The Bank's ratio of Tier I Capital to total Risk-Weighted Assets increased
to 10.56% as of March 31, 1996 from 9.27% as of December 31, 1995 and 9.10% as
of March 31, 1995. The Company's ratio of Tier I Leverage Capital to total
average quarterly assets was 6.37% compared to 6.21% as of December 31, 1995 and
6.70% as of March 31, 1995.
3
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REGULATORY CAPITAL REQUIREMENTS:
The following table presents the Bank's capital ratios at March 31, 1996:
Tier I Capital $7,905,000
Tier II Capital 943,000
-------
Total Capital 8,848,000
Total Average Quarterly Assets 124,075,000
Total Risk-Weighted Assets (1) 74,867,000
Tier I Risk-Based Capital Ratio (2) 10.56%
Required Tier I Risk-Based Capital Rate 4.00%
-----
Excess Tier I Risk-Based Capital Ratio 6.56%
Total Risk-Based Capital Ratio (3) 11.82%
Required Total Risk-Based Capital Ratio 8.00%
-----
Excess Total Risk-Based Capital Ratio 3.82%
Tier I Leverage Ratio (4) 6.37%
Required Tier I Leverage Ratio 5.00%
-----
Excess Tier I Leverage Ratio 1.37%
______________________________________________________________________________
(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.
The Bank's ability to maintain the required level 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, effective on
December 19, 1992, the Federal Reserve Bank implemented 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
4
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that could result in a downgrading in such classifications.
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. As of March 31, 1996, the Bank maintained $12.3 million
in cash and cash equivalents in the form of cash and due from banks (after
reserve requirements) and overnight federal funds sold. This represented 10.19%
of the total assets at March 31, 1996 as compared to 12.20% and 16.65% at March
31, 1995, and December 31, 1995, respectively. Of the Bank's investment
securities, approximately $14.9 million are pledged to secure public funds
deposits and, therefore, are not available for liquidity purposes.
Additionally, the Bank has established two collateralized lines of credit
of $15 million and $500,000, respectively, to assist in managing the Bank's
liquidity position. No amounts were outstanding on either of these facilities
as of March 31, 1996.
Both liquidity and interest sensitivity are managed by the Finance
Committee of the Bank's Board of Directors. This Committee's primary objective
is to oversee and assist Management in various financial aspects of the Bank's
activities including asset/liability management.
INVESTMENT SECURITIES
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards (SFAS) ("Statement") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Statement requires certain
investments to be classified under one of the following categories: "held- to-
maturity" and accounted for at historical cost, adjusted for accretion of
discounts and amortization of premiums; "available-for-sale" and accounted for
at fair market value, with unrealized gains and losses reported as a separate
component of shareholders' equity; or "trading" and accounted for at fair market
value, with unrealized gains and losses reported as a component of net income.
The Bank does not hold trading securities.
At March 31, 1996, the Bank has also identified investment securities
that will be held for indefinite periods of time, including securities that will
be used as part of the Bank's asset/liability management strategy and that may
be sold in response to changes in interest rates, prepayments and similar
factors. The securities are classified as "available-for-sale". In order to
increase the flexibility of asset/liability management, the Bank classifies all
investment securities as "available-for-sale". Available-for-sale securities
consist of U.S. Government Treasury, U.S. Government Agency, and Other
Securities with book and market values of $4.5 million, $22.4 million, and
$960,000 respectively, as of, March 31, 1996. Accordingly, the net
5
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unrealized gain on securities available-for-sale, as of this date, was $17,000,
net of deferred tax.
The following table represents the carrying and estimated fair values of
Investment Securities at March 31, 1996.
- -------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE ($000) COST GAIN LOSS FAIR VALUE
- -------------------------------------------------------------------------------
U.S. Treasury 4,504 19 0 4,523
U.S. Government Agencies 22,400 84 (77) 22,407
Other 960 0 0 960
- -------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE 27,864 103 (77) 27,890
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INTEREST RATE SENSITIVITY:
The possible effect upon the Company and the Bank of any future rise in
interest rates is believed by Management to be minimal, since the Bank has the
ability to respond to any such changes by quickly raising rates on many of its
interest-earning assets, which are comprised chiefly of federal funds sold and
prime-rate based commercial loans. However, a decrease in interest rates
generally could have an effect on the Bank, due to a timing difference in
repricing the Bank's liabilities, primarily certificates of deposit, and its
interest-earning assets noted above. As of March 31, 1996, 18.67% of the
Bank's time deposits were to mature and be repriceable within three months of
such date, and an additional 40.35% were to be repriceable within three to six
months.
