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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 and 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24316
Community Financial Holding Corporation
(Exact name of registrant as specified in its charter)
New Jersey 52-1712224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Haddon Ave, Westmont, N.J. 08108
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (609) 869-7900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5.00 per Share
(Title of Class)
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 such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of issued and outstanding voting stock held by
non-affiliates of the Registrant based upon a price of $17.63 per share, the
average of the bid and asked prices of the Registrant's common stock on March
21, 1997 is $17,255,786. For purposes of this calculation, all directors and
executive officers of the Registrant, and their associates, have been considered
affiliates.
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The Exhibit Index is located on Page
Cover Page Continued
(Applicable Only to Corporate Registrants)
The number of shares of Common Stock outstanding on March 21, 1997 was 978,774.
Documents Incorporated By Reference
Portions of the Corporation's definitive Proxy Statement to be filed
pursuant to Regulation 14A within 120 days of the close of the Corporation's
fiscal year are incorporated by reference in Part III of this report.
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(ii)
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PART 1
ITEM 1. BUSINESS
GENERAL
Community Financial Holding Corporation (the "Corporation") is a New
Jersey business corporation, which is registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended. The Corporation was
incorporated on April 23, 1991, and became an active bank holding company in
April 1991 through the acquisition of 100% of the shares of Community National
Bank of New Jersey, a full service commercial national bank established in 1987
(the "Bank"). The Bank accounts for substantially all of the consolidated
assets, revenues and operating results of the Corporation. In March 1994,
Community Investment Corporation, Inc. was formed as a wholly-owned subsidiary
of the Bank, for the purpose of purchasing, holding and selling investments of
the Bank. The Corporation's principal executive offices are located at 222
Haddon Avenue, Westmont, New Jersey 08108, and its telephone number is (609)
869-7900.
THE BANK
The Bank's head office is located in Westmont, New Jersey and consists of
a full service banking location and a nearby operations' support and servicing
facility (including an ATM). The Bank's other full service banking offices are
located in Audubon, Cherry Hill, Collingswood, Marlton and Westville, New
Jersey. The Bank's primary service area consists of Audubon, Cherry Hill,
Marlton, Westville, Westmont and contiguous communities in Camden, Gloucester
and Burlington counties.
The principal activity of the Bank is to provide its local communities
with general commercial and retail banking services. The Bank offers commercial
and consumer loans of all types, including real estate loans, residential
mortgage loans, home equity loans and lines of credit, auto loans and other
credit products. The Bank is not authorized to offer trust services and does not
presently offer the sale of investment products such as mutual funds to its
customers. The Bank's deposit services include business and individual demand
and time deposit accounts, NOW accounts, money market accounts, Individual
Retirement Accounts and holiday accounts.
The Bank seeks to differentiate itself from its competitors by delivering
superior service and offering longer service hours. As part of its commitment to
delivering superior service, the Bank is engaged in an expansion program
directed at additional southern New Jersey communities. The Bank has opened two
branches in 1994 and one branch in 1996. The Bank opened a branch in February
1997 and intends to open two more branches in 1997.
As of December 31, 1996, the Bank employed 68 persons on a full time basis
and 12 persons on a part time basis. The Corporation has no paid employees.
The Bank has outsourced virtually all of its data processing operations
pursuant to a contract with Fiserv, Inc. for the provision of data processing
services with respect to deposit accounts, checking accounts, loan accounts and
other matters, and an agreement with IBAA Bancard, Inc. for certain credit card
processing services. The Bank also has an agreement with Mellon Network Services
for ATM processing services.
As of December 31, 1996, the Bank had total assets of $126.5 million,
total deposits of $111.4 million, and total stockholders equity of $10.9
million. The Bank's strategy for deposit acquisition and development has been to
attract and retain core deposits, and the Bank traditionally has not priced its
deposits to attract short term relationships. The Bank does not accept brokered
deposits.
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At December 31, 1996, the Bank had loans of approximately $71.6 million
(net of a $738,000 allowance for loan losses), representing approximately 57% of
total assets. Securities, primarily U.S. treasury, U.S. government agency and
local municipal securities, totaled approximately $33 million or approximately
26% of total assets. The Bank's lending activity is concentrated primarily in
commercial loans (64% of its loan-portfolio) and consumer loans (29% of its loan
portfolio). The Bank's commercial loan portfolio is largely made up of loans
secured by owner occupied commercial real estate with an average loan to value
ratio under 75%. There is no material concentration in the portfolio within any
business or industry segment. The Bank's consumer portfolio consists of
residential mortgage, home equity, automobile, credit card and personal loans.
Approximately 45% of the consumer portfolio is home equity loans. The average
loan to value ratio of these loans is 75%. The Bank's strategy is to make
commercial loans based on its analysis of a borrowers' ability to repay the loan
out of its operating cash flows. With few exceptions, the Bank also obtains real
estate or other collateral for a loan, and typically requires repayment
guarantees by principals of a borrower. Most of the Bank's commercial loans are
made to small and medium size diverse businesses. The Bank has no land or
residential development loans.
Risk elements in the loan portfolio include loans past due, non-accrual loans,
other real estate owned and a concentration of loans to one type of borrower.
The Bank closely monitors the loan portfolio to reduce the risk of delinquent
and problem credits. Strict underwriting criteria which include loan to value
and debt to income ratios are followed which also helps reduce credit risk in
the loan portfolio. An internal loan review function is responsible for
evaluating loan quality including adherence to underwriting criteria. This
function reports directly to the Audit Committee of the Board of Directors. The
Bank's loan portfolio is geographically concentrated in the southern New Jersey
counties that make up its primary service area.
SERVICE AREA
The Bank's head office is in Westmont, Camden County, New Jersey, and it
has full service branch offices in Audubon, Collingswood and Cherry Hill, Camden
County, New Jersey, Marlton, Burlington County, New Jersey and Westville,
Gloucester County, New Jersey. The Bank's primary service area is Westmont,
Audubon, Cherry Hill, Marlton and Westville and contiguous communities thereto.
The Bank's primary service area is a diverse economic and employment market with
no significant dependence on any one industry or large employer. Research
materials available from the Federal Reserve Bank of Philadelphia report slight
growth in the Bank's regional economy of New Jersey, Pennsylvania and Delaware
through 1994 and continuing in 1995 and 1996. However the pace of growth has
eased. The unemployment rate in New Jersey has decreased from 6.7% in the fourth
quarter in 1994 to 5.2% in the fourth quarter of 1996 which approximates the
national unemployment rate. However, most current economic indicators suggest
the regional economy should continue to grow at a moderate pace in 1997. The
profitability of the Bank is affected by economic conditions in the Bank's
primary service area.
COMPETITION
The banking business in the service area of the Bank, as well as the
balance of New Jersey and the Delaware Valley area, is highly competitive with
respect to both loans and deposits and is dominated by a number of major
regional and super-regional banks which have many offices. Many of these
institutions, particularly the larger banking firms that have enhanced their
local presence through mergers in recent years, have substantially greater
resources and offer a wider array of services, such as trust services, than the
Bank. In addition, many of these institutions are permitted to make larger loans
than the Bank. The Bank competes with these institutions primarily on the basis
of service quality and hours of operation. The Corporation believes that the
Bank's local presence of senior management and its Board of Directors, and their
collective familiarity with its service area, affords the Bank an advantage in
service, quality and understanding the needs of its customer base.
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SUPERVISION AND REGULATION
GENERAL
Bank holding companies and national banks are extensively regulated under
Federal law. The following is a summary of certain Federal laws and regulations
that govern the Corporation and the Bank. However, to the extent that the
following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory or regulatory
provisions. Any change in applicable law or regulation could have a material
effect on the business and prospects of the Corporation and the Bank. The
regulation and inspection of the Corporation and the regulation and examination
of the Bank by the regulatory authorities are designed primarily for the
protection of depositors and not the Corporation or its shareholders.
BANK HOLDING COMPANIES
The Corporation is a registered bank holding corporation under the Bank
Holding Corporation Act of 1956, as amended (the "BHCA"), and is subject to
regulation and inspection by the Federal Reserve Board. The BHCA restricts the
activities of the Corporation and among other things requires the prior approval
of the Federal Reserve Board in any case where a bank holding corporation
proposes to acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank or to merge or consolidate with any other bank
holding corporation.
The Corporation is a legal entity separate and distinct from its
subsidiary bank and its nonbank subsidiary. Accordingly, the right of the
Corporation, and consequently the right of creditors and shareholders of the
Corporation, to participate in any distribution of the assets or earnings of any
subsidiary is necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of the Corporation in its capacity
as creditor may be recognized. The principal source of the Corporation's revenue
and cash flow is dividends from its subsidiary bank. There are legal limitations
on the extent to which its subsidiary bank can finance or otherwise supply funds
to the Corporation and its nonbank subsidiary.
The BHCA currently permits bank holding companies from any state to
acquire banks and bank holding companies located in any other state, subject to
certain conditions, including certain nationwide and state imposed
concentration limits. Effective June 1, 1997, the Corporation's subsidiary Bank
will have the ability, subject to certain restrictions, including state opt-out
provisions, to consolidate with one another or to acquire by acquisition or
merger branches outside their home states. States may affirmatively opt-in to
permit these transactions earlier, which New Jersey, Delaware and Pennsylvania,
among other states, have done. The establishment of new interstate branches
also will be possible in those states with laws that expressly permit it.
Interstate branches will be subject to certain laws of the states in which they
are located. Competition may increase further as banks branch across state
lines and enter new markets.
The BHCA also prohibits a bank holding corporation, with certain
exceptions, from acquiring more than 5% of the voting shares of any corporation
that is not a bank and from engaging in any business other than banking or
managing or controlling banks and other subsidiaries authorized by the BHCA or
providing services to them without the prior approval of the Federal Reserve
Board. Under the BHCA, the Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding corporation of any corporation whose
activities have been determined by the Federal Reserve Board to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefits to the public, such as greater
convenience, increased competition or gains in efficiency, against such possible
adverse effects as undue concentration of resources, decreased or unfair
competition, conflicts of interest and unsound banking practices.
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), in addition to expanding the enforcement powers of bank regulators
(and supervision and regulation), created new opportunities for acquisitions by
bank holding companies. Under FIRREA, a bank holding corporation may acquire
savings associations, regardless of a savings association's financial condition
and without the imposition of "tandem" restrictions on transactions between the
savings association and its holding corporation affiliates. Moreover, bank
holding companies that own savings associations are now permitted to merge such
institutions into existing bank subsidiaries, subject to certain requirements.
SOURCE OF STRENGTH POLICY
Under Federal Reserve Board's policy, a bank holding corporation is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving as
a source of strength to its subsidiary banks, a bank holding corporation should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financials stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
corporation's failure to meet its obligations to serve as a source of strength
to its subsidiary banks will generally be considered by the Federal Reserve
Board to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board regulations or both. Consistent with its "source of strength"
policy for subsidiary banks, the Federal Reserve Board has stated that , as a
matter of prudent banking, a bank holding company generally should not maintain
a rate of cash dividends unless its net income available to commons shareholders
has been sufficient to fund fully the dividends, and the prospective rate of
earnings retention appears to be consistent with the corporation's capital
needs, asset quality and overall financial condition.
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), permits bank holding companies to acquire banks
in any state beginning in 1995. Beginning in 1997, acquired banks in different
states may be merged into a single bank, and thereafter merged banks may
establish and acquire additional branches anywhere the acquiree could have
branched. States may opt out of interstate branching until June 1, 1997, but if
so, their domestic institutions will also be prohibited from branching
interstate. States may also enact laws permitting interstate merger transactions
and interstate de novo branching before June 1, 1997. Limited branch purchases
are still subject to state laws.
A bank may establish and operate a de novo branch in a state in which the
bank does not maintain a branch if that state expressly permits de novo
branching. After a bank has established branches in a state through an
intereste merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the interstate
merger transaction could have estalished or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state
in the same manner and to the same extent as a bank having a branch in such
state as a result of an interstate merger. If a state opts out of interestate
branching within the specifified time perod, no bank in any other state may
establish a branch in the opting out state, whether through an acquisition or
de novo. Bank management anticipates that the Interstate Banking Act will
increase competitive pressures in the Bank's market by permitting entry of
additional competitors, but management is of the opinion that this will not
have a material impact upon the anticipated results of operations of the Bank.
THE BANK
The Bank is a national bank chartered under the National Bank Act of 1864, as
amended. The Bank is subject to regulation, supervision and examination by the
Office of the Comptroller of Currency ("OCC") and is also regulated in certain
respects by the Federal Reserve Board and the FDIC. The FDIC, through the Bank
Insurance Fund ("BIF"), insures all deposits held by the Bank up to a maximum of
$100,000 for any one customer.
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The various laws and regulations administered by the OCC affect corporate
practices, such as payment of dividends, incurring debt and acquisition of
financial institutions and other companies, and affect business practices, such
as payment of interest on deposits, the charging of interest on loans, types of
business conducted and location of offices.
CAPITAL REQUIREMENTS
Under Federal Reserve Board regulations, the Corporation must maintain a
minimum ratio of qualified total capital to risk-weighted assets of 8.00%.
Risk-weighted assets are determined by multiplying the various categories of
assets by the appropriate risk weighing factor (ranging from 0% to 100%) under
applicable regulations. Certain off-balance sheet items, such as standby letters
of credit, are included in assets for these purposes at a "credit equivalent"
value, determined by multiplying the off-balance sheet item by a credit
conversion factor established by applicable regulations. At least half of the
total capital must be comprised of common equity, retained earnings and a
limited amount of permanent preferred stock, less goodwill ("Tier 1 capital").
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt, other preferred stock, certain other instruments and a limited amount of
loan and lease losses reserves. The sum of Tier 1 capital and Tier 2 capital is
"total risk-based capital." Federal Reserve Board regulations also require a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.00%. The
Corporation's Tier 1 capital and total risk-based capital ratios as of December
31, 1996 were 13.86% and 14.80%, respectively.
In addition, the Federal Reserve Board has established a minimum leverage
ratio (Tier 1 capital to quarterly average assets less goodwill) of 3.00% for
bank holding companies that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies will be
required to maintain a leverage ratio of 3.00% plus an additional cushion of at
least 100 to 200 basis points. The Corporation's leverage ratio as of December
31, 1996 was 8.70%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
The Bank is subject to capital requirements adopted by the OCC that are
the same as those that apply to the Corporation. At December 31, 1996, the
Bank's total risk-based capital, Tier 1 capital and leverage ratios were 14.80%,
13.86% and 8.70%, respectively.
Bank regulators continue to indicate their desire to raise banking
organization capital requirements beyond their current levels. However,
management is unable to predict whether higher capital ratios will be imposed
and, if so, at what levels and on what schedule.
Any bank holding corporation or national bank not in compliance with
applicable capital requirements may be subject to certain growth restrictions,
issuance of a capital directive by the appropriate federal regulator, and
various other possible enforcement actions by the appropriate federal
regulators, including a cease and desist order, civil money penalties, and the
establishment of restrictions on operations. In addition, the institution could
be subject to appointment of a receiver or conservator or a forced merger into
another institution.
LIMITS ON DIVIDENDS
The amount of dividends that may be paid by the Bank to the Corporation
depends upon the Bank's earnings and capital position, and is limited by federal
law, regulations and policies.
As a national bank subject to the regulations of the OCC, the Bank must
obtain approval for any dividend if the total of all dividends declared in any
calendar year would exceed the total of its net profits, as defined by
applicable regulations, for that year, combined with its retained net profits
for the preceding two years. In addition, the Bank may not pay a dividend in an
amount greater than its undivided profits then on hand after deducting its
losses and bad debts. For this purpose, bad debts are generally defined to
include the principal amount of loans which are in arrears with respect to
interest by six months or more unless such loans are fully secured and in the
process of collection. Moreover, for purposes of this limitation, the Bank is
not permitted to add the balance in
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its allowance for loan losses account to its undivided profits then on hand;
however, it may net the sum of its bad debts as so defined against the balance
in its allowance for loan losses account and deduct from undivided profits only
bad debts as so defined in excess of that account. At December 31, 1996, the
Bank had $2,563,000 of retained earnings legally available for the payment of
dividends.
In addition, the OCC and the Federal Reserve Board are authorized to
determine under certain circumstances relating to the financial condition of a
national bank or a bank holding corporation that the payment of dividends would
be an unsafe or unsound practice and to prohibit payment thereof. The payment of
dividends that deplete a bank's capital base could be deemed to constitute such
an unsafe or unsound practice. As noted above, the Federal Reserve Board has
indicated that banking organizations should generally pay dividends only out of
current operating earnings.
COMMUNITY REINVESTMENT
Under the Community Reinvestment Act ("CRA"), a bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop types of products and services that it believes are best
suited to its particular community, consistent with the CRA. The CRA requires
the OCC and Federal Reserve Board, in connection with their examination of
national banks and bank holding companies, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. The OCC is
required to provide a written evaluation of an institution's CRA performance
utilizing a four tiered descriptive rating system, which rating is disclosed to
the public. The Bank has been rated "satisfactory" under this system, but no
assurance can be given as to the Bank's ability to maintain this rating.
BORROWINGS BY THE CORPORATION
There are various legal restrictions on the extent to which the
Corporation can borrow or otherwise obtain credit from the Bank. In general,
these restrictions require that any such extensions of credit be secured by
designated amounts of specified collateral and are limited, as to the
Corporation, to 10% of the Bank's capital stock and surplus, and as to the
Corporation and any other affiliates in the aggregate, to 20% of the Bank's
capital stock and surplus. Federal law also requires that transactions between
the Bank and the Corporation or any other affiliates, including extensions of
credit, sales of securities or assets and the provision of services, be
conducted on terms at least as favorable to the Bank as those that apply or
would apply to comparable transactions with unaffiliated parties.
ECONOMIC AND MONETARY POLICIES
The earnings and growth of the Corporation and the Bank are affected by
domestic and foreign economic conditions, particularly by the monetary and
fiscal policies of the United States government and its agencies.
The monetary policies of the Federal Reserve Board have had, and will
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to mitigate recessionary and inflationary pressures by regulating
the national money supply. In particular, the Federal Reserve Board regulates
money, credit and interest rates in order to influence general economic
conditions. These policies have a significant influence on overall growth and
distribution of loans, investments and deposits and affect interest rates
charged on loans or paid for time and savings deposits. The techniques used by
the Federal Reserve Board include setting the reserve requirements of member
banks and establishing the discount rate on member bank borrowings. The Federal
Reserve Board also conducts open market transactions in United States government
securities. It is impossible to predict the effects of such policies upon future
business, earnings and growth of the Corporation or the Bank.
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FDICIA
The prompt corrective action provisions of the Federal Deposit Insurance
Company Improvement Act of 1991 ( "FDICIA") significantly expanded the
regulatory and enforcement powers of federal banking regulators, including
FDIC. Among other things, FDICIA establishes additional capital standards for
insured depository institutions and requires specific enforcement actions by
the appropriate federal regulatory agencies against institutions that fail to
meet these standards. The extent of these powers depends upon whether the
institutions in questions are "well capitalized," "adequately capitalized"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized."
Prompt Corrective Action. Among other things, FDICIA requires the federal
banking agencies to take "prompt corrective action" in respect of banks that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "under capitalized,"
"significantly under capitalized" and "critically under capitalized." At
December 31, 1996, the Bank was "well capitalized." The following table set
forth the minimum capital ratios that a bank must satisfy in order to be
considered well capitalized or adequately capitalized under Federal Reserve
Board regulations:
ADEQUATELY WELL
CAPITALIZED CAPITALIZED
----------- -----------
Total Risk-Based Capital Ratio 8% 10%
Tier 1 Risk Based Capital Ratio 4% 6%
Leverage Ratio 4% 5%
The FDIC's regulations establish specific actions that are permitted or, in
certain cases, required to be taken by regulators with respect to institutions
falling within one of the three undercapitalized categories. Depending on this
level of the institution's capital, the agency' correction powers can include:
requiring a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional stock
(including voting stock) or to be acquired; placing restrictions on transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election for the institution's board of directors;
requiring that certain senior executive officers or directors be dismissed;
prohibiting the institution from accepting deposits from correspondent banks;
requiring the institution to divest certain subsidiaries; prohibiting the
payment of principal or interest on subordinated debt; prohibiting the holding
company from making capital distributions without prior regulatory approval;
and, in the most severe cases, appointing a receiver for the institution. A bank
that is undercapitalized is required to submit a capital restoration plan, and
such a plan will not be accepted unless, among other things, the bank holding
company guarantees the capital plan, up to a certain specified amount. Under
certain circumstances, a "well capitalized" "adequately capitalized" or
"undercapitalized" institution may be required to comply with restrictions
applicable to the next lowest capital category.
Additional Standards and Restrictions. In addition, FDICIA required regulators
to promulgate a new set of non-capital measures of bank safety, such as loan
underwriting standards and minimum earnings levels, to take effect December 1,
1993. The Federal Banking Agencies have adopted "Interagency Guidelines
Establishing Standards for Safety and Soundness" ("Guidelines"). In addition,
the agencies are proposing revised asset quality and earnings standards which
will be added to the Guidelines after public comments are considered and final
standards are adopted. The operational and managerial standards address an
institution's general practices, and are designed to provide a framework for the
federal bank regulators to determine whether those practices are sound in
principle and whether procedures are in place to ensure that they are applied in
the normal course of business. The guidelines cover such areas as internal
controls, loan documentation, credit underwriting, interest rate exposure, asset
growth and compensation.
FDICIA also requires regulators to perform annual on-site bank
examinations, place limits on real estate lending by banks and tighten auditing
requirements.
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DEPOSIT INSURANCE ASSESSMENT
As a "well capitalized" financial institution the Bank was not assessed any
BIF deposit premiums in 1996 by the FDIC. The Deposit Insurance Act of 1996
(the "Deposit Act") was enacted on September 30, 1996 to recapitalize the
Savings Association Insurance Fund ("SAIF") and requires banks, such as the
Bank, which are well capitalized and insured by the BIF to share the burden of
repaying certain outstanding bonds issued by SAIF in the late 1980's to address
the savings and loan crisis. The Deposit Act mandates the Bank, and the other
BIF insured financial institutions, starting in 1997 must pay as a special
deposit insurance assessment of 4.1 basis points of its deposits until 2000 and
then a special deposit insurance assessment of 2.4 basis points of its deposits
from 2000 until 2017. The Bank estimates that its BIF insurance premium for
1997 will be approximately $8,000.
SAFETY AND SOUNDNESS STANDARDS
Effective August 9, 1995, the federal banking regulators published final
agency guidelines that establish safety and soundness standards addressing
operational and managerial, as well as compensation matters for insured
financial institutions like the Bank as required by FDICIA. Banks failing to
meet these standards are required to submit compliance plans to their
appropriate federal regulators. On this same date, the agencies issued for
comment proposed guidelines regarding asset quality and earnings standards for
insured institutions.
Depositor Preference
Section 3001(a) of the Omnibus Budget Reconciliation Act of 1993 provides
depositors a preference over general and subordinated creditors and shareholders
where a receiver (the FDIC or RTC) distributes assets from a failed bank or
savings association. Under prior law, depositors were paid on a pro rata basis
with general creditors when a receiver distributed the assets of a failed
institution, except if the institution was located in a state having a depositor
preference law. Under the new law, claims against the failed institution are
paid in the following order: (i) the receiver's administrative expenses, (ii)
deposit liabilities of the institution, (iii) other general or senior
liabilities of the institution, (iv) obligations subordinated to depositors or
general creditors and (v) obligations to shareholders. The new law applies to
any case in which a receiver is appointed after August 10, 1993.
LEGISLATIVE PROPOSALS AND REFORMS
There are numerous legislative and regulatory proposals that are pending
regarding CRA requirements and standards. The Corporation cannot predict the
effect of changes in the law, or in the interpretation of existing law as
applied to it, or the Bank's ability to comply with any such laws or
interpretations.
Other legislative and regulatory proposals regarding changes in banking, and
the regulation of banks, thrifts and other financial institutions, are being
considered by the executive branch of the Federal government, Congress and
various state governments, including New Jersey. Certain of these proposals, if
adopted, could significantly change the regulation of banks and the financial
services industry. It cannot be predicted whether any of these proposals will be
adopted or, if adopted, how these proposals will affect the Corporation.
ITEM 2. PROPERTIES
The headquarters of the Corporation are located at 222 Haddon Avenue,
Westmont, New Jersey. The property is leased by the Bank, which maintains its
administrative headquarters and a full service banking office at that location.
The Bank has an operations support and servicing facility located directly
across Haddon Avenue from the main office, at 231 Haddon Avenue. There is an ATM
at this location. This property was leased by the Bank during 1996. The Bank
purchased this property on January 7, 1997. The Bank also has full service
branches located at 449 Nicholson Road, Audubon, New Jersey, which the Bank
acquired on May 17, 1994, and 135 Broadway, Westville, New Jersey. These
properties are owned by the Bank. There is an ATM at the Audubon location. The
Bank opened a branch at 600 N. Route 73, Marlton, New Jersey, on September 6,
1994. This property is also leased by the Bank. There is an ATM, owned by the
Bank, at this location. The Bank opened a branch at 2099 Route 70, Cherry Hill,
New Jersey on September 16, 1996. This property is leased by the Bank
<PAGE> 11
and there is an ATM, owned by the Bank, at this location. The Bank opened a
branch at 765 Haddon Avenue, Collingswood, New Jersey on February 28, 1997. The
Bank purchased this property on July 19, 1996. There is an ATM, owned by the
Bank, at this location. In the opinion of management, all properties are well
maintained and suitable to their respective present needs and operations.
On July 19, 1996, the Bank purchased the physical property and equipment at
two banking locations which had been recently closed when other banks merged.
