FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________
Commission file number 33-24649
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ATCORP, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2911209
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
8000 Sagemore Drive, Marlton, New Jersey 08053
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(Address of principal executive offices)
(zip code)
(609) 983-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 30, 1995
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Common Stock, par value $5.00 per share 735,000
ATCORP, INC. AND SUBSIDIARIES
INDEX
Page
Part I: Financial Information
Item 1: Financial Statements:
Consolidated Balance Sheets -
September 30, 1995 (unaudited) and
December 31, 1994 3
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1995
and 1994 (unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995
and 1994 (unaudited) 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 11
Signatures 12
2
Part I -- Financial Information
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
ASSETS
September 30, December 31,
1995 1994
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CASH AND DUE FROM BANKS......................................................... $ 3,707 $ 3,861
INTEREST-BEARING DEPOSITS....................................................... 118 56
FEDERAL FUNDS SOLD.............................................................. -- 5,613
INVESTMENT SECURITIES (market value of $24,572 on
September 30, 1995 and $23,262 on December 31, 1994)............................ 24,415 24,165
INVESTMENT SECURITIES AVAILABLE FOR SALE ....................................... 16,563 10,281
LOANS HELD FOR SALE............................................................. 470 ----
LOANS Net of unearned discount.................................................. 93,689 71,460
Less --Allowance for possible loan losses................................ (1,305) (1,152)
-------- --------
Net loans .............................................................. 92,854 70,308
BANK PREMISES AND EQUIPMENT, net................................................ 2,932 2,224
OTHER REAL ESTATE OWNED......................................................... 275 51
ACCRUED INTEREST RECEIVABLE..................................................... 1,362 1,102
OTHER ASSETS .............................................................. 693 737
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Total assets....................................................... $142,919 $118,398
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand .............................................................. $17,148 $18,264
Interest-bearing demand.................................................. 37,436 22,838
Savings .............................................................. 21,862 28,391
Certificates of deposit--$100,000 or more................................ 8,405 10,471
Other time .............................................................. 46,380 28,599
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Total deposits..................................................... 131,231 108,563
BORROWED FUNDS.................................................................. -- --
ACCRUED INTEREST PAYABLE........................................................ 530 246
OTHER LIABILITIES .............................................................. 1,446 807
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Total Liabilities.................................................. 133,207 109,616
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value per share;
1,000,000 shares authorized, none issued
and outstanding.................................................... -- --
Common stock, $5 par value per share;
2,000,000 shares authorized, 743,516 shares issued and
735,000 outstanding on September 30,1995 and
December 31, 1994................................................. 3,718 3,718
ADDITIONAL PAID-IN CAPITAL...................................................... 3,510 3,510
RETAINED EARNINGS .............................................................. 2,451 1,689
NET UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AVAILABLE FOR SALE ......... 78 (90)
TREASURY STOCK, at cost (8,516 shares).......................................... (45) (45)
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Total shareholders' equity............................................... 9,712 8,782
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Total liabilities and shareholders' equity............................. $142,919 $118,398
======== ========
The accompanying notes are an integral part of these statements.
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INTEREST INCOME:
Interest and fees on loans .............. $ 2,151 $ 1,578 $ 5,810 $ 4,565
Interest on Federal funds sold .......... 13 31 124 47
Interest on Deposits with other banks ... 7 3 14 6
Interest on investment securities--
U.S. Treasury ..................... 159 242 542 829
U.S. Agency Securities ............ 283 67 741 134
Municipal Securities .............. 89 28 221 49
Other securities .................. 90 78 284 164
------- ------- ------- -------
Total interest income ........ 2,792 2,027 7,736 5,794
INTEREST EXPENSE:
Interest on deposits .................... 1,283 675 3,397 1,953
Interest on other borrowed funds ........ 24 11 29 15
------- ------- ------- -------
Total interest expense ............ 1,307 686 3,426 1,968
Net interest income ..................... 1,485 1,341 4,310 3,826
PROVISION FOR LOAN LOSSES ...................... -- 60 60 100
------- ------- ------- -------
Net interest income after provision for
loan losses ....................... 1,485 1,281 4,250 3,726
NONINTEREST OPERATING INCOME:
Service charges, commissions and fees ... 130 147 337 426
Securities gains ........................ 5 61 116 63
Gain on sale of mortgage loans .......... -- 2 -- 83
Other ................................... 28 13 142 79
------- ------- ------- -------
Total noninterest operating income 163 223 595 651
NONINTEREST OPERATING EXPENSE:
Salaries and employee benefits .......... 668 556 1,897 1,659
Occupancy expense ....................... 149 137 398 379
Furniture and equipment expense ......... 100 81 266 239
Professional fees ....................... 54 96 243 268
F.D.I.C. assessment ..................... (5) 53 109 155
Other ................................... 307 252 910 720
------- ------- ------- -------
Total noninterest operating expense 1,273 1,175 3,823 3,420
Income before income taxes ........ 375 329 1,022 957
INCOME TAXES ................................... 83 106 261 315
NET INCOME ..................................... $ 292 $ 223 $ 761 $ 642
======= ======= ======= =======
EARNINGS PER COMMON SHARE BEFORE
INCOME TAXES ................................ $ 0.51 $ 0.45 $ 1.39 $ 1.30
