<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1996
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________
Commission file number 33-24649
--------
ATCORP, INC.
------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2911209
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 Sagemore Drive, Marlton, New Jersey 08053
----------------------------------------------
(Address of principal executive offices)
(zip code)
(609) 983-4000
--------------
(Registrant's telephone number, including area code)
Not Applicable
(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 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
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.
Outstanding as of
Class September 30, 1996
------ ------------------
Common Stock, par value $5.00 per share 771,750
1
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
INDEX
Part I: Financial Information Page
Item 1: Financial Statements:
Consolidated Balance Sheets -
September 30, 1996 (unaudited) and
December 31, 1995 3
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1996
and 1995 (unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996
and 1995 (unaudited) 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit 27 - Financial Data Schedule 20
2
<PAGE>
Part I -- Financial Information
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
-------------- -------------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 6,691 $ 4,865
FEDERAL FUNDS SOLD -- 775
Interest-bearing deposits with other banks 2,570 124
INVESTMENT SECURITIES
Held to maturity (market value of
$250 in 1996 and $250 in 1995) 250 250
Available for sale (cost of $69,171 in
1996 and $49,266 in 1995) 68,754 50,087
----------- -----------
69,004 50,337
LOANS HELD FOR SALE 470 1,467
LOANS 126,534 96,129
Less-- Allowance for loan losses (1,389) (1,283)
----------- -----------
Net loans 125,145 94,846
Bank Premises & Equipment, net 3,234 2,950
Accrued Interest Receivable 1,921 1,610
Other Assets 1,200 801
----------- -----------
TOTAL ASSETS $ 210,235 $ 157,775
=========== ===========
LIABILITIES AND
SHAREHOLDERS'EQUITY
DEPOSITS
Demand $ 20,443 $ 19,812
Interest-bearing demand 55,475 46,355
Savings 21,167 21,155
Certificates of deposit over $1 00,000 31,481 8,495
Other time deposits 53,574 49,477
----------- -----------
TOTAL DEPOSITS 182,140 145,294
Borrowed Funds 14,700 --
Accrued Interest Payable 1,099 521
Other Liabilities 1,708 1,492
----------- -----------
Total Liabilities 199,647 147,307
SHAREHOLDERS'EQUITY
Preferred stock, $5 par value per share;
1,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $5 par value per share;
2,000,000 shares authorized, 780,266
issued and 771,750 outstanding in 1996
and 1995 3,902 3,902
ADDITIONAL PAID-IN CAPITAL 3,804 3,804
RETAINED EARNINGS 3,202 2,265
NET UNREALIZED HOLDING GAIN
(LOSS) ON SECURITIES (275) 542
TREASURY STOCK, at cost (8,516 shares) (45) (45)
----------- -----------
Total shareholders' equity 10,588 10,468
----------- -----------
Total liabilities and shareholders'equity $ 210,235 $ 157,775
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,728 $ 2,151 $ 7,683 $ 5,810
Interest on federal funds sold 7 13 37 124
Interest on interest-bearing deposits 15 7 35 14
Interest on investment securities-taxable 1,023 532 2,972 1,567
Interest on investment securities-tax exempt 80 89 248 221
----------- ------------ ------------ -----------
Total interest income 3,853 2,792 10,975 7,736
INTEREST EXPENSE
Interest on deposits 1,745 1,283 5,018 3,397
Interest on other borrowed funds 133 24 289 29
----------- ------------ ------------ -----------
Total interest expense 1,878 1,307 5,307 3,426
Net interest income 1,975 1,485 5,668 4,310
PROVISION FOR LOAN LOSSES 60 --- 103 60
Net interest income after provision for loan
losses 1,915 1,485 5,565 4,250
NONINTEREST OPERATING INCOME
Service charges, commissions and fees 97 130 316 337
Securities gains (losses) 17 5 19 116
Other income 29 28 121 142
----------- ------------ ------------ -----------
Total noninterest operating income 143 163 456 595
NONINTEREST OPERATING EXPENSE
Salaries and employee benefits 869 668 2,279 1,897
Occupancy expense 180 149 552 398
Furniture and equipment expense 133 100 389 266
Professional fees 196 54 313 243
F.D.I.C. assessment --- (5) 1 109
Other expense 367 307 1,142 910
----------- ------------ ------------ -----------
Total noninterest operating expense 1,745 1,273 4,676 3,823
Income before income taxes 313 375 1,345 1,022
INCOME TAXES 127 83 410 261
----------- ------------ ------------ -----------
NET INCOME $ 186 $ 292 $ 935 $ 761
=========== ============ ============ ===========
EARNINGS PER SHARE $0.24 $0.38 $1.21 $0.99
=========== ============ ============ ===========
</TABLE>
4
The accompanying notes are an integral part of these statements.