These locations are 705 Warwick Road, HiNella, New Jersey and 4 East Clements
Bridge Road, Runnemede, New Jersey. Both locations are in Camden County, New
Jersey. Management plans to open full-service banking offices in each of these
locations during 1997.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Corporation or the Bank is a party to any material pending legal
proceedings, nor is any of their property subject to any material legal
proceedings, other than ordinary routine litigation incidental to the business
of the Corporation and the Bank nor are any such proceedings known to management
to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's Common Stock is quoted on the NASDAQ Small Cap Market
under the symbol CMFH. The high and low bid information are as reported by the
NASDAQ Small Cap Market, for the periods indicated as follows:
NASDAQ SMALL CAP MARKET*
HIGH LOW
---- ---
1996
Quarter ended December 31, 1996 $19.50 $13.25
Quarter ended September 30, 1996 14.50 11.75
Quarter ended June 30, 1996 13.25 11.75
Quarter ended March 31, 1996 14.00 12.50
1995
Quarter ended December 31, 1995 14.00 11.25
Quarter ended September 30, 1995 12.00 8.75
Quarter ended June 30, 1995 9.75 8.25
Quarter ended March 31, 1995 9.75 8.75
*These quotations may reflect inter-dealer prices, without retail mark-up,
mark-down, or commissions, and, therefore, may not necessarily represent actual
transactions.
DIVIDENDS. The Corporation declared a 5% common stock dividend in 1996 and
1995. The Corporation has never paid a cash dividend. The Corporation's ability
to pay cash dividends is primarily, if not entirely, dependent upon cash
dividends paid to the Corporation by the Bank. The payment of dividends to the
Corporation by the Bank is restricted under federal banking law. The approval of
the OCC will be required if the total of all dividends declared in any calendar
year by the Bank exceed's the Bank's net profits to date, as defined, for that
year combined with its retained profits for the preceding two years. In
addition, the Bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting its losses and bad debts. The
Federal Reserve Board and the OCC also have the authority under federal law to
enjoin a national bank or bank holding company from engaging in what, in its
opinion, constitutes an unsafe or unsound practice in conducting its business,
including the payment of a dividend under certain circumstances in which the
bank or bank holding company fails to meet minimum capital requirements or in
which its earnings are impaired. See Part I, Item 1 "Supervision and
Regulation--Limits on Dividends and Other Payments."
HOLDERS. As of January 31, 1997, the Corporation had approximately 516
holders of its Common Stock. Such information does not include those persons
holding securities in brokerage using street names, the addition of which would
increase the number of beneficial owners of the Corporation's securities.
<PAGE> 13
ITEM 6 - SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data with
respect to the Corporation on a consolidated basis. This table should be read in
conjunction with the Corporation's historical Consolidated Financial Statements
and related notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA (UNAUDITED))
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income ............................. $ 8,594 $ 7,448 $ 6,011 $ 5,346 $ 5,225
Interest expense ............................ 2,831 2,549 1,911 1,787 2,084
Net interest income ......................... 5,763 4,899 4,100 3,559 3,141
Provision for loan losses ................... 340 210 105 270 470
Noninterest income .......................... 895 659 630 679 597
Noninterest expense ......................... 4,849 4,189 3,473 3,054 2,723
Income taxes ................................ 464 367 403 358 203
Income from continuing operations ........... 1,006 792 749 556 342
Net income (1) .............................. 1,006 792 749 577 342
PER SHARE DATA (2):
Income from continuing operations ........... $ 0.95 $ 0.80 $ 1.03 $ 1.22 $ 0.75
Net income (1)(5) ........................... 0.95 0.80 1.03 1.27 0.75
Book value end of period .................... 11.18 10.21 9.13 9.73 8.43
PERIOD END BALANCE SHEET:
Total assets ................................ $126,527 $112,845 $ 95,625 $ 86,076 $ 69,697
Loans Held For Sale ......................... 1,305 262 0 0 0
Loans (net) ................................. 71,649 62,542 52,839 43,548 44,391
Securities (3) .............................. 32,728 39,060 31,946 29,676 14,999
Federal funds sold .......................... 8,050 1,550 1,150 5,775 3,375
Deposits .................................... 111,448 99,504 83,947 78,35 65,206
Shares outstanding (2) ...................... 988,974 985,512 985,512 454,189 454,189
PERFORMANCE RATIOS:
Return on average assets .................... 0.85% 0.76% 0.83% 0.77% 0.53%
Return on average equity .................... 9.72 8.50 11.20 14.56 9.82
Net interest margin ......................... 5.39 5.27 5.02 5.22 5.33
ASSET QUALITY RATIO:
Allowance for loan losses to period end loans 1.02% 0.94% 1.13% 1.62% 1.77%
Allowance for loan losses to nonaccrual loans 139.77 186.12 116.60 224.34 181.00
Nonperforming assets to period end loans &
foreclosed properties ....................... 0.75 1.52 1.20 1.10 1.40
Net charge offs to average loans ............ 0.29 0.38 0.48 0.77 0.66
LIQUIDITY AND CAPITAL RATIOS (4):
Average loans to average deposits ........... 64.73% 63.00% 57.01% 64.65% 70.59%
Tier 1 Risk-Based Capital Ratio ............. 13.86 15.80 17.07 9.56 8.80
Total Risk-Based Capital Ratio .............. 14.80 16.75 18.20 10.81 10.06
Tier 1 Leverage Ratio ....................... 8.70 8.74 10.11 5.20 5.45
</TABLE>
(1) During 1993 the Corporation adopted Statement of Financial Accounting
Standards No. 109 with a resultant benefit of $20,851 which is included in
Net Income.
(2) Adjusted to give retroactive effect to the 5% stock dividends of 1996, 1995,
1994, 1993 and 1992 for all years presented.
(3) Total of securities available for sale and investment securities.
(4) For definitions of certain terms relating to capital ratios, see
"Supervision and Regulation-Capital Requirements."
(5) Primary earnings per share for 1996 was $0.98. There was no dilution for
1995, 1994, 1993 and 1992.
<PAGE> 14
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide information
about the financial condition and results of operations of the Corporation for
the fiscal years ended December 31, 1996, 1995 and 1994, and should be read in
conjunction with the Consolidated Financial Statements and related notes.
FINANCIAL HIGHLIGHTS
The Corporation reported net income for the year ended December 31, 1996 of
$1.0 million, an increase of 27% over net income of $792,000 for the year ended
December 31, 1995. The Corporation's net income for the year ended December 31,
1995 reflected an increase of 6% over net income of $749,000 for the year ended
December 31, 1994. The increase in earnings from 1995 to 1996 was due primarily
to higher net interest income which was partially offset by increases in the
provision for loan losses and operating expenses resulting primarily from
expansion of the residential mortgage business line, opening a banking branch
in September and the purchase of three additional branch banking locations. The
increase in earnings from 1994 to 1995 was due primarily to higher net interest
income which was partially offset by increases in expenses resulting from the
first full year of operations of two branches opened during 1994.
Expressed on a fully diluted earnings per share basis (after giving
retroactive effect to the payment of a 5% stock dividend for each year), net
income for 1996 was $0.95 per share compared to $0.80 per share for 1995 and
$1.03 for 1994. The decrease in earnings per share from 1994 to 1995 resulted
from dilution associated with the Corporation's stock offering in June 1994.
Book value per share at December 31, 1996 was $11.18, as compared to $10.21 and
$9.13 at December 31, 1995 and 1994, respectively. The book value per share has
been restated to give retroactive effect to the 5% stock dividends issued in
1996, 1995, and 1994.
The Corporation's return on average assets was .85% for 1996 as compared to
.76% for 1995 and .83% for 1994. The return on average shareholders' equity was
9.72% for 1996 compared to 8.50% for 1995 and 11.20% for 1994. The 1995 to 1996
increase was due primarily to an increase in net interest income. The 1994 to
1995 decrease was due primarily to increased expenses associated with opening a
branch in June and September 1994 and expansion of the Residential Mortgage
Department during 1995. The decrease in the 1995 return on average shareholder's
equity was also impacted by the Corporation's June 1994 common stock issuance.
The Corporation's assets grew steadily over the period from December 31, 1994
through December 31, 1996, driven primarily by increased deposits resulting from
continued growth in the number of depositor accounts as a result of increasing
market share in its primary service area. Total assets at December 31, 1996 were
$126.5 million, an increase of $13.7 million or 12.1% over total assets of
$112.8 million at December 31, 1995. Net loans were $71.7 million at December
31, 1996 compared to $62.5 million at December 31, 1995. Total deposits
increased $11.9 million or 12.0% from $99.5 million at December 31, 1995 to
$111.4 million at December 31, 1996. The investment securities portfolio,
including federal funds sold and securities available for sale, increased 0.4%
or $168,000 to $40.8 million at December 31, 1996 from $40.6 million at December
31, 1995. Cash and due from bank accounts increased $2.8 million or 51.3% to
$8.3 million from $5.5 million at December 31, 1995 primarily as a result of
increased deposits.
In 1996, the Corporation continued to expand its residential mortgage business
line resulting in an increase of loans held for sale from $262,000 at December
31, 1995 to $1.3 million at December 31, 1996. In addition, residential mortgage
loans held in portfolio increased from $98,000 at December 31, 1995 to $4.1
million at December 31, 1996. This portfolio consists of adjustable rate
mortgages. Bank premises and equipment increased $1.2 million or 61.3% to $3.1
million at December 31, 1996 from $1.9 million at December 31, 1995. This
increase resulted primarily from the purchase of three additional branch banking
locations which are scheduled to be opened during 1997.
<PAGE> 15
The Federal Deposit Insurance Corporation (FDIC) reduced the Corporation's
insurance premium in June of 1995 and suspended the premium for 1996. The
premium decreased $92,000 or 98% to $2,000 for 1996 as compared to $94,000 for
1995. This expense was $170,000 for 1994. The FDIC at its discretion will
determine future premiums effective beyond December 31, 1996. Management is
unaware of any reason that might cause the FDIC insurance premium to increase
substantially in 1997.
Management is not aware of any trends, events or uncertainties that will have
or that are reasonably likely to have a material effect on the Corporation's
liquidity, capital resources or results of operations.
This Annual Report on Form 10-K contains forward looking statements with
respect to, among other things, plans, future events or performance of the
Corporation, the occurrence of which involve certain risks and uncertainties
that could cause actual results or future events to differ materially from those
expressed in any forward looking statement, including but not limited to changes
in economic conditions, the adequacy of loan loss reserves, the effect of
competition and changes in regulatory requirements. Where any forward looking
statement includes a statement of the assumptions or bases underlying such
forward looking statement, the Corporation cautions that, while such assumptions
or bases are believed to be reasonable and are made in good faith, assumed facts
or bases almost always vary from actual results, and the differences between
assumed facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward looking statement, the Corporation
expresses an expectation or belief as to plans or future results or events, such
expectation or belief is expresses in good faith and believed to have reasonable
basis, but there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished. The words "believe", "expect" and
"anticipate" and similar expressions identify forward looking statements.
<PAGE> 16
RESULTS OF OPERATIONS
The principal source of revenue for the Corporation is net interest income.
Net interest income is the difference between income earned on loans and
securities and the interest paid on deposits and borrowed funds.
Interest-earning assets are comprised primarily of loans and securities, while
deposits represent the major portion of interest bearing liabilities. Changes in
the volume and mix of interest-earning assets and interest-bearing liabilities,
as well as their respective yields and rates, have a significant impact on the
level of net interest income. Net interest margin is calculated as the
tax-equivalent net interest income divided by the average earning assets and
represents the Corporation's net yield on its earning assets.
Net interest income was $5.8 million for the year ended December 31, 1996,
17.5% greater than the $4.9 million reported during fiscal 1995. The improvement
in net interest income from 1995 to 1996 was due primarily to volume and rate
increases in the investment portfolio, volume increases in the loan portfolio
and rate decreases in interest paid on deposits. Partially offsetting these
improvements were increases in volume of interest bearing deposit balances and
the negative impact of rates on the loan portfolio. Net interest income was $4.9
million for the year ended December 31, 1995, 19.7% greater than the $4.1
million reported during fiscal 1994. The improvement in net interest income from
1994 to 1995 was due primarily to volume increases in the loan and investment
portfolios offset partially by increased certificate of deposits and the
interest paid on those deposits.
The average balance of the loan portfolio for 1996 was $67.6 million, up $10.1
million or 17.5% from the average balance for 1995. The average balance of the
loan portfolio was $57.5 million for 1995, up $11.2 million or 24.2% from the
average balance for 1994. The average balance of the securities portfolio
(including federal funds sold and securities available for sale) was $41.5
million for 1996, up $4.0 million or 10.6% over the average for 1995. The
average balance of the securities portfolio (including federal funds sold and
securities available for sale) was $37.6 million for 1995, up $931,000 or 2.5%
over the average for 1994. The yield on average loans decreased 27 basis points
from 9.41% in 1995 to 9.14% in 1996 and increased 26 basis points from 9.15% in
1994 to 9.41% in 1995 generally consistent with the trend in market interest
rates during the period. The average yield on the securities portfolio increased
57 basis points from 5.69% in 1995 to 6.26% in 1996 and increased 48 basis
points from 5.21% in 1994 to 5.69% for 1995. Average interest bearing
liabilities increased 13.2% from $72.0 million for 1995 to $81.5 million for
1996. The interest rate paid on average interest bearing liabilities decreased 7
basis points from 3.54% for 1995 to 3.47% for 1996. Higher interest yields
received on interest earning assets and the growth of interest earning assets
offset the increased interest expense associated with the growth of interest
bearing deposits. Interest expense for 1995 increased 33.4% from $1.9 million
for 1994 to $2.5 million for 1995. Average interest bearing liabilities
increased 13.2% from $63.6 million for 1994 to $72.0 million for 1995. Higher
interest rates on interest earning assets offset the increase associated with
the growth of interest bearing deposits for 1995.
Net interest margin increased 12 basis points from 5.27% in 1995 to 5.39% in
1996 and increased 25 basis points from 5.02% in 1994 as compared to 1995. The
primary reason for the improving trend was improving yields on earning assets
continuing from 1994 to 1996 as well as a reduction in interest paid for
deposits from 1995 to 1996.
<PAGE> 17
Interest on loans is included in interest income on the accrual method over
the terms of the loans based upon the principal balances outstanding. Income
recognition of interest is discontinued when, in the opinion of management, the
collectibility of such interest becomes doubtful. A loan is generally classified
as non-accrual when principal or interest has been in default for a period of 90
days or more or because of a deterioration in the financial condition of the
borrower such that payment in full of principal or interest is not expected.
Loans past due 90 days or more and still accruing interest are loans that are
generally well-secured and in process of collection.
At December 31, 1996, 1995 and 1994, loans for which the accrual of interest
has been discontinued or reduced totalled $527,881, $320,051 and $517,825,
respectively. If interest on such loans had been accrued, such income would have
approximated $38,747 in 1996, $22,306 in 1995 and $25,126 in 1994. Loans which
are contractually past due 90 days or more as to principal or interest payments
totaled $14,047, $9,654 and $44,407 at December 31, 1996, 1995 and 1994,
respectively. The amount of interest income on those loans that was included in
net income was $675, $1,213 and $14,109 for 1996, 1995 and 1994, respectively.
<PAGE> 18
The following table illustrates the average balances of total
interest-earning assets and total interest-bearing liabilities for the periods
indicated, showing the average distribution of assets, liabilities, stockholders
equity, and the related income, expense, and corresponding weighted average
yields and costs. The average balances used for the purposes of these tables and
other statistical disclosures were calculated by using the daily average
balances.
Non-accruing loans are included in these average balances.
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AVERAGE YIELD AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ----------------------------- --------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
(DOLLARS IN THOUSANDS)
ASSETS
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold .................. $ 6,999 $369 5.27% $6,151 $363 5.90% $ 6,567 $ 268 4.08%
Securities:(1)
U.S. treasury securities ............ 9,936 601 6.05% 16,806 922 5.49% 17,616 949 5.39%
Obligations of U.S. agencies ........ 18,958 1,200 6.33% 9,190 516 5.61% 7,418 361 4.87%
Tax exempt municipal
obligations(2) ..................... 5,408 345 6.38% 5,190 337 6.49% 3,446 189 5.48%
Other ............................... 243 15 6.17% 240 14 5.83% 1,599 69 4.32%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Total securities .................... 34,545 2,161 6.26% 31,426 1,789 5.69% 30,079 1,568 5.21%
------ ----
Loans(3) .............................. 67,628 6,181 9.14% 57,534 5,418 9.41% 46,303 4,239 9.15%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Total interest earning assets ......... 109,172 8,711 7.98% 95,111 7,570 7.95% 82,949 6,075 7.32%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Non-interest earning assets:
Cash and due from banks ............. 6,183 5,699 5,404
Other assets ........................ 4,168 3,469 2,461
Less: allowance for loan losses ..... (725) (640) (687)
-------- --------- --------
Total non-interest earning assets ... 9,626 8,528 7,178
-------- --------- --------
Total assets .......................... $118,798 $ 103,639 $ 90,127
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Interest bearing demand ............ $ 39,806 $1,134 2.85% $ 34,485 $1,038 3.01% $ 30,661 $ 812 2.65%
Savings ............................ 16,459 405 2.46% 15,025 395 2.63% 13,959 372 2.66%
Other time ......................... 21,990 1,142 5.19% 20,049 1,001 4.99% 17,232 667 3.87%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Total interest bearing deposits ....... 78,255 2,681 3.43% 69,559 2,434 3.50% 61,852 1,851 2.99%
Short term borrowings ............... 3,244 150 4.62% 2,436 115 4.72% 1,752 60 3.42%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Total interest bearing liabilities .... 81,499 2,831 3.47% 71,995 2,549 3.54% 63,604 1,911 3.00%
-------- ------ ----- --------- ------ ----- -------- ------ -----
Non-interest bearing liabilities:
Demand deposits ..................... 26,221 21,850 19,367
Other liabilities ................... 729 466 467
-------- --------- --------
Total non-interest bearing liabilities 26,950 22,316 19,834
-------- --------- --------
Total liabilities ..................... 108,449 94,311 83,438
Stockholders' equity .................. 10,349 9,328 6,689
-------- --------- --------
Total liab. & stockholders' equity .... $118,798 $ 103,639 $ 90,127
======== ========= ========
Interest spread ....................... 4.51% 4.41% 4.32%
Net interest income/net interest margin $5,880 $ 5.39% 5,021 5.27% $ 4,164 5.02%
====== ===== =====
</TABLE>
(1) Yields are based on historical costs.
(2) Adjusted $117,000, $115,000 and $169,000 for 1996, 1995 and 1994,
respectively, to tax-equivalent basis at a 34% tax rate.
(3) Includes $591,000 average balance and $18,000 interest income for loans held
for sale for 1996. Amounts for 1995 include $37,000 average balance for
loans held for sale and $7,000 of related interest income. There were no
loans held for sale in 1994.
<PAGE> 19
Net interest income is affected by changes in both average interest rates and
average volumes of interest-earning assets and interest-bearing liabilities. The
following table sets forth the amounts of the total change in interest income
that can be attributed to changes in the volume of interest bearing assets and
liabilities, and the amount of change that can be attributed to changes in
interest rates. The balance of the change in interest income or expense and net
interest income has been attributed to the change in average rate.
VOLUME AND RATE ANALYSIS
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
CHANGES DUE TO: CHANGES DUE TO:
--------------- ---------------
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold .......................... $ 50 $(44) $ 6 $ (17) $ 112 $ 95
Securities:
U.S. treasury securities .................... (377) 56 (321) (44) 17 (27)
Obligations of U.S. agencies ................ 548 136 684 86 69 155
Tax exempt municipal obligations ............ (1)14 (6) 8 96 52 148
Other ....................................... 0 1 1 (59) 4 (55)
------- ----- ------- ------- ------- -------
Total securities .......................... 185 187 372 79 142 221
------- ----- ------- ------- ------- -------
Loans .......................................... 950 763 1,025 154 1,179
----- ------- ------- ------- -------
Total interest income .......................... $ 1,185 $ (44) $ 1,141 $ 1,087 $ 408 $ 1,495
------- ----- ------- ------- ------- -------
Interest expense:
Deposits:
Interest bearing demand ................... $ 160 $ (64) $ 96 $ 101 $ 125 $ 226
Savings ................................... 38 (28) 10 28 (5) 23
Other time ................................ 97 44 141 109 225 334
------- ----- ------- ------- ------- -------
Total deposits .......................... 295 (48) 247 238 345 583
Short term borrowings .......................... 38 (3) 35 23 32 55
------- ----- ------- ------- ------- -------
Total interest expense .................. $ 333 $ (51) $ 282 $ 261 $ 377 $ 638
------- ----- ------- ------- ------- -------
Increase (decrease) in net interest income $ 852 $ 7 $ 859 $ 826 $ 31 $ 857
======= ===== ======= ======= ======= =======
</TABLE>
- ------------------
(1) Adjusted to tax-equivalent basis at a 34% tax rate.
NON-INTEREST INCOME. Non-interest income was $895,000 for the year ended
December 31, 1996, an increase of 37.3% from 1995. Non-interest income was
$652,000 for the year ended December 31, 1995, an increase of 3.5% from 1994.
The primary cause of the increase was gross revenues from the Corporation's
residential mortgage department as a result of the Corporation's commitment to
expand this business line in 1995 continuing in 1996. The Corporation began its
residential mortgage origination activity in 1991. The Corporation uses various
third party sources to fund its residential mortgage activities and starting in
1996 booked adjustable rate residential mortgage loans processed by the
residential mortgage department into its own portfolio. Residential mortgage
loans in portfolio totalled $4.1 million at December 31, 1996 as compared to
$98,000 at December 31, 1995.
The remainder of the change in non-interest income relates primarily to
service and activity fees associated with depositor accounts. In February 1996,
the Corporation announced that monthly charges for demand deposit accounts would
be discontinued. The discontinuance of monthly charges was expected to reduce
non-interest income. However, the "free checking accounts" enabled greater
access to new and existing markets. The average balance of non-interest bearing
deposits increased $4.4 million or 20% from $21.8 million for 1995 to $ 26.2
million for 1996 as compared to an increase of 12.8% in non-interest bearing
deposits from 1994 to 1995. The increase in non-interest bearing deposits helped
lower the average costs of funds 9 basis points from 2.66% in 1995 to 2.57% in
1996. Non-interest bearing deposits totalled $31.6 million at December 31, 1996
as compared to $25.6 million at December 31, 1995, an increase of $6.0 million
or 23.5%.
<PAGE> 20
NON-INTEREST EXPENSES. For the year ended December 31, 1996, non-interest
expense increased 15.8% to $4.8 million compared to $4.2 million at December 31,
1995. For the year ended December 31, 1995, non-interest expense increased 21.0%
to $4.2 million, compared to $3.5 million for 1994. Expense related to salary
and occupancy and other costs associated with purchasing three branch banking
locations in 1996, opening one new branch in 1996 and two new branches in 1994
and continued expansion of the Residential Mortgage Department in 1996 and 1995
were the largest portions of this increase. FDIC insurance expenses were $2,000
for 1996 a decreased from $94,000 for 1995 and $170,000 for 1994 as a result of
a reduction in the premium assessment. Salary and benefits expenses increased
19.7%, 31.7% and 15.8% in 1996, 1995, and 1994, respectively, over previous
respective years due primarily to added staff levels (which increased to 74 full
time equivalent employees at December 1996 from 42 at January 1, 1994) as well
as to merit increases in salaries and increased health care costs. The 1996
increase includes the effect of opening a branch banking office in September
1996. The 1995 increase includes the effect of the first full year of salary
expense for the two new branches and expansion of the Residential Mortgage
Department.
Occupancy and equipment costs increased 20.0%, 27.3% and 12.1% in 1996, 1995
and 1994, respectively, over previous respective years. The remaining other
operating expenses, which increased 15.5%, 12.8% and 15.7% in 1996, 1995 and
1994, respectively, over the respective previous years, included such expenses
as legal fees, postage, professional fees, advertising, and other general
operating expenses much of which is associated with new branches and residential
mortgage department expansion.
In 1996, the Bank purchased the physical property and equipment at three
banking locations which had been closed when rival banks merged. The costs of
acquiring these locations was approximately $1.0 million most of which will be
depreciated over the expected useful life of the asset. The Bank received
regulatory approval for the establishment of a full service branch banking
office at each of the three locations and plans to open one in each of the first
three quarters of 1997. In addition, the Bank entered into an agreement to lease
space in Cherry Hill that was also a branch recently closed as a result of other
bank mergers. The Bank received regulatory approval and opened a full service
banking branch at this location in September 1996. The cost of the lease
averages $66,000 annually over five years. Costs to improve and equip the site
were approximately $193,000 which will be expensed over the lease period. The
Bank has the option to extend the lease for four additional five year periods.
The lease amount at the renewal date is 10% higher than the prior period lease
amount. Management does not expect the expense to acquire and equip new branch
locations to be fully offset by income from the branch until after approximately
eighteen to twenty-four months of operations.
Income Taxes. The Corporation accounts for income taxes under the asset and
liability method. Deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
For the year ended December 31, 1996, the Corporation's provision for income
taxes was $464,000 an increase of 26.3% from 1995. For the year ended December
31, 1995, the Corporation's provision for income taxes was $367,000, a decrease
of 8.9% from the 1994. These fluctuations were caused by changes in the level of
pre-tax earnings. The effective tax rates for 1996, 1995 and 1994 were 32%, 32%
and 35%, respectively which closely approximates the combined statutory state
and federal tax rates.
<PAGE> 21
FINANCIAL CONDITION
Loan Portfolio.
General. The Corporation is an active lender with a loan portfolio that
includes commercial and residential mortgages, commercial loans, consumer
installment loans, home equity loans, and credit card loans. The Corporation's
commercial loan portfolio is largely made up of loans secured by owner occupied
commercial real estate with an average loan to value ratio under 75%. There is
no significant concentration in the portfolio within any business or industrial
segment. The Corporation's consumer portfolio consists of residential mortgage,
home equity, automobile, credit card and personal loans. Approximately 45% of
the consumer portfolio consists of home equity loans. The average loan to value
ratio of these loans is under 75%. The Corporation's lending activity extends to
individuals and small and medium sized businesses within its primary service
area, which is predominantly Camden, Gloucester and Burlington counties, New
Jersey. Consistent with its focus on providing community-based financial
services, the Corporation does not attempt to diversify its loan portfolio
geographically by making significant amounts of loans to borrowers outside its
primary service area. The Corporation's primary service area is a diverse
economic and employment market with no significant dependence on any one
industry or large employer.
