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FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to _______________________.
Commission file number 33-24649
ATCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2911209
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
8000 Sagemore Dr, Marlton, New Jersey 08053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code. (609) 983-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 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 SK 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 10K or any
amendments to this Form 10K. [X]
The aggregate market value of the Common Stock, par value $5.00, of the
Registrant held by non-affiliates of the Registrant on March 27, 1996 was
$2,914,975.
Solely for the purpose of the determination set forth above of the
market value of the Common Stock held by non-affiliates, the Registrant has
assumed that all of its directors, executive officers, and beneficial owners of
5% or more of its outstanding Common Stock are affiliates.
As of March 27, 1996, there were outstanding 780,266 shares of the
Registrant's Common Stock of which 8,516 were Treasury Stock.
Documents Incorporated by Reference: None
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INDEX
Page No.
Part I
Item 1 Business.........................................................................1
Item 2 Properties.......................................................................2
Item 3 Legal Proceedings................................................................3
Item 4 Submission of Matters to a Vote of Security Holders..............................3
Special Item Executive Officers of the Registrant.............................................4
Part II
Item 5 Market of the Registrant's Common Equity and Related
Stockholder Matters.........................................................5
Item 6 Selected Financial Data..........................................................7
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................8
Item 8 Financial Statements and Supplementary Data.....................................20
Item 9 Changes in and disagreements with Accountants on
Accounting and Financial Disclosures.......................................42
Part III
Item 10 Directors and Executive Officers of the Registrant..............................43
Item 11 Executive Compensation..........................................................44
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................................46
Item 13 Certain Relationships and Related Transactions..................................47
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................48
PART I
Item 1. Business
ATCORP, INC. (the "Company"), a New Jersey business corporation, is a
bank holding company whose sole subsidiary is Equity National Bank, a national
banking association formerly named Atco National Bank (the "Bank"). The Company
was organized at the direction of the Board of Directors of the Bank in August
1988 to acquire all of the capital stock of the Bank pursuant to a Plan of
Reorganization adopted by the Board of Directors of the Bank and subsequently
approved on December 14, 1988 by the shareholders of the Bank. Under the terms
of the Plan of Reorganization, each outstanding share of common stock and
preferred stock of the Bank was converted into shares of the Common Stock of the
Company, and the Bank became a wholly-owned subsidiary of the Company, all
effective as of December 31, 1988.
The Company acts as a holding company and does not directly engage in
any substantial business activities. The Company expects to function primarily
as a holder of all of the Bank's capital stock. As a bank holding company
subject to the jurisdiction of the Federal Reserve Board, the Company has the
legal capacity to acquire or form additional subsidiaries, including other banks
and companies engaged in nonbanking activities which the Federal Reserve Board
has found to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Holding companies may also directly engage
in such related nonbanking activities. The types of nonbanking activities which
are currently permissible are subject to change by the Federal Reserve Board.
Although the Company has no present plans to engage in such activities, it may
choose to do so in the future. At March 27, 1996, the company had 324
shareholders.
History and Business of the Bank
The Bank, established in 1925, is a national banking association under
the supervision of the Comptroller of the Currency (the "Comptroller"). The
Bank's headquarters is located at 2155 Atco Avenue, Atco, New Jersey 08004.
The Bank engages in a full-service commercial banking business,
including accepting time and demand deposits, making secured and unsecured
commercial and consumer loans, financing commercial transactions, and making
construction and mortgage loans. Its deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided by law.
In addition to its main office and operations center, the Bank has
three full-service branch offices. One is located in Atco, New Jersey, the
second branch office is located in Evesham Township, New Jersey and the third is
located in Cherry Hill, New Jersey.
The Bank has an additional office under construction in Moorestown, New
Jersey. This office is expected to open in the late summer of 1996. Additional
sites are being explored for more branch offices.
The Bank has one subsidiary, AT Corp., a Delaware corporation, which is
a passive investment company whose sole activity is to manage the majority of
the Bank's investments.
At December 31, 1995 the Bank had 66 full-time and 20 part-time
employees. The Company presently has no employees.
Competition
The Bank's principal market is in the lower part and northern part of
Camden County, a portion of southern Burlington County and northern Atlantic
County, New Jersey. In this area the Bank competes primarily with other banks,
savings and loan associations, mutual savings banks and credit unions, as well
as brokerage firms and insurance companies. The Bank also competes with mortgage
bankers, finance companies and leasing companies in certain aspects of its
lending business. Many of its competitors have significantly greater financial
resources than the Bank and larger branch networks. Some of these competitors
also have advantages as a result of the different regulations under which they
operate and other factors, including size and convenience of location.