INCOME TAXES ................................... 0.11 0.15 0.35 $ 0.43
------- ------- ------- -------
EARNINGS PER SHARE ............................. $ 0.40 $ 0.30 $ 1.04 $ 0.87
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
4
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1995 1994
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(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 761 $ 642
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ...................................... 303 240
Provision for loan losses .......................................... 153 (147)
Provision for ORE losses ........................................... -- 24
Provision for deferred taxes ....................................... 90 (22)
Decrease in interest receivable .................................... (260) (72)
Increase (decrease) in other assets ................................ 56 (341)
Increase (decrease) in accrued expenses
and other liabilities ............................................. 549 (290)
Increase (decrease) in interest payable ............................ 284 (26)
Gain on sale of premise & equipment ................................ -- (7)
Gain on sale of securities available for sale ...................... (116) (41)
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Total adjustments .................................................. 1,059 (683)
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Net cash provided by (used in)
operating activities ................................................... 1,820 (41)
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CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) decrease in deposits with other banks ................... (62) 30
Purchases of investment securities ................................. (27,461) (13,062)
Proceeds from sales of securities available for sale ............... 2,748 5,664
Proceeds from maturities of investments ............................ 18,401 3,256
Proceeds from sale of premises and equipment ....................... 1 7
Purchases of premises and equipment ................................ (948) (391)
Increase in other real estate ...................................... (236) (1,495)
(Increase) decrease in loans ....................................... (22,699) 605
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Net cash used in investing activities ................................... (30,256) (5,386)
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CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings and
demand deposit accounts ........................................... 6,953 (1,011)
Net increase in time certificates of deposit ....................... 15,715 1,125
Net increase in federal funds purchased ............................ -- 1,350
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Net cash provided by financing activities ............................... 22,668 1,464
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NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................ (5,767) (3,962)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD .................................... 9,474 6,967
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD .......................................... $ 3,707 $ 3,005
======== ========
The accompanying notes are an integral part of these statements.
5
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the instructions to Form 10-Q and Rule 10-1 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments, including normal recurring
accruals, considered necessary for a fair presentation have been included. All
adjustments made to the unaudited financial statements were of a normal
recurring nature. Operating results for the three month and nine month periods
ended September 30, 1995 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and notes thereto included in the
annual report for the year ended December 31, 1994.
NOTE B - Earnings Per Share
Earnings per share are based upon the average number of shares
outstanding and are adjusted retroactively for the stock dividend paid February
24, 1995. The average number of shares outstanding amounted to 735,000 in the
three month and nine month periods ended on September 30, 1995 and September 30,
1994, respectively.
NOTE C - Statement No. 115 "Accounting for Certain Investments in Debt and
Equity Securities"
SFAS No. 115 requires that securities "available-for-sale" be carried
at fair value, with valuation adjustments (after tax) included in a separate
component of shareholders' equity. The Corporation adopted SFAS 115 as of
January 1, 1994.
Debt securities acquired as investments that are intended to be "held
to maturity" are stated at cost adjusted for amortization of premiums and
accretion of discounts using the level yield method. Those securities that are
designated as "available for sale" for liquidity purposes are carried at fair
market value and the net unrealized gain or loss is reported as a separate
component of shareholders equity, net of tax, until realized. Realized
securities gains and losses are calculated for each transaction and recorded as
they may occur.
6
The amortized cost and estimated values of investment securities as of
September 30, 1995 are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
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U.S. Treasury & Agency Securities $ 9,848 $ 62 $ (39) $ 9,871
Obligations of States & political
subdivisions ........... 7,208 104 (4) 7,308
Debt securities issued by foreign
governments ............ 250 -- -- 250
Corporate debt securities ....... 4,599 97 (48) 4,648
Mortgage-backed securities ...... 2,510 15 (30) 2,495
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TOTALS ................. $24,415 $ 278 $ (121) $24,572
The estimated market value of securities available for sale at September 30,
1995 are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
U.S. Treasury & Agency Securities $14,714 $ 150 $ (26) $14,838
Obligations of States & political
subdivisions ........... 463 -- (4) 459
Corporate debt securities ....... 499 -- (6) 493
Mortgage-backed securities ...... 556 -- (8) 548
Equity securities ............... 213 12 -- 225
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TOTALS ................. $16,445 $ 162 $ (44) $16,563
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following analysis by the management of the Company summarizes the
significant changes in the results of operations presented in the consolidated
statements of income for the three months and nine months ended September 30,
1995 and 1994, and presents an analysis of the financial condition of the
Company at September 30, 1995. The financial statements and accompanying notes
included in the Company's December 31, 1994 Annual Report on Form 10-K should be
read in conjunction with this analysis.