Net loans consist of total loans minus the allowance for loan losses. Loan
origination fees are primarily offset by certain direct origination costs. Net
deferred loan fees, if any, are amortized over the life of the related loans as
an adjustment of the yield on the loans. Net loans were $71.6 million at
December 31, 1996, compared to net loans of $62.5 million at December 31, 1995.
The following table summarizes the Corporation's loan portfolio for the dates
indicated:
DECEMBER 31,
-----------------------------------
(DOLLARS IN THOUSANDS)
-----------------------------------
1996 1995 1994
------- ------- -------
Commercial .................... $46,288 $44,719 $37,102
Construction .................. 1,204 457 905
Mortgage ...................... 4,071 98 110
Consumer ...................... 20,824 17,864 15,326
------- ------- -------
Total ....................... 72,387 63,138 53,443
Less: allowance for loan losses (738) (596) (604)
Net loans ................... $71,649 $62,542 $52,839
======= ======= =======
Net loans at December 31, 1996 of $71.6 million increased 14.6% or $9.1
million from $62.5 million on December 31, 1995. Commercial loans at year end
1996 increased $1.6 million from year end 1995 while consumer loans at year end
1996 increased $3.0 million from 1995. Residential mortgages, consisting
entirely of adjustable rate mortgages, increased $4.0 million from 1995.
Commercial loans at year end 1995 increased $7.6 million from year end 1994
while consumer loans increased $2.5 million from 1994. At December 31, 1996,
$23.6 million or approximately 49.5% of the commercial loan portfolio was
secured by commercial real estate and $12.6 million or approximately 26.3% was
secured by residential one- to four-family real estate.
In the fourth quarter of 1995 and continuing in 1996, the Corporation
experienced a significant increase in loan demand. The Corporation's ratio of
average loans outstanding to average total deposits increased to 64.7% for 1996
from 62.9% for 1995 and from 57.0% for 1994. The increase in the loan to deposit
ratio, while affected by loan demand, is also impacted by the continuing growth
in deposit accounts (See "Deposits"). The Corporation has not responded to the
increased loan demand by lowering credit standards.
<PAGE> 22
A summary of selected loan maturities at December 31, 1996, is as follows:
MATURITY DISTRIBUTION
WITHIN ONE-FIVE AFTER FIVE
ONE YEAR YEARS YEARS TOTAL
-------- -------- ---------- -------
(DOLLARS IN THOUSANDS)
Commercial..................... $16,701 $27,582 $2,005 $46,288
Construction................... 1,204 0 0 1,204
Mortgage ...................... 0 71 4,000 4,071
Consumer....................... 626 6,878 13,320 20,824
------- ------- ------- --------
Total ......................... $18,531 $34,531 $19,325 $72,387
======= ======= ======= ========
The $27.6 million in commercial loans maturing in one to five years and the
$13.3 million in consumer loans maturing in more than five years, included $1.0
million and $5.9 million, respectively, in loans with floating or adjustable
rates.
Mortgage loans maturing in more than five years are adjustable rate mortgages.
The mortgage and consumer loans maturing in one to five years and the commercial
loans maturing after five years are fixed rate loans.
Loans held for sale are residential mortgage loans which have been committed
for by various investors such as mortgage companies. Funds for these sales have
not yet been received from the investors which have in some cases two weeks or
more to deliver. Funds are usually received by the Bank within one week of the
loan closing. The Bank began closing loans with its own funds in October 1995.
The Bank receives interest income from the investor from the date the loan
closes to the date funds are received from the investor. At December 31, 1996,
loans held for sale were $1.3 million as compared to $262,000 at December 31,
1995. Interest earned from loans held for sale totalled $18,000 for 1996 and
$7,000 for 1995 and is included in interest and fees on loans.
Asset Quality. The Corporation manages asset quality and controls credit risk
through diversification of the loan portfolio and the application of policies
designed to foster sound underwriting and loan monitoring practices. The
Corporation's senior officers are charged with monitoring asset quality,
establishing credit policies and procedures subject to approval by the Board of
Directors, seeking the consistent application of these policies and procedures
across the Bank and adjusting policies as appropriate for changes in market
conditions.
Non-performing assets include non-performing loans and foreclosed real estate
held for sale. Non-performing loans consist of loans where the principal,
interest, or both, is 90 or more days past due and loans that have been placed
on non-accrual. When loans are placed on non-accrual, accrued income from the
current period is reversed from current earnings. Consumer loans are charged off
when principal or interest is 120 or more days delinquent, or are placed on
non-accrual if the collateral is sufficient to recover the principal. As of
December 31, 1996 and 1995, for purposes of accounting and reporting in
accordance with SFAS 15, the Corporation had no troubled debt restructurings. As
of December 31, 1996 and 1995, for purposes of accounting and reporting in
accordance with SFAS 114, the Corporation's "impaired" loans are not material.
<PAGE> 23
The following is a summary of the Corporation's non-performing assets as of
the end of each period:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Past due 90 days or more and still accruing .......................... $ 14 $ 10 $ 44
Non-accrual loans .................................................... 528 320 518
---- ---- ----
Total non-performing loans ........................................... 542 330 562
Other real estate owned (OREO) ....................................... 0 638 82
---- ---- ----
Total non-performing assets .......................................... $542 $968 $644
---- ---- ----
Non-performing loans as a percent of loans ........................... 0.75% 0.52% 1.05%
Non-performing assets as a percent of loans and
OREO ............................................................... 0.75% 1.52% 1.20%
Non-performing assets as a percent of assets ......................... 0.43% 0.86% 0.67%
Reserve for loan losses as a percent of non-performing loans ......... 136.25% 181.61% 7.47%
</TABLE>
Total non-performing loans at December 31, 1996 were $542,000 (0.75% of total
loans and 0.43% of total assets), up $212,000 or 64.2% from year end 1995. Total
non-performing loans at December 31, 1995 were $330,000 (or 0.52% of total loans
and 0.29% of total assets), down $232,000 or 49.3% from year end 1994.
Management concentrated significant resources in 1995 and 1996 to reversing the
increase in non-performing assets which occurred from 1994 to 1995. The increase
in non-performing loans from 1995 to 1996 is not due to any one loan but several
unrelated loans. The decrease in non-performing loans in 1995 from 1994 was
primarily attributable to one loan for $440,000 which was reclassified as other
real estate owned in 1995 and as a result, non-performing loans as a percentage
of loans declined to 0.52% at December 31, 1995 from 1.05% at December 31, 1994.
All non-performing loans are, in the opinion of management, either adequately
collateralized and in process of collection, or adequately reserved in the
Corporation's allowance for possible loan losses. The other real estate owned at
December 31, 1995 of $638,000 includes one commercial property taken in
foreclosure carried at $440,000 and two residential properties taken in
foreclosure. All OREO properties were sold in 1996. The Corporation realized a
net gain of $5,510 from the sale of OREO in 1996.
Allowance For Possible Loan Losses. The Corporation determines the provision
for possible loan losses through a quarterly analysis of the adequacy of the
loan loss reserve. Factors such as economic conditions and trends, the volume of
non-performing loans, concentrations of credit risk, adverse situations that may
affect the ability of borrowers to pay, and prior loss experience within the
various categories of the portfolio are considered when reviewing the risks in
the portfolio. Larger exposures are analyzed individually. While management
believes the allowance for possible loan losses is currently adequate, future
additions to the allowance may be necessary based on changes in general economic
conditions and/or the condition of specific borrowers. The adequacy of the
allowance is reviewed quarterly by the audit committee comprised of members of
the Board of Directors and senior management of the Corporation. The full Board
of Directors reviews quarterly the relevant ratios with respect to the allowance
after the audit committee makes its recommendations. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for possible loan losses. Such
agencies may require the Corporation to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examination.
The Corporation has no credit exposure to foreign countries or foreign
borrowers or highly leveraged transactions.
<PAGE> 24
The following table sets forth for each of the past three years the
period-end balances and changes in the allowance for possible loan losses and
certain ratios:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year ........................ $ 596 $ 604 $ 719
Provision charged to operations ................. 340 210 105
Loans charged off
Commercial ..................................... (166) (134) (186)
Construction ................................... (0) (0) (0)
Mortgage ....................................... (0) (0) (0)
Consumer ....................................... (83) (113) (119)
Recoveries
Commercial ..................................... 8 5 60
Construction ................................... 0 0 0
Mortgage ....................................... 0 0 0
Consumer ....................................... 43 24 25
-------- -------- --------
Balance, end of year .............................. $ 738 $ 596 $ 604
======== ======== ========
Average gross loans (for year) .................... $ 67,628 $ 57,534 $ 46,303
Total gross loans at year end ..................... $ 72,387 63,138 53,443
Ratio of net charge offs to average loans ......... 0.29% 0.38% 0.48
Allowance as a percentage of total gross loans .... 1.02 .94 1.13
</TABLE>
Loans charged off represents the Corporation's recognition of losses
previously provided for in the overall allowance for possible loan losses
through the provisions charged to operations in the respective periods. The
increase in the provision in 1996 and 1995 was primarily because of the
increased loan portfolio. Management has, through its analysis of the adequacy
of the allowance for possible loan losses completed as of December 31, 1996,
determined the allowance to be adequate. Future additions to the allowance for
possible loan losses through provisions charged to operations will be determined
as a result of management's continuing analysis of the adequacy of the allowance
for possible loan losses.
The following schedule sets forth the allocation of the allowance for possible
loan losses among various categories. The allocation is based upon historical
experience and the Corporation's review of the specific amount or specific loan
category in which future losses may ultimately occur. However, the entire
allowance for possible loan losses is available to absorb future loan losses in
any category. The Corporation is unable to accurately predict in what category
future charge offs and recoveries may actually occur.
<PAGE> 25
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
DECEMBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
AMOUNT %* AMOUNT %* AMOUNT %*
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Commercial.... $440 64% $379 72% $438 71%
Construction.. 3 2% - 0% - 0%
Mortgage...... 16 6% - 0% - 0%
Consumer...... 185 28% 179 28% 143 29%
Unallocated... 94 N/A 38 N/A 23 N/A
---- ---- ----- ---- ---- ----
Total....... $738 100% $596 100% $604 100%
==== ==== ==== ==== ==== ====
</TABLE>
* Percentages indicate percent of loans in each category to total loans.
Securities.
The Corporation's securities portfolio serves several purposes. Portions are
held as investments. The remaining portions are used to assist the Corporation
in liquidity and asset/liability management. Total securities at December 31,
1996 were $32.7 million, down $6.3 million from year end 1995. The decrease was
primarily in U.S. Treasury securities. Total securities at December 31, 1995
were $39.1 million, up $7.2 million from year end 1994. The increase primarily
represents investments in U.S. Government sponsored agencies. Total securities
are 25.9% of total assets at December 31, 1996 and were 34.6% of total assets at
December 31, 1995.
Securities are classified as Investment Securities when management has the
intent and the Corporation has the ability at the time of purchase to hold the
securities to maturity. Investment Securities are carried at cost adjusted for
amortization of premiums and accretion of discounts. Securities to be held for
indefinite periods of time are classified as Securities Available for Sale.
Securities Available for Sale include securities that may be sold in response to
changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, general liquidity needs and other similar factors. The
Corporation's recent purchases of Investment Securities have been limited
primarily to U.S. government and agency securities with short- to medium-term
maturities.
Securities Available for Sale are reflected at fair value with unrealized
gains and losses, net of tax, being included in the Corporation's equity
account. The fair value of the Securities Available for Sale, as of December 31,
1996 was $14.6 million, which resulted in a decrease in stockholders' equity of
approximately $9,000 as of December 31, 1996. The change from an unrealized gain
to an unrealized loss during 1996 was primarily a result of changes in market
interest rates and certain maturities and additions of securities in the
available for sale portfolio.
<PAGE> 26
The following tables summarize the carrying amount of the Corporation's
Investment Securities and of Securities Available for Sale at the dates
indicated.
SECURITIES PORTFOLIO
DECEMBER 31,
----------------------
(DOLLARS IN THOUSANDS)
1996 1995 1994
SECURITIES AVAILABLE FOR SALE ------- ------- -------
U.S. Treasury $ 1,505 $ 7,532 $11,781
U.S. gov't. agencies & corp. 13,086 15,843 5,603
------- ------- -----
Total securities available for sale $14,591 $23,375 $17,384
======= ======= ========
INVESTMENT SECURITIES
U.S. Treasury 6,476 $ 7,444 $ 7,631
U.S. Govt agencies & corp 6,008 2,989 1,987
Other securities 5,653 5,252 4,944
------- ----- -----
Total investment securities $18,137 $15,685 $14,562
======== ======= =======
The carrying amount and weighted average yield of the Corporation's
Investment Securities and Securities Available for Sale at December 31, 1996, by
contractual maturity, are reflected in the following tables. Actual maturities
will differ from contractual maturities because certain borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
FAIR VALUE AND AVERAGE YIELD OF SECURITIES AVAILABLE FOR SALE(1)
AMOUNT AVERAGE YIELD
-------- -------------
(DOLLARS IN THOUSANDS)
Due in one year or less......................... $2,764 6.30%
Due after one year up to five years............. 10,823 6.39%
Due after five years up to ten years............ 1,004 7.00%
Due after 10 years.............................. 0 N/A
------- ------
Total securities.......................... $14,591 6.41%
======= ======
CARRYING AMOUNT AND AVERAGE YIELD OF INVESTMENT SECURITIES(1)
AMOUNT AVERAGE YIELD
-------- -------------
(DOLLARS IN THOUSANDS)
Due in one year or less......................... $4,657 6.11%
Due after one year up to five years............. 9,063 6.67%
Due after five years up to ten years............ 4,417 6.58%
Due after ten years............................. 0 N/A
------- ------
Total securities........................... $18,137 6.50%
======= ======
(1) Yields are based on historical costs.
<PAGE> 27
Deposits.
The Corporation's predominate source of funds is depository accounts. The
Corporation's deposit base is comprised of demand deposits, savings and money
market accounts and other time deposits. The Corporation's deposit base is
predominantly core deposits, consisting of demand and savings deposits.
The following table sets forth the distribution of average deposits by
major category and the average rate paid in each year as applicable.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
--------------------------------------------
1996 1995
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ----- ----- -----
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 26,221 0.00% $21,850 0.00%
Interest bearing demand deposits ... 39,806 2.85% 34,485 3.01%
Savings deposits ................... 16,459 2.46% 15,025 2.63%
Time deposits ...................... 21,990 5.19% 20,049 4.99%
Total/Weighted Average Rate ..... $104,476 2.57% $91,409 2.66%
======== ==== ======= =====
</TABLE>
The following table is a summary of time deposits of $100,000 or more by
remaining maturities as of December 31, 1996:
MATURITIES OF TIME DEPOSITS OF $100,000 AND OVER
AMOUNT PERCENT
---------- -------
(DOLLARS IN THOUSANDS)
Three months or less............................ $3,590 42%
Three to six months............................. 644 8%
Six to twelve months............................ 3,422 41%
Over twelve months.............................. 742 9%
----- ---
Total........................................ $8,398 100%
====== ====
Total deposits at December 31, 1996 were $111.4 million, compared to $99.5
million at December 31, 1995, an increase of approximately $11.9 million or
12.0%. Total deposits averaged $104.5 million for 1996, compared to the average
total deposits for the year ended December 31, 1995 of $91.4 million, an
increase of $13.1 million or 14.3%. Interest bearing demand, non-interest demand
and savings balances have increased 15.2% from $76.5 million at December 31,
1995 to $88.2 million on December 31, 1996. Certificates of Deposit totaled
$23.3 million at December 31, 1996 an increase of $281,000 or 1.2% from $23.0
million at December 31, 1995. The 15.6% growth in average core deposits from
$71.4 million for 1995 to $82.5 million for 1996 enabled the Corporation to
maintain a low average costs of funds and helped maintain the Corporation's
interest margin.
<PAGE> 28
As new deposits are generated from the existing branches as well as any
future branches, to the extent that these deposits grow faster than loan growth,
the Corporation expects to use these funds for investment securities and other
earning assets. Management expects to manage the growth of deposits in any new
branches as it does in its current operations, by interest rate management and
marketing. The Corporation's strategy for deposit acquisition and development
has been to attract and retain core deposits, and the Corporation traditionally
has not priced its deposits to attract short term relationships.
Short Term Borrowings.
The Corporation has no funding dependence on short term borrowings. Typically
the short term borrowings are in the form of Securities Sold under Repurchase
Agreements ("Repurchase Agreements") and are an accommodation for significant
depositor relationships that have excess large investable balances for short
periods. The majority of the Repurchase Agreements mature within 45 days. The
following table summarizes short term borrowing and weighted average interest
rates paid:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average daily amount of short term borrowings outstanding
during the period ...................................... $3,244 $2,436 $1,752
Weighted average interest rate on average daily short-term
borrowings ............................................. 4.62% 4.72% 3.42
Maximum outstanding short-term borrowings outstanding at
any month-end .......................................... $5,357 $2,778 $2,872
Short-term borrowings outstanding at period end .......... $3,281 $2,778 $2,515
Weighted average interest rate on short-term borrowings at
period end ............................................. 4.25% 4.41% 4.19%
</TABLE>
Interest Sensitivity.
An important element of both earnings performance and the maintenance of
sufficient liquidity is management of the interest sensitivity gap. The interest
sensitivity gap is the difference between interest sensitive assets and interest
sensitive liabilities in a specific time interval. The gap can be managed by
repricing assets or liabilities, by selling securities or loans held for sale,
by replacing an asset or liability at maturity or by adjusting the interest rate
during the life of an asset or liability. Matching the amounts of assets and
liabilities repricing in the same time interval contributes to preserving net
interest margins and minimizing the impact on net interest income in periods of
rising or falling interest rates. The Corporation evaluates interest sensitivity
risk and then formulates guidelines regarding asset generation and pricing,
funding sources and pricing, and off-balance sheet commitments (such as letters
of credit, lines of credit and credit card lines) in order to manage sensitivity
risk. These guidelines are based on management's outlook regarding future
interest rate movements, the state of the regional and national economy, and
other financial and business risk factors.
<PAGE> 29
The following table illustrates the interest sensitivity gap position of the
Corporation at December 31, 1996. It summarizes the contractual repayment terms
or nearest repricing dates of the Corporation's interest earning assets and
interest-bearing liabilities. This table presents a position that existed at one
particular day (December 31, 1996) and therefore is not necessarily indicative
of the Corporation's position at any other time.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
MATURING OR REPRICING IN:
---------------------------------------------
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
----------- ------ ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest earning assets
Federal funds sold ............. $ 8,050 $ 0 $ 0 $ 0 $ 8,050
Securities available for sale .. 2,764 0 10,823 1,004 14,591
Investment securities ........ 46 4,611 9,063 4,417 18,137
Loans .......................... 21,972 5,045 37,323 9,352 73,692
-------- -------- -------- -------- --------
Total interest earning assets .... $ 32,832 $ 9,656 $ 57,209 $14,773 $114,470
======== ======== ======== ========
Interest bearing liabilities
Deposits:
Interest bearing demand ....... $ 39,329 $ 0 $ 0 $ 0 $ 39,329
Savings ....................... 17,267 0 0 0 17,267
Time deposits $100,000 & over . 3,591 4,065 742 0 8,398
Other time deposits ........... 2,900 8,103 3,870 0 14,873
Other borrowed money .......... 3,281 0 0 0 3,281
-------- -------- -------- -------- --------
Total interest bearing liabilities $ 66,368 $12,1680 $ 4,612 $ 0 $ 83,148
======== ======== ======== ======== ========
Period gap ..................... $(33,536) $ (2,512) $ 52,597 $ 14,773 $ 31,322
======== ======== ======== ========
Cumulative gap ................. $(33,536) $(36,048) $ 16,549 $ 31,322
======== ======== ======== ========
Ratio of cumulative gap to total
earning assets ................ (29.30)% (31.49)% 14.46% 27.36%
======== ======== ======== ========
</TABLE>
While securities available for sale are presented in the foregoing table
according to their stated maturities, such investments can, if necessary, be
sold at any time in reaction to interest rate changes or funding demands.
The Corporation had $33.5 million more in liabilities than assets that
reprice in 90 days and was, therefore, in a liability-sensitive (negative gap)
position for this interval at December 31, 1996. Generally, a negative gap
position with respect to a given time period indicates that more liabilities may
reprice within that time period than assets, with the result that rising rates
may have a negative impact on interest rate spread and therefore on earnings.
Conversely, a positive gap position indicates that more assets may reprice in
that time period than liabilities, so that declining rates may have a negative
impact on interest rate spreads and earnings. The Corporation manages its
interest rate sensitivity gap to control the exposure of its net interest margin
such that an increase or decrease in market rates will impact net interest
income by no more than approximately 10% in any one year period. As noted
previously, securities available for sale, while presented in the table at their
stated maturities, can be sold any time and are an active interest sensitivity
gap management tool. For example, if the securities available for sale were
accelerated into the 4-12 months maturity/repricing column in the above chart,
the cumulative negative gap position would decrease from (31.49%) to (21.16%).
Further, the magnitude and timing of changes to deposit rate changes can be
managed to further minimize the exposure of net interest margin. For example,
savings deposits and certain interest bearing demand deposits, while recorded at
their first possible repricing opportunity, would not likely react as quickly to
a market rate change as their first recorded repricing opportunity would
indicate.
<PAGE> 30
Liquidity.
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest-bearing deposits with banks, federal funds sold,
securities classified as available for sale, and loans maturing within one year.
As a result of the Corporation's management of liquid assets and the ability to
generate liquidity through liability funds, management believes that the
Corporation maintains overall liquidity sufficient to satisfy its deposit
requirements and meet its customers' credit needs.
At December 31, 1996 cash, securities classified as Securities Available for
Sale, and federal funds sold were 24.4% of total assets, compared to 26.9% of
total assets at December 31, 1995. Asset liquidity is also provided by managing
loan maturities. At December 31, 1996, approximately $27.0 million or 36.7% of
loans would mature or reprice within a one year period. To the extent possible,
loans are funded with deposits or other funding with coinciding maturity or
repricing dates.
Capital Resources.
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions,
economic forces and growth and expansion activities. The Corporation seeks to
maintain a capital base to support its growth and expansion activities, to
provide stability to current operations and to promote public confidence.
The Corporation's capital position continues to exceed regulatory minimums.
The primary indicators relied on by the Federal Reserve Board and other bank
regulators in measuring strength of capital position are the Tier 1 Risk-Based
Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratios. Tier 1
Capital consists of common and qualifying preferred stockholders equity less
goodwill. Total Capital consists of Tier 1 Capital, qualifying subordinated debt
and a portion of the allowance for loan losses. Risk-based capital ratios are
calculated with reference to risk weighted assets which consist of both on and
off balance sheet risks (such as letters of credit, lines of credit and credit
card lines). The Corporation's Tier 1 Risk-Based Capital Ratio was 13.86% at
December 31, 1996 compared to 15.80% at December 31, 1995 and 18.20% at December
31, 1994. The Corporation's Total Risk-Based Capital Ratio was 14.80% at
December 31, 1996 compared to 16.75% at December 31, 1995 and to 17.07% at
December 31, 1994. These ratios are in excess of the mandated minimum
requirements of 4.00% and 8.00% respectively. The Leverage Ratio consists of
Tier 1 capital divided by quarterly average assets. At December 31, 1996, the
Corporation's Leverage Ratio was 8.70% which exceeded the required minimum
leverage ratio of 4.00%. Management anticipates these ratios to decline as
capital is leveraged in support of deposit and asset growth. The Corporation
manages capital ratios to exceed regulatory minimums.
<PAGE> 31
The following table shows the Corporation's regulatory capital ratios and
shareholders equity to total assets as of the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31,
REGULATORY -----------------------------------
MINIMUM 1996 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Capital Ratios:
Tier 1 Risk-Based Capital Ratio ....... 4.00% 13.86% 15.80% 17.07%
Total Risk-Based Capital Ratio ........ 8.00% 14.80% 16.75% 18.20%
Tier 1 Leverage Ratio ................. 4.00% 8.70% 8.74% 10.11%
Shareholders Equity to Total Assets ... 8.05% 8.82% 9.31%
</TABLE>
<PAGE> 32
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED INCOME STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE> 33
KPMG Peat Marwick LLP
1600 Market Street
Philadelphia PA 19103-7212
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Community Financial Holding Corporation
We have audited the accompanying consolidated balance sheets of Community
Financial Holding Corporation and subsidiary (the Corporation) as of December
31, 1996 and 1995, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Financial
Holding Corporation and subsidiary as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Corporation
adopted Statement of Financial Accounting Standard No. 115, Accounting for
Certain Investments in Debt and Equity Securities, effective January 1, 1994.