1
The business of the Bank is not dependent upon any single customer and
the loss of any single or any few customers would not have a material adverse
impact upon the Bank.
Monetary Policy and Regulatory Issues
The earnings of the Bank are affected by the policies of regulatory
authorities, including the Comptroller the Federal Reserve Board and the FDIC.
An important function of the Federal Reserve System is to regulate the money
supply and interest rates. Among the instruments used to implement those
objectives are open market operations in United States government securities,
changes in reserve requirements against member bank deposits, and limitations on
interest rates that member banks may pay on time and savings deposits. These
instruments are used in varying combinations to influence overall growth and
distribution of bank loans, investments, and deposits, and their use may also
affect rates charged on loans or paid for deposits.
The Bank is a member of the Federal Reserve System and, therefore, the
policies and regulations of the Federal Reserve Board have had and will continue
to have a significant effect on its deposits, loans, and investment growth, as
well as the rate of interest earned and paid, and are expected to affect the
Bank's operations in the future. The effect of such policies and regulations
upon the future business and earnings of the Bank cannot be predicted. The
Federal Reserve System also regulates the activities of the Company.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires prompt corrective action against undercapitalized
institutions and has established five capital categories. These are well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Well capitalized institutions
significantly exceed the required minimum level for each capital measure
(currently, risk-based and leverage). Adequately capitalized includes depository
institutions that meet the required minimum level for each capital measure.
Undercapitalized represents depository institutions that fail to meet the
required minimum level for any relevant capital measure. Significantly
undercapitalized describes depository institutions that are significantly below
the capital minimum requirements. Currently the Bank and the Company are
considered well capitalized.
Item 2. Properties
The Company does not own any real property. The Bank owns the following
properties which are used by the Bank in its day-to-day operations:
Main Office: 2155 Atco Avenue, Atco, Waterford Township, Camden County,
New Jersey
Branch Office: 249 White Horse Pike, Atco, Waterford Township, Camden
County, New Jersey.
Operations Center: 368 White Horse Pike, Atco, Waterford Township,
Camden County, New Jersey
All of the properties owned by the Bank are free and clear of
encumbrances.
The main office and branch offices of the Bank are used only for the
purpose of banking offices. Approximately half of the operations center houses
the Bank's data processing center, customer records and records retention
personnel. The remaining half is leased to businesses who have no connection
with the Bank except as customers.
The Bank may hold title to properties as a result of foreclosure
actions to collect past due loans.
The Bank leases space in Marlton, Evesham Township, Burlington County,
New Jersey, at Route 73 and Marlton Parkway, in the Sagemore Complex. This
location serves as an additional branch office of the Bank and the Executive
Offices of the Company. The Cherry Hill office at 901 N. Kings Highway is leased
and the office under construction in Moorestown, New Jersey is under a lease
agreement.
2
Item 3. Legal Proceedings
In September 1991, the Comptroller completed an examination of the
Bank. As a result of the examination, the Comptroller advised the Board of
Directors of the Bank of its concerns regarding the overall condition of the
Bank and requested that the Board of Directors of the Bank agree to develop and
institute certain remedial programs to respond to the Comptroller's concerns. To
memorialize the agreement, the Bank entered into a commitment letter in which
the Board agreed, among other things, to take steps to develop a strategic plan,
review management and staffing, improve loan administration and develop a
capital plan. Management has responded to all of the Comptroller's concerns, and
in their opinion, have met all mandates of the commitment letter. Effective
February 23, 1994, the Comptroller concluded the Bank had achieved substantial
compliance with the commitment letter. As a result, the Comptroller removed the
Bank from its special supervision program and terminated the commitment letter.
Gerald Pliner was a member of the Bank's Board of Directors from 1977
to June 1987, and is the direct owner of approximately 2.3% of the outstanding
Common Stock. His two sisters collectively own approximately 2.1% of the
outstanding Common Stock. A pension trust in which Mr. Pliner and his two
sisters are beneficiaries owns approximately 21.2% of the outstanding Common
Stock. Mr. Pliner disclaims beneficial ownership of the shares owned by his
sisters, and the shares owned by such pension trust not attributable to his
account. See "Item 12 Security Ownership of Certain Beneficial Owners and
Management".