Results of Operations for the Three Months ended September 30, 1995 and 1994
Interest income increased $765,000 from $2,027,000 in the third quarter
of 1994 to $2,792,000 in the third quarter of 1995 or 38%. This improvement was
a result of an increase in interest and fees on loans of $573,000 (36%), a
decrease in interest on Federal Funds sold of $18,000 (58%), an increase in
interest on deposits with banks of $4,000, a decrease on U.S. Treasury
securities of $83,000 (34%), an increase of $216,000 in interest on U.S. Agency
Securities, an increase of $61,000 in interest on municipal securities, and an
increase in interest on other securities of $12,000 (15%). The Bank has
increased its investment in securities available for sale of which the majority
has been purchases of SBA loan pools. Securities available for sale has
increased approximately $8,000,000 since December 31, 1994. Investment in tax
exempt municipal securities has increased approximately $3,000,000 since the end
of 1994 which has helped reduce our effective tax rate.
Interest expense on deposits increased $608,000 (90%) from $675,000 in
the third quarter of 1994 to $1,283,000 in the third quarter of 1995. Interest
expense on borrowed funds increased $13,000 in the third quarter of 1995 from
$11,000 in the third quarter of 1994. The increase in interest on deposits in
1995 relates to the growth in our money manager product which is priced at 350
basis points below the prime lending rate. The money manager account attracted
approximately $14,000,000 in new deposits during the first nine months of 1995.
In addition, growth in certificates of deposit of approximately $18,000,000
contributed to the higher cost of funds. Net interest income improved $144,000
(11%) from $1,341,000 in the third quarter of 1994 to $1,485,000 in the third
quarter of 1995 as a result of the improved spread between interest income and
interest expense.
The provision for loan losses decreased $60,000 from the third quarter
of 1994. In 1995, substantial recoveries of loans charged off previously
provided sufficient funds to reduce the need of a provision from earnings. In
1994, loans charged off exceeded recoveries and required resumption of a
provision. Management continues to review the Bank's loan portfolio and analyze
the allowance for possible loan losses on a quarterly basis and believes that
the allowance is adequate.
Noninterest operating income decreased $60,000 or 27% from $223,000 in
the third quarter of 1994 to $163,000 in the third quarter of 1995. Of this
reduction, $17,000 represented a decrease in service charges, commissions and
fees, $2,000 represented a reduction in gains on the sale of mortgage loans,
$56,000 represented a decrease in gains on the sale of securities, and $15,000
represented improved other income.
Noninterest operating expense increased $98,000 from $1,175,000 in the
third quarter of 1994 to $1,273,000 in the third quarter of 1995 or 8%. Salaries
and benefits increased $112,000 from $556,000 in the third quarter of 1994 to
$668,000 in the third quarter of 1995 or 20% which was due to increases in staff
for the new Cherry Hill office, expansion of the loan area and normal salary
increases for existing personnel which averaged approximately 4% over the past
year. Occupancy expense increased $12,000 to $149,000 in the third quarter of
1995 from $137,000 in the third quarter of 1994 due to opening the Cherry Hill
office. Furniture & equipment expense increased $19,000 from $81,000 in the
third quarter of 1994 to $100,000 in the third quarter of 1995 due largely to
increased computer depreciation and maintenance costs. Professional fees
decreased $42,000 from $96,000 in the third quarter of 1994 to $54,000 in the
third quarter of 1995 reflecting a reduction in legal expense for the collection
of problem loans. The F.D.I.C. assessment decreased $58,000 between the third
8
quarter of 1994 and the third quarter of 1995 as a result of a reduction in
premium and rebate of premium previously paid. Other operating expense increased
$55,000 from $252,000 in the third quarter of 1994 to $307,000 in the third
quarter of 1995. The majority of the increase was for marketing and advertising
deposit products and the new Cherry Hill office.
As a result of the improved net interest margin coupled with decreased
noninterest operating income and increased noninterest expense, income before
income taxes improved by $46,000 or 14% from $329,000 in the third quarter of
1994 to $375,000 in the third quarter of 1995.
The Company's provision for Federal and State income taxes is
approximately 22% in the third quarter of 1995 compared with 33% of income
before taxes in the third quarter of 1994 reflecting higher average balances in
tax exempt securities and permanent timing differences.
Net income for the third quarter of 1995 was $292,000 compared with
$223,000 for the third quarter of 1994. Expressed on a per share basis, the
Company earned $.40 per share in the third quarter of 1995 compared with
earnings of $.30 per share in the third quarter of 1994.