KPMG Peat Marwick, LLP
February 28, 1997
<PAGE> 34
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31 DECEMBER 31
------ ---------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash and Due from Banks $ 8,282,683 $ 5,473,753
Federal Funds Sold 8,050,000 1,550,000
Securities Available for Sale
(Amortized cost of $14,603,603 at
December 31, 1996 and $23,311,033
at December 31, 1995) 14,590,571 23,375,476
Investment Securities (Market Value of
$18,213,864 at December 31, 1996 and
$15,888,289 at December 31, 1995) 18,137,427 15,684,985
Loans Held For Sale 1,304,840 261,818
Loans 72,387,490 63,137,885
Less: Allowance for Loan Losses (738,353) (595,593)
------------- -------------
Net Loans 71,649,137 62,542,292
Bank Premises and Equipment, Net 3,120,643 1,934,602
Accrued Interest Receivable 902,084 978,455
Deferred Tax Assets 88,320 45,085
Other Assets 401,614 998,647
------------- -------------
Total Assets $ 126,527,319 $ 112,845,113
============= =============
LIABILITIES
Demand Deposits $ 70,910,844 $ 60,762,250
Savings Deposits 17,266,946 15,752,883
Time Deposits 23,270,538 22,989,356
------------- -------------
Total Deposits 111,448,328 99,504,489
Accrued Interest Payable 584,769 471,805
Securities Sold Under Repurchase
Agreements 3,280,586 2,777,677
Other Liabilities 267,881 129,866
------------- -------------
Total Liabilities 115,581,564 102,883,837
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock $5 Par Value
Authorized 1,600,000 Shares
Issued and Outstanding 988,974 Shares
1996 and 985,512 Shares 1995 4,944,870 4,695,345
Additional Paid In Capital 4,899,873 4,327,162
Retained Earnings 1,228,457 1,015,080
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Gain/(Loss) on Securities
Available for Sale (8,601) 42,533
------------- -------------
Total Shareholders' Equity 10,945,755 9,961,276
------------- -------------
Total Liabilities &
Shareholders' Equity $ 126,527,319 $ 112,845,113
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 35
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $6,181,220 $5,417,724 $4,239,008
Interest on Federal Funds Sold 369,308 362,436 268,050
Interest and Dividends on Investments 2,043,490 1,675,061 1,503,621
---------- ---------- ----------
Total Interest Income 8,594,018 7,455,221 6,010,679
---------- ---------- ----------
Interest Expense:
Interest on Demand Deposits 1,133,942 1,037,969 812,112
Interest on Savings Deposits 405,210 394,692 371,821
Interest on Time Deposits 1,141,914 1,001,434 667,429
Interest on Short Term Borrowings 149,647 114,793 59,540
---------- ---------- ----------
Total Interest Expense 2,830,713 2,548,888 1,910,902
---------- ---------- ----------
Net Interest Income 5,763,305 4,906,333 4,099,777
Provision for Loan Losses 340,000 210,000 105,000
---------- ---------- ----------
Net Interest Income After Provision
for Loan Losses 5,423,305 4,696,333 3,994,777
---------- ---------- ----------
Other Income:
Service Charges on Deposit Accounts 514,715 486,616 466,985
Net Gain on Sale of Securities 11,269 0 0
Other Income, Service Charges and Fees 369,356 165,441 162,926
---------- ---------- ----------
Total Other Income 895,340 652,057 629,911
---------- ---------- ----------
Other Expenses:
Salaries, Wages and Employee Benefits 2,431,794 2,030,767 1,541,452
Occupancy and Equipment Expenses 819,426 683,075 536,462
FDIC Insurance Expense 2,000 93,685 170,202
Data Processing Expense 362,826 325,184 329,884
Advertising Expense 195,003 173,024 143,370
Other Operating Expenses 1,038,119 883,097 751,389
---------- ---------- ----------
Total Other Expenses 4,849,168 4,188,832 3,472,759
---------- ---------- ----------
Income Before Income Taxes 1,469,477 1,159,558 1,151,929
Income Tax Expense 463,764 367,100 402,928
---------- ---------- ----------
Net Income $1,005,713 $ 792,458 $ 749,001
========== ========== ==========
Net income per share information:
Primary earnings per share $ 0.98 $ 0.80 $ 1.03
Fully diluted earnings per share 0.95 0.80 1.03
</TABLE>
The accompanying notes are a integral part of these statements.
<PAGE> 36
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
GAIN (LOSS) ON
SECURITIES TOTAL
ADDITIONAL AVAILABLE FOR SHARE
COMMON PAID IN RETAINED TREASURY SALE, NET HOLDERS'
STOCK CAPITAL EARNINGS STOCK OF TAX EQUITY
----- ------- -------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,013,555 1,956,389 470,424 (118,844) 0 4,321,524
Common Stock Issuance
6/23/94 2,250,000 1,805,760 4,055,760
Net Income for 1994 749,001 749,001
5% Stock Dividend 210,630 200,099 (410,729) 0
Unrealized Loss on Securities
Available for Sale (219,131) (219,131)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 4,474,185 3,962,248 808,696 (118,844) (219,131) 8,907,154
Net Income for 1995 792,458 792,458
5% Stock Dividend 221,160 364,914 (586,074) 0
Change in Unrealized Gain (Loss)
on Securities 0
Available for Sale, Net of Tax 261,664 261,664
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 4,695,345 4,327,162 1,015,080 (118,844) 42,533 9,961,276
Issuance of Common Stock Under
Director & Officer Stock Option Plan 16,485 13,415 29,900
Net Income for 1996 1,005,713 1,005,713
5% Stock Dividend 233,040 559,296 (792,336) 0
Change In Unrealized Gain (Loss)
on Securities Available
For Sale (51,134) (51,134)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 4,944,870 $ 4,899,873 $ 1,228,457 $ (118,844) $ (8,601) $10,945,755
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 37
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,005,713 $ 792,458 $ 749,001
Adjustments To Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation and Amortization 248,324 222,237 180,947
Provision For Loan Losses 340,000 210,000 105,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net (36,822) 9,677 (33,529)
Gain On Sale of Securities Available For Sale (11,269) 0 0
Loss (Gain) On Sale of Other Real Estate 5,510 26,871 (19,049)
Gain On Sale Of Bank Premises And Equipment 0 0 (16,700)
Decrease (Increase) In Accrued Interest Receivable 76,371 (218,527) (233,839)
Decrease (Increase) In Deferred Tax Assets (43,235) 118,642 102,027
Decrease (Increase) In Other Assets 591,523 (785,177) (218,559)
Increase (Decrease) In Accrued Interest Payable 112,964 242,585 (219,037)
Increase In Other Liabilities 138,015 102,280 25
------------ ------------ ------------
Total Adjustments 1,421,381 (71,412)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,427,094 721,046 396,287
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity and Sale Of Securities
Available For Sale 17,520,594 11,500,000 6,200,000
Proceeds From Maturities and Prepayments
Of Investment Securities 8,369,473 5,609,166 2,103,026
Purchases Of Securities Available For Sale ( 8,748,668) (16,926,273) (3,591,298)
Purchases Of Investment Securities (10,811,979) (7,045,255) (7,280,105)
Loans Made To Customers, Net (10,489,867) (9,913,479) (9,395,450)
Premises And Equipment Expenditures ( 1,434,365) (270,058) (1,037,637)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (5,594,812) (17,045,899) (13,001,464)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 11,943,839 15,557,974 5,588,153
Net Increase (Decrease) In Short
Term Borrowings 502,909 263,006 (405,944)
Proceeds from issuance of Common Stock 0 0 4,252,500
Stock Offering Costs Paid 0 0 (196,740)
Proceeds from Issuance of Common Stock Under
Director and Officer Stock Option Plan 29,900 0 0
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,476,648 15,820,980 9,237,969
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 9,308,930 (503,873) (3,367,208)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,023,753 7,527,626 10,894,834
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AS OF END OF YEAR $ 16,332,683 $ 7,023,753 $ 7,527,626
============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $ 2,717,749 $2,224,584 1,502,447
Income Taxes 352,137 331,600 372,840
Non-Cash Items:
Net Change In Unrealized Gain/(Loss) From
Securities Available For Sale (77,475) 396,460 (332,017)
Tax Effect Of Unrealized Loss
From Securities Available For Sale (26,341) 134,796 (112,886)
Acquisition of Real Estate in Settlement of Loans 0 637,643 82,000
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 38
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Community Financial Holding Corporation (the Holding Company) is the parent
of Community National Bank of New Jersey (the Bank) which is the sole wholly
owned subsidiary of the Holding Company. The Holding Company conducts no
business separate from that of the Bank.
The Bank is a national banking corporation organized under the laws of the
United States in 1987. It provides commercial banking services at its main
facility in Haddon Township, New Jersey and at branch offices in Westville,
Audubon, Cherry Hill, Collingswood and Marlton, New Jersey. The principal
activity of the Bank is to provide its local communities with general commercial
and retail banking services. The Bank offers commercial and consumer loans,
including real estate loans, residential mortgage loans, home equity loans and
lines of credit, auto loans and other credit products. The bank is not
authorized to offer trust services and does not presently offer the sale of
investment products such as mutual funds to its customers. The Bank's deposit
services include business and individual demand and time deposit accounts, NOW
accounts, money market accounts, Individual Retirement Accounts and holiday
accounts.
The accounting and reporting policies reflected in the consolidated
financial statements conform to generally accepted accounting principles and to
general practice within the banking industry. The following is a description of
the more significant of these policies.
Principals of Consolidation
The financial statements consolidate the Holding Company and its subsidiary,
the Bank collectively referred to as the "Corporation". All significant
intercompany balances have been eliminated.
Use of Estimates
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for possible loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for possible loan losses and real estate owned, management obtains
independent appraisals for significant properties to the extent considered
practical.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal funds sold.
Federal funds generally are purchased and sold for a one-day period.
Securities
As of January 1, 1994, the Bank adopted the Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Applicable
investments are classified in three categories consisting of held-to-maturity,
trading and available for sale. Trading securities are those which are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities for which the Corporation has
the ability and intent to hold the security until maturity. All other securities
not included in trading or held to maturity are classified as available for
sale. Held-to-maturity securities are reported at amortized cost, while trading
securities and available-for-sale securities are reported at fair value. For
trading securities the unrealized gains and losses are included in current
earnings. Available-for-sale securities are accounted for by reporting
unrealized gains and losses as a separate component of shareholders equity, net
of tax.
<PAGE> 39
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Loans Held For Sale
The Bank originates residential real estate loans and sells primarily fixed
rate loans to various investors such as mortgage companies and agencies. The
Bank has purchase commitments at par value for all loans held for sale. The
interest income earned from the loan closing date to the date of sale is
recorded in Interest and Fees on Loans. In 1996, the interest earned from the
sale of loans totalled $18,096. For 1995, $261,818 was reclassified from Other
Assets to Loans Held For Sale and $6,886 was reclassified from Other Income to
Interest and Fees on Loans.
Loans
Interest on loans is included in interest income on the accrual method over
the terms of the loans based upon the principal balances outstanding.
Income recognition of interest is discontinued when, in the opinion of
management, the collectibility of such interest becomes doubtful. A loan is
generally classified as non-accrual when principal or interest has consistently
been in default for a period of 90 days or more or because of a deterioration in
the financial condition of the borrower such that payment in full of principal
and interest is not expected. Loans past due 90 days or more and still accruing
interest are loans that are generally well-secured and in the process of
collection.
Loan origination fees are offset by certain direct origination costs. Net
deferred loan fees, if any, are amortized over the life of the related loans as
an adjustment of the yield on the loans.
In 1995, the Bank adopted SFAS 114, "Accounting by Creditors for Impairment of
a Loan" and SFAS 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". Under SFAS 114 and SFAS 118, "impaired" loans are
measured based on the present value of expected future cash flows discounted at
the loans' effective interest rate or, as a practical expedient, at the loans
observable market price or the fair value of the collateral if the loan is
collateral dependent. The adoption of SFAS 114 and 118 has not had a material
effect on the Corporation's consolidated financial statements. For purposes of
applying the measurement criteria for impaired loans the Bank excludes large
groups of smaller-balance homogeneous loans, primarily consisting of residential
real estate loans and consumer loans, as well as commercial, financial and
agriculture loans with balance less than $100,000. For applicable loans, the
Bank evaluates the need for impairment recognition when a loan becomes
non-accrual, or earlier if based on management's assessment of the relevant
facts and circumstances, it is probable that the Bank will be unable to collect
all proceeds due according to the contractual terms of the loan agreement. The
Bank's policy for the recognition of interest income on impaired loans is the
same as for non-accrual loans discussed previously. Impaired loans are charged
off when the Bank determines that foreclosure is probable and the fair value of
the collateral is less than the recorded investment of the impaired loan.
Allowance for Loan Losses
The allowance for loan losses represents the amount which, in management's
judgment, is necessary to cover estimated loan losses. Management performs a
quarterly assessment of the credit portfolio in order to determine the
appropriate level of the allowance. The factors considered in this evaluation
include, but are not necessarily limited to, estimated losses from loan and
off-balance sheet arrangements; general economic conditions; deterioration in
credit concentration or pledged collateral; historical loss experience; and
trends in portfolio volume, maturity, composition, delinquencies, and
non-accruals. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions or any other factors used in management's determination. In
addition, various regulatory agencies, as an integral part of their examination
process periodically review the Corporations' allowance for losses on loans.
Such agencies may require the Corporation to recognize additions to the
allowance based on their judgements about information available to them at the
time of their examination. Accounts are charged directly against the allowance
as soon as probability of loss is established, taking into consideration such
factors as the customer's financial condition, underlying collateral and
guarantees. Recoveries on previously charged off loans are added to the
allowance.
<PAGE> 40
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Bank Premises and Equipment
Land, buildings and equipment owned by the Corporation are carried at
amortized cost. The Corporation leases certain facilities under long-term
agreements as described in Note 10. Leasehold improvements are capitalized and
amortized over the lease term, including extension options or the estimated
useful lives of the improvements, whichever is shorter. Depreciation of
buildings and equipment is based on the economic useful lives of the assets,
ranging from five to forty years, using the straight line method. Maintenance
and repairs which do not extend the useful life of the assets are charged to
current operating expenses.
In 1996, the Corporation purchased the physical property and equipment at
three branch banking locations for a total cost of approximately $1.0 million.
Other Assets
Other assets include other real estate owned, consisting of foreclosed real
estate which is carried at the lower of cost or estimated fair value less
selling costs. Any write-down, at or prior to the dates the real estate is
considered foreclosed, is charged to the allowance for loan losses. Subsequent
write-downs and expenses incurred in connection with holding such assets are
recorded in non-interest expense and any gains or losses upon their sale are
included in other income or expense.
Earnings Per Common Share
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding and dilutive common stock equivalents including
stock options and warrants. The average number of common shares used in the
computation for primary earnings per share were 1,030,995, 991,746 and 726,828
for 1996, 1995 and 1994, respectively. The average number of shares used in the
computation for fully diluted earnings per share for 1996 were 1,061,750. Stock
options and warrants were not dilutive greater than 3% of earnings per share for
1995 and 1994.
The computation of the 1996, 1995 and 1994 average number of common shares
and all per share data gives retroactive recognition to a 5% stock dividend
declared in each of those years.
Stock Option Plan
The Corporation accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued To Employees, and related interpretations. As such, compensation
expense would be reported on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. On January 1, 1996, the
Corporation adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Corporation has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123.
Income Taxes
The Corporation accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be resolved or settled. The effect on deferred taxes of a change in tax rates is
recognizable in income in the period that includes the enactment date.
<PAGE> 41
Impairment Of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Corporation adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the
Corporation's financial position, results of operations or liquidity.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of Liabilities occurring after
December 31, 1996 and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Corporation does not expect that adoption of SFAS
No. 125 will have a material impact on the Corporation's financial position,
results of operations or liquidity. In December 1996, FASB issued SFAS No. 127
which deferrs the effective date of certain provisions of SFAS No. 125.
Accounting for Mortgage Servicing Rights
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing
Rights. This statement requires the Bank, which services mortgage loans for
others in return for a fee, to recognize as an asset the right to service
mortgage loans, regardless of how they were acquired. Additionally, the Bank is
required to assess the fair value of these assets at each reporting date to
determine impairment. SFAS No. 122 was adopted by the Bank on January 1, 1996.
The adoption of this Statement did not materially affect the Bank's results of
operation, equity or financial condition.
NOTE 2. CASH AND DUE FROM BANKS
Average reserves with the Federal Reserve Bank of $300,000 were maintained
to satisfy minimum Federal regulatory reserve requirements during 1996 and 1995.
<PAGE> 42
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 3. SECURITIES
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1996 and December 31, 1995 are as follows.
<TABLE>
<CAPTION>
1996
SECURITIES AVAILABLE FOR SALE
-----------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
United States Treasury and Agency
Securities .............................. $14,348,582 $27,160 $ (40,192) $14,335,550
Other ...................................... 14,671 0 0 14,671
Federal Reserve Stock ...................... 240,350 0 0 240,350
----------- ------- ------------ -----------
Total ................................... $14,603,603 $27,160 $ (40,192) $14,590,571
=========== ======= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
1996
INVESTMENT SECURITIES
---------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
United States Treasury and Agency
Securities .................. $10,493,612 $43,407 $ (18,036) $10,518,983
Obligations of State and political
subdivisions ................ 5,652,976 38,962 (658) 5,691,280
Mortgage backed securities ....... 1,990,839 12,762 0 2,003,601
----------- ------- ----------- -----------
Total ........................... $18,137,427 $95,131 $ (18,694) $18,213,864
=========== ======= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
1995
SECURITIES AVAILABLE FOR SALE
-----------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
United States Treasury and Agency
Securities ................... $23,070,683 $78,074 $(13,631) $23,135,126
Federal Reserve Stock ........... 240,350 0 0 240,350
----------- ------- -------- -----------
Total ........................ $23,311,033 $78,074 $(13,631) $23,375,476
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
INVESTMENT SECURITIES
---------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
United States Treasury and Agency
Securities .................. $ 8,443,660 $121,027 $ 0 $8,564,687
Obligations of State and political
subdivisions ................. 5,252,494 45,503 (995) 5,297,002
Mortgage backed securities ....... 1,988,831 37,769 0 2,026,600
----------- -------- ----- -----------
Total ......................... $15,684,985 $204,299 $(995) $15,888,289
=========== ======== ===== ===========
</TABLE>
During 1996, the Bank received proceeds of $11,520,594 from the sale of
securities available for sale. Gross gains of $17,621 and gross losses of $6,352
were realized on those sales. There were no sales of investment securities
during 1996. There were no sales of securities available for sale or investment
securities during 1995 or 1994.
<PAGE> 43
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The amortized cost and estimated fair value of investment securities as of
December 31, 1996 and 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
-----------------------------
1996 1995
---- ----
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less .............. $ 2,759,997 $ 2,763,271 $ 7,741,283 $ 7,735,514
Due after one year through five years 10,843,606 10,823,237 15,569,750 15,639,962
Due after five years through ten years 1,000,000 1,004,063 0 0
Due after ten years .................. 0 0 0 0
----------- ----------- ----------- -----------
Total ............................ $14,603,603 $14,590,571 $23,311,033 $23,375,476
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
---------------------
1996 1995
---- ----
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less ......................... $ 4,656,484 $ 4,666,352 $ 6,739,820 $ 6,745,113
----------- ----------- ----------- -----------
Due after one year through five years ........... 9,063,481 9,115,410 6,505,579 6,644,361
Due after five years through ten years .......... 4,417,462 4,432,102 450,755 472,215
Due after ten years ............................. 0 0 1,988,831 2,026,600
----------- ----------- ----------- -----------
Total ........................................ $18,137,427 $18,213,864 $15,684,985 $15,888,289
=========== =========== =========== ===========
</TABLE>
Investment securities and Securities Available For Sale with a carrying value
of approximately $7,987,456 and $10,502,100 at December 31, 1996 and 1995,
respectively, were pledged as collateral for demand and time deposits of
governmental agencies as required by law.
NOTE 4. LOANS
Major classifications of loans are as follows:
1996 1995
Commercial ................. $ 46,287,940 $ 44,719,495
Construction ............... 1,204,000 456,603
Residential Mortgages ...... 4,070,846 97,913
Consumer ................... 20,824,704 17,863,874
------------ ------------
Total loans ............. $ 72,387,490 $ 63,137,885
Allowance for loan losses (738,353) (595,593)
------------ ------------
Loans-Net ............... $ 71,649,137 $ 62,542,292
============ ============
At December 31, 1996, 1995 and 1994, loans for which the accrual of interest
has been discontinued totalled $527,881, $320,051 and $517,825 respectively. If
interest on these loans had been accrued, such income would have approximated
$38,747 in 1996, $22,306 in 1995 and $25,126 in 1994. In the opinion of
management, sufficient collateral exists to recover the amounts owed.
<PAGE> 44
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Loans which are contractually past due 90 days or more as to principal or
interest payments totalled $14,047 and $9,654 and $44,407 at December 31, 1996,
1995 and 1994, respectively. The amount of interest income on those loans that
was included in net income was $675, $1,213 and $14,109 for 1996, 1995 and 1994,
respectively.
Loans to directors and their associates and principal officers and
shareholders which are made in the ordinary course of business and on
substantially the same terms and rates as to other borrowers aggregated
approximately $780,701 and $518,894 as of December 31, 1996 and 1995,
respectively. During 1996, approximately $380,590 of new loans were made,
repayments totaled $131,306 and advances on existing loans were $12,523.
Changes in the allowance for loan losses are as follows:
1996 1995 1994
---- ---- ----
Balance, beginning of year................ $595,593 $604,054 $718,777
Provision charged to operations........ 340,000 210,000 105,000
Loans charged off...................... (248,855) (247,045) (305,137)
Recoveries............................. 51,615 28,584 85,414
------ -------- -------
Balance, end of year.................... $738,353 $595,593 $604,054
======== ======== ========
NOTE 5. BANK PREMISES AND EQUIPMENT
Major classifications of bank premises and equipment as of December 31, 1996
and 1995 are summarized as follows:
1996 1995
---- ----
Land and buildings............................... $1,924,795 $955,973
Equipment............................................ 1,975,538 1,565,704
Leasehold and other improvements..................... 617,373 562,101
------- -------
Total............................................ 4,517,706 3,083,778
Accumulated depreciation and amortization............(1,397,063)(1,149,176)
---------- ----------
Premises and equipment, net..........................$3,120,643 $1,934,602
========== ==========
NOTE 6. DEPOSITS
A summary of deposits as of December 31, 1996 and 1995 is as follows:
1996 1995
---- ----
Non-Interest Bearing................................$31,581,773 $25,563,609
Interest Bearing:
NOW checking accounts.............................27,534,055 . 24,822,982
Money market deposit accounts.....................11,795,016 . 10,375,659
Savings accounts..................................17,266,946 . 15,752,883
Certificates of deposit less than $100,000 .......14,872,644 14,348,592
Certificates of deposit $100,000 and greater ..... 8,397,894 8,640,764
--------- ---------
Total interest bearing deposits.............79,866,555 . 73,940,880
----------- ----------
Total deposits...............................$111,448,328 $99,504,489
============ ===========
The weighted average interest rate paid on interest bearing deposits was
3.43% and 3.50% at December 31, 1996 and 1995, respectively.
<PAGE> 45
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
While the certificates frequently are renewed at maturity rather than paid
out, they are scheduled to mature contractually as follows:
1996 1995
---- ----
Within one year .............................. $18,724,472 $18,293,333
Beyond one year but within three years ....... 2,300,148 3,647,008
Over three years ............................. 2,245,918 1,049,015
----------- -----------
Total .................................... $23,270,538 $22,989,356
=========== ===========
A summary of interest expense on deposits during 1996, 1995 and 1994, is as
follows:
1996 1995 1994
---- ----- ----
NOW checking accounts..................... $ 855,188 $ 747,460 $ 537,348
Money market deposit accounts............. 428,401 405,302 334,304
Savings accounts.......................... 405,210 394,692 371,821
Certificates of deposit less than $100,000 778,710 558,140 372,436
Certificates of deposit $100,000 and greater 363,204 443,294 294,993
------- ------- -------
Total.................................. $2,830,713 $2,548,888 $1,910,902
========== ========== ==========
Money Market Deposit accounts include interest expense for short term
borrowings of $149,647, $114,793 and $59,540 for 1996, 1995 and 1994,
respectively.
NOTE 7. SHORT TERM BORROWINGS
At December 31, 1996, 1995 and 1994, short term borrowings under
agreements to repurchase securities sold are summarized as follows:
<TABLE>
<CAPTION>
COLLATERAL
U.S. GOVERNMENT
REPURCHASE WEIGHTED AVERAGE OBLIGATIONS
LIABILITY INTEREST RATE BOOK VALUE MARKET VALUE
-------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1996, Within 30 Days $2,943 4.13% $3,005 $3,005
1996, Within One Year $ 338 5.25% $1,000 $1,004
1995, Within 30 Days $2,272 4.56% $3,134 $3,132
1995, Within 30 to 120 Days $ 506 4.57% $ 892 $ 888
1994, Within 30 Days $2,515 4.19% $2,999 $2,942
</TABLE>
These agreements to repurchase securities require that the Corporation
repurchase the identical securities as those that were sold. The short-term
borrowings under these agreements averaged $3,185,610, $2,339,764 and $1,752,172
during 1996, 1995 and 1994, respectively, and the maximum amounts outstanding at
any month-end during 1996, 1995 and 1994 were $5,356,816, $2,777,677 and
$2,871,692, respectively.
<PAGE> 46
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
NOTE 8. INCOME TAXES
The following is a summary of the provision for income tax expense:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal ............................... $398,490 $341,347 $189,338
State ................................. 82,168 41,908 96,928
-------- --------- --------
Total ............................. 480,658 383,255 286,266
Deferred:
Federal ............................... (16,894) (16,155) 116,662
State ................................. 0 0 0
-------- --------- --------
Total .............................. (16,894) (16,155) 116,662
-------- --------- --------
Total........................ $463,764 $367,100 $402,928
======== ========= ========
</TABLE>
A reconciliation of federal income taxes at the statutory rate of 34% to the
consolidated effective income tax is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate ................................ $ 499,622 $ 394,250 $ 391,656
Tax exempt income net of interest scale back ......... (68,574) (67,056) (37,531)
State income taxes net of federal benefit ............ 54,231 27,660 63,972
Other ................................................ (21,515) 12,246 (15,169)
--------- --------- ---------
Total ............................................. $ 463,764 $367,100 $402,928
========= ========= =========
</TABLE>
Significant deferred tax assets and liabilities of the corporation are as
follows:
1996 1995
---- ----
Loan Loss Reserve Book vs. Tax ............... $135,487 $101,851
Unrealized Loss Available for Sale Securities .. 4,431 0
-------- --------
Total Deferred Assets ....................... $139,918 $101,851
Unrealized Gain Available For Sale Securities .. 0 21,911
Depreciation, Amortization and Deferrals ....... 51,598 34,855
-------- --------
Total Deferred Credits ...................... 51,598 56,766
-------- --------
Net Deferred tax asset ......................... $ 88,320 $ 45,085
======== ========
Management has determined that it is more likely than not deferred tax assets
will be realized. There can be no assurance, however, that the Corporation will
generate any taxable income, or any specific level of continuing earnings.