As a result of Mr. Pliner's having entered into a plea agreement with
the United States Attorney's Office for the District of New Jersey, relating to
certain alleged occurrences between 1980 and 1982 involving Mr. Pliner's
activities in his capacity as a Director of the Bank, on December 27, 1987, the
Comptroller issued an order of removal, prohibiting Mr. Pliner from
participating in any manner in the conduct of the affairs of the Bank. This
prohibition remains in effect as of March 27, 1996, and includes barring Mr.
Pliner from voting his shares in the Company without the prior written approval
of the appropriate regulatory agency.
The nature of the Bank's business generates a certain amount of
litigation involving matters arising in the ordinary course of business. At the
present time no material proceedings are pending, or are known to be threatened
or contemplated against the Bank by government authorities. There is no
litigation or material proceedings by government authorities or others pending,
or known to be threatened or contemplated, against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
Option Plan
In 1990, stockholders approved the 1990 incentive stock plan. The
Option Plan authorizes the grant of incentive stock options to key employees of
the Company and its subsidiaries, which includes the Bank (the "Option Plan").
The Option Plan authorizes the Board of Directors, or a committee of the Board
of Directors, to administer the Option Plan and to grant incentive stock options
from time to time that qualify as incentive stock options under Section 422A of
the Code ("Incentive Stock Options") to key employees of the Company and its
subsidiaries. At March 27, 1996 there were approximately eleven key employees of
the Company and the Bank. Incentive Stock Options will be granted based upon
services, present and potential contributions to the Company's and the Bank's
success, and such other factors as the Board may deem relevant. A total of
50,000 shares of the Company's Common Stock may be issued pursuant to options
granted under the Option Plan, subject to "anti dilution" adjustments in the
event of any changes in the Company's capitalization.
All Incentive Stock Options lapse upon the expiration of the option
term specified at the time of grant, which term may not exceed ten years from
the date of grant (or five years in the case of an optionee who on the date of
grant owns 10% or more of the voting stock of the Company); provided that an
employee's options may lapse earlier if his employment with the company is
terminated. The option price for an Incentive Stock Option must be at least 110%
of the fair market value of the shares subject to option at the time the option
is granted; provided, however, with the exception of Common Stock reacquired by
the Company, the option price shall not be less then the greater of 110% or the
3
fair market value of the shares at the time the option is granted or the per
share book value of the Company for the calendar quarter preceding the date on
which the Incentive Stock Option is granted. The aggregate fair market value
(determined at the time an Incentive Stock Option is granted) of shares with
respect to which Incentive Stock Options under the Plan are exercisable for the
first time by an optionee during any calendar year (under all incentive stock
options plans of the Company and any parent and subsidiary corporations) shall
not exceed $100,000.
As part of the Option Plan, and each Incentive Stock Option agreement
to be issued under the Option Plan, each optionee would agree not to vote the
Options Shares until the effective date of the first to occur of any of the
following events:
(i) a merger or consolidation of the Company,
(ii) the sale, lease or other disposition of all or substantially all
of the assets of the Company, whether in a single transaction or
a series of transactions,
(iii) the elimination of preemptive rights with respect to the
Company's Common Stock,
(iv) a Public Offering, as that term is defined in the section of
this Form 10K captioned "Second Restated Certificate of
Incorporation"; provided, however, that for the purpose of the
Option Plan, the effective date of a Public Offering will be the
date of Closing of such Public Offering:
provided, further, that such event shall have been approved by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the then outstanding shares of each class of the capital stock of the Company
entitled to vote (except as otherwise provided by law or the Company's
Certificate of Incorporation, as amended), exclusive of the Option Shares; and
provided, further, that the Company will use its best efforts to conduct a
Public Offering prior to the expiration of ten years from the date of the
adoption of the Plan.
In addition, upon the effective date of the Public Offering, the
preemptive rights of the then shareholders of the Company with respect to the
aggregate number of Option Shares would become exercisable. In order to effect
such preemptive rights, each optionee would grant to each shareholder, under
such optionee's Incentive Stock Option agreement, a call option ("Call Option"),
exercisable for a period of 30 days commencing on the effective day of the
Public Offering, to acquire such number of Option Shares that when added to the
number of other shares of the Company's Common Stock offered in the Public
Offering which would be acquired by shareholder, would enable such shareholder
to maintain his same percentage ownership of the Company as on the date prior to
the effective date of the Public Offering. The Call Options would be exercisable
at the Public Offering per share price. The Call Options, which, in effect,
would constitute a public offering by the optionees of the Option Shares, would
be registered with the Securities and Exchange Commission at the same time as
the Public Offering.