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ............................................................... $935 $761
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization................................... 540 303
Provision for loan losses....................................... 106 153
Provision for ORE losses........................................ 17 ---
Provision for deferred taxes.................................... 89 90
Gain on sale of securities...................................... (19) (116)
Gain on sale of SBA loans....................................... (21) ---
Increase in accrued interest receivable......................... (305) (260)
(Increase) decrease in other assets............................ (474) 56
Decrease in other liabilities................................... 310 549
Increase in interest payable.................................... 578 284
----------- ----------
Total adjustments............................................... 821 1,059
----------- ----------
Net cash provided by operating activities............................ 1,756 1,820
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in deposits with other banks........................... (1,477) (62)
Purchases of investment securities.............................. (31,951) (27,461)
Proceeds from sales of securities available for sale............ 6,468 2,748
Proceeds from maturities of investments......................... 4,818 18,401
Purchases of premises and equipment, net........................ (640) (948)
Net increase in loans........................................... (30,374) (22,699)
Proceeds from sale of SBA loans................................. 1,012 ---
(Increase) decrease in other real estate owned.................. 79 (236)
----------- -----------
Net cash used in investing activities................................ (52,065) (30,256)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase in savings and
demand deposit accounts........................................ 9,577 6,953
Net increase in time deposits................................... 27,083 15,715
Advances from Federal Home Loan Bank............................ 14,700 ---
---------- ----------
Net cash provided by financing activities............................ 51,360 22,668
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 1,051 (5,768)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD................................. 5,640 9,475
----------- ----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD....................................... $6,691 $3,707
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Atcorp,
Inc.have been prepared pursuant to the instructions to Form 10-Q and Rule 10-1
of Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, including
normal recurring accruals, considered necessary for a fair presentation have
been included. All adjustments made to the unaudited financial statements were
of a normal recurring nature. Operating results for the three month and nine
month periods ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and notes thereto
included in the annual report on Form 10-K for the year ended December 31, 1995.
NOTE B - Earnings Per Share
Earnings per share are based upon the average number of shares
outstanding and are adjusted retroactively for the stock dividend of 5 shares
for every 100 shares held which was paid February 26, 1996. The average number
of shares outstanding amounted to 771,750 in the three month and nine month
periods ended September 30, 1996 and September 30, 1995, respectively.
NOTE C - Statement No. 115 "Accounting for Certain Investments in Debt and
Equity Securities"
SFAS No. 115 requires that securities "available for sale" be carried
at fair value with valuation adjustments (after tax) included in a separate
component of shareholders' equity. Debt securities acquired as investments that
are intended to be "held to maturity" are stated at cost adjusted for
amortization of premiums and accretion of discounts using the level yield
method. Realized securities gains and losses are recorded as they may occur.
The amortized cost and estimated values of investment securities as of
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by foreign
governments 250 --- --- $ 250
---------------------------------------------------------------------------------------------------
TOTALS $ 250 $ --- $ --- $ 250
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------
U.S. Treasury Securities $ 6,517 $ 49 $ --- $ 6,566
U.S. Agency Securities 11,425 30 (47) 11,408
Obligations of States &
Political subdivisions 6,815 82 (9) 6,888
Corporate debt securities 3,580 36 (30) 3,586
Mortgage-backed securities 14,389 15 (362) 14,042
SBA Pools 23,807 27 (220) 23,614
Equity securities 2,638 12 --- 2,650
---------------------------------------------------------------------------------------------------
TOTALS $69,171 $ 251 $ (668) $ 68,754
</TABLE>
NOTE D - SUBSEQUENT EVENTS
1. On July 16, 1996, the Board of Directors of Atcorp, Inc. resolved to pay a
total of $420,000 to certain officers of Atcorp, Inc. and Equity National Bank
as bonuses. Such amount will be accrued in 1996.
2. On July 18, 1996, with the approval of the Board of Directors, Atcorp, Inc.
(AI) entered into an Agreement and Plan of Affiliation (the Agreement) with
Susquehanna Bancshares, Inc. (Susquehanna). The agreement provides, among other
things, that Susquehanna will acquire Atcorp, Inc. and its subsidiaries for
approximately 771,750 shares of Susquehanna common stock, or one share of
Susquehanna common stock for each Atcorp, Inc. fully diluted share. The
acquisition is subject to federal and state regulatory approvals as well as
approval of the shareholders of Atcorp, Inc. at a special meeting to be held
December 18, 1996 and other conditions including, among other things, the
transaction qualifying for pooling-of-interests accounting.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis summarizes the significant
changes in results of operations presented in the consolidated statements of
income for the three and nine months ended September 30, 1996 and 1995, and
presents the financial condition of the Company at September 30, 1996. The
consolidated financial statements and accompanying notes included in the
Company's December 31, 1995 Annual Report on Form 10-K should be read in
conjunction with this analysis.
Liquidity and Capital Resources
Liquidity involves the Company's and Equity National Bank its
wholly-owned subsidiary (the "Bank") ability to meet both present and future
cash needs. The degree of liquidity in the Bank's assets should be sufficient to
meet the cash flow requirements of customers requesting credit and depositors
withdrawing funds. A bank's liquidity stems from deposit growth, scheduled loan
payments, and the bank's ability to raise funds in financial markets such as the
Federal Funds Market, the Federal Reserve Discount Window and from activities in
the equity markets. In November 1995 the Bank became a stockholder in the
Federal Home Loan Bank of New York. This provides the Bank with several
additional methods of funding loans and investments at attractive rates. In
addition, liquidity comes from the Bank's cash position, short term investments
and investment securities available for sale and, of course, current earnings.