NOTE 9. SHAREHOLDERS' EQUITY
The Board of Directors of the Corporation declared 5% common stock dividends
on November 7, 1996, November 13,1995 and December 15, 1994 to shareholders of
record on December 1, 1996, December 1, 1995 and December 1, 1994, respectively.
In connection with the issuance of common stock by the Corporation in 1994,
26,047 warrants were issued to the Corporation's underwriter. Such warrants are
exerciseable at a price of $9.98 and expire on June 16, 2000. such warrants have
been adjusted to reflect the Corporation's 5% stock dividends in 1996, 1995 and
1994.
<PAGE> 47
NOTE 10. LEASES
The Corporation leases operating facilities under operating lease agreements.
Generally, the Corporation is required to pay executory costs such as property
taxes, maintenance, and insurance.
The total minimum rental commitment at December 31, 1996 under leases is
$486,994 which is due as follows:
In the year ending December 31:
1997........................$216,994
1998..........................99,000
1999..........................85,500
2000..........................54,000
2001 .........................31,500
The total rental expense was $269,770, $232,077 and $185,101 in 1996, 1995 and
1994, respectively.
NOTE 11. DIVIDENDS
The ability of the Corporation to pay dividends is limited by the Bank's
ability to pay dividends to the Holding Company. Dividends payable to the
Corporation by the Bank are subject to certain regulatory limitations. The
payment of dividends in any year without regulatory permission is limited to the
net profits (as defined for regulatory purposes) for that year plus the retained
net profits for the preceding two calendar years. Accordingly, as of December
31, 1996, dividends in excess of those already declared from the Bank to the
Corporation are limited to $2,563,000.
NOTE 12. EMPLOYEE BENEFIT PLAN
The Corporation maintains a defined contribution profit sharing and savings
plan covering substantially all employees. The plan allows eligible employees to
make contributions by salary reduction pursuant to Section 401(K) of the
Internal Revenue Code. Required matching contributions by the Corporation
expensed in the consolidated financial statements were $26,432, $17,455 and
$16,549 in 1996, 1995 and 1994, respectively.
NOTE 13. EMPLOYEE AND DIRECTOR STOCK OPTION PLAN
In 1994, the Corporation adopted a stock option plan (the Plan) pursuant to
which the Corporation's Board of Directors may grant stock options to Directors
and Officers. The plan authorizes grants of options to purchase up to 347,288
shares (adjusted for stock dividends) of authorized but unissued common stock.
Stock options are granted with an exercise price equal to the stock's fair
market value at the date of grant. All stock options have ten year terms and
vest and become fully exercisable after two years from the date of grant.
At December 31, 1996, there were 201,938 additional shares available for
grant under the plan. The per share weighted-average fair value of stock options
granted during 1995 was $7.15 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
expected dividend yield 0.0%, risk-free interest rate of 6.5%. and an
expected life of 10 years. There were no stock options granted in 1996.
<PAGE> 48
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Corporation applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Corporation determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Corporation's net income would have been reduced to the pro forma amounts
indicated below:
1996 1995
---- ----
Net Income As Reported $1,005,713 $792,458
Net Income Pro Forma 884,165 784,692
Primary Earnings as Reported 0.98 0.80
Primary Earnings, Pro Forma 0.86 0.79
Fully Diluted Earnings as Reported 0.95 0.80
Fully Diluted Earnings, Pro Forma 0.83 0.79
Pro forma net income reflects only options granted in 1995 as there were no
options granted in 1996. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
option's vesting period of two years and compensation cost for options granted
prior to January 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
NUMBER OF WEIGHTED-AVERAGE
SHARES(1) EXERCISE PRICE
--------- --------------
Balance at December 31, 1994.............. 116,573 $ 8.64
Granted .................................. 40,950 11.67
------
Balance at December 31, 1995.............. 157,523 9.42
Forfeited (8,876) 10.43
Exercised................................. (3,297) 10.00
-------
Balance at December 31, 1996........... 145,350 9.38
=======
(1) The figures are adjusted to reflect the Corporation's stock dividends
in 1996, 1995 and 1994.
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.64 - $11.67 and 8.3
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 145,350
and 157,523, respectively, and the weighted-average exercise price of those
options was $9.38 and $9.42, respectively.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, to meet the financial and servicing needs
of its customers, the Corporation enters into transactions that involve
instruments with off-balance sheet risk. These instruments include loan
commitments, letters of credit and credit card lines. These instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet.
<PAGE> 49
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments, letters of
credit and credit card lines is represented by the dollar amount of those
instruments. The Corporation uses the same credit policies and collateral
requirements in making commitments and conditional obligations as it does for
on-balance sheet financial instruments.
The aggregate dollar amount of financial instruments with off-balance sheet
risk are as follows at December 31, 1996 and 1995, respectively:
1996 1995
Loan Commitments........................................$12,977,028 $ 9,634,968
Commercial and standby letters of credit ............... 819,280 689,982
Credit cards ........................................... 1,056,488 1,034,679
Total ...............................................$14,852,796 $11,359,629
Loan commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained is based on management's credit evaluation of the customer. Collateral
may include accounts receivable, investments, inventory, property, plant and
equipment, and commercial income producing and residential real property.
Letters of credit are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. The credit risk
involved and collateral obtained in issuing letters of credit is essentially the
same as that involved in extending loan commitments to customers.
The Corporation does not anticipate any material losses as a result of these
commitments.
Concentrations of Credit Risk
Most of the Corporation's commercial, real estate, and installment loan
activity is with customer's located in the southern counties of New Jersey. The
concentrations of credit by type of loan are set forth in Note 4. Generally
these loans are collateralized by assets of the borrower. The loans are expected
to be repaid from cash flow or proceeds from the sale of selected assets of the
borrower. Performance by the Corporation's loan customers is expected to be
substantially influenced by economic conditions in the Southern New Jersey
market area.
Legal and Regulatory Proceedings
The Corporation is a party to certain claims and litigation that arise
primarily in the ordinary course of business. Based on information presently
available and advice received from legal counsel representing the Corporation in
connection with such claims and litigation, it is the opinion of management that
the disposition or ultimate determination of such claims and litigation will not
have a material adverse effect on the consolidated financial position or the
results of operations of the Corporation.
NOTE 15. RELATED PARTIES
The Corporation leased its operations center at 231 Haddon Avenue from a
partnership, the partners of which are also members of the Corporation's board
of directors. The lease required annual rental payments of $55,000 through
December 31, 1996. This property was purchased by the Corporation at its fair
value of $325,000 on January 7, 1997.
Several of the Corporation's directors, including the Corporation's legal
counsel or organizations controlled by them, have been paid $64,389 and $28,495
by the Corporation, for services rendered in connection with loans or loan
applications during 1996 and 1995, respectively.
<PAGE> 50
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
In the opinion of management, all transactions with related parties are
conducted on similar terms and bases as those utilized in the normal course of
business.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 (FAS 107), "Disclosures about Fair
Value of Financial Instruments", requires corporations to disclose the fair
value of its financial instruments, whether or not recognized in the balance
sheet, where it is practical to estimate that value.
Fair value estimates made as of December 31, 1996 and 1995 are based on
relevant market information about the financial instruments. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the corporation's entire holding of a particular financial instrument.
In cases where quoted market prices are not available, fair value estimates are
based on judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amounts of cash and short-term
instruments approximate those assets' fair values.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES - Fair values were
based on quoted market prices, where available.
LOANS HELD FOR SALE - The carrying amounts for loans held for sale approximate
their fair values since commitments for sale at par are obtained prior to the
loan close date.
LOANS - The carrying values, reduced by estimated inherent credit losses, of
variable-rate loans and other loans with short-term characteristics were
considered fair value. For other loans, the fair market values were calculated
by discounting scheduled future cash flows using current interest rates offered
on loans with similar terms adjusted to reflect the estimated credit losses
inherent in those loans.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE - The carrying
amounts of accrued interest receivable and accrued interest payable approximate
their fair values.
DEPOSIT LIABILITIES - The fair value of deposits with no stated maturity, such
as non-interest-bearing demand deposits, NOW, savings, and money market
deposits, was, by definition, equal to the amount payable on demand as of
December 31, 1996. The fair value of certificates of deposit was based on the
discounted value of contractual cash flows, calculated using the discount rates
that equaled the interest rates offered at the valuation date for deposits of
similar remaining maturities.
SHORT-TERM BORROWINGS - The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - These instruments include loan
commitments, letters of credit and unused credit card lines. It is impractical
to assign these instruments a fair value.
<PAGE> 51
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
The following is a summary of the carrying amounts and estimated fair values
of financial assets and liabilities at December 31, 1996 and 1995. (Dollars in
thousands)
<TABLE>
<CAPTION>
1995
1996 1996 1995 EST
CARRYING ESTIMATED CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
------ ---------- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks - non-interest bearing $ 8,283 $ 8,283 $5,474 $5,474
Federal funds sold.... ................... 8,050 8,050 1,550 1,550
Securities available for sale............. 14,591 14,591 23,375 23,375
Investment securities..................... 18,137 18,214 15,685 15,888
Loans Held For Sale 1,305 1,305 262 262
Loans .................................... 71,649 71,546 62,542 68,019
Accrued interest receivable............... 902 902 978 978
Financial liabilities:
Deposits........................... 111,448 111,422 99,504 99,538
Short-term borrowings..................... 3,281 3,281 2,778 2,778
Accrued interest payable.................. 585 585 472 472
</TABLE>
NOTE 17. REGULATORY CAPITAL
The bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios set forth in the
following table. Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum ratios as set forth in the following table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are presented in the table. ($ in
thousands)
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk Weighted Assets) $11,676 14.80% $6,313 8.00% $7,891 10.00%
Tier 1 Capital (to Risk Weighted Assets) 10,938 13.86% 3,157 4.00% 4,735 6.00%
Tier 1 Capital (to Average Assets) 10,938 8.70% 5,027 4.00% 6,284 5.00%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) $10,511 16.75% $5,020 8.00% $6,275 10.00%
Tier 1 Capital (to Risk Weighted Assets) 9,915 15.80% 2,510 4.00% 3,765 6.00%
Tier 1 Capital (to Average Assets) 9,915 8.74% 4,539 4.00% 5,674 5.00%
</TABLE>
<PAGE> 52
COMMUNITY FINANCIAL HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. PARENT COMPANY ONLY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS FOR THE PARENT COMPANY
($ IN THOUSANDS)
(DEC. 31) (DEC. 31)
1996 1995
---- ----
ASSETS
Investment in Community National Bank................... $10,931 $9,961
Other assets ........................................... 15 0
-------- -------
Total Assets.......................................... $10,946 $9,961
======= -=====
LIABILITIES AND SHAREHOLDERS' EQUITY
Common stock............................................ $4,945 $4,695
Additional paid in capital.............................. 4,900 4,327
Retained earnings....................................... 1,229 1,015
Treasury stock.......................................... (119) (119)
Unrealized gain (loss) on securities available for sale. (9) 43
------- ------
Total Liabilities and Shareholders' Equity............ $10,946 $9,961
======= ======
CONDENSED INCOME STATEMENTS FOR THE PARENT COMPANY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Non-interest income:
Dividend received from Community National Bank $ 0 $ 0 $ 0
Other income ................................. 2 0 0
Non-interest expense:
Amortization of organization costs ........... 0 (9) (9)
------ ----- -----
Net income/(loss) before equity in
undistributed net income of subsidiary .... 2 (9) (9)
Equity in undistributed net income of
subsidiary ................................ 1,004 801 758
------ ----- -----
Net income ................................ $1,006 $ 792 $ 749
====== ===== =====
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS FOR THE PARENT COMPANY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ----- -------
<S> <C> <C> <C>
Operating activities:
Net income .................................... $ 1,006 $ 792 $ 749
Amortization of organization costs ............ (2) 9 9
------- ----- -------
Equity in undistributed net income of subsidiary (1,004) (801) (758)
------- ----- -------
Cash provided by operations .................... 0 0 0
------- ----- -------
Investing activities:
Investment in subsidiary ...................... (30) 0 (4,253)
Purchase of securities available for sale ..... (0) 0 0
------- ----- -------
Total ........................................ (30) 0 (4,253)
------- ----- -------
Financing activities:
Proceeds from sale of stock ................... 30 0 4,253
------- ----- -------
Total ........................................ 30 0 4,253
------- ----- -------
Increase in cash and cash equivalents .......... 0 0 0
Cash and cash equivalents, beginning of year .. 0 0 0
------- ----- -------
Cash and cash equivalents, end of year ........ $ 0 $ 0 $ 0
======= ===== =======
</TABLE>
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10, 11, 12 AND 13 are incorporated in this report by reference to the
Corporation's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days of the close of the Corporation's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
FORM 8-K
(a) Documents filed as part hereof.
1. Financial Statements: The financial statements listed in the Index to
the Financial Statements appearing at the beginning of Item 8.
2. Financial Statement Schedules:
The supplementary information and financial statement schedules are
hereby omitted because they are either inapplicable, not required, or the
required information is included in the consolidated financial statements or
notes thereto, which are included elsewhere in this report.
3. Exhibits: The exhibits listed in the Index to Exhibits
immediately following the signature pages to this Form 10-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed.
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
ct of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMUNITY FINANCIAL HOLDING CORPORATION
Dated: March 28, 1997 By: Gerard M. Banmiller
-------------- -------------------
Gerard M. Banmiller, President
(Signatures continued on next page)
<PAGE> 55
SIGNATURES
(Continued)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dated indicated.
Robert T. Pluese Dated: March 28, 1997
- ---------------- --------------
Robert T. Pluese, Director and
Chairman of the Board
Gerard M. Banmiller Dated: March 28, 1997
- ------------------- --------------
Gerard M. Banmiller, Director and
President
Michael Brennan Dated: March 28, 1997
- --------------- --------------
Michael Brennan, Director
Elizabeth Burns Dated: March 28, 1997
- --------------- --------------
Elizabeth Burns, Director.
Gerard DeFelicis Dated: March 28, 1997
- ---------------- --------------
Gerald DeFelicis, Director
Marvin S. Samson Dated: March 28, 1997
- ---------------- --------------
Marvin S. Samson, Director
Joseph Riggs, Sr. M.D. Dated: March 28, 1997
- ---------------------- --------------
Joseph Riggs, Sr. M.D., Director
Frank Smith Dated: March 28, 1997
- ----------- --------------
Frank Smith, Director
Letitia Colombi Dated: March 28, 1997
- --------------- --------------
Letitia Colombi, Director
Doris Damm Dated: March 28, 1997
- ---------- --------------
Doris Damm, Director
Kevin Kutcher Dated: March 28, 1997
- ------------ --------------
Kevin Kutcher, Chief Financial Officer
and Chief Accounting Officer
<PAGE> 56
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Registrant is incorporated herein by
reference to Exhibit 3.1 of the Registrant's Registration Statement on
From S-1, No. 33-78696 filed with the Security and Exchange Commission on
May 6, 1994 (the "Registration Statement").
3.2 By-Laws of the Registrant are incorporated herein by reference to Exhibit
3.2 of the Registration Statement.
10.1* Data Processing Contract dated July 1, 1991 with FiServ, Inc. (successor
in interest to Mellon Bank, N.A.) is incorporated herein by reference to
Exhibit 10.1 of the Registration Statement.
10.2* Agreement of Sale dated March 18, 1994 with New Jersey National Bank is
incorporated herein by reference to Exhibit 10.2 of the Registration
Statement.
10.3* Software Order and License Agreement dated July 12, 1993 with Wausau
Financial System, Inc. is incorporated herein by reference to Exhibit 10.3
of the Registration Statement.
10.4* Financial Services Agreement dated November 29, 1988 with IBAA Bancard,
Inc. is incorporated herein by reference to Exhibit 10.4 of the
Registration Statement.
10.5* Agreement of Lease between Community National Bank of New Jersey, Tenant,
and Wm. G. Rohrer, Inc., Landlord and amendments thereto are incorporated
herein by reference to Exhibit 10.5 of the Registration Statement.
10.6* Lease dated January 1, 1991 between Community National Bank of New Jersey,
Tenant, and Community Annex Associates, Landlord is incorporated herein by
reference to Exhibit 10.6 of the Registration Statement.
10.7* 1994 Stock Option Plan is incorporated herein by reference to Exhibit 10.7
of the Registration Statement.
10.8* Lease Agreement dated May 12, 1994, between the Registrant, Tenant, and
Greentree Mews Associates, Landlord is incorporated by reference to
Exhibit 10.8 of the Form 10K for the fiscal year ended December 31, 1994
("1994-10K").
10.9* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Benjamin F. Watts, Jr., is incorporated by reference to
Exhibit 10.9 of the 1994-10K.
* Previously Filed
<PAGE> 57
EXHIBIT NO.
10.10* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Kevin L. Kutcher is incorporated by reference to Exhibit
10.10 of the 1994-10K.
10.11* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Robert T. Pluese is incorporated by reference to Exhibit
10.11 of the 1994-10K.
10.12* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Michael G. Brennan is incorporated by reference to Exhibit
10.12 of the 1994-10K.
10.13* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Letitia G. Colombi is incorporated by reference to Exhibit
10.13 of the 1994-10K.
10.14* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Gerald DeFelicis is incorporated by reference to Exhibit
10.14 of the 1994-10K.
10.15* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and John Donnelly is incorporated by reference to Exhibit
10.15 of the 1994-10K.
10.16* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Dr. Joseph A. Riggs is incorporated by reference to
Exhibit 10.16 of the 1994-10K.
10.17* Nonqualified Stock Option Agreement dated November 15, 1994 Between the
Registrant and Linda Rohrer is incorporated by reference to Exhibit 10.17
of the 1994-10K.
10.18* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Marvin Samson is incorporated by reference to Exhibit
10.18 of the 1994-10K.
10.19* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Frank B. Smith is incorporated by reference to Exhibit
10.19 of the 1994-10K.
10.20* Nonqualified Stock Option Agreement dated November 15, 1994 between the
Registrant and Gerard M. Banmiller is incorporated by reference to
Exhibit 10.20 of the 1994-10K.
10.21* Underwriting Agreement between the Registrant and Pennsylvania Merchant
Group dated June 16, 1994 is incorporated herein by reference to Exhibit
1.1 of the Registration Statement.
10.22* Nonqualfied Stock Option Agreement dated December 8, 1995 between the
Registrant and Benjamin F. Watts is incorporated herein by reference to
Exhibit 10.22 of the Form 10-K for the fiscal year ended December 1, 1995
("1995-10K").
* Previously Filed
<PAGE> 58
EXHIBIT NO.
10.23* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Kevin L. Kutcher is incorporated herein by reference to
Exhibit 10.23 of the 1995-10K.
10.24* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Gerard Banmiller is incorporated herein by reference to
Exhibit 10.24 of the 1995-10K.
10.25* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Robert T. Pluese is incorporated herein by reference to
Exhibit 10.25 of the 1995-10K.
10.26* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Michael G. Brennan is incorporated herein by reference to
Exhibit 10.26 of the 1995-10K.
10.27* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Letitia Colombi is incorporated herein by reference to
Exhibit 10.27 of the 1995-10K.
10.28* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Gerald DeFelicis is incorporated herein by reference to
Exhibit 10.28 of the 1995-10K.
10.29* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Dr. Joseph A. Riggs is incorporated herein by reference to
Exhibit 10.29 of the 1995-10K.
10.30* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Linda Rohrer is incorporated herein by reference to
Exhibit 10.30 of the 1995-10K.
10.31* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Marvin Samson is incorporated herein by reference to
Exhibit 10.31 of the 1995-10K.
10.32* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Frank B. Smith is incorporated herein by reference to
Exhibit 10.32 of the 1995-10K.
10.33* Nonqualified Stock Option Agreement dated December 8, 1995 between the
Registrant and Elizabeth Burns is incorporated herein by reference to
Exhibit 10.33 of the 1995-10K.
10.34 Employment agreement dated December 8, 1995 between the Registrant and
Gerard M. Banmiller filed herewith.
10.35 Data processing contract dated November 1, 1996 between Fiserv and
Community National Bank of New Jersey filed herewith.
10.36 Severence compensation agreement made January 15, 1997 between the
registrant and Kevin Kutcher filed herewith.
10.37 Severence compensation agreement made January 15, 1997 between the
registrant and Benjamin Watts filed herewith.
21.1* Subsidiaries of the Registrant are incorporated herein by reference to
Exhibit 21.1 of the Registration Statement.
99.1 Disclosure required under Annual Report on Form 11-K for The Community
National Bank 401(K) Plan.
* Previously Filed
<PAGE> 1
Exhibit 10.34
EMPLOYMENT AGREEMENT
This agreement dated the 8th of December, 1995, by and between COMMUNITY
FINANCIAL HOLDING CORPORATION, its subsidiaries and affiliates (herein referred
to as the "Bank") and GERARD M. BANMILLER (herein referred to as the
"Executive").
WITNESSETH
Wheras, the Bank and the Executive desire to assure the use of the
Executive's services in connection with the business conducted by the Bank; and
WHEREAS, it is important to the Bank that it still have the right to carry on
its business without competitive interference by the Executive;
NOW THEREFORE, the parties hereto agree as follows:
1. TERM OF AT WILL EMPLOYMENT: Subject to the terms and conditions as
hereinafter set forth, the Bank will employ the Executive and the Executive
hereby accepts such employment until terminated by either in accordance with the
terms hereof ("Employment Period").
If the Executive willfully breaches a directive from the Board of Directors
or habitually neglects the duties that he is required to perform under this
agreement, the Bank may at its option terminate this agreement ("termination for
cause") by giving written notice of termination to the Executive without
prejudice to any other remedy to which the Bank may be entitled either at law ,
in equity, or under this agreement.
2. DUTIES: During the Employment Period, the Executive shall serve as
President of the Bank with full authority consistent with normal banking
practices subject to the orders and directions only of its Board of Directors
and in full conformity with all rules and regulations of the Office of the
Comptroller of the Currency, and shall perform such executive and administrative
duties consistent with his position as President as shall from time to time be
assigned to him by the Board. He shall devote all of his business time, efforts,
attention, ability and cooperation to the business of the Bank and the diligent
performance of his duties in compliance with all applicable corporate
regulations and policies. In connection with the Executive's employment, he
shall be based at Haddon Township, New Jersey, except for required travel on
corporate business to the extent reasonably consistent with business travel
obligations.
3. COMPENSATION. From year to year during the Employment Period, the
Executive's base salary shall be set in January each calendar year for the
twelve month period beginning January of that year and ending December 31 of the
following year ("Employment Year"), as determined by the Board of Directors of
the Bank.
a.) In addition to base salary, the Executive, shall receive any additional
payments to which he may become entitled as a consequence of any incentive or
long range incentive schemes as the Board of Directors of the Bank may approve
from time to time.
b.) The Executive may participate, on a non-discriminatory basis, with all
other employees of the Bank in any pension, incentive compensation, profit
sharing, stock option, insurance, medical or other employee benefit plan in
which the employees of the Bank participate from time to time, to the extent
that he may be eligible to do so under the applicable provisions of such plan or
plans. If the Bank does not adopt a health insurance plan including major
medical and dental, it shall pay for the cost of the same for the Executive.
c.) The Executive shall be entitled to fifteen (15) business days of vacation
during each Employment Year, exclusive of business travel and seminars, in
accordance with the Bank policies and regulations.
d.) The Bank shall reimburse the Executive, or cause him to be reimbursed in
accordance with corporate policies, on a monthly basis for all reasonable
expenses incurred by him in the performance of his Bank duties hereunder,
provided that the Executive shall have previously furnished to the Bank an
itemized written account of such expenditures and approval by the Chairman of
the Board.
<PAGE> 2
e.) The Bank shall provide the Executive with the use of an automobile at no
costs to the Executive.
f.) If all or substantially all of the assets of the Bank are sold, or shares
of stock of the Bank are transferred or sold, so as to effect a change of
ownership or control of the Bank, whether in conjunction with a merger,
consolidation or otherwise and the Executive's employment hereunder is
terminated after such transfer or sale (unless terminated for cause as provided
herein), the Executive shall receive a lump sum payment, payable on or before
thirty (30) days following any such termination of employment, equal to his base
salary which would otherwise have been payable for the remainder of the then
current Employment Year plus his base salary which would otherwise have been
payable for the Employment Year immediately following the Employment Year in
which such termination takes place. If the Executive's base salary for the
Employment Year beginning immediately following the Employment Year in which
such termination takes place has not been set as provided in paragraph 3 at the
time of termination of the Executive's employment hereunder, then the Executives
base salary for such Employment Year shall be deemed to have been set in an
amount not less then the amount payable for the Employment Year during which
such termination takes place.
4. COVENANT NO TO DISCLOSE. The Executive covenants and agrees that he will
not, at any time, whether upon the expiration of the Agreement or otherwise,
reveal, divulge, or make known to any person (other than the Bank) or use for
his own account, any customer list, drawings, data, software, trade secrets,
formulas or secret or confidential information used, owned or controlled by the
Bank at any time whether or not developed, devised or otherwise created in whole
or in part by the efforts of the Executive and will at all times perform his
duties pursuant to the rules and regulations of the Office of the Comptroller of
the Currency.