The Bank has the ability to reprice 11.70% of its total deposits,
reflecting Money Market, NOW and Savings accounts, on a weekly basis.
Accordingly, since a significant amount of the Bank's present liabilities can be
repriced in the relative short-term, Management believes that the effect
resulting from a decrease in interest rates would be minimal. As of March 31,
1996 and December 31, 1995, 8.0%, 2.9%, and 0.8% of the Bank's interest-bearing
deposits, respectively, were repriceable within three months and 0%, 0%, and 0%
from three to six months. The cumulative 12-month Interest Rate Sensitivity Gap
at March 31, 1996 was a positive 1.4% compared to a negative 1.2% at December
31, 1995. This shift, at March 31, 1996, is the result of a $11 million
increase in certificates of deposit maturing beyond one year.
6
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INTEREST RATE SENSITIVITY REPORT AT MARCH 31, 1996 ($000)
<TABLE>
<CAPTION>
RATE MATURITY PERIOD
-----------------------------------------------------------------------------
1-90 91-180 181-365 1-5 5 YRS.&
DAYS DAYS DAYS YEARS OVER TOTAL
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<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Interest Bearing Balances Due 990 0 0 0 0 990
from Banks
Federal Funds Sold 9,100 0 0 0 0 9,100
Investment Securities 1,000 4,904 10,256 500 11,551 28,211
Net Loans 43,286 579 5,288 19,661 8,663 77,477
------ ------- ------ ------ ------- --------
Totals 54,376 5,483 15,544 20,161 20,214 115,778
Cumulative Totals 54,376 59,859 75,403 95,564 115,778 0
INTEREST SENSITIVE LIABILITIES:
Demand Interest Bearing 2,813 0 0 1,407 1,407 5,626
Savings 780 0 0 0 780 1,560
Money Market Accounts 7,648 0 0 3,824 3,824 15,296
Time deposits 13,740 29,690 19,087 11,058 0 73,575
------ ------- ------ ------ ------- --------
Totals 24,981 29,690 19,087 16,289 6,011 96,057
Cumulative Totals 24,981 54,671 73,758 90,047 96,057 192,114
GAP 29,396 (24,207) (3,543) 3,872 14,204 19,721
Cumulative GAP 29,396 5,189 1,646 5,518 19,721 (192,114)
Interest Sensitive Assets/Interest
Sensitive Liabilities 2.18 1.09 1.02 1.06 1.21 0
Cumulative GAP/Total Earning 25.4% 4.5% 1.4% 4.8% 17.0% 0
Assets ------------------------------------------------------------------------------------
Total Earning Assets 115,778
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</TABLE>
NOTES TO INTEREST SENSITIVITY ANALYSIS:
(a) Callable securities are reported at their contractual maturity dates.
(b) Reflects managerial assumptions regarding expected repricing or maturity
behavior of various products.
RESULTS OF OPERATIONS:
For the three months ended March 31, 1996, the Bank's total assets
decreased 6.71% to approximately $121 million from $129.7 million at December
31, 1995. Management believes that assets, as of year-end, were unusually high
based upon historical trends, due to the inclusion of certain short-term
non-core deposits which were subsequently withdrawn during the first quarter of
1996.
As of March 31, 1996, net loans totaled $76.2 million representing an
increase of $100,000 compared to $76.1 million at December 31, 1995, as
repayments of outstanding loans exceeded new loan originations while overdrafts
were classified as other loans. This compared to a decline of $4.5 million
during the same period ended March 31, 1995.