The Company will use its best efforts to cause the Public Offering to
become effective within ten years after the issuance of the Option Shares. In
the event that such Public Offering does not take place, the Company may, at its
option, at the time during a period of 120 days prior to the tenth anniversary
of the date of issuance of the Option Shares, repurchase the Option Shares from
the holders thereof at a price equal to the then current fair market value of
the Option Shares. If the Company determines to repurchase the Option Shares,
the holders thereof must sell them to the Company.
As of this date, no Incentive Stock Options have been granted under the
Option Plan.
Special Item: Executive Officers of the Registrant
Executive Officers
The executive officers of the Company are as follows:
4
Name Age Position
Marc L. Reitzes 56 Chairman and Chief Executive Officer of the Company and of
the Bank
Michael M. Quick 48 President and Chief Operating Officer of the Company and of
the Bank. In addition, Chief Credit Administrator of the
Bank.
Stewart A. Collins 56 Senior Vice President, Secretary and Treasurer of the
Company; Senior Vice President and Cashier of the Bank
Bonnie J. DeLorenzo 49 Vice President, Comptroller and Assistant Secretary of the
Company and the Bank
Marc L. Reitzes has been the President, Chief Executive Officer and a
Director of the Bank since 1983. In 1995 the Boards of the Bank and of the
Company appointed him Chairman. He currently serves as a Director of the
Company. At present, he has no other material banking or business affiliations.
Michael M. Quick has been employed by the Bank since September 1991. In
1995 the Boards of the Bank and the Company appointed him President and Chief
Operating Officer. Between 1986 and 1991 he was employed as Chief Executive
Officer of a construction company. Prior to that he was an executive with
Midlantic Bank South. His last position with that company was Senior Real Estate
Lender. At present, he has no other material banking or business affiliations.
Stewart A. Collins has been Senior Vice President, Cashier and a
Director of the Bank since 1983. He also currently serves as a Director of the
Company. At present he has no other material banking or business affiliations.
Stewart Collins and Bonnie DeLorenzo are husband and wife.
Bonnie J. DeLorenzo has been employed by the Bank since 1964, and has
held the position of Assistant Vice President since 1985 and Comptroller since
1986 and Assistant Vice President and Comptroller of the Company since 1988. In
1990 she was appointed Vice President and Comptroller of the Company and the
Bank. At present, she has no other material banking or business affiliations.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
There is no established trading market for the Common Stock.
Transactions in the Company stock have occurred infrequently in the
over-the-counter market. The following is a table showing quotations for each of
the quarters in 1995:
QUARTER HIGH BID LOW BID HIGH OFFER LOW OFFER
First $10.00 $ 8.00 $10.375 $ 8.50
Second $ 9.00 $ 8.375 $ 9.375 $ 9.375
Third $11.75 $10.25 $12.375 $10.750
Fourth $12.00 $11.75 NONE NONE
A stock dividend of 5 shares for each 100 shares held was paid on July
22, 1993 to shareholders of record on June 30, 1993. Cash was paid to the
shareholders in lieu of the issuance of fractional shares. The total cash
compensation which was paid to shareholders in lieu of the issuance of
fractional shares was $1,078.00. The fractions totaled 154 shares and were
purchased by Walter Crossley, a Director of the Company, at a price of $7.00 per
share.
A stock dividend of 8.14 shares for each 100 shares held was paid on
February 18, 1994 to shareholders of record on January 19, 1994. Cash was paid
to shareholders in lieu of the issuance of fractional shares. The total cash
compensation paid to shareholders in lieu of the issuance of fractional shares
was $1,900.50. The fractions totaled 181 shares and were purchased by Frank
Bartolone, a Director of the Company, at a price of $10.50 per share.
5
A stock dividend of 5 shares for each 100 shares held was paid on
February 24, 1995 to shareholders of record on January 25, 1995. Cash was paid
to shareholders in lieu of the issuance of fractional shares. The total cash
compensation paid to shareholders was $2,171.00. The fractions totaled 167
shares of which 84 were purchased by Frank Bartolone and 83 were purchased by
Walter Crossley at $13.00 per share. Both are Directors of the Company.
A stock dividend of 5 shares for each 100 shares held was paid on
February 26, 1996 to shareholders of record on February 16, 1996. Cash was paid
to shareholders in lieu of the issuance of fractional shares. The total cash
compensation paid to shareholders was $1,937.00. The fractions totaled 149
shares which were purchased at $13.00 per share by Frank Bartolone, a Director
of the Company.