Results of Operations for the first nine months ended September 30, 1995 and
1994.
Interest income increased $1,942,000 from $5,794,000 in the first nine months of
1994 to $7,736,000 in the first nine months of 1995 or 34%. Increases were
experienced in all categories except for interest on U. S. Treasury securities
as funds were invested in higher yielding loans and investments. Loans also
increased approximately $22,500,000 in the first nine months of 1995 while
investments increased $6,500,000 during the same time period.
Interest expense increased $1,458,000 from $1,968,000 in the first nine months
of 1994 to $3,426,000 in the first nine months of 1995 or 74%. The increase was
due to growth in interest bearing deposits and slightly higher interest rates.
As a result of the increases in interest income and expense, net interest income
improved $484,000 from $3,826,000 in the first nine months of 1994 to $4,310,000
in the first nine months of 1994 or 13%. After the decrease of $40,000 in the
provision for loan losses from $100,000 in the first nine months of 1994 to
$60,000 in the first nine months of 1995, net interest margin improved $524,000
or 14%.
Noninterest income decreased $56,000 from $651,000 in the first nine months of
1994 to $595,000 in the first nine months of 1995 or 9%. Decreases of $83,000
from the gain on sale of mortgage originations and $89,000 in service charges
were partially offset by increases in gains on the sale of securities of $53,000
and $63,000 in other income to provide this result.
Noninterest expense increased $403,000 from $3,420,000 in the first nine months
of 1994 to $3,823,000 in the first nine months of 1994. Salaries and benefits
increased $238,000 or 14% as a result of staff additions and normal pay
increases. Occupancy expense increased $19,000 or 5% as a result of higher
utilities costs and expenses of opening the new Cherry Hill Office. Furniture
and equipment expense increased $27,000 or 11% due to increased computer
depreciation and maintenance. Professional fees decreased $25,000 or 9% as a
result of a reduction in loan foreclosures and collection problems. In addition,
F.D.I.C. assessment decreased $46,000 as a result of a reduction in premium rate
and a rebate. In addition other operating expense increased $190,000.
Income before income taxes increased $65,000 from $957,000 in the first nine
months of 1994 to $1,022,000 in the first nine months of 1995 or 7%. Income
taxes decreased $54,000 or 17% as a result of higher tax exempt income. This
resulted in a net increase in net income of $119,000 for the first nine months
of 1995.
Earnings per share of $1.04 for the first nine months of 1995 compares favorably
with earnings of $0.87 per share in 1994.
9
FINANCIAL CONDITION
Management believes that the financial condition of the Company has
improved over the past year. Net interest income has improved. However,
competition for both loans and deposits have caused the spread to narrow.
Dependence on rate related liabilities has become the norm in the banking
business. Banks have had to provide more efficient methods to deliver services
and calling programs have required increased emphasis on acquiring core
deposits. The Cherry Hill office has provided the Bank with a new source of
deposits of all types of approximately $15,000,000 since the beginning of July.
However, the interest rates paid for these funds were higher than those paid a
year ago. This coupled with lower loan and investment rates has caused
compression in interest margin. This has caused us to focus on ways to improve
fee income and control operating expense despite cost increasing as we open new
offices.
Asset quality improved slightly since the end of 1994 with
classified loans at 2.07% of total loans at the end of the third quarter
compared with 3.50% at December 31, 1994.
The allowance for possible loan losses increased $153,000 from
$1,152,000 at December 31, 1994 to $1,305,000 at September 30, 1995 after a
provision of $60,000, recoveries of $130,000 and losses of $37,000 for the first
nine months. The allowance for loan losses was 1.4% of gross loans at September
30, 1995 compared with 1.6% of gross loans at December 31, 1994. While this is
consistent with the Bank's peers it also reflects a large group of new loans
that are guaranteed by the Small Business Administration.
Capital adequacy continued strong as a result of earnings and
conservative growth in total assets. Based upon the risk based capital
requirements of risk based capital of 8.00%, Tier I capital of 4.00% and
leverage ratio of 5.00%, the Bank was in excess of all of these minimum
requirements. At September 30, 1995 the Bank had total risk based capital ratio
of 11.16%, Tier I capital of 9.91% and a leverage ratio of 6.51%. With these
ratios, the Bank is considered well capitalized.
10
Part II--Other Information
Item 6. Exhibits and Reports of Form 8-K
a. Exhibits--None
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the
three months ended September 30, 1995.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATCORP, INC.
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(Registrant)
November 10, 1995 (s) Marc L. Reitzes
- --------------------------- ----------------------------------
Date Marc L. Reitzes
Chairman & Chief Executive Officer
November 10, 1995 (s) Stewart A. Collins
- --------------------------- ---------------------------------
Date Stewart A. Collins
Senior Vice President, Secretary/
Treasurer (Principal Accounting
Officer)
12