The Bank's liquid assets, consisting of cash, federal funds sold,
investments maturing within one year, interest and noninterest bearing balances
due from banks (including the Federal Reserve Bank of Philadelphia), were
$14,991,000 at September 30, 1996, $12,065,000 at December 31, 1995 and
$15,424,000 at December 31, 1994. Liquid assets represented 7.13%, 7.65% and
13.0% of total assets at September 30, 1996 and December 31, 1995 and 1994,
respectively.
Management believes that liquidity is being maintained at adequate
levels, particularly in light of the Bank's large amount of core deposits.
Additionally, the Bank increased its portfolio of securities available for sale
to $68,754,000 at September 30, 1996. These securities serve as a potential
additional source of liquidity and include securities that management may employ
as part of its asset/liability management strategy and may be sold in response
to changes in interest rates or other factors.
All commercial banks are required to calculate risk based capital
ratios to determine if they have adequate capital. At September 30, 1996 the
Bank was in excess of the minimum requirements of 8.00% for risk based capital,
4.00% for Tier 1 capital and 4.00% for the leverage ratio. The Bank had total
risk based capital of 10.07%, Tier 1 capital ratio of 8.91% and leverage ratio
of 5.33% at September 30, 1996.
Sources of Funds
The effect of liabilities on liquidity is much more difficult to
quantify. Liquidity is enhanced by a stable core deposit base and the ability of
the Bank to renew maturing deposits. The ability to attract deposits and borrow
funds depends in large measure on continued interest rate competitiveness,
profitability, capitalization and overall financial condition of the Bank. The
following table sets forth information regarding the average amount of and the
average rate paid on certain deposit categories for the periods indicated.
<TABLE>
<CAPTION>
Nine months ended September 30, Year ended December 31,
------------------------------- -------------------------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Average Average Average Average Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits 21,294 3.15% 24,181 3.33% 23,490 3.27% 34,612 3.27% 27,776 3.33%
Other interest-bearing
demand deposits 52,653 3.64% 27,389 3.62% 31,088 3.82% 20,223 2.53% 18,645 2.31%
Time deposits 76,441 5.37% 50,522 5.41% 52,591 5.43% 25,958 4.25% 24,046 4.50%
----------------------------------------------------------------------------------------------------------
Total $150,388 4.45% $102,092 4.44% $107,169 4.47% $ 80,793 3.40% $ 70,467 3.46%
</TABLE>
7
<PAGE>
Deposits in the Bank as of the dates indicated, were represented by
various types of accounts described below.
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1996 December 31, 1995
------------------ -----------------
Percentage Percentage
Amount of Deposits Amount of Deposits
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Type of Account
Checking accounts $ 20,443 11.16% $ 19,812 13.59%
Statement Savings and passbook 21,167 11.55% 21,155 14.51%
Money fund accounts 55,475 30.27% 46,355 31.79%
---------------- ----------------- ----------------- ----------------
Total checking and savings 97,085 52.98% 87,322 59.89%
Certificates of deposit
Original maturities under 1 year 77,302 42.19% 49,011 33.61%
Original maturities 12 to 60 months 1,294 0.71% 3,425 2.35%
IRA and Keogh accounts 6,459 3.52% 5,536 3.80%
---------------- ----------------- ----------------- ----------------
Total certificates 85,055 46.42% 57,972 39.76%
Accrued interest payable 1,099 0.60% 521 0.36%
---------------- ----------------- ----------------- ----------------
Total $183,239 100.00% $145,815 100.00%
---------------- ----------------- ----------------- ----------------
</TABLE>
The following table summarizes the Bank's certificates of deposit of
$100,000 or more by time remaining until maturity as of the periods indicated.
The Bank had savings accounts of $100,000 or more of $2,078,000 at September 30,
1996 and $2,081,000 at December 31, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, 1996 December 31, 1995
-------------------- ----------------------
<S> <C> <C>
Maturity Period
Three months or less $ 21,916 $1,835
Over three through six months 7,428 2,957
Over six through twelve months 1,735 3,462
Over twelve months 402 241
-------------------- ----------------------
Total $31,481 $8,495
-------------------- ----------------------
</TABLE>
As indicated in the above table, jumbo certificates of deposit have become a
more significant source of funds to the Bank as they represent 17.28% of total
deposits at September 30, 1996 compared with 5.85% at the end of 1995.
8
<PAGE>
Borrowings of Atcorp, Inc.