Total deposits declined to $111.4 million during the three months ended
March 31, 1996. This compared to an increase of $7.5 million during the same
period ended
7
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March 31, 1995. There have been changes in the deposit mix from December 31,
1995 to March 31, 1996. Non-interest bearing demand accounts have decreased by
$4.5 million while Now, Money Market and Savings accounts have declined by
$300,000, $3.2 million, and $1.3 million, respectively. Time deposits over
$100,000 decreased $1.4 million while other time deposits increased $1.8 million
during this same period. Total deposits for the quarter ended March 31, 1996
fell by $8.9 million. Increases in time deposits accounted for $400,000 of this
growth.
<TABLE>
<CAPTION>
DEPOSIT BREAKDOWN TABLE
MARCH 31, 1996
--------------
($000)
MARCH 31, DECEMBER 31,
1996 1995
% OF BALANCE % OF
TYPE OF ACCOUNT BALANCE TOTAL TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand: non-interest bearing 15,349 13.8% 19,880 16.5%
Demand: interest bearing 5,625 5.0% 5,922 4.9%
Money Market 15,296 13.7% 18,480 15.4%
Savings 1,560 1.4% 2,837 2.4%
Time deposits under $100,000 57,849 51.9% 56,003 46.6%
Time deposits over $100,000 15,726 14.2% 17,145 14.2%
---------------------- ----------------------
Total deposits 111,405 100% 120,267 100%
</TABLE>
The Company's net income for the quarter ended March 31, 1996, was
$216,275, or approximately $0.18 per share of common stock, compared to a net
income of $90,137, or approximately $0.07 per share of common stock, during the
comparable quarter of 1995.
Net interest income, the difference between interest earned on loans and
other investments and the interest paid on deposits and borrowings, decreased to
$1.3 million in the quarter ended March 31, 1996, from $1.4 million in the
quarter ended March 31, 1995. While the Company's net interest income for the
three months ended March 31, 1996, was approximately 7.1% lower than during the
comparable period of 1995, the Company's non-interest expenses were
approximately 4.1% lower during the same period. Included in such non-interest
expenses are provisions for loan losses, salaries and employee benefits,
occupancy expenses, professional fee expenses, and other operating expenses,
each of which is more fully described below.
Management believes that profitable operations in the future will be
contingent on both external and internal factors. Internal factors include
Management's ability to (i) attract additional deposits to allow further
expansion of the Bank's loan and investment programs; (ii) make accurate credit
analyses upon origination of loans; (iii) deal expeditiously and efficiently
with non-performing assets; and (iv) control or reduce non-interest expenses.
Management has increased its emphasis on business development through the hiring
of additional lending staff and targeting the Bank's
8
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niche market segment of small businesses and professionals. Additionally, media
advertising is employed to obtain deposit funding required to support the
increases in loan production. The utilization of internal loan review and
workout activities in conjunction with the strengthening of credit standards has
facilitated the identification and disposition of problem loans.
External factors, over which the Company has little or no control, include
the interest rate environment and the strength or weakness in the local economy.
Management believes that the general economy in its market area will not
experience a decline to any material extent in the near term. Interest rate
changes are caused, in part, by the actions of the Federal Reserve Bank and
cannot be predicted in advance with any certainty.
Interest and fees on loans was $1.89 million, or 75% of total interest
income, for the quarter ended March 31, 1996 compared with $1.81 million, or 79%
of total interest income reported during the comparable quarter of 1995. This
increase, on an absolute dollar basis, was due to the higher interest rate
environment during the first quarter of 1996. On a percentage basis, this
decline is attributable to the decline in total loans as a percentage of total
earning assets during the period.
Interest on federal funds sold was $179,000, or 7% of total interest
income, during the quarter ended March 31, 1996, compared to $129,000, or 6% of
total interest income reported in the comparable quarter of 1995. This increase
was due, in part, to higher average balances of federal funds outstanding during
the period. Interest on investments and time deposits due from other banks was
$446,000 or 17.8% of total interest income in the quarter ended March 31, 1996,
compared to $347,600, or 15.2% of total interest income reported during the
comparable quarter of 1995. This was due to lower than expected loan demand
which resulted in a shift of excess liquidity into investment securities.