5. COVENANT NO TO COMPETE. The Executive agrees during the Employment Period,
for whatever cause or reason, he will not, directly or indirectly and whether as
a principal agent, officer, director, employee, consultant, or otherwise, alone
or in association with any other individual, corporation, company, firm,
partnership, or other entity, carry on or be engaged, concerned, take part in,
render services to or from, share in earnings of, or invest in the stocks, bonds
or other securities of any entity or person engaged in a business similar to the
Bank's or any of its subsidiaries.
The Executive may invest in the stocks, bonds or other securities of any
similar businesses if (1) the stock, bond or other securities are listed in the
National Regional Security Exchange or registered under 12G of the Security
Exchange Act of 1934; (2) his investment does not exceed, in the case of any
class of capital stock of any one issuer, 5% of the issued and outstanding
shares, or, in the case of the bond or other securities, 5% of the aggregate
principal amount thereof issued and outstanding, and (3) such investment would
not prevent, directly or indirectly, the transaction of business by the Bank
with any state, district, territory or possession of the United States or any
governmental subdivision, agency or instrumentality thereof by virtue of any
statute, law, regulation or administrative practice.
It is understood by and between the parties hereto that the foregoing
covenant by the Executive not to enter into competition with the Bank is an
essential element of the transactions contemplated by this Agreement.
6. COMPLIANCE WITH OTHER AGREEMENTS. The Executive represents and warrants
that the execution of this Agreement by him and his performance of his
obligations hereunder will not, with or without the giving of notice and/or
passage of time, conflict with, result in a breach of any provision of or the
termination of or constitute a default under any agreement to which the
Executive is a party or by which the Executive is or may be bound.
7. TERMINATION. If the Executive dies or becomes totally disabled during the
Employment Period, his salary, his duties and all other rights and
responsibilities under this Agreement shall terminate at the end of the month
during which death or total disability occurs. For the purpose of this
Agreement, the Executive shall be deemed to be totally disabled if he has been
unable to perform his duties for 120 consecutive days or for 180 days in any
twelve-month period, all as determined in good faith by the Board of Directors
of the Bank.
8. SPECIFIC PERFORMANCE REMEDIES. Without intending to limit the remedies
available to the Bank, the Executive further agrees that damage at law will be
an insufficient remedy to the Bank in the even that the Executive violates a
term of Section 5 and 6 hereof and the Bank may apply for and have injunctive
relief in any court of competent jurisdiction to restrain any breach of
otherwise to specifically enforce any of the covenants of such Section.
9. WAIVER. The waiver by the Bank or the Executive of any breach or any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
<PAGE> 3
10. BINDING EFFECTS AND BENEFITS. This Agreement shall inure to the benefit
of and shall be binding upon the parties hereto and their respective successors
assigns, heirs, and legal representatives, including any persons with which the
Bank may merge or consolidate or to which it may transfer substantially all or a
significant part of its assets. This contract, being personal; cannot be
assigned by the Executive.
11. NOTICES. All notices and other communications which are required or may
be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or mailed certified, air mail, postage
prepaid, return receipt requested, to the party to whom the same is so delivered
or mailed:
If to the Executive:.......Gerard M. Banmiller
........................................707 Everett Avenue
.....................................Collingswood NJ 08l07
If to the Bank:......Robert T. Pluese, Esquire
.......................................... Chairman
..........................................21 Euclid Avenue
....................................Haddonfield NJ 08033
12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement and supersedes all prior agreements and understandings oral or written
between the parties hereto with respect to the subject matter hereof. This
agreement may not be changed orally but only by an agreement in writing, signed
by the party against whom any waiver, change, amendment, modification or
discharge is sought.
13. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect the construction or interpretation
of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15. SEVERABILITY. The validity of all or any part of any section of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such section. If any provision of this Agreement is so broad as to
be unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
16. GOVERNING LAW. The validity, performance and enforcement of this
Agreement shall be governed by the laws of the State of New Jersey.
COMMUNITY FINANCIAL HOLDING COMPANY
BY: Robert T. Pluese
-------------------------
Robert T Pluese, Chairman
Gerard M. Banmiller
-------------------------
Gerard M. Banmiller
<PAGE> 1
Exhibit 10.35
AGREEMENT dated as of November 1, 1996 (the "Agreement") between Fiserv
Solutions, Inc., a Wisconsin corporation d/b/a Fiserv, at its Pittsburgh Center
with an address of 912 Fort Duquesne Boulevard, Pittsburgh, PA 15222 ("Fiserv"),
and Community National Bank of New Jersey, at its principal address of 222
Haddon Avenue, Westmont, New Jersey("Client")
Fiserv and Client hereby agree as follows:
1. Term. The initial term of this Agreement shall be five (5) years and,
unless written notice of non-renewal is provided by either party at least 365
days prior to expiration of the initial term or any renewal term, this Agreement
shall automatically renew for renewal terms of five (5) years each. In the event
the Client is an existing Fiserv user, this Agreement shall commence on the date
first written above. In the event the Client is a new Fiserv user, this
Agreement shall commence on the day the Fiserv Services (as hereinafter defined)
are first used by Client.
2. Services. (a) Services Generally. Fiserv, itself and through its
affiliates, agrees to provide Client, and Client agrees to obtain from Fiserv
the services (the "Services") and products (the "Products") (collectively the
"Fiserv Services") described in the attached Exhibits and that are marked with
an "X" below and initialed at the end of each Exhibit:
____ Exhibit A - Account Processing Services
____ Exhibit B - Item Processing Services
____ Exhibit C - EFT Services
____ Exhibit D - Mortgage Processing Services
____ Exhibit E - Equipment
____ Exhibit F - Software Products
____ Exhibit G - Card Services
____ Exhibit H - Additional Fiserv Services
The Exhibits set forth specific terms and conditions applicable to the
Services and/or Products, and where applicable, the Fiserv affiliate performing
the Services and/or Products. Only Exhibits marked with an "X" shall be provided
with this Agreement. Client may select additional listed Fiserv Services not
marked with an "X" above by executing with Fiserv an additional appropriate
Exhibit. Client may also select additional services (the "Additional Services")
and products (the "Additional Products") (collectively the "Additional Fiserv
Services") not listed above from time to time by completing with Fiserv an
Exhibit H-n to this Agreement.
(b) Conversion Services. Upon mutual agreement by the parties and upon
payment of a Conversion Services fee as quoted by Fiserv, Fiserv will convert
applicable Client data files to the Fiserv Services. Those activities designed
to transfer the processing of Client's data from its present servicer to the
Fiserv Services are referred to as "Conversion Services". Client agrees to
cooperate with Fiserv in connection with Fiserv's provision of Conversion
Services and to provide all necessary information and assistance in order to
convert the Client data files.
(c) Training Services. Fiserv shall provide training, training aids, user
manuals, and other documentation for Client's use as Fiserv, in its sole
discretion, deems necessary to enable Client personnel to become familiar with
the Fiserv Services. If requested by Client, classroom training in the use and
operation of the Fiserv Services will be provided at a training facility
designated by Fiserv. Standard Fiserv training relative to Conversion Services
shall be included in the Conversion Services fee. All other training shall be
quoted by Fiserv. All such training aids and manuals remain the property of
Fiserv.
(d) Network Support Services. At Client's request, Fiserv shall provide
Network Support Services (the "Network Support Services") consisting of
communication line monitoring and diagnostics and support personnel to discover,
diagnose, repair, or report line problems to the appropriate telephone company.
3. Communication Lines, Computer Terminals, and Related Equipment. (a)
Communications Lines and Related Equipment. Fiserv shall order, on Client's
behalf, the installation of appropriate data communication lines and
communications equipment at Fiserv's data center to facilitate Client's access
to the Fiserv Services. Client understands and agrees to pay such charges
relating to the installation and use of data communications lines and
communications equipment. Except to the extent Fiserv shall provide Network
Support
<PAGE> 2
Services to Client, Fiserv shall not be responsible for the reliability or
continued availability of the telephone lines and/or communications equipment
used to access the Fiserv Services.
(b) Computer Terminals and Related Equipment. Client shall obtain for its
locations sufficient computer terminals and other equipment, approved by Fiserv
and compatible with the Fiserv Services, to transmit and receive data between
Client's locations and Fiserv's data center. Fiserv and Client may mutually
agree to change the type of computer terminal and equipment used by Client.
4. Fees for Fiserv Services. (a) General. Client agrees to pay Fiserv the
fees for the Fiserv Services specified in the Exhibits. Except if limited in the
Exhibits, such fees may be increased from time to time. Upon prior notification
to Client, Fiserv may increase its fixed fees in excess of amounts listed in the
Exhibits in the event that Fiserv implements major system enhancements to comply
with changes in law, government regulation, or industry practices. Processing
fees shall be those host processing based fees for Services specifically
excluding, but not limited to, out-of-pocket, pass-through, software licensing
and equipment sale fees. Unless expressly provided to the contrary in this
Agreement, any fees herein do not include out-of-pocket expenses for any service
or product requested by and provided to the Client.
(b) Additional Charges. Fees for pass-through expenses, such as telephone,
microfiche, courier, and other similar charges incurred by Fiserv on Client's
behalf shall be billed to Client at cost plus the applicable Fiserv service fee.
Such pass-through expenses may be changed from time to time upon notification of
a fee change from a vendor/provider.
(c) Taxes. Fiserv shall add to each invoice, and Client shall pay, any sales,
use, excise, value added, and other taxes and duties however designated that are
levied by any taxing authority relating to the Fiserv Services. In no event
shall Client be responsible for taxes based upon the net income of Fiserv.
(d) Exclusions. The charges and fees set forth in the Exhibits do not
include, and Client shall be responsible for, furnishing transportation or
transmission of information between the Fiserv data center, Client's site or
sites, and any applicable clearing house, regulatory agency, or Federal Reserve
Bank.
(e) Network Support Services. Network Support Services shall be rendered from
Fiserv premises. Off-premise support will be provided upon Client's request on
an as available basis at the then-current Fiserv time and materials rates, plus
reasonable travel and living expenses.
(f) Payment Terms. Fees for Fiserv Services are due and payable monthly upon
receipt of invoice. Such invoice will contain:
(i) all fixed fees for the current month applicable to each Service and/or
Product;
(ii) all other fees calculable up to the date of invoice; and
(iii) sales or other taxes thereon.
In the event any amounts due remain unpaid beyond the 15th day after payment
is due, Client shall pay a late charge of 1.5% per month. Client agrees that it
shall neither make nor assert any right of deduction or set-off from invoices
submitted by Fiserv for Fiserv Services.
5. Procedures for Use of Services. (a) Procedures. Client agrees to comply
with any applicable regulatory requirements and with reasonable operating and
access procedures for use of the Services established by Fiserv and furnished
from time to time to Client.
(b) Changes. Fiserv continually reviews and modifies the Fiserv systems used
in the delivery of the Services (the "Fiserv System") to improve service and to
assist the Client with its compliance with government regulations, if any,
applicable to the data utilized in providing the Services. Fiserv reserves the
right to make changes in the Services, including but not limited to operating
procedures, the type of equipment or software resident at, and the location of
the Fiserv data center.
6. Client Obligations. (a) Input. Client shall be solely responsible for the
input, transmission, or delivery to and from Fiserv of all information and data
required by Fiserv to perform the Services unless Client has retained Fiserv to
handle such responsibilities. The data shall be provided in a format and manner
approved by Fiserv. Client will provide at its own expense or procure from
Fiserv all equipment, computer software, communication lines, and interface
devices required to access the Fiserv System. If Client has elected to provide
such items itself, Fiserv shall provide Client with a list of compatible
equipment and software; Fiserv reserves the
<PAGE> 3
right to charge Client its standard fee for recertification of the Fiserv System
resulting from such election.
(b) Client Personnel. Client shall designate appropriate Client personnel for
training in the use of the Fiserv System, shall supply Fiserv with reasonable
access to Client's site during normal business hours for Conversion Services and
shall cooperate with Fiserv personnel in their performance of Services,
including Conversion Services.
(c) Use of Fiserv System. Client shall comply with any operating instructions
on the use of the Fiserv System provided by Fiserv, shall review all reports
furnished by Fiserv for accuracy, and shall work with Fiserv to reconcile any
out of balance conditions. Client shall determine and be responsible for the
authenticity and accuracy of all information and data submitted to Fiserv.
(d) Forms, Supplies, Etc. Client shall furnish, or, if Fiserv agrees to so
furnish, reimburse Fiserv for, any special forms, supplies, microfiche, or
courier services applicable to the provision of Services.
(e) Upon Termination or Expiration of Agreement. Client shall be responsible
to pay the fees due under this Agreement until Fiserv has received written
notice to delete Client's files from Fiserv's host. This provision shall survive
the termination or expiration of this Agreement for any reason.
7. Ownership and Confidentiality. (a) Client Information. Fiserv agrees to
hold as confidential plans, customer lists, information, and other proprietary
material ("Client Confidential Information") received from Client by Fiserv.
"Client Confidential Information" shall also include information and data
concerning the business and financial records of Client's customers prepared by
or for Fiserv, or used in any way by Fiserv in connection with the provision of
Fiserv Services. All Client Confidential Information shall remain the property
of the Client, including master and transaction data files.
Fiserv will use the same care and discretion to avoid disclosure of Client
Confidential Information as it uses with its own similar information that it
does not wish disclosed, but in no event less than a reasonable standard of
care. Fiserv may use Client Confidential Information for any purpose that does
not violate such obligation of confidentiality. Fiserv may disclose Client
Confidential Information to (i) its employees and employees of its affiliates
who have a need to know; and (ii) any other party with Client's written consent.
Before disclosure to any of the above parties, Fiserv will have a written
agreement with such party sufficient to require that party to treat Client
Confidential Information in accordance with this Agreement. Fiserv may disclose
Client Confidential Information to the extent required by law. However, Fiserv
agrees to give Client prompt notice and make a reasonable effort to obtain a
protective order. The provisions of this paragraph survive any termination or
expiration of this Agreement.
No obligation of confidentiality applies to any Client Confidential
Information that Fiserv (i) already possesses without obligation of
confidentiality; (ii) develops independently; (iii) rightfully receives without
obligation of confidentiality from a third party. No obligation of
confidentiality applies to any Client Confidential Information that is, or
becomes, publicly available without breach of this Agreement.
(b) Fiserv Information. Client agrees to hold as confidential all plans,
information, research, development, trade secrets, and business affairs
(including that of any Fiserv client, supplier, or affiliate) and other
proprietary material ("Fiserv Confidential Information") received by Client from
Fiserv. "Fiserv Confidential Information" shall also include Fiserv's
proprietary computer programs, including custom software modifications, software
documentation and training aids, and all data, code, techniques, algorithms,
methods, logic, architecture, and designs embodied or incorporated therein. All
Fiserv Confidential Information shall remain the property of Fiserv.
Client will use the same care and discretion to avoid disclosure of Fiserv
Confidential Information as it uses with its own similar information that it
does not wish disclosed, but in no event less than a reasonable standard of
care. Client will not use Fiserv Confidential Information except in connection
with Fiserv Services under this Agreement. Client may disclose Fiserv
Confidential Information to (i) its employees who have a need to know; and (ii)
any other party with Fiserv's written consent. Before disclosure to any of the
above parties, Client will have a written agreement with such party sufficient
to require that party to treat Fiserv Confidential Information in accordance
with this Agreement. Client may disclose Fiserv Confidential Information to the
extent required by law. However, Client agrees to give Fiserv prompt notice and
make a reasonable effort to obtain a protective order. The provisions of this
paragraph survive any termination or expiration of this Agreement.
No obligation of confidentiality applies to any Fiserv Confidential
Information that Client (i) already possesses without obligation of
confidentiality; (ii) develops independently; (iii) rightfully receives without
obligation of confidentiality from a third party. No
<PAGE> 4
obligation of confidentiality applies to any Fiserv Confidential Information
that is, or becomes, publicly available without breach of this Agreement.
(c) Fiserv System. The Fiserv System contains information and computer
software that are proprietary and confidential information of Fiserv, its
suppliers, and licensors. Client agrees not to attempt to circumvent the devices
employed by Fiserv to prevent unauthorized access to the Fiserv System,
including, but not limited to, alterations, decompiling, disassembling,
modifications, and reverse engineering thereof.
(d) Confidentiality of this Agreement. Fiserv and Client agree to keep
confidential the prices, terms and conditions of this Agreement, without
disclosure to third parties.
8. Regulatory Agencies, Regulations and Legal Requirements. (a) Client Files.
The records maintained and produced for Client in the performance of this
Agreement (the "Client Files") may be subject to examination by such Federal,
State, or other governmental regulatory agencies as may have jurisdiction over
the Client's business to the same extent as such records would be subject if
they were maintained by Client on its own premises. Client agrees that Fiserv is
authorized to give all reports, summaries, or information contained in or
derived from the data in the possession of Fiserv relating to Client when
formally requested to do so by an authorized regulatory or government agency.
(b) Compliance with Regulatory Requirements. Client agrees to comply with,
and shall be responsible for complying with, applicable regulatory and legal
requirements, if applicable, including without limitation:
(i) submitting a copy of this Agreement to the appropriate regulatory
agencies prior to the date Services commence;
(ii) providing adequate notice to the appropriate regulatory agencies of
the termination of this Agreement or any material changes in Services;
(iii) retaining records of its accounts as required by regulatory
authorities;
(iv) obtaining and maintaining, at its own expense, any Fidelity Bond
required by any regulatory or governmental agency; and
(v) maintaining, at its own expense, such casualty and business
interruption insurance coverage for loss of records from fire, disaster, or
other causes, and taking such precautions regarding the same, as may be
required by regulatory authorities.
9. Warranties. (a) Fiserv Warranties. Fiserv represents and warrants that:
(i)(A) Fiserv will perform Client's work accurately provided that Client
supplies accurate data and follows the procedures described in all Fiserv
documentation, notices, and advices; and (B) Fiserv personnel will exercise due
care in the provision of Services. In the event of a processing or computational
error caused by any Fiserv personnel, systems, or equipment, Fiserv shall
correct the error and/or reprocess the affected report at no additional cost to
Client and Client's exclusive remedy for such error shall be recomputation of
affected accounts or items. Client agrees to supply Fiserv with a written
request for correction of the error within seven (7) days after Client's receipt
of the work containing the error. Work reprocessed due to errors in data
supplied by Client, on Client's behalf by a third party, or by Client's failure
to follow procedures set forth by Fiserv shall be billed to Client at the then
current Fiserv time and material rates.
(ii) it owns or has a license to furnish all equipment or software
comprising the Fiserv System. Fiserv shall indemnify Client and hold it harmless
against any claim or action that alleges that the use of the Fiserv System
infringes a United States patent, copyright, or other proprietary right of a
third party. Client agrees to notify Fiserv promptly of any such claim and
grants to Fiserv the sole right to control the defense and disposition of all
such claims. Client shall provide Fiserv with reasonable cooperation and
assistance in the defense of any such claim.
THE WARRANTY STATED ABOVE IS A LIMITED WARRANTY AND IS THE ONLY WARRANTY MADE BY
FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL OTHER
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. THE STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES OR
OBLIGATIONS OF FISERV FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE, OR PERFORMANCE OF FISERV SERVICES.
(b) Client Warranties. Client represents and warrants that: (A) no
contractual obligations exist that would prevent Client from entering into this
Agreement; (B) it has requisite authority to execute, deliver, and perform this
Agreement. Client will indemnify and hold harmless Fiserv, its officers,
directors, employees, and affiliates against any claims or actions arising out
of (1) the use by
<PAGE> 5
Client of the Fiserv System in a manner other than that provided in this
Agreement or in the operating instructions supplied by Fiserv to Client and (2)
any and all claims by third parties through Client arising out of the
performance and non-performance of services by Fiserv, provided that the
indemnity listed in clause (2) hereof shall not preclude Client's recovery of
direct damages pursuant to the terms and subject to the limitations of this
Agreement.
10. Limitation of Liability. (a) General. IN NO EVENT SHALL FISERV BE LIABLE
FOR LOSS OF GOODWILL, OR FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES ARISING FROM CLIENT'S USE OF FISERV'S SERVICES, OR FISERV'S SUPPLY OF
EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT OR IN
CONTRACT. CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV MORE THAN TWO (2) YEARS
AFTER SUCH CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF
ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE PROCESSING FEES PAID BY
CLIENT TO FISERV FOR THE SERVICES RESULTING IN SUCH LIABILITY IN THE TWO (2)
MONTH PERIOD PRECEDING THE DATE THE CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY
FOR A DEFAULT RELATING TO EQUIPMENT OR SOFTWARE SHALL BE LIMITED TO THE AMOUNT
PAID FOR THE EQUIPMENT OR SOFTWARE.
(b) Lost Records. If Client's records or other data submitted for processing
are lost or damaged as a result of any failure by Fiserv, its employees, or
agents to exercise reasonable care to prevent such loss or damage, the liability
of Fiserv on account of such loss or damages shall not exceed the reasonable
cost of reproducing such records or data from exact duplicates thereof in
Client's possession.
11. Disaster Recovery. (a) General. Fiserv maintains a disaster recovery
service plan (the "Disaster Recovery Service Plan") for each Service provided by
Fiserv. A "Disaster" shall mean any unplanned interruption of the operations of
or inaccessibility to the Fiserv data center in which Fiserv, using reasonable
judgment, requires relocation of processing to a primary recovery location.
Fiserv shall notify Client as soon as possible after it deems a service outage
to be a Disaster. Fiserv shall move the processing of Client's standard on-line
services to a primary recovery location as expeditiously as possible and shall
coordinate the cut-over to back-up telecommunication facilities with the
appropriate carriers. Client shall maintain adequate records of all transactions
during the period of service interruption and shall have personnel available to
assist Fiserv in implementing the switchover to the primary recovery location.
During a Disaster, optional or on-request services shall be provided by Fiserv
only to the extent adequate capacity exists at the primary recovery location and
only after stabilizing the provision of base on-line services.
(b) Data Communications. Fiserv shall work with Client to establish a plan
for alternative data communications in the event of a Disaster. Client shall be
responsible for the costs of these communications.
(c) Annual Test. Fiserv shall test its Disaster Recovery Service Plan
annually. Client agrees to participate in and assist Fiserv with such test, if
requested by Fiserv. Test results will be made available to Client's management,
regulators, internal and external auditors, and Client's insurance underwriters,
upon request.
(d) Client Plans. Fiserv agrees to release the information necessary to allow
Client to develop a disaster contingency plan that operates in concert with the
Disaster Recovery Service Plan.
(e) No Warranty. Client understands and agrees that the Disaster Recovery
Service Plan is designed to minimize, but not eliminate, risks associated with a
Disaster affecting the Fiserv data center supplying the Services. Fiserv does
not warrant that service will be uninterrupted or error free in the event of a
Disaster; no performance standards shall be applicable for the duration of a
Disaster. Client maintains responsibility for adopting a disaster recovery plan
relating to disasters affecting Client's facilities and for securing business
interruption insurance or other insurance as necessary for Client's protection.
12. Termination. (a) Material Breach. Except as provided elsewhere in this
Section 12, either party may terminate this Agreement in the event of a material
breach by the other party not cured within ninety (90) days following written
notice stating, with particularity and in reasonable detail, the nature of the
claimed breach. Remedies contained in this Section 12 (a) are cumulative and are
in addition to the other rights and remedies available under this Agreement or
otherwise.
(b) Bankruptcy or Insolvency. Either party may terminate this Agreement in
the event the other party commits an act of bankruptcy or becomes the subject of
any proceeding under the Bankruptcy Act or becomes insolvent or if any
substantial part of a party's property becomes subject to any levy, seizure,
assignment, application, or sale for or by any creditor or governmental agency.
Remedies contained in this Section 12 (b) are cumulative and are in addition to
the other rights and remedies available under this
<PAGE> 6
Agreement or otherwise.
(c) Failure to Pay. In the event any invoice remains unpaid by Client fifteen
(15) days after its due date, or Client has deconverted any of its data from the
Fiserv System without prior written consent from Fiserv, Fiserv, at its sole
option, may terminate this Agreement and/or Client's access to and use of the
Fiserv Services. In such an event, Fiserv shall be entitled to recover from
Client as liquidated damages an amount equal to the present value of all
payments remaining to be made hereunder for the remaining term of the Initial
Term or any renewal term of this Agreement. For purposes of the preceding
sentence, present value shall be computed using the "prime" rate (as published
in the Wall Street Journal) in effect at the date of termination and "all
payments remaining to be made" shall be calculated based on the average bills
for the three (3) months immediately preceding the date of termination. Client
agrees to reimburse Fiserv for any expenses Fiserv may incur, including
reasonable attorneys' fees, in taking any of the foregoing actions. Any invoice
submitted by Fiserv shall be deemed correct unless Client provides written
notice to Fiserv within fifteen (15) days of the invoice date specifying the
nature of the disagreement.
(d) Merger. In the event of a merger between Client and another organization
in which (A) Client is not the surviving organization, (B) where the other
organization is not currently a user of Fiserv services similar to the Services
being provided hereunder, and (C) Client shall convert from Fiserv's Services
directly to the surviving organization, Fiserv will allow an early termination
of this Agreement upon the following terms and conditions:
(i) Written notice must be given six (6) months in advance, specifying the
deconversion date;
(ii) Fiserv may specify a deconversion date (not more than thirty (30) days
after the requested deconversion date), based on its previous commitments
and work loads; and
(iii) Fiserv may charge a termination fee based on the remaining unused
term of this Agreement, the amount to be determined by multiplying the
Client's average monthly invoice (using the three months immediately
preceding Fiserv's receipt of written notice) by seventy-five (75) percent
times the remaining months of the term, plus any unamortized conversion
fees or third party costs existing on Fiserv's books on the date of
deconversion.
(e) Termination Fee not a Penalty. Client understands and agrees that Fiserv
losses incurred as a result of early termination of the Agreement would be
difficult or impossible to calculate as of the effective date of termination
since they will vary based on, among other things, the number of clients using
the Fiserv System on the date the Agreement terminates. Accordingly, the
termination fee amount represents Client's agreement to pay and Fiserv's
agreement to accept as liquidated damages (and not as a penalty) such amount for
any such Client termination for merger.