The Company's total borrowings increased to $14,700,000 at September
30, 1996 from none at December 31, 1996. All of the borrowings were arranged by
the Bank in the normal course of business. The Bank borrows from the Federal
Home Loan Bank of New York, correspondent banks and the Federal Reserve Bank of
Philadelphia. Certain information relating to short-term borrowings from these
various sources is as follows:
<TABLE>
<CAPTION>
Nine months
(Dollars in thousands) ended September 30, Year Ended December 31,
------------------- -----------------------
1996 1995 1995 1994 1993
----------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
End of period outstanding $14,700 $ 0 $ 0 $ 0 $ 0
Maximum outstanding at any
month-end 14,700 5,172 5,172 2,720 0
Approximate average month-end amounts
outstanding 6,500 662 500 433 575
Interest expense 289 29 30 19 15
Approximate weighted average rate during
period (calculated based on average
month-end amounts)(1) 5.93% 5.84% 6.00% 4.39% 2.61%
Weighted average rate at period-end 5.87% 6.31% 0.00% 0.00% 0.00%
</TABLE>
(1) Amounts for the nine month periods are annualized
The Bank had the following commitments at the dates indicated:
(Dollars in thousands)
September 30, December 31,
1996 1995
--------------- -----------------
Undisbursed construction loans $ 17,055 $ 4,348
Available home equity loans 3,007 2,997
Loan originations 3,116 3,184
Commercial lines of credit 17,048 14,787
--------------- -----------------
Total $40,226 $25,316
These commitments are covered by present liquidity and cash flow from monthly
loan repayments, growth anticipated in deposits and, from temporary borrowed
funds.
9
<PAGE>
Interest Rate Sensitivity
A positive gap in a short-term category (under one year), during
periods of rising rates, should add to net interest income, and in periods of
falling interest rates, net interest income will be reduced. When the short-term
gap is negative, rising interest rates should cause a reduction in net interest
income, and falling rates should lead to an increase in net interest income. The
following table indicates interest rate sensitivity of the Company at September
30, 1996:
<TABLE>
<CAPTION>
As of September 30, 1996 (In thousands)
1 - 90 91 - 180 181 - 365 1 year
days days days or more TOTAL
<S> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $ 2,570 $ 2,570
Investment securities 25,050 2,311 1,497 40,146 69,004
Loans and leases, net of unearned income* 43,316 5,040 4,465 73,293 126,114
------------------------------------------------------------------
Total $ 70,936 $ 7,351 $ 5,962 $113,439 $197,688
LIABILITIES
Deposits:
Interest-bearing demand $ 55,475 $ 55,475
Savings 21,167 21,167
Time 19,710 14,217 15,834 3,813 53,574
Time in denominations of $100 or more 21,916 7,428 1,735 402 31,481
Short-term borrowings 9,700 5,000 14,700
------------------------------------------------------------------
Total $ 127,968 $ 26,645 $ 17,569 $ 4,215 $176,397
INTEREST SENSITIVITY GAP:
Periodic $ (57,032) $ (19,294) $ (11,607) $109,224 $ 21,291
Cumulative $ (76,326) $ (87,933) $ 21,291
CUMULATIVE GAP AS A PERCENTAGE OF EARNING ASSETS -28.8% -38.6% -44.5% 10.8%
</TABLE>
*Does not include nonaccruing loans and leases.
The above table indicates that the Company has a negative gap in the
immediately adjustable, one to 90 days, 91 to 180 days and 181 days to 365 days
and a positive gap in the over one year time period. Management regularly
monitors the maturity structure of the Bank's assets and liabilities in order to
measure its level of interest rate risk and plan for future volatility.
Management will continue to emphasize the maintenance of adequate liquidity
levels utilizing a balanced relationship between earning assets and interest
paying liabilities, including supplementary borrowings, reflecting maturity and
rate sensitivity. The Bank will offer, from time to time, competitive deposit
instruments to aid in the matching of rates and terms with asset maturities and
rates.
Financial Condition of The Company
Management believes that the financial condition of the Company has
improved over the past year. Nonperforming assets have been reduced. The Bank
continues to be well capitalized. Loan demand has continued strong but very rate
competitive. The local economy continues to improve at a modest pace. Deposit
rates increased substantially in 1995 which has put pressure on net interest
margin. Interest margins have improved on an absolute basis as a result of asset
and deposit growth from the branch expansion into Cherry Hill. However, rates
paid have been higher recently in order to attract deposits which has resulted
and will continue to result in reducing the interest spread. The Bank's new
Moorestown office opened in October 1996 and offices in Audubon and Cinnaminson
are expected to open in December 1996. Core deposits acquired at these new
offices should reduce the dependence on jumbo certificates of deposit which
should reduce the cost of funds and improve net interest margin.
10
<PAGE>
Asset quality improved since the end of 1995 with classified loans at
1.23% of total loans at the end of the nine months ended September 30, 1996
compared with 1.99% at December 31, 1995. The following table shows
nonperforming assets decreased $296,000 from $1,554,000 at December 31, 1995 to
$1,258,000 on September 30, 1996.