Non-interest income is comprised of dividends received on the Bank's
Federal Reserve Bank stock owned by virtue of its membership in the Federal
Reserve System, as well as charges on deposit accounts, plus or minus any gains
or losses on sales of securities. 1996 non-interest income also included fees
generated from a tax refund program and represented $80,000 of the increase
compared to 1995. Total non-interest income increased to $178,000 for the
quarter ended March 31, 1996, compared to $7,101 for the quarter ended March 31,
1995. Additionally, this increase was due to a higher level of deposit service
fees as well as losses on the sale of investment securities in 1995.
Interest expense for the quarter ended March 31, 1996 was $1.2 million or
49.8% of total expenses compared to $909,902 or 41.2% for the quarter ended
March 31, 1995. Such increase is attributable to the increase in prevailing
interest rate levels in 1996 compared to 1995 as well as shifts in the Bank's
deposit mix from lower costing demand and NOW products to more expensive time
deposits.
9
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The Company's largest non-interest expense, other than the provisions for
potential loan losses, is salaries and employee benefits, which totaled
$567,000, or approximately 53% of total expenses, in the quarter ended March 31,
1996, compared to $540,000, or approximately 48% of total expenses, in the
quarter ended March 31, 1995. The year-to-year increase of $27,000 is due
primarily to new staff additions.
Occupancy expense consists primarily of rent expense for the lease of the
Company's principal offices. Occupancy expenses were $117,000 for the quarter
ended March 31, 1996, or 11% of total expenses, compared to $115,000, or 10% of
total expenses, for the comparable quarter of 1995. This increase was
attributable to nominal increases in maintenance and repair costs versus the
comparable period in 1995.
Professional fee expenses during the quarter ended March 31, 1996 were
$51,000, or 4.8% of total expenses, compared to $74,000, or 7% of total
expenses, for the quarter ended March 31, 1995. The year-to-year decrease of
$23,000 primarily reflects higher legal expenses in 1995 attributable to
collection efforts related to the Bank's non-performing loans.
Other operating expenses during the quarter ended March 31, 1996 were
$335,000, or 31% of total expenses, compared to $407,086, or 35% of total
expenses, for the quarter ended March 31, 1995. Major components of this
category include data processing, printing and supplies, advertising, travel and
entertainment, fidelity insurance premiums, and Federal Deposit Insurance
premiums. The year-to-year decrease of $74,086 primarily reflects lower FDIC
deposit insurance premiums during 1995.
ALLOWANCE FOR LOAN LOSSES
Management has followed a policy of increasing its reserve for potential
loan losses by 1.00% of net new loans receivable. Based on numerous factors
including, but not limited to, the Bank's existing loan portfolio, the size of
its reserve for potential loan losses, results of regularly scheduled bank
regulatory field examinations, and Management's internal loan review decisions,
the Bank may make additions to the reserve for potential loan losses other than
the percentage additions made in the ordinary course of business. Additionally,
the Board of Directors reviews reserve adequacy on a quarterly basis.
Management believes that the allowance for loan losses is reasonable and
adequate to cover any known losses and any losses reasonably expected in the
portfolio.
The Bank recorded a charge to earnings of $175,000 during the quarter ended
March 31, 1996 compared to a charge of $160,000 in the quarter ended March 31,
1995. The increase in the provision is the result of a slight deterioration in
the consumer loan portfolio during the quarter. As a result of this provision
for potential loan losses, and following certain recoveries net of charge-offs
credited to the reserve
10
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for potential loan losses as detailed below, the Bank's aggregate reserve for
potential loan losses increased to $1,499,000 from $1,436,000 at December 31,
1995 and decreased from $1,522,130 at March 31, 1995. Listed below is an
analysis of the loan loss reserve account:
ALLOWANCE FOR LOAN LOSSES
ROLLFORWARD
MARCH 31, 1996
BALANCE AT DECEMBER 31, 1995 $1,436,000
Charge-offs (during the three-month
period ending March 31, 1996):
Commercial loans 131,000
Real estate mortgages 0
Installment 3,000
Total charge-offs (during the three-month
period ending March 31, 1996): 134,000
Recoveries 22,000
Additions charged to operations 175,000
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BALANCE AT MARCH 31, 1996 $1,499,000
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As of March 31, 1996, the Bank had loans outstanding placed in a non-
accrual status totaling approximately $675,000, compared to $728,000 at December
31, 1995. The current balance of non-performing loans represents commercial and
consumer credits with no individual balance exceeding $98,400. The amount of
interest income recorded on non-accrual loans totaled $0 for the three months
ended March 31, 1996. Management is actively pursuing the collection of these
loans. It is uncertain as to the amount of any potential loss that may be
incurred in connection with the remaining non-accrual loans. The Company has a
policy of placing on non-accrual status any loan for which payment of either
principal or interest, on a contractual basis, is not received or is unlikely to
be received for a period of 90 days. Such loans include those classified by
either the Bank or its regulators such that collection of the full amount of
principal and interest are considered doubtful. Also placed on non-accrual
status is any loan, held by a borrower, which has filed, or has had filed
against it, a petition in bankruptcy. At March 31, 1996, the Bank did not own
any foreclosed property.