(f) Return of Data Files. Upon expiration or termination of this Agreement,
Fiserv shall furnish to Client such copies of Client's data files ("Client
Files") as Client may request in Fiserv's standard machine readable format form
along with such information and assistance as is reasonable and customary to
enable Client to deconvert from the Fiserv System, provided, however, that
Client consents and agrees and authorizes Fiserv to retain Client Files until
(i) Fiserv has been paid in full for all Services provided hereunder through the
date such Client Files are returned to Client, and has been paid any and all
other amounts that are due or will become due under this Agreement, including,
but not limited to, data communication lease obligations, if any; (ii) Fiserv
has been paid its then standard rates for providing the services necessary to
return such Client Files; (iii) if this Agreement is being terminated, Fiserv
has been paid any applicable termination fee pursuant to subsection (c), or (d)
above; and (iv) Client has returned to Fiserv all Fiserv Confidential
Information if requested by Fiserv. Unless directed by Client in writing to the
contrary, Fiserv shall be permitted to destroy Client Files any time after
thirty (30) days from the final use of Client Files for processing.
(g) Miscellaneous. Client understands and agrees that Client is responsible
for the deinstallation and return shipping of any Fiserv-owned equipment located
on Client's premises. Prior to termination of this Agreement, Client shall
promptly reimburse Fiserv for the cost of any preprinted statements, checks, or
any other forms that Fiserv has prepared specifically for the Client and has on
hand at the termination of this Agreement.
<PAGE> 7
13. Arbitration. (a) General. Except with respect to disputes arising
from a misappropriation or misuse of either party's proprietary rights, any
dispute or controversy arising out of this Agreement, or its interpretation,
shall be submitted to and resolved exclusively by arbitration under the rules
then prevailing of the American Arbitration Association, upon written notice of
demand for arbitration by the party seeking arbitration, setting forth the
specifics of the matter in controversy or the claim being made. The arbitration
shall be heard before an arbitrator mutually agreeable to Client and Fiserv;
provided, that if Client and Fiserv cannot agree on the choice of an arbitrator
within ten (10) days after the first party to seek arbitration has given written
notice, then the arbitration shall be heard by three arbitrators, one to be
chosen by Client, one to be chosen by Fiserv, and the third to be chosen by
those two arbitrators. A hearing on the merits of all claims for which
arbitration is sought by either party shall be commenced not later than sixty
(60) days from the date of demand made by the first party seeking arbitration.
The arbitrator(s) must render a decision within ten (10) days after the
conclusion of such hearing. Any award in such arbitration shall be final and
binding upon the parties and the judgment thereon may be entered in any court of
competent jurisdiction.
(b) Applicable Law. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. 1-16. The arbitrators shall apply the
substantive law of the State of Wisconsin, without reference to provisions
relating to conflict of laws. The arbitrators shall not have the power to alter,
modify, amend, add to, or subtract from any term or provision of this Agreement,
nor to rule upon or grant any extension, renewal, or continuance of this
Agreement. The arbitrators shall have the authority to grant any legal remedy
available had the parties submitted the dispute to a judicial proceeding.
(c) Situs. If arbitration is required to resolve any disputes between
the parties, the proceedings to resolve the dispute shall be held in Milwaukee,
Wisconsin, or, in the alternative, Fiserv's primary business location.
14. Insurance. Fiserv carries the following types of insurance policies
written by a carrier or carriers rated "A" or above by Best:
(i) Comprehensive General Liability in an amount not less than
$1 million per occurrence for claims arising out of bodily injury and property
damage;
(ii) Commercial Crime covering employee dishonesty in an
amount not less than $5 million;
(iii) All-risk property coverage including Extra Expense and
Business Income coverage; and
(iv) Workers Compensation as mandated or allowed by the laws
of the state in which the services are being performed, including $500,000
coverage for Employer's Liability.
15. Audit. Fiserv employs an internal auditor responsible for ensuring
the integrity of its data processing environments and internal controls. In
addition, Fiserv provides for periodic independent audits of its operations.
Fiserv shall provide Client with a copy of the audit of the Fiserv data center
serving Client within a reasonable time after its completion and shall charge
each client a fee based on the pro rata cost of such audit. Fiserv shall also
provide a copy of such audit to the appropriate regulatory agencies, if any,
having jurisdiction over Fiserv's provision of Services hereunder.
16. General. (a) Binding Agreement. This Agreement is binding upon the
parties and their respective successors and permitted assigns. Neither this
Agreement nor any interest may be sold, assigned, transferred, pledged or
otherwise disposed of by Client, whether pursuant to change of control or
otherwise, without the prior written consent of Fiserv. Client agrees that
Fiserv may subcontract any of the Services to be performed under this Agreement.
Any such subcontractors shall be required to comply with all of the applicable
terms and conditions of this Agreement.
(b) Entire Agreement. This Agreement, including its Exhibits, which are
expressly incorporated herein by reference, constitutes the complete and
exclusive statement of the agreement between the parties as to the subject
matter hereof and supersedes all previous agreements with respect thereto.
Modifications of this Agreement must be in writing and signed by duly authorized
representatives of the parties. Each party hereby acknowledges that it has not
entered into this Agreement in reliance upon any representation made by the
other party not embodied herein. In the event any of the provisions of any
Addendum or Exhibit hereto are in conflict with any of the provisions of
<PAGE> 8
this Agreement, the terms and provisions of this Agreement shall control unless
the Addendum or Exhibit in question expressly provides that its terms and
provisions shall control.
(c) Severability. If any provision of this Agreement is held to be
unenforceable or invalid, the other provisions shall continue in full force and
effect.
(d) Governing Law. This Agreement will be governed by the substantive
laws of the State of Wisconsin, without reference to provisions relating to
conflict of laws. By entering into this Agreement, Fiserv agrees that the Office
of Thrift Supervision, FDIC, or other regulatory agencies having authority over
Client's operations shall have the authority and responsibility provided to the
regulatory agencies pursuant to the Bank Service Corporation Act, 12 U.S.C.
1867(C) relating to services performed by contract or otherwise.
(e) Force Majeure. Neither party shall be responsible for delays or
failures in performance resulting from acts reasonably beyond the control of
that party.
(f) Notices. Any written notice required or permitted to be given
hereunder shall be given by: (i) Registered or Certified Mail, Return Receipt
Requested, postage prepaid; (ii) by confirmed facsimile; or (iii) by nationally
recognized courier service to the other party at the addresses listed on the
cover page of this Agreement or to such other address or person as a party may
designate in writing.
(g) No Waiver. The failure of either party to insist on strict
performance of any of the provisions hereunder shall not be construed as the
waiver of any subsequent default of a similar nature.
(h) Financial Statements. Fiserv shall provide Client and the
appropriate regulatory agencies who so require a copy of Fiserv, Inc.'s audited
consolidated financial statements.
(i) Prevailing Party. The prevailing party in any arbitration, suit, or
action brought against the other party to enforce the terms of this Agreement or
any rights or obligations hereunder, shall be entitled to receive its reasonable
costs, expenses, and attorneys' fees of bringing such arbitration, suit, or
action.
(j) Survival. All rights and obligations of the parties under this
Agreement that, by their nature, do not terminate with the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
below.
Fiserv Solutions, Inc.
Community National Bank of New Jersey
By: James C. Puzniak By: Kevin L. Kutcher
- ------------------------------------- -------------------------------------
Name : James C. Puzniak Name: Kevin L. Kutcher
- ------------------------------------- -------------------------------------
Title: President Title: Executive Vice President
- ------------------------------------- -------------------------------------
Date: November 12, 1996 Date: November 7, 1996
- ------------------------------------- -------------------------------------
<PAGE> 9
ADDENDUM made as of even date to AGREEMENT dated as of November 1, 1996 between
Fiserv Solutions, Inc. ("Fiserv"), and Community National Bank of New Jersey
("Client").
1. INTEGRATION.
The Agreement (the "Contract") to which this Addendum is attached and this
Addendum together constitute a binding agreement (the "Agreement") between
Fiserv and Client in accordance with the terms of the Contract and this
Addendum. In the event of a conflict or inconsistency between the terms of the
Contract and the terms of this Addendum, the terms of this Addendum shall
control.
2. ACCOUNT PROCESSING SERVICES.
Fiserv will provide Client with the following Account Processing Services at the
fees and prices indicated:
(a) For an Account Processing Services Fixed Monthly Fee of $13,913.00 Fiserv
agrees to provide and Client agrees to pay for the Services listed on Exhibit A
- - 1 with a "B" marked in the left margin, which is hereby incorporated by this
reference. All other Services provided hereunder shall be provided to the Client
upon reasonable request at then current pricing and in accordance with this
Agreement.
(b) Fee Adjustment Factors:
The delivery of the Services involves factors and risks that may increase
Fiserv's cost of providing such Services. Notwithstanding the foregoing, Fiserv
agrees to limit increases in its fees for those Services included in the Account
Processing Services Fixed Monthly Fee as follows:
Inflation: Fiserv agrees not to increase the Account Processing Services Fixed
Monthly Fee for inflation until December 31, 1997. Beginning January 1, 1998 and
annually thereafter, Fiserv reserves the right to adjust such fee using the
lesser of six percent (6%) or the annual increase in the U.S. Department of
Labor Consumer Price Index ("CPI"). Fiserv shall use the change in the latest
published index for the previous twelve months.
Volume Adjustment. For on-going volume related fee adjustments, the following
categories will be measured:
Demand Deposit Transactions
Total open Demand, Savings, and Time Deposit Accounts
Total open Retail (Installment, Line of Credit and Mortgage) Accounts and
Commercial Loan Notes
In the event that the Client's volumes increase during the term of this
Agreement, Fiserv shall limit any increase to the Account Processing Services
Fixed Monthly Fee in accordance with the following:
(i) Annually throughout the term of this Agreement, in the event that the
Client's then current volume for those categories listed above exceeds the
volumes as of the prior year end by more than ten percent (10%), the Account
Processing Services Fixed Monthly Fee shall be increased by the difference
between the percentage of actual volume growth and 10%. For this comparison,
volumes shall be determined by averaging the actual volumes of the final three
(3) months of each respective calendar year, and the percentage of actual volume
growth, if any, shall be determined on an average percentage difference basis,
whereby percentage differences (current over prior year) for each category above
shall be individually calculated and then averaged.
(ii) In the event that the Client (i) acquires other financial institutions or
branches or portfolios of accounts for which Fiserv will provide data processing
services under the terms and conditions of this Agreement or (ii) elects to have
Fiserv provide data processing services to existing affiliates other than the
aforementioned under the terms and conditions of this Agreement, the Fixed
Monthly Fee shall be increased upon the conversion of each such acquisition or
affiliate. Such increase(s) shall be calculated in accordance with (i) above
without allowance by comparing converted volumes to the actual volumes in the
month prior to the conversion.
(c) Conversion Services. FIserv agrees to provide conversion services on a quote
basis. Out-of-pocket expense will be invoiced as incurred. A more detailed
outline of the responsibilities of the parties with respect to conversions is
contained in the Conversion Requirements Document.
3. OTHER AGREED FEE TERMS.
(a) Fiserv agrees to waive the conversion/set-up fees for On-Line General Ledger
($1,000), Deluxe Check Ordering ($250) and Account Analysis ($3,500).
(b) Fiserv agrees to waive the minimum monthly processing fee for Account
Analysis and Account Reconciliation.
(c) Data Access Service is included in the Account Processing Services Fixed
Monthly Fee up to $800 per month.
(d) Fiserv agrees to reduce the license fee for Fiserv's Account Sales and
Teller System ("FAST") to $1,155 per workstation for those workstations
installed during calendar 1997 provided, however, that the Client execute a
license agreement with Fiserv for such workstations by March 31, 1997.
4. AGREED CONTRACT CHANGES.
(a) Fiserv agrees that it shall provide the Client with notice of at least
eighteen (18) months prior to the expiration of the Initial Term that the
Agreement will automatically renew pursuant to Contract Section 1 unless the
Client provides the required notice to Fiserv of its intention not to renew.
(b) The parties agree that the payment terms in effect prior to this Agreement
shall remain in effect through December 31, 1996 and that the payment terms in
Contract Section 4(f) shall become effective January 1, 1997.
(c) Contract Section 12(c) is hereby modified by striking in every instance the
word and number "fifteen (15)" and inserting in their place the word and number
"thirty (30)".
(d) Contract Section 12(d)(iii) is hereby modified by striking the word and
number "seventy-five (75)" and inserting in
<PAGE> 10
their place the word and number "sixty (60)".
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, to be
effective as of the first date written above.
Fiserv Solutions, Inc.
Community National Bank of New Jersey
By: James C. Puzniak By: Kevin L. Kutcher
- ------------------------------------- -------------------------------------
Name : James C. Puzniak Name: Kevin L. Kutcher
- ------------------------------------- -------------------------------------
Title: President Title: Executive Vice President
- ------------------------------------- -------------------------------------
Date: Novrmber 12, 1996 Date: November 7, 1996
- ------------------------------------- -------------------------------------
<PAGE> 11
Exhibit A - Account Processing Services
Client agrees with Fiserv as follows: 1. Services. Fiserv will provide
Client and Client accepts the Account Processing Services (the "Account
Processing Services") specified in the Account Processing Services Fee Schedule
attached as Exhibit A - 1 hereto marked with a "B" in the left margin, which
represents that the Service is included in the Account Processing Services Fixed
Monthly Fee. Other Services therein shall be provided when requested by Client
and accepted by Fiserv.
2. Fees. Client shall pay Fiserv the fees for the Account Processing
Services as specified herein. Other Services therein shall be paid for when
received by Client and in accordance with this Agreement.
3. Responsibility for Accounts. Client shall be responsible for
balancing its accounts each business day and notifying Fiserv immediately of any
errors or discrepancies. Provided that Client immediately notifies Fiserv of any
discrepancy in Client's accounts, Fiserv shall, at its expense, promptly
recompute accounts affected by discrepancies solely caused by Fiserv computer or
software systems or provide for another mutually agreeable resolution. Fiserv
will use its commercially reasonable efforts to correct errors attributable to
Client or other third party servicers of Client.
4. Reconstruction of Error Conditions. Reconstruction of error
conditions attributable to Client or to third parties acting on Client's behalf
will be done at prevailing rates as set forth in Exhibit A - 1.
5. Software Modifications. (a) Custom Programming. Fiserv will develop
a preliminary estimate of the anticipated man hours and costs plus or minus
fifty (50) percent associated with the implementation of said change. This
estimate will be returned to Client within four (4) weeks. Written acceptance by
Client to proceed with the project will be required prior to beginning the final
specifications. Fiserv will assign a projected completion date to the project,
provided no additional changes or modifications to the original specifications
occur once the project is in development.
(b) Regulatory Software Changes. Software changes required by
government bodies will be quoted in accordance with subsection (a) above and
such costs will be distributed to all data center clients on an equitable basis.
(c) Major Software Enhancements. All major software enhancements will
be subject to additional charges for processing and development in accordance
with Exhibit A - 1 hereto. Fiserv is under no obligation to upgrade its software
during the term of this Agreement.
6. Protection of Data. For the purpose of compliance with applicable
government regulations, Fiserv has developed an operations backup center, for
which Client has agreed to pay the charges indicated in Exhibit A - 1. Fiserv
tests the procedure periodically to ensure the data center's compliance. Copies
of transaction files are maintained by Fiserv off premises in secured vaults.
7. Processing Priority. Fiserv does not subscribe to any processing
priority; all users received equal processing consideration.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Agreement to be initialed by their duly authorized representatives below.
<TABLE>
<CAPTION>
- ------------------------------------------
Fiserv Client
Initials: JCP Initials:
KLK
- ------------------------------------------
<S> <C>
- ------------------------------------------
</TABLE>
<PAGE> 12
Exhibit A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BUNDLED SYSTEM OR SERVICE UNIT PRICE DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Account Analysis
B Per Account $ 0.30 Per account/month for first 1,000
$ 0.10 Per account/month for all accounts over 1,000
$ 300.00 Minimum/month
B History Retention $ 100.00 Per month
- ------------------------------------------------------------------------------------------------------------------------------------
Account Reconcilement
* Per Item $ 0.0250 Per item/month for first
*Monthly minimum fee is waived, 100,000 items
charge only on a per item basis $ 0.0225 Per item/month for next
100,000 items
$ 0.0200 Per item/month for next
100,000 items
$ 0.0175 Per item/month for all items
over 300,000
$ 100.00 Minimum per month
B History Retention $ 100.00 Per month
- ------------------------------------------------------------------------------------------------------------------------------------
Atchley Systems
Comply/CTR (Large Currency) Quote Contact Relationship
Comply/Wire Manager - Set-up and
Support fees subject to
vendor prices
- ------------------------------------------------------------------------------------------------------------------------------------
Automated Clearinghouse
B Receiving Transactions $ 0.07 Per item/month
$ 50.00 Minimum/month
Origination Transactions $ 0.07 Per item/month
RJE Origination $ 5.00 Per file per month
PDMs (Company Processing) $ 25.00 Per company/month
Tape Conversion $ 750.00 Per conversion
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
ATM/POS File Processing $ 100.00 Per set-up
Daily Transmissions (From ATM $ 100.00 Per month/transmission site
switches and/or Clearing Houses)
B Automated Returns $ 0.50 Per item
Notification of Change $ 0.02 Per item
B Direct Line Receiving from Fed $ 5.00 Per file/day
$ 400.00 Maximum/month
B Direct Line Origination to Fed $ 7.50 Per file/month
Payroll Processing $ 10.00 Per file/month
B Stop Payments/DNE $ 50.00 Per month for either or both
per institution
FEDI Receiving $ 50.00 Per month
FEDI Origination:
- Customer Set-up $ 200.00 Per customer of institution
- Customer Statement Set-up $ 100.00 Per customer of institution
- Per Record $ 0.25 Per NACHA 7 record
$ 50.00 Minimum NACHA record
charge per month
EPA (Electronic Payment $ 250.00 Set-up per institution
Authorization) $ 100.00 per month per institution
Automated Clearinghouse (cont.)
Risk $ 250.00 Set-up per institution
$ 100.00 per month per institution
$ 25.00 Per company/month
(Company Processing)
- ------------------------------------------------------------------------------------------------------------------------------------
Audit Confirmation Reports
B Set-up Charge $ 35.00 Per request
B More Than 10% Confirmed $ 0.30 Per positive confirmation
$ 0.25 Per negative confirmation
B Less than 10% confirmed $ 0.02 Per account on file/request
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
B Per request maximum $ 500.00 Per request/month
- ------------------------------------------------------------------------------------------------------------------------------------
Automated Returns
B Inquiry only $ 200.00 Per month
PETS Interface $ 300.00 Per month/institution
$ 600.00 Maximum/relationship
- ------------------------------------------------------------------------------------------------------------------------------------
Balance File Transmissions $ 250.00 Per application/month
- ------------------------------------------------------------------------------------------------------------------------------------
Bulk Filing
B Base $ 175.00 Per month per institution
B Per Transaction $ 0.002 Per month per DD
transaction
- ------------------------------------------------------------------------------------------------------------------------------------
BSG Software Quote Contact Relationship
Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Central Marketing File
B Standard Build $ 100.00 Monthly or quarterly file
build - standard options
(primary holders and open
accounts)
Special Options Build $ 250.00 Per run
Off-Cycle Build $ 500.00 Per run (other than
scheduled cycle)
Peer Group Reporting $ 220.00 Annual peer group reports
(All CMF pricing excludes
tape charges)
- ------------------------------------------------------------------------------------------------------------------------------------
Central Reference File
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
B CRF Accounts (Alpha-Keys) $ .110 Per account/month for first
50,000 accounts
$ .090 Per account/month for next
50,000 accounts
$ .075 Per account/month for next
100,00 accounts
$ .060 Per account/month for all
accounts over 200,000
Address Labels $ 10.00 Per 1,000 accounts per
request
9-Digit Zip Code (ZIP+4) $ 10.00 Per 1,000 records one-time setup
$ 7.50 Per 1,000 records/run
CRF Miscellaneous Accounts $ .025 Per account/month
(Non-Fiserv Applications) $ 25.00 Minimum/month
$ 500.00 Maximum/month
Alpha-Key Merge $ 350.00 Per request/institution
GEO Code $ 500.00 Per request/institution
$ 5.50 Per 1,000 records processed
SQN Interface $ 5,000.00 One-Time Setup per
institution; standard format
Professional services fees
apply to customization
$ 150.00 Per month per institution for
monthly interface
$ 300.00 Per month per institution for
weekly interface
$ 350.00 Per month per institution for
daily interface
- ------------------------------------------------------------------------------------------------------------------------------------
Combined Interest
B Per Account (1099s and 1098s) $ 0.16 Per account/year
B W-8/W-9 $ 0.05 Per notice produced
B On-Line Corrections $ 1.50 Per correction/month
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
B B-Notices $ 300.00 Report produced from tape
$ 500.00 Data entry module
$ 1,000.00 Full tape processing
Above excludes any special
programming
- ------------------------------------------------------------------------------------------------------------------------------------
B Commercial Loans Plus $ 2.00 Per note/month
- ------------------------------------------------------------------------------------------------------------------------------------
Consulting Services Quote Contact Relationship
Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Coupon Books Quoted by vendor
- ------------------------------------------------------------------------------------------------------------------------------------
B Credit Bureau Reporting $ 50.00 Per credit bureau/month
(INCLUDES 1 CREDIT BUREAU)
- ------------------------------------------------------------------------------------------------------------------------------------
CRISP Interface $ 400.00 Per month for first user institution
$ 300.00 Per month for each additional user
institution
- ------------------------------------------------------------------------------------------------------------------------------------
Custom Interfaces
Set-Up $ 100.00 Per recurring transmission site established
Professional Services fees additional
Incoming Transmissions $ 50.00 Per transmission if reformat required
$ 250.00 Maximum per month per custom interface
Outgoing Transmissions $ 50.00 Per transmission
$ 250.00 Maximum per month per custom interface
- ------------------------------------------------------------------------------------------------------------------------------------
Customer Reporting System
Deliver Point Bar Coding (DPBC) $ 2,000.00 One-Time Professional Services Fee
$ .01 Per month per document for which DPBC is printed
$ 100.00 Minimum/month
- ------------------------------------------------------------------------------------------------------------------------------------
Data Access Service (DAS)
B up to Per Record/Report $ 2.00 Per 1,000 records on reports not requiring
$384 CRF
with $ 2.50 Per 1,000 records on reports requiring
add'l CRF (CRF available only on weekends)
$416 $ 2.50 Label production rate per 1,000 records
fee per 1.20 Factor applied to download requests
month (Records equal sum of read plus
written/printed)
$ 40.00 Minimum/report
$ 250.00 Maximum/report
Storage $ 1.00 Per month for each request stored for re-
execution
Weekend Discounts 30% Discount applied to first $200 in weekend
reports
40% Discount applied to next $300
50% Discount applied to next $500
60% Discount applied to all over $1,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
V Data Communications Quote Circuits, equipment and network support -
as quoted by / through vendors
- ------------------------------------------------------------------------------------------------------------------------------------
Deconversion $ 5,000.00 Base per institution
$ 200.00 Per tape produced
$ 250.00 For production of wipe-off DD statements
Above rates exclude requested Fiserv
professional services and out-of-pocket
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Deluxe One Network
Set-up $ 250.00 Per institution
500.00 Maximum per relationship
B Access $ 50.00 Per institution/month
$ 150.00 Maximum per relationship/month
- ------------------------------------------------------------------------------------------------------------------------------------
Demand Deposits
B Transactions Processed $ 0.018 Per transaction/month for first 300,000
$ 0.017 Per transaction/month for next 300,000
$ 0.016 Per transaction/month for next 400,000
$ 0.015 Per transaction/month for next 400,000
$ 0.014 Per transaction/month for next 400,000
$ 0.013 Per transaction over 1,800,000
$ 450.00 Minimum/month
B Account Maintenance $ 0.075 Per account/month
B Interest Bearing Accounts $ 0.145 Per open account/month
$ 75.00 Minimum/month
$ 0.05 Per closed account/month
B Draft Items $ 0.05 Per transaction/month
$ 0.02 Per notice/month
B Automatic Transfers $ 0.05 Per transaction/month
50.00 Minimum/month
$ 0.02 Per notice/month
B Sweep Transactions $ 0.05 Per transaction/month
50.00 Minimum/month
$ 0.02 Per notice/month
B History Retention:
- Seven Day $ 100.00 Per institution /month
- Extended $ 100.00 Per institution/month, incremental to seven
day fee
B Combined Balance Service Charge $ 75.00 Per institution/ month
B Kiting Suspect Report $ 50.00 Per institution/month
B Mutual Funds Sweep $ 400.00 Per institution/month
$ 800.00 Maximum/relationship
B Statement Zip Code Sort $ 0.01 Per zip code sorted statement /month
Service Charge Routine Setup Quote Professional services fees apply
B Service Charge Routine Change Quote Professional services fees apply
Accrual Adjustment Program $ 200.00 Per request first day plus $50 each
additional day after first day
Demand Deposits (cont.)