<TABLE>
<CAPTION>
Risk Assets
(Dollars in thousands)
September 30, December 31, September 30,
1996 1995 1995
------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $890 $1,090 $1,142
Restructured accrual loans ---
Other real estate owned 368 464 275
------------------------------------------------------------
Total nonperforming assets $1,258 $1,554 $1,417
As a percent of period-end loans and leases and
other real estate owned 0.991% 1.617% 1.505%
Loans and leases contractually past due 90 days and
still accruing $96 $52 $161
</TABLE>
Investment Activities
The Bank has been expanding its branch system and has leveraged its
capital and increased its investments and loans to provide additional income in
order to offset start-up costs of new branches. A large portion of the increase
has been invested in SBA loans and pools and Farmers Home loans of which the
principal is guaranteed. This limits credit risk to those loans made in the
Bank's trade area. The following table indicates the composition of the
investment portfolio as of the indicated dates:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, 1996 December 31, 1995
------------------ -----------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
HELD TO MATURITY COST VALUE COST VALUE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by foreign
governments 250 250 250 $ 250
---------------------------------------------------------------------------------------------------
TOTALS $ 250 $ 250 $ 250 $ 250
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
AVAILABLE FOR SALE COST VALUE COST VALUE
---------------------------------------------------------------------------------------------------
U.S. Treasury Securities $ 6,517 $ 6,566 $10,343 $10,547
U.S. Agency Securities 11,425 11,408 10,298 10,527
Obligations of States &
Political subdivisions 6,815 6,888 7,009 7,153
Corporate debt securities 3,580 3,586 4,835 4,988
Mortgage-backed securities 14,389 14,042 3,992 4,008
SBA Pools 23,807 23,614 12,149 12,212
Equity securities 2,638 2,650 640 652
---------------------------------------------------------------------------------------------------
TOTALS $ 69,171 $68,754 $49,266 $50,087
</TABLE>
Rate/Volume Analysis
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31, Year Ended December 31,
1996 compared to 1995 1995 compared to 1994 1994 compared to 1993
(Dollars in thousands) Increase(decrease) due to: Increase(decrease) due to: Increase(decrease) due to:
Volume Rate NET Volume Rate NET Volume Rate NET
------------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases $2,095 $ (239) $1,856 $1,570 $ 316 $1,886 $ 668 $ (306) $ 362
Investment securities 1,427 20 1,447 557 275 832 407 (24) 383
Short-term investments (46) (20) (66) 32 34 66 (73) 56 (17)
------------------------------- ------------------------------- ------------------------------
Total interest income 3,476 (239) 3,237 2,159 625 2,784 1,002 (274) $728
Interest Expense:
Interest-bearing demand 690 4 694 347 330 677 38 42 80
Savings accounts (70) (31) (101) (363) 0 (363) 224 (17) 207
Time deposits 1,043 (15) 1,028 1,372 381 1,753 84 (61) 23
Short-term borrowings 260 0 260 3 8 11 (4) 8 4
------------------------------- ------------------------------- ------------------------------
Total interest expense 1,923 (42) 1,881 1,359 719 2,078 342 (28) 314
Net interest income $1,553 $ (197) $1,356 $ 800 $ (94) $ 706 $ 660 $ (246) $ 414
</TABLE>
Results of Operations for the Three Months ended September 30, 1996 and 1995
The majority of the Company's income is generated from loans and
investments or interest income. Deposits and borrowed funds which create
interest expense are employed to make loans and fund investments. Table 1
presents average balances, taxable equivalent interest income and expenses and
yields earned or paid on these assets and liabilities. In order to present
taxable equivalent income, tax-exempt interest has been adjusted using a
marginal tax rate of 35% to equate the yield to that of taxable rates. Net
interest income as a percentage of the sum of net interest income and
noninterest income was 93% and 90% for the three months ended September 30, 1996
and 1995, respectively and was 92% and 88% for the nine months ended September
30, 1996 and 1995, respectively. This indicates that net income is more
dependent on interest rate related assets and liabilities than fee income.
Interest income increased $1,061,000 from $2,792,000 in the third
quarter of 1995 to $3,853,000 in the three months ended September 30, 1996 or
38%. This increase was a result of an increase in interest and fees on loans of
$577,000 (27%), a decrease in interest on federal funds sold of $6,000, an
increase in interest on deposits with other bank's of $8,000, an increase in
interest on taxable securities of $491,000 (92%), and a decrease in interest on
tax-exempt securities of $9,000. The decrease in interest on Federal funds sold
was the result of increased use of funds for loans and investments. Increases in
investments and loans were from increased deposits from the branch expansion
program and borrowed funds.
Interest expense on deposits increased $462,000 from $1,283,000 in the
three months ended September 30, 1995 to $1,745,000 in the corresponding period
in 1996 or 36%. Interest expense on borrowed funds increased $109,000 during the
three months ended September 30, 1996 from $24,000 during the same period in
1995. The increase in interest on deposits in 1996 relates to growth in money
manager accounts and certificates of deposit which have paid slightly higher
rates than savings instruments and similar certificates offered locally. Net
interest income increased $490,000 or 33% from the three months ended September
30, 1995.