11
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Listed below is a schedule of gross loans receivable at March 31, 1996.
The loans are categorized based on bank regulatory requirements, which
categorizations are not necessarily indicative of the actual type or purpose of
the loan.
The majority of the loans receivable earn interest at rates that vary
overnight with changes in the Bank's prime rate. Other loans receivable earn
interest at rates that are fixed at a specific spread over the rate being paid
on certificates of deposit either pledged as collateral on the loans or placed
in the Bank for funding purposes. Approximately $23.7 million in loans
receivable are comprised of fixed rate loans that will mature in the next five
years.
<TABLE>
<CAPTION>
LOAN BREAKDOWN TABLE
MARCH 31, 1996
--------------
($000)
MARCH 31, DECEMBER 31,
1996 1995
% OF % OF
LOAN TYPE BALANCE TOTAL BALANCE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOANS COLLATERALIZED BY REAL ESTATE:
One-to-four family residential $23,674 30.4% $24,609 31.8%
Multi-family residential 2,649 3.4% 2,611 3.4%
Commercial and other 15,538 19.9% 13,517 17.4%
------- ----- ------- -----
TOTAL LOANS COLLATERALIZED BY REAL ESTATE $41,861 53.7% $40,737 52.6%
----------------------------------------------------------
Commercial business loans $29,635 38.1% $31,268 40.3%
OTHER LOANS 6,247 8.2% 5,524 7.1%
------- ----- ------- -----
TOTAL LOANS $77,743 100.0% $77,529 100.0%
----------------------------------------------------------
</TABLE>
Since its founding, the Bank's primary focus has been to service the
borrowing and deposit needs of professionals, primarily in the medical and legal
fields, with a secondary focus on small businesses and commercial real estate
investors. Many of the loans made to all of these categories of customers have
been secured by real estate, as set forth on the above chart.
Of the approximately $24 million at March 31, 1996, in loans secured by
"one-to-four residential' properties only $4.7 million represents traditional
residential mortgages. The remainder includes loans made to investors who own
small rental properties or business loans secured by liens -- often junior
liens -- on the residences of the principals. The risk in business loans
secured by liens on residential properties lies more in the success or failure
of those businesses than the real estate market, although the value of the
collateral is affected by real estate values. Generally, housing prices in the
Bank's market area fell during the late 1980's and early 1990's, but more
recently have been relatively stable.
12
<PAGE>
"Multi-family residential, Commercial and other" loans primarily represent
loans made to real estate investors and/or developers. This market suffered
dramatic declines in value during the late 1980's and early 1990's, but has
shown signs of stability in recent years. The degree of recovery, however, is
dependent on the type of property and its location. The Bank has strengthened
its ability to analyze and service such loans, and intends to continue its
penetration of this market, which it believes to be under-served, with a
resultant expectation of satisfactory interest rates, fees, and deposits.
Underwriting of such loans will continue to be performed in a conservative
manner.
"Commercial business loans'' include loans to professionals and other
businesses not secured by real estate. $11.3 million of such loans were secured
by liquid collateral as of March 31, 1996. Another $6.9 million were unsecured,
made to borrowers considered to be of sufficient strength to merit unsecured
financing. The remaining amount primarily includes loans secured by business
assets, such as accounts receivable, inventory and/or equipment. The risk in
business loans is general a function of local market and industry conditions,
with any collateral serving as the secondary source of repayment.