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Account Number Production $ 25.00 Set-up per request
$ 5.00 Per 1,000 account numbers produced
Check Processing Descending Order $ 2,000.00 Set-up per institution
$ 4,000.00 Maximum per relationship
B Overnight Investments $ 300.00 Per month, first institution
$ 150.00 Per month, each additional institution
$ 600.00 Maximum/relationship
- ------------------------------------------------------------------------------------------------------------------------------------
Electronic Banking
Flex-Phone VRU Quote Contact Relationship Manager for System
quotes
Bill Payment Accounts $ 1.00 Per account/month
Non-Bill Payment Accounts $ 0.05 Per account/month
$ 250.00 Minimum account processing/month
By-Line Telephone Banking $ 400.00 Per month - 0 - 750 calls answered
$ 700.00 Per month - 751 - 10,000 calls answered
$ 900.00 Per month - 10,001 - 15,000 calls
answered
$ 1,100.00 Per month - 15,001 - 20,000 calls
answered
Pricing for call volumes over 20,000 quoted
Above pricing excludes costs of 800 number
access
AutoOpen Feature $ 0.50 Per account opened
Business Account Manager $ 750.00 One-Time Setup
Includes access to Fiserv's Bill Payment
service
- By-Line Users $ 12.00 Per BAM account/month (excludes costs
of 800 number access)
$ 150.00 Minimum/month
- Flex-Phone Users $ 2.00 Per BAM account/month
- ------------------------------------------------------------------------------------------------------------------------------------
B Escrow Management
Set-up $ 5,000.00 Per institution
$10,000.00 Per relationship maximum
Rent Security $ 100.00 Per month
Principal / Escrow $ 75.00 Per month
IOLA Reporting $ 50.00 Per month
$ 200.00 Per month for all three modules
- ------------------------------------------------------------------------------------------------------------------------------------
FAST Branch Automation Quote Contact Relationship Manager
- ------------------------------------------------------------------------------------------------------------------------------------
General Ledger
B Base $ 400.00 Per institution/month
B Account Centers $ 0.235 Per account/month for first 1,000
accounts
$ 0.155 Per account/month for next 1,000
accounts
$ 0.105 Per account/month for all accounts over
2,000
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
B Transactions $ 0.025 Per transaction/month for first 5,000
accounts
$ 0.014 Per transaction/month for next 5,000
accounts
$ 0.006 Per transaction/month for all accounts over
10,000
B Budget:
- Current and Next Year Module $ 50.00 Per institution/month
- Working Year Optional Selection $ 25.00 Per institution/month
- Prior Year Optional Selection $ 25.00 Per institution/month
B Application Interface $ 50.00 Per application
interfaced/institution/month
B Recurring Entries $ 10.00 Per batch/month
Daily Custom Reports $ 100.00 Per report/month (first report free)
Transaction Journal $ 250.00 Per journal (quarterly frequency)
Interface Custom Reports:
- Report Set-up $ 25.00 Per report set-up requested
- Report Generation $ 100.00 Per report generated/month (first report
free)
B Interface Extract $ 100.00 Per application/month
On-Line System:
B - Set-up $ 1,000.00 One-time for set-up
B - Monthly Budget $ 100.00 Per institution/month for current and next
year module
$ 25.00 Per institution/month for working year
optional selection
$ 25.00 Per institution/month for prior year
optional selection
B - Transaction History $ 500.00 One-time for set-up (waived if set-up at
(SET-UP) same time as on-line set-up)
B $ 50.00 Per institution/month for 14 day history
B $ 150.00 Per institution/month for 45 day history
- ------------------------------------------------------------------------------------------------------------------------------------
Global Access Manager Quote Contact Relationship Manager
- ------------------------------------------------------------------------------------------------------------------------------------
B Host Disaster Contingency Planning $ 750.00 Per institution/year for assets $0 to
$100mm
$ 1,500.00 Per institution/year for assets $101 to
$200mm
$ 2.250.00 Per institution/year for assets $201 to
$300mm
$ 3,000.00 Per institution/year for assets $301 to
$400mm
$ 3,750.00 Per institution/year for assets over
$400mm
$ 6,000.00 Maximum/relationship/year
- ------------------------------------------------------------------------------------------------------------------------------------
B Host/RJE Site Support $ 100.00 Per month/site
- ------------------------------------------------------------------------------------------------------------------------------------
B Hot Site Support $ 100.00 Per month/site
- ------------------------------------------------------------------------------------------------------------------------------------
InformEnt Data Collection Quote Contact Relationship Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Late Payment Interest Charge 1.5% Of outstanding past due balance
- ------------------------------------------------------------------------------------------------------------------------------------
B Maturity Analysis Reporting
B Monthly Reporting $ 350.00 Per institution/month
</TABLE>
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Quarterly Reporting $ 400.00 Per institution/quarter
B Downline Loading $ 50.00 Per institution/month or quarter
B MARSFLEX Sorting Criteria $ 50.00 Per report (first report free)
- ------------------------------------------------------------------------------------------------------------------------------------
Microfiche
$ 0.95 Per original produced
$ 0.17 Per copy produced
$ 1.00 Hardcopy per frame requested
- ------------------------------------------------------------------------------------------------------------------------------------
Microlink
$ 30.00 Per institution Base/month
$ 7.50 Per access
- ------------------------------------------------------------------------------------------------------------------------------------
n/a Minimum Processing Fee $ 5,000.00 Per month; excluding third party billings
- ------------------------------------------------------------------------------------------------------------------------------------
On-Line Collections $ 0.60 Per active account/month
$ 0.11 Per inactive account/month
- ------------------------------------------------------------------------------------------------------------------------------------
PC Interface Support $ 100.00 Per month, includes support for PC
Services Package, SimWare and/or XCOM,
excludes third party software, maintenance
and CompuServe access time.
- ------------------------------------------------------------------------------------------------------------------------------------
Platform Automation Support
B Third Party All Vendor Systems $ 100.00 Per month
- ------------------------------------------------------------------------------------------------------------------------------------
B Presentment Items
B Per Account $ 0.25 Per account/month for first 1,000
accounts
$ 0.05 Per account/month for accounts over
1,000
$ 200.00 Minimum/month
- ------------------------------------------------------------------------------------------------------------------------------------
Printing $ 100.00 Per report available on microfiche or per
request
$ 2.50 Per savings account statement printed
- ------------------------------------------------------------------------------------------------------------------------------------
Professional Services
Includes (but not limited to) custom $ 85.00 Per hour, two hour minimum per request
programming (report and file creation, $ 250.00 Minimum per person per day for on-site
maintenance and fixes), and other Fiserv support (plus out-of-pocket expenses
personnel assistance not covered by contract $ 110.00 Per hour for urgent programming requests
$ 150.00 Base per mass maintenance request
$ 50.00 Per report generated from request
$ 100.00 Incremental for CRF access on report
- ------------------------------------------------------------------------------------------------------------------------------------
Report Regeneration $ 25.00 Per request/month (first two requests free)
- ------------------------------------------------------------------------------------------------------------------------------------
Reference Materials
CD-ROM:
- First Two No Charge Per institution per release
- Additional Copies $ 25.00 Per copy if preordered via annual
subscription
$ 100.00 Per copy for ad hoc requests
Paper Manuals (products not on CD): $ 75.00 Per manual per application
- ------------------------------------------------------------------------------------------------------------------------------------
Repost Due to Client Error Quote Professional Services rates apply
$2,000 minimum per incident
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Loans
B Open Accounts $ 0.63 Per account/month for first 5,000
accounts
$ 0.58 Per account/month for next 10,000
accounts
$ 0.53 Per account/month for next 20,000
accounts
$ 0.48 Per account/month for next 25,000
accounts
$ 0.45 Per account/month over 60,000 accounts
$ 1,000.00 Minimum/month
B Closed Accounts $ 0.05 Per account/month
B Loan Interest Statements:
- Payoff statements $ 0.10 Per statement/month
- Annual statements $ 0.10 Per statement
$ 100.00 Minimum for annual statements
Insurance Tape Creation $ 200.00 Per tape/vendor/application
Promotional Extensions $ 150.00 Base per execution
$ 0.05 Per account
- ------------------------------------------------------------------------------------------------------------------------------------
Retirement Planning
B Accounts $ 0.41 Per account/month
$ 200.00 Minimum/month
B Statements $ 0.10 Per statement/month (annual or off-cycle)
B W-2P, 1099R and 5498 $ 0.10 Per item/month
- ------------------------------------------------------------------------------------------------------------------------------------
RMDS
B* $ 250.00 Per month for 1 to 5 user IDs
*Over 40 Users included in the bundled fee $ 375.00 Per month for 6 to 10 user IDs
$ 525.00 Per month for 11 to 20 user IDs
$ 650.00 Per month for 21 to 40 user IDs
$ 775.00 Per month for over 40 user IDs
- ------------------------------------------------------------------------------------------------------------------------------------
Safe Deposit Box
B Per Account $ 0.05 Per account/month for first 4,000
accounts
$ 0.04 Per account/month for next 4,000
accounts
$ 0.03 Per account/month for all accounts over
8,000
$ 100.00 Minimum/month
- ------------------------------------------------------------------------------------------------------------------------------------
Savings Deposits
B Open Accounts $ 0.150 Per account/month for first 20,000
accounts
$ 0.145 Per account/month for next 20,000
accounts
$ 0.140 Per account/month for next 20,000
accounts
$ 0.135 Per account/month for next 20,000
accounts
$ 0.130 Per account/month for next 20,000
accounts
$ 0.125 Per account/month for all accounts over
100,000
$ 250.00 Minimum/month
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
B Closed Accounts $ 0.05 Per account/month
B Draft Items $ 0.05 Per transaction/month
$ 0.02 Per notice/month
B History Retention $ 100.00 Per month
B Statement Zip Code Sort $ 0.01 Per zip code sorted statement
Service Charge Routine Setup $ 100.00 Per routine
Service Charge Routine Change $ 25.00 Per field changed
$ 100.00 Maximum per routine changed
Accrual Adjustment Program $ 200.00 Per request first day plus $50 each
additional day after first day
Tape for Coupon Book Production $ 300.00 Per request ($200 for tape, $50 for
special report, $50 for processing)
- ------------------------------------------------------------------------------------------------------------------------------------
Securities/Collateral/Officer Tracking
B Per Priced Item $ 0.30 Per priced item/month
B Per Unpriced Item $ .10 Per unpriced item/month
$ 25.00 Minimum/month
- ------------------------------------------------------------------------------------------------------------------------------------
Special Reports $ 50.00 Applies to any report which is not
produced in the normal processing flow
but which has previously been
programmed by Fiserv. Additional fees
associated with the creation and generation
of new special reports are described under
Professional Services
$ 100.00 Incremental for CRF access on special
report
- ------------------------------------------------------------------------------------------------------------------------------------
Tape Creation $ 200.00 Per physical tape produced (or equivalent
on alternative media)
- ------------------------------------------------------------------------------------------------------------------------------------
Teller Support
B Inquiry $ 225.00 Per month
B Datacaptue/Truncation $ 125.00 Per month (additional to inquiry support)
- ------------------------------------------------------------------------------------------------------------------------------------
B Third Party Review $ 350.00 Per original
$ 35.00 Per copy
- ------------------------------------------------------------------------------------------------------------------------------------
Time Deposits
B Open Accounts $ 0.26 Per account/month for first 20,000
accounts
$ 0.24 Per account/month for accounts over
20,000
$ 175.00 Minimum/month
B Closed Accounts $ 0.05 Per account/month
B History Retention $ 100.00 Per month
B Statement Zip Code Sort $ 0.01 Per zip code sorted statement
- ------------------------------------------------------------------------------------------------------------------------------------
Training
Fiserv Training Services Quote Contact Relationship Manager
CBT Modules Quote Contact Relationship Manager
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
Exhibit E - Purchase of Equipment Through Fiserv
Client agrees to purchase, and Fiserv agrees to sell, Equipment (as
hereinafter defined) on the terms and subject to the conditions hereinafter set
forth:
1. Equipment and Fiserv Obligations. Equipment, if any, being purchased
through Fiserv shall be described in Exhibit E - 1 hereto, or in a signed order
letter from Client to Fiserv specifying the quantity, type and price for the
equipment desired, (the "Equipment"). Client understands that Fiserv is acting
as an independent sales organization representing each manufacturer or supplier
(each, a "Manufacturer") identified in Exhibit E - 1. Client also understands
and agrees that the ability of Fiserv to obtain the Equipment may be subject to
availability and delays due to causes beyond the control of Fiserv. Fiserv shall
promptly place any orders submitted under this Agreement with each Manufacturer
and shall, at Client's direction, request expedited delivery whenever available.
2. Delivery and Installation. (a) Delivery. On Client's behalf, Fiserv
shall arrange for delivery of the Equipment to the site or sites ("Installation
Site(s)") designated by Client on Exhibit E - 2 on or about the date (the
"Delivery Date") requested. In the absence of shipping instructions, Fiserv
shall select a common carrier on behalf of Client. Client shall be responsible
for appropriate property insurance for all equipment, whether Client-owned or
Fiserv-owned, within Client's premises.
(b) Installation and Acceptance. Fiserv shall arrange for the
installation of the items of Equipment in consideration of the Installation Fees
listed on Exhibit E - 2. Client shall not perform any installation activities
without the written consent of Fiserv. Fiserv or its designee shall have full
and free access to the Equipment and the Installation Site until installation is
completed. If a suitable installation environment is not provided by Client,
then Fiserv shall be required to perform only as many normal installation
procedures as it deems to be practicable within the available facilities.
Installation of Equipment will take place during normal Fiserv business hours,
Monday through Friday, exclusive of Fiserv holidays, unless otherwise agreed by
Fiserv. The Equipment shall be deemed to have been accepted when it has passed
either the Fiserv or the Manufacturer's standard post-installation test
procedures at the Installation Site.
(c) Installation Environment. Client shall provide a suitable
installation environment for the Equipment as specified by Fiserv or its agents
and any and all other specifications provided to Client by the Manufacturer or
Fiserv. Client shall also be responsible for furnishing all labor required for
unpacking and placing each item of Equipment in the desired location for
installation. Client shall be responsible for physical planning including, but
not limited to, floor planning, cable requirements, and safety requirements in
accordance with the installation manual and any and all applicable building,
electrical, or other codes, regulations, and requirements. All such physical
planning shall be completed on or before the delivery date for the Equipment.
3. Shipment, Risk of Loss and Title to Equipment. All prices shown on
Exhibit E - 1 are F.O.B. at the Manufacturer's plant. All transportation,
rigging, drayage, insurance, and other costs of delivery of the Equipment to the
Installation Site shall be itemized on an invoice submitted to Client and shall
be paid by Client. Risk of loss shall pass to Client upon shipment. Title to the
Equipment shall remain with the Manufacturer until all payments for the
Equipment have been made by Client and, until such time, Client agrees that it
shall not sell, transfer, pledge, or otherwise dispose of the Equipment without
the prior written consent of Fiserv.
4. Security Interest. Client grants Fiserv a security interest in all
the Equipment and the proceeds thereof until the purchase price due Fiserv shall
have been paid in full. Client shall execute any instruments or documents Fiserv
deems appropriate to protect the security interest and, in any event, this
Agreement shall constitute a financing agreement within the meaning of Article 9
of the Uniform Commercial Code and a copy of this Agreement may be filed at any
time after signature by Fiserv as a financing statement for that purpose. In the
event of default in payment or other breach by Client, Fiserv shall have all
rights and remedies of a secured creditor upon default as provided by applicable
law. Fiserv shall, at its sole expense, file releases for any financing
statements recorded pursuant to this Agreement promptly upon receipt of final
payment.
5. Warranties. Fiserv warrants that Client will acquire good and clear
title to the Equipment free and clear of all liens and encumbrances. Fiserv
hereby assigns to Client all warranties the Manufacturer has granted to Fiserv
with respect to the Equipment as set forth on Exhibit E - 1. Client
<PAGE> 24
hereby agrees to all of the terms and conditions applicable to those warranties
and acknowledges that: (i) neither the Manufacturer nor Fiserv warrants that the
use of the Equipment will be uninterrupted or error free; and (ii)
Manufacturer's warranties, and the assignment of such warranties by Fiserv to
Client, shall not impose any liability on Fiserv due to the services or
assistance provided to Client by Fiserv with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit E to be
initialed by their duly authorized representatives.
<TABLE>
<CAPTION>
- ------------------------------------------
Fiserv Client
Initials: JCP Initials: KLK
- ------------------------------------------
<S> <C>
- ------------------------------------------
</TABLE>
<PAGE> 25
Exhibit E - 1
Equipment, Manufacturer and Prices
<TABLE>
<CAPTION>
Equipment Manufacturer
- --------- ------------
Price
- -----
<S> <C>
</TABLE>
<PAGE> 26
Exhibit E - 2
Installation Sites and Fees
<PAGE> 27
Exhibit F
Software Products
1. License. Each license agreement subject to the terms of this
Agreement shall be separately labeled as Exhibit F-n attached hereto. By using
the software described on each such Exhibit F-n, Client agrees to the terms and
conditions contained in the license agreement.
2. License Fee. Payment of any license fees identified in any such
Exhibit F-n to Fiserv by Client shall be accepted by Fiserv and the applicable
Fiserv affiliate as payment of such license fees.
3. Termination of Agreement. Notwithstanding any provision to the
contrary in any such Exhibit F-n, the termination of this Agreement shall
terminate any such Exhibit F-n, at Client's sole option.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit F to be
initialed by their duly authorized representatives below.
<TABLE>
<CAPTION>
- ------------------------------------------
Fiserv Client
Initials: JCP Initials: KLK
- ------------------------------------------
<S> <C>
- ------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.36
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT is made as of the 15 day of January, 1997, by and among
COMMUNITY FINANCIAL HOLDING CORPORATION, a New Jersey Corporation, its assignee
or successor in interest (collectively "Community"), and KEVIN KUTCHER of
Moorestown, New Jersey ("Employee").
BACKGROUND
Employee is presently employed by Community in the capacity of Executive
Vice President. His efforts in such position provide Community with substantial
and valuable benefits, and it is anticipated that his future efforts will be
similarly valuable.
Community desires to insure the continued employment of Employee, in
part, by providing further incentive to Employee, in the form of this Severance
Compensation Agreement, to remain in its employment.
Employee has agreed to remain in the employ of Community, being induced
to do so, in part, by the agreement of Community to provide the severance
compensation which is described below.
IT IS THEREFORE AGREED:
1. SEVERANCE PAY. In the event of a "Change in Control" of
Community (as defined in section 3, below) during the term of Employee's
employment with Community, then, in addition to all other compensation payable
to him, and except as otherwise provided in this Agreement, Community shall pay
to Employee severance compensation calculated and paid as follows:
a. The severance compensation shall be paid in monthly
installments ("Severance Payments"), each Severance Payment being equal to
one-twelfth (1/12) of the Employee's base annual salary at the effective date of
the Change in Control.
b. The Severance Payments shall commence on the fifteenth day
of the calendar month immediately following the month in which the Change in
Control occurred, and shall thereafter be made on the fifteenth day of each
calendar month through and including December of the calendar year immediately
following the year in which the Change in Control occurred, unless the Severance
Payments are terminated, as provided in subsection c, below.
c. The Employee's rights to Severance Payments, and
Community's obligation to make Severance Payments shall terminate immediately
upon the first to occur of the following: i) in the event Employee's employment
is terminated for-cause; ii) in the event Employee voluntarily terminates his
employment; iii) when the Employee becomes employed with a bank or other
financial institution, and such employment is in a capacity, and provides for
compensation commensurate with his position and base salary at the time of the
Change in Control. It is understood and agreed by the parties that such position
and compensation shall be deemed commensurate if they do not result in any
substantial or material demotion, reduction in position, diminution of
authority, reduction or diminution of Employee's base salary, or other similar
adverse action against the Employee. Such employment shall be deemed not
commensurate if it is in a location which is more than one hundred (100) miles
from the location where the Employee regularly
<PAGE> 2
worked when employed by Community.
2. EMPLOYMENT BY SUCCESSOR. Notwithstanding the foregoing, in
the event Employee's rights to Severance Payments are terminated under
subsection c. iii) above based on Employee's employment by Community's assignee
or successor in interest pursuant to the Change in Control (collectively the
"Successor"), and the Successor subsequently terminates Employee's employment
without cause, then the Severance Payments shall commence on the fifteenth day
of the calendar month immediately following the month in which said termination
occurred, and shall thereafter be made on the fifteenth day of each calendar
month through and including December of the calendar year immediately following
the year in which the Change in Control occurred, unless and until the Severance
Payments are otherwise terminated pursuant to the provisions of subsection c,
above.
3. EMPLOYEE'S EFFORTS. The Employee agrees that following a
Change in Control, the Employee shall, in good faith, use reasonable efforts to
retain or obtain a position and compensation commensurate with his position and
base salary at the time of the Change in Control.
4. CHANGE IN CONTROL. For purposes of this Agreement, "Change
in Control" shall mean (i) a merger of Community with and into another entity,
wherein Community is not the surviving entity; (ii) the sale of all or
substantially all of Community's assets and business; or (iii) the sale of all
or substantially all of Community's issued and outstanding stock.
5. CONFIDENTIALITY/EMPLOYEE PIRACY/RESTRICTIVE COVENANT. a.
Employee agrees that he shall at no time utilize or disclose to any third party
any of the confidential or proprietary information of Community ("Confidential
Information"), other than as necessary in the course of rendering services to
Community. For purposes of this Agreement, Confidential Information shall
include but not necessarily be limited to Community's concepts, plans, business
operations and affairs, marketing strategies and techniques, referral sources,
market research studies, financial condition and projections.
b. Employee agrees that during the term of this Agreement and
for a period of twelve (12) months thereafter, he shall not, whether directly or
indirectly, in any way for his own account or as an employee, officer, director,
shareholder, proprietor, or in any other capacity for the account of any other
person, venture, firm, business, corporation or enterprise, offer employment to
any employee of Community or attempt to induce or cooperate with any other party
in attempting to induce or entice any employee of Community to leave the employ
of Community.
c. Employee agrees that during the term of this Agreement and
for a period of twelve (12) months following its termination for any reason, he
shall not, whether directly or indirectly, in any way for his own account or as
an employee, officer, director, shareholder, proprietor, or in any other
capacity for the account of any other person, venture, firm, business,
corporation or enterprise, call upon, solicit or be solicited, or otherwise
contact in any way, any former or existing customer of Community for the purpose
of (i) selling or attempting to sell any services or products offered for sale
by Community or (ii) inducing or
<PAGE> 3
attempting to influence any former or existing customer of Community to
terminate its relationship with Community or otherwise curtail or cancel its
business with Community.
d. Employee agrees that in the event of a violation of any of
the provisions of this section 5 of the Agreement, he would be effectively
appropriating the know-how, proprietary information and goodwill of Community
without just compensation therefor; and the parties agree that such a violation
would thereby cause damage to Community in an amount difficult to reasonably
ascertain. Employee therefore agrees that in the event of his violation under
this Agreement or otherwise, the obligations of Employee hereunder shall be
enforceable by a court decree of specific performance or appropriate injunctive
relief. Nothing contained herein shall prohibit Community from pursuing any
other remedies available for such a breach or threatened breach, including
recovery of damages.
6. NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall
impose upon Community or the Successor any obligation to continue to employ the
Employee, or impose upon the Employee any obligation to continue as an employee
of Community or the Successor.
7. NON-ASSIGNABILITY. This Agreement as well as the payments
provided for herein and the right to receive them are nonassignable and
nontransferable by Employee. Community shall have no further liability hereunder
to any payee who attempts to assign or transfer such rights.
8. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, executors,
administrators, successors and, in the case of Community, assigns.
9. GOVERNING LAW. This Agreement is made under and shall be
construed and enforced in accordance with the laws of the State of New Jersey.
In the event any provision of this Agreement shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall attach
only to such provision and shall not affect or render invalid or unenforceable
any other provision of this Agreement, and this Agreement shall be construed as
if such invalid or unenforceable provision had been more narrowly drawn so as
not to be invalid or unenforceable.
10. ATTORNEYS FEES. In the event Community takes any action in
connection with the enforcement of the terms and conditions of this Agreement,
Employee shall pay on demand, in addition to any other sums or equitable relief
to which it may be entitled, all of Community's costs and expenses incurred in
connection with such enforcement including, without limitation, Community's
attorneys' fees and legal costs, whether or not a lawsuit is instituted.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings of the parties with respect
thereto. This Agreement may not be amended or supplemented except by a separate
agreement in writing signed by the party against
<PAGE> 4
whom enforcement is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above mentioned.
COMMUNITY FINANCIAL HOLDING CORPORATION
by Robert T. Pluese
-------------------------------------
Robert T. Pluese, Chairman
Kevin Kutcher
-------------------------------------
KEVIN KUTCHER, Employee
<PAGE> 1
Exhibit 10.37
Exhibit 10.37 is substantially identical in all material respects to Exhibit
10.36 and such Exhibit is omitted. The only material detail in such omitted
Exhibit which differ from Exhibit 10.36 is that the name of the employee is
Benjamin F. Watts.
<PAGE> 1
Exhibit 99.1
This section is included in this Annual Report on Form 10-K in lieu of filing a
report on Form 11-K for The Community National Bank 401(K) Plan. Under ERISA, no
financial statements are required to be prepared for the Community National Bank
401(K) Plan.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,282,683
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,050,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,590,571
<INVESTMENTS-CARRYING> 18,137,427
<INVESTMENTS-MARKET> 18,213,864
<LOANS> 73,692,330
<ALLOWANCE> 738,353
<TOTAL-ASSETS> 126,527,319
<DEPOSITS> 111,448,328
<SHORT-TERM> 3,280,586
<LIABILITIES-OTHER> 852,650
<LONG-TERM> 0
0
0
<COMMON> 4,944,870
<OTHER-SE> 6,000,885
<TOTAL-LIABILITIES-AND-EQUITY> 126,527,319
<INTEREST-LOAN> 6,181,220
<INTEREST-INVEST> 2,412,798
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,594,018
<INTEREST-DEPOSIT> 2,830,713
<INTEREST-EXPENSE> 2,830,713
<INTEREST-INCOME-NET> 5,763,305
<LOAN-LOSSES> 340,000
<SECURITIES-GAINS> 11,269
<EXPENSE-OTHER> 4,849,168
<INCOME-PRETAX> 1,005,713
<INCOME-PRE-EXTRAORDINARY> 1,005,713
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,005,713
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.95
<YIELD-ACTUAL> 5.39
<LOANS-NON> 528,000
<LOANS-PAST> 14,000
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 595,593
<CHARGE-OFFS> 248,855
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<ALLOWANCE-CLOSE> 738,353
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