The provision for loan losses increased $60,000 from the three months
ended September 30, 1995 as no provision was required in that period. Although
growth in the portfolio had been largely in SBA loans in earlier periods, the
majority of which is guaranteed, growth in traditional products has begun to
accelerate. In addition, the Bank experienced net recoveries in 1995 which is
not expected under normal conditions. Management continues to review the Bank's
loan portfolio and analyze the allowance for possible loan losses on a quarterly
basis and believes that the allowance is adequate.
Noninterest operating income decreased $20,000 or 12% from $163,000 in
the three months ended September 30, 1995 to $143,000 in the corresponding
period in 1996. Of this decrease, $33,000 represented a decrease in service
charges, commissions and fees, $12,000 represented an increase in gains from the
sale of securities, and $1,000 represented an increase in other income.
12
<PAGE>
Noninterest operating expense increased $472,000 from $1,273,000 in the
three months ended September 30, 1995 to $1,745,000 in the corresponding period
in 1996 or 37%. Salaries and benefits increased $201,000 from $668,000 in the
three months ended September 30, 1995 to $869,000 in the corresponding period in
1996 or 30% which was due to an increase in staff for the Cherry Hill office,
new Moorestown office and other departments to support the Bank's growth. In
addition, normal salary increases for existing personnel averaged approximately
4% over the past year. Occupancy expense increased $31,000 to $180,000 in the
three months ended September 30, 1996 from $149,000 in the corresponding period
in 1995 due to costs of Cherry Hill and increased maintenance costs. Furniture &
equipment expense increased $33,000 from $100,000 in the three months ended
September 30, 1995 to $133,000 in 1996 as a result of depreciation on new
furniture and equipment for Cherry Hill and Marlton together with increased
maintenance of older equipment in operations and the branches. Professional fees
increased $142,000 as a result of expenses related to the proposed acquisition.
Other expense increased $60,000 from $307,000 in the three months ended
September 30, 1995 to $367,000 in the corresponding period in 1996. The major
components of the increase in other expense were $9,000 in Federal Reserve Bank
processing as a result of the increased volume of check processing, $8,000 in
disposal of obsolete equipment, $7,000 in credit reports as a result of
increased loan volume, $7,000 in data processing services for software
maintenance and platform automation, $6,000 in costs associted with foreclosed
properties, $6,000 in membership fees incrreases based upon the increased size
of the Bank and a number of smaller increases which relate to the Bank's growth.
With the improved net interest income, and decreased noninterest income
and also increases in noninterest operating expense, income before income taxes
decreased $62,000 or 17% from $375,000 in the three months ended September 30,
1995 to $313,000 in the corresponding period in 1996.
The Company's provision for Federal and State income taxes is
approximately 30% of income before taxes which is lower than the statutory rate
as a result of tax exempt income.
Net income for the third quarter of 1996 was $186,000 compared with
$292,000 for the third quarter of 1995. Expressed on a per share basis, the
Company earned $0.24 per share in the third quarter of 1996 compared with
earnings of $0.38 per share in the third quarter of 1995.
Results of Operations for the Nine Months Ended September 30, 1996 and 1995
Interest income increased $3,239,000 or 42% from $7,736,000 in the first nine
months of 1995 to $10,975,000 in the first nine months of 1996. Interest income
increased in all categories except federal funds sold as funds were invested in
higher yielding loans and investment securities.
Interest expense increased $1,881,000 or 55% from $3,426,000 in the first nine
months of 1995 to $5,307,000 in the first nine months of 1996. Interest expense
increased at a higher rate than interest income as new deposits were
concentrated in higher cost money manager accounts and certificates of deposit
reflecting competitive conditions.
As a result of the increased interest income and expense, net interest income
improved $1,358,000 or 32% from $4,310,000 in the first nine months of 1995 to
$5,668,000 in the first nine months of 1996. The provision for possible loan
losses increased $43,000 from $60,000 in the first nine months of 1995 to
$103,000 in the first nine months of 1996. This combined with the increase in
net interest income produced an improvement in net interest income after
provision for loan losses of $1,315,000 or 31%.
Noninterest income decreased $139,000 or 23% from $595,000 in the first nine
months of 1995 to $456,000 in the first nine months of 1996. This was the result
of reductions in securities gains of $97,000, service charges of $21,000 and
other income of $21,000 in the first nine months of 1996.
Noninterest expense increased $853,000 or 22% from $3,823,000 in the first nine
months of 1995 to $4,676,000 in the first nine months of 1996. The increase in
this category was made up of increases in salaries and benefits of $382,000,
occupancy expense of $154,000, furniture and equipment expense of $123,000,
professional fees of $70,000 and other expense of $232,000. These increases were
partially offset by a decrease in FDIC Assessment of $108,000. The increase in
salaries and benefits reflected staffing for the Cherry Hill office which opened
in July of 1995 and Moorestown office which opened in October 1996 as well as
normal increases in wages and benefits for the remaining staff. Increases in
occupancy and furniture and equipment also reflected added costs for the Cherry
Hill office as well as higher than normal winter snow removal costs and
maintenance of both buildings and equipment. Other operating
13
<PAGE>
expenses showing significant increases were advertising of $35,000, FRB
processing of $23,000, advisory services of $26,000, office supplies of $12,000,
EDP supplies of $28,000, postage of $16,000, travel & entertainment of $11,000
and telephone of $12,000. All of these items were impacted by the Bank's growth.