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. All such plans are highly dependent
upon the strength of the economic recovery in the Bank's market area, as well as
the specific industries on which it focuses.
13
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
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. Preliminary findings have
recognized the continued progress Management has demonstrated in addressing
the deficiencies cited in the prior examination report and indicated that
the Bank is in substantial compliance with the Supervisory Agreements.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
On or about April 29, 1996 the Company delivered to shareholders a
Joint Proxy/Prospectus relating to the proposed merger (the "Merger") of
the Company and Republic Bancorporation, Inc. ("Republic") pursuant to the
merger agreement dated November 17, 1995. The Company's Annual Meeting
will be held on May 29, 1996 at which time the shareholder will vote on,
among other things, the proposed Merger. On May 3, 1996, the Federal
Reserve Bank of Philadelphia approved the proposed Merger. The Merger
remains subject to approval of the Pennsylvania Department of Banking
(the "Department of Banking") and is intended to qualify as a tax-free
reorganization. Following the Merger, the Bank and Republic's bank
subsidiary will merge (the "Merged Banks") and conduct business under a
single charter. On May 3, 1996, the Federal Reserve Board approved the
Company's application to establish a branch of the Merged Bank at 4190
City Avenue, Philadelphia, Pennsylvania. The Department of Banking has
also approved the application.
14
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At March 31, 1996, the Company and Republic had shareholders' equity
of approximately $7.9 million and $10.2 million, respectively.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
Page Number in
Sequential Numbering System
---------------------------
<S> <C>
2.1 - Agreement and Plan of Merger by and between ExecuFirst
Bancorp, Inc. and Republic Bancorporation, Inc. dated
November 17, 1995 (incorporated by reference to Exhibit
2.1 to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995. --
2.2 - Amendment to the Agreement and Plan of Merger
(incorporated by reference to Exhibit 2.2 to Amendment No. 3
to the Registrant's Registration Statement on Form S-4,
File No. 333-673). --
3.1 - Amended and Restated Articles and Amended and
Restated Bylaws (incorporated by reference to Exhibit 3 of
the Registrant's Registration Statement on Form S-1). --
27. - Financial Data Schedule 23
</TABLE>
(b) No reports on Form 8-K were filed by the Company
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Execufirst Bancorp, Inc.
/Zvi H. Muscal/
-------------------------
Zvi H. Muscal, President,
Chief Executive Officer
/George S. Rapp/
-------------------------
George S. Rapp
Chief Operating Officer,
Principal Financial Officer,
Principal Accounting Officer
Dated: May 10, 1996
16
<PAGE>
ANNEX "A"
17
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,331,524 $ 4,644,099
Interest-bearing deposits with banks 990,000 990,000
Federal funds sold 9,100,000 17,050,000
Securities available for sale, at fair value
(amortized cost of $27,864,016 and
$28,130,089 respectively) 27,890,103 28,261,035
Securities held to maturity, at amortized
cost (fair value of $0) - -
Federal reserve bank stock, at cost 321,400 321,400
Loans, net 76,244,766 76,093,157
Premises and equipment, net 271,738 277,059
Real estate owned - 81,093
Accrued income and other assets 2,830,863 1,944,740
------------ ------------
Total assets $120,980,394 $ 129,662,583
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - non-interest bearing $ 15,348,737 $ 19,880,306
Demand - interest-bearing 5,625,370 5,922,555
Money market and savings 16,856,261 21,316,543
Time deposits 57,849,281 56,003,003
Time deposits over $100,000 15,726,416 17,144,601
------------ ------------
Total deposits 111,406,065 120,267,008
Federal income taxes payable - 3,500
Accrued expenses and other liabilities 1,630,329 1,609,784
------------ ------------
Total liabilities 113,036,394 121,880,292
------------ ------------
------------ ------------
Commitments and contingencies (Note #)
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 1,229,557 and 1,226,057
shares respectively 12,295 12,260
Capital in excess of par 11,498,116 11,483,018
Accumulated deficit (3,583,411) (3,799,411)