In addition, provisions for other real estate losses of $17,000, increased other
operating costs.
Income before income taxes increased $323,000 from $1,022,000 in the first nine
months of 1995 to $1,345,000 in the first nine months of 1996 or an improvement
of 32%. Income taxes increased $149,000 or 57% to $410,000 in the first nine
months of 1996. Net income improved $174,000 (23%) to $935,000 in the first nine
months of 1996.
Earnings per share increased $0.23 from $0.99 per share in the first nine months
of 1995 to $1.21 per share in the first nine months of 1996.
14
<PAGE>
Atcorp, Inc. and subsidiaries
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL - TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
For the quarter ended For the quarter ended For the Nine Month Period Ended
(In thousands) September 30, 1996 September 30, 1995 September 30, 1996
Average Average Average
Balance Interest Rate(%) Balance Interest Rate(%) Balance Interest Rate (%)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $ 1,545 $ 22 5.70% $ 1,448 $ 20 5.52% $ 2,022 $ 72 4.75%
Investment securities
Taxable 62,784 1,023 6.52% 33,787 532 6.30% 58,618 2,972 6.65%
Tax-advantaged 6,722 123 7.32% 6,354 137 8.62% 6,923 382 7.36%
-------------------------------------------------------------------------------------------------
Total investment securities 69,506 1,146 6.60% 40,141 669 6.67% 66,541 3,354 6.72%
Loans and leases, (net):
Taxable 120,575 2,722 9.03% 88,888 2,135 9.61% 112,180 7,659 9.10%
Tax-advantaged 361 9 9.97% 1,018 25 9.82% 511 37 9.65%
-------------------------------------------------------------------------------------------------
Total loans and leases 120,936 2,731 9.03% 89,906 2,160 9.61% 112,691 7,696 9.11%
-------------------------------------------------------------------------------------------------
Total interest-earning assets 191,987 3,899 8.12% 131,495 2,849 8.67% 181,254 $11,122 8.18%
Allowance for loan and lease
losses (1,369) (1,271) (1,313)
Other non-earning assets 9,612 8,748 9,178
----------- ---------- -----------
Total assets $200,230 $138,972 $189,119
LIABILITIES
Deposits:
Interest-bearing demand 61,340 541 3.53% 32,619 321 3.94% 52,653 1,437 3.64%
Savings 21,398 168 3.14% 22,351 189 3.38% 21,294 503 3.15%
Time 76,984 1,036 5.38% 54,707 773 5.65% 76,441 3,078 5.37%
Short-term borrowings 9,580 133 5.55% 1,639 24 5.86% 6,500 289 5.93%
-------------------------------------------------------------------------------------------------
Total interest-bearing 169,302 1,878 4.44% 111,316 1,307 4.70% 156,888 5,307 4.51%
liabilities
Demand deposits 19,217 17,325 18,996
Other liabilities 1,431 1,115 3,061
----------- ---------- -----------
Total liabilities 189,950 129,756 178,945
Stockholders' equity 10,280 9,216 10,174
----------- ---------- -----------
Total liabilities and equity $200,230 $138,972 $189,119
Net interest income/yield on
average earning assets $2,021 4.04% $1,542 4.44% $5,815 4.28%
--------------------- --------------------- ---------------------
[BROKEN TABLE]
<PAGE>
For the Nine Month Period Ended
September 30, 1995
Average
Balance Interest Rate (%)
------------------------------
ASSETS
Short-term investments $ 3,244 $ 138 5.67%
Investment securities
Taxable 31,997 1,567 6.53%
Tax-advantaged 6,220 340 7.29%
------------------------------
Total investment securities 38,217 1,907 6.65%
Loans and leases, (net):
Taxable 80,599 5,754 9.52%
Tax-advantaged 1,234 86 9.29%
------------------------------
Total loans and leases 81,833 5,840 9.52%
------------------------------
Total interest-earning assets 123,294 7,885 8.53%
Allowance for loan and lease
losses (1,223)
Other non-earning assets 7,557
--------
Total assets $129,628
LIABILITIES
Deposits:
Interest-bearing demand 27,389 743 3.62%
Savings 24,181 604 3.33%
Time 50,522 2,050 5.41%
Short-term borrowings 662 29 5.84%
------------------------------
Total interest-bearing 102,754 3,426 4.45%
liabilities
Demand deposits 16,854
Other liabilities 1,119
--------
Total liabilities 120,727
Stockholders' equity 8,901
--------
Total liabilities and equity $129,628
--------
Net interest income/yield on
average earning assets
$4,459 4.82%
-----------------
</TABLE>
For purposes of calculating loan yields, the average loan volume includes
non-accrual loans. For purposes of calculating yields on non-taxable interest
income, the taxable equivalent adjustment is made to equate non-taxable interest
on the same basis as taxable interest. The marginal tax rate is 35%.
15
<PAGE>
Atcorp, Inc. and subsidiaries
TABLE 2 - STATEMENTS OF CHANGES IN INCOME AND EXPENSES
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 compared September 30, 1996 compared
to September 30, 1995 to September 30, 1995
(In thousands) Average Volumes Income/Expense Average Volumes Income/Expense
----------------------------------------------------------------------------------------------
ASSETS $ % $ % $ % $ %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases 31,030 34.51% 571 26.44% 30,858 37.71% 1,856 31.78%
Investments 29,365 73.15% 477 71.30% 28,324 74.11% 1,447 75.88%
Short-term investments 97 (6.70)% 2 10.00% (1,222) (37.67)% (66) (47.83)%
==============================================================================================
Total 60,492 46.00% 1,050 36.86% 57,960 47.01% 3,237 41.05%
==============================================================================================
LIABILITIES
Interest-bearing demand 28,721 88.05% 220 68.54% 25,264 92.24% 694 93.41%
Savings (953) (4.26)% (21) (11.11)% (2,887) (11.94)% (101) (16.72)%
Time 22,277 40.72% 263 34.02% 25,919 51.30% 1,028 50.15%
Short-term borrowings 7,941 n/a 109 n/a% 5,838 n/a 260 n/a
==============================================================================================
Total 57,986 52.09% 571 43.69% 54,134 52.68% 1,881 54.90%
==============================================================================================
Net interest income 479 30.41% 1,356 30.41%
Provision for loan and lease 60 160.00% 43 71.67%
losses ----------------------- -----------------------
Net interest income after provision
for loan and lease losses 419 28.22% 1,313 30.89%
Investment security gains/losses 12 240.00% (97) (83.60)%
Other operating income (32) (20.25)% (42) (8.77)%
----------------------- -----------------------
Income before operating expenses 399 24.21% 1,174 24.23%
Salaries and employee benefits 201 30.09% 382 20.14%
Net occupancy and equipment 64 25.70% 277 41.72%
Other operating expense 207 58.15% 194 15.37%
----------------------- -----------------------
Total operating expenses 472 37.08% 853 22.31%
Income before income taxes (62) (16.53)% 321 31.41%
Provision for income taxes 44 53.01% 149 57.09%
----------------------- -----------------------
Net income 106 36.30% 172 22.60%
======================= =======================
</TABLE>
16
<PAGE>
TABLE 3 - ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
----------------------------------
<S> <C> <C>
Balance - Beginning of period $1,283 $1,152
Additions charged to operating expense 103 60
----------------------------------
1,386 1,212
Charge-offs (57) (37)
Recoveries 60 130
----------------------------------
Net charge-offs 3 93
Balance - End of period $1,389 $1,305
Net charge-offs as a percent of average loans and
leases (annualized) 0.003% 0.114%
Allowance as a percent of period-end loans and
leases 1.094% 1.386%
Average loans and leases $112,691 $81,833
Period-end loans and leases $127,004 $94,159
</TABLE>
17
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
On July 30, 1996, the Company filed a
Current Report on Form 8-K describing its
execution on July 18, 1996 of an agreement
to be acquired by Susquehanna Bancshares,
Inc. A copy of such agreement was filed as
an exhibit to the Form 8-K.
18
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ATCORP, INC.
------------
(Registrant)
November 14, 1996 (s) Marc L. Reitzes
- --------------------------- ------------------------------------
Date Marc L. Reitzes
Chairman & Chief Executive Officer
November 14, 1996 (s) Stewart A. Collins
- ---------------------------- -----------------------------------
Date Stewart A. Collins
Senior Vice President, Secretary/
Treasurer (Principal Accounting
Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,691
<INT-BEARING-DEPOSITS> 2,570
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,754
<INVESTMENTS-CARRYING> 250
<INVESTMENTS-MARKET> 250
<LOANS> 126,534
<ALLOWANCE> 1,389
<TOTAL-ASSETS> 210,235
<DEPOSITS> 182,140
<SHORT-TERM> 14,700
<LIABILITIES-OTHER> 2,807
<LONG-TERM> 0
0
0
<COMMON> 3,902
<OTHER-SE> 6,686
<TOTAL-LIABILITIES-AND-EQUITY> 210,235
<INTEREST-LOAN> 7,683
<INTEREST-INVEST> 3,220
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 10,975
<INTEREST-DEPOSIT> 5,018
<INTEREST-EXPENSE> 5,307
<INTEREST-INCOME-NET> 5,668
<LOAN-LOSSES> 103
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 4,676
<INCOME-PRETAX> 1,345
<INCOME-PRE-EXTRAORDINARY> 935
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 935
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 8.18
<LOANS-NON> 890
<LOANS-PAST> 96
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,384
<ALLOWANCE-OPEN> 1,283
<CHARGE-OFFS> 57
<RECOVERIES> 60
<ALLOWANCE-CLOSE> 1,389
<ALLOWANCE-DOMESTIC> 1,334
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55
</TABLE>