Unrealized gain (loss) on securities
available for sale, net of deferred tax 17,000 86,424
------------ ------------
Total shareholders' equity 7,944,000 7,782,291
------------ ------------
Total liabilities and shareholders' equity $120,980,394 $129,662,583
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,890,492 $1,812,870
Interest on Federal Funds sold 179,094 128,554
Interest on deposits in banks 15,061 10,241
Interest on investments 431,332 337,359
---------- ----------
2,515,979 2,289,024
---------- ----------
INTEREST EXPENSE:
Demand - interest-bearing 34,516 42,717
Money market and savings 150,198 145,346
Time 807,247 512,735
Time over $100,000 240,659 209,104
---------- ----------
1,232,620 909,902
---------- ----------
Net interest income 1,283,359 1,379,122
Provision for possible loan losses 175,000 160,000
---------- ----------
Net interest income after provision for possible loan losses 1,108,359 1,219,122
NON-INTEREST INCOME:
Service fees 68,878 31,943
Other income 108,801 4,836
Net gain on sale of securities - (29,678)
---------- ----------
177,679 7,101
NON-INTEREST EXPENSES:
Salaries and wages 461,087 444,244
Employee benefits 105,594 96,439
Occupancy expenses 117,291 114,853
Professional fees 51,148 73,500
Data Processing 58,640 61,180
FDIC premiums 47,625 63,766
Pennsylvania shares tax 22,963 22,792
Insurance 23,078 25,821
Other expenses 182,337 233,491
---------- ----------
1,069,763 1,136,086
---------- ----------
Income before income taxes 216,275 90,137
---------- ----------
Provision for income taxes - -
---------- ----------
NET INCOME $ 216,275 $ 90,137
---------- ----------
---------- ----------
NET INCOME PER SHARE $0.18 $0.07
---------- ----------
---------- ----------
AVERAGE COMMON SHARES OUTSTANDING 1,227,807 1,226,057
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
EXECUFIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 216,275 $ 90,137
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Write-down of real estate owned - -
Loss on other real estate owned - -
Provision for possible loan losses 175,000 160,000
Depreciation and amortization 20,461 22,369
Net (gain) loss on sale of securities - 29,678
(Increase) decrease in accrued income and other assets (886,260) (33,129)
Increase (decrease) in accrued expenses and other liabilities 21,216 (133,531)
------------- -----------
Net cash provided by operating activities (453,308) 135,524
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in time deposits with banks - (1,980,000)
(Increase)/decrease in Federal Funds Sold 7,950,000 (5,925,000)
Purchase of securities:
Investment securities - -
Available for sale (4,174,736) (3,525,642)
Held to maturity - (6,317,154)
Proceeds from sales and maturities of securities 2,400,000.00 4,992,299
Principal receipts on securities 2,031,733 382,173
Net (increase) decrease in loans (59,843) 4,343,246
Proceeds from the sale of other real estate owned 88,792 -
Premises and equipment expenditures (15,402) (27,295)
------------- -----------
Net cash used in investing activities 8,220,544 (8,057,373)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, money market, and savings deposits (9,555,404) (2,772,293)
Net increase (decrease) in time deposits 427,396 20,033,893
------------- -----------
Net cash provided (used in) financing activities (9,128,008) 17,261,600
------------- -----------
------------- -----------
Increase (decrease) in cash and cash equivalents (1,360,772) (340,768)
Cash and cash equivalents, beginning of period 21,694,099 3,168,634
------------- -----------
Cash and cash equivalents, end of period $ 20,333,327 $ 2,827,866
------------- -----------
------------- -----------
Supplemental disclosure:
Interest paid $ 1,159,961 $ 937,918
------------- -----------
------------- -----------
Non-cash transactions:
Net transfers to real estate owned from loans $ - $ -
------------- -----------
------------- -----------
Changes in unrealized gain (loss) on securities available for sale $ (69,424) $ 434,276
------------- -----------
------------- -----------
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
EXECUFIRST BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of ExecuFirst Bancorp, Inc., the accompanying unaudited
financial statements contain all adjustments (including normal recurring
accruals) necessary to present fairly the financial position as of March
31, 1996 and 1995, and the results of operations and cash flows for the
three (3) months then ended.
2. Results of operations for the three (3) months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. Net income per share of common stock is based upon the weighted average
number of shares outstanding during the periods, 1,227,807 shares.
4. 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
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 was reduced by aggregate credit 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 joined with a group of
other banks formed after January 1, 1979 to protect its interests. This
group retained counsel and actively asserted its position. During 1995,
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.
On April 1995, the Pennsylvania Department of Revenue negotiated a
settlement with the bank group allowing in full the maximum amount of
credits to be applied to the tax liability.
However, the Pennsylvania Department of Revenue indicated that the First
Executive Bank's liability, after the credits (primarily for 1989), is
approximately $114,000 representing a difference in treatment for certain
aspects of capital calculations. The Bank disputes the amount and is
currently appealing to the Board of Finance and Revenue. In the opinion of
the Bank's 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.
21
<PAGE>
5. The FASB has issued SFAS No. 114, "Accounting by Creditors for Impairment
of Loans", which is effective for the Bank's fiscal year beginning January
1, 1995. SFAS No. 114 requires that specified impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's market price or the fair value
of the collateral if the loan is collateral dependent. The impact of SFAS
No. 114 upon the results of operations of the Bank was not material.
6. INVESTMENT SECURITIES
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards (SFAS) ("Statement") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Statement requires certain
investments to be classified under one of the following categories: "held-
to-maturity" and accounted for at historical cost, adjusted for accretion
of discounts and amortization of premiums; "available-for-sale" and
accounted for at fair market value, with unrealized gains and losses
reported as a separate component of shareholders' equity; or "trading" and
accounted for at fair market value, with unrealized gains and losses
reported as a component of net income. The Bank does not hold trading
securities.
At March 31, 1996, the Bank has also identified investment securities that
will be held for indefinite periods of time, including securities that will
be used as part of the Bank's asset/liability management strategy and that
may be sold in response to changes in interest rates, prepayments and
similar factors. The securities are classified as "available-for-sale".
In order to increase the flexibility of asset/liability management, the
Bank classified all investment securities as "available-for-sale" with a
book value of approximately $27.9 million and market value of approximately
$27.9 million. Available-for-sale securities consist of U.S. Government
Treasury, U.S. Government Agency, and Other Securities. Accordingly, the
net unrealized gain on securities available-for-sale, as of this date, was
$17,000 net of deferred tax.
The following table represents the carrying and estimated fair values of
Investment Securities at March 31, 1996.
- -------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE ($000) COST GAIN LOSS FAIR VALUE
- -------------------------------------------------------------------------------
U.S. Treasury 4,504 19 0 4,523
U.S. Government Agencies 22,400 84 (77) 22,407
Other 960 0 0 960
- -------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE 27,864 103 (77) 27,890
- -------------------------------------------------------------------------------
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,331,524
<INT-BEARING-DEPOSITS> 990,000
<FED-FUNDS-SOLD> 9,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,211,503
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 77,743,766
<ALLOWANCE> 1,499,000
<TOTAL-ASSETS> 120,980,394
<DEPOSITS> 111,406,065
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,630,329
<LONG-TERM> 0
0
0
<COMMON> 12,295
<OTHER-SE> 7,931,705
<TOTAL-LIABILITIES-AND-EQUITY> 120,980,492
<INTEREST-LOAN> 1,890,492
<INTEREST-INVEST> 625,487
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 625,487
<INTEREST-DEPOSIT> 1,232,620
<INTEREST-EXPENSE> 1,232,620
<INTEREST-INCOME-NET> 1,283,359
<LOAN-LOSSES> 175,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,069,763
<INCOME-PRETAX> 216,275
<INCOME-PRE-EXTRAORDINARY> 216,275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216,275
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.35
<LOANS-NON> 675,000
<LOANS-PAST> 1,050,047
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 951,000
<ALLOWANCE-OPEN> 1,436,000
<CHARGE-OFFS> 134,000
<RECOVERIES> 22,000
<ALLOWANCE-CLOSE> 1,499,000
<ALLOWANCE-DOMESTIC> 1,499,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 403,099
</TABLE>