As of December 31, 1995, there were approximately 324 holders of record
of the Company Common Stock with 771,750 shares outstanding, after adjustment
for the above mentioned stock dividends.
The Company has not paid a cash dividend on its Common Stock, which has
been outstanding since January 1, 1989. Prior to the reorganization, the Bank
had not paid any dividends on its Common Stock since 1982. The Company has paid
stock dividends on five occasions since its formation. The Board of Directors of
the Company intends to continue paying stock dividends based upon adequate
earnings. However, there can be no assurance as to future dividends in cash or
in stock.
The primary source of Company income will be the payment of dividends
by the Bank to the Company. The payment of dividends by the Bank is subject to
restrictions imposed by the National Bank Act, 12 U.S.C. ss.60. The dividend
limitation generally restricts dividend payments to a bank's retained net income
in the current and preceding two (2) calendar years. At December 31, 1994, the
Bank was prohibited from declaring or paying dividends in excess of $892,000. On
June 28, 1995 the Board of the Bank declared a stock dividend payable to the
parent, Atcorp, Inc. in the amount of $875,000. The difference of $17,000 when
added to the Bank's earnings for 1995 of $1,077,000 provides a new dividend
limitation of $1,094,000 at December 31, 1995.
6
Item 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share
amounts)
Year Ended December 31,
1991 1992 1993 1994 1995
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SUMMARY OF OPERATIONS:
Interest income $8,999 $7,331 $7,241 $7,969 $10,753
Interest expense 4,676 2,865 2,452 2,766 4,844
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Net interest income 4,323 4,466 4,789 5,203 5,909
Provision for possible loan losses 660 216 75 160 115
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Net interest income after provision 3,663 4,250 4,714 5,043 5,794
Other income 368 480 910 828 809
Other expenses 3,981 4,262 4,272 4,626 5,189
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Income before income tax
provision and accounting change 50 468 1,352 1,245 1,414
Income tax provision 7 141 449 388 360
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Income before accounting change 43 327 903 857 1,054
Cumulative effect of accounting change 0 0 100 0 0
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Net income $43 $327 $1,003 $857 $1,054
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EARNINGS PER COMMON SHARE (1)
Income before accounting change $0.06 $0.42 $1.17 $1.11 $1.37
Cumulative effect of accounting change 0.00 0.00 0.13 0.00 0.00
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Earnings per common share $0.06 $0.42 $1.30 $1.11 $1.37
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BALANCE SHEET DATA:
(End of period)
Net loans $65,398 $57,457 $63,856 $70,308 $94,846
Total assets $90,812 $90,732 $105,054 $118,398 $157,775
Deposits $82,201 $82,917 $96,112 $108,563 $145,294
Shareholders' equity $6,685 $7,012 $8,015 $8,782 $10,468
PERFORMANCE MEASURES:
Return on average assets 0.05% 0.37% 1.06% 0.80% 0.78%
Return on average equity 0.64% 4.80% 13.45% 10.50% 11.64%
Average equity to average assets 7.04% 7.73% 7.90% 7.66% 6.71%
Dividend payout ratio 0.00% 0.00% 76.67% 53.10% 45.35%
- ----------
(1) Earnings per share has been retroactively adjusted to reflect the change in
the number of shares outstanding as a result of the stock dividend paid
February 26, 1996, effective December 31, 1995. See Note 1 of the financial
statements.
7
Item 7. 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 years ended December 31, 1995, 1994 and 1993, and
presents an analysis of the financial condition of the Company at December 31,
1995. The statistical and related information presented on the various tables as
well as the financial statements and accompanying notes should be read in
conjunction with this analysis.
Results of Operations for the Three Years Ended December 31, 1995
The Company derives the majority of its revenues from its banking
subsidiary Equity National Bank ("Bank") and from the Bank's subsidiary AT Corp,
a Delaware corporation, which maintains a large portion of the Bank's investment
portfolio. The Bank concentrates on traditional banking functions of deposit
gathering and lending to businesses and individuals within the community. In
addition, it provides various fee generating services such as mortgage
origination and construction lending as well as traditional service charges and
fees for retail services including deposit accounts and safe deposit rentals.
The loan portfolio increased from $71,460,000 at December 31, 1994, by
$26,136,000 to $97,596,000 at December 31, 1995. As shown in Table 7 the
increases in 1995 were $9,528,000 in commercial loans, $3,254,000 in real estate
construction and $4,351,000 in consumer loans. In addition increases of
$7,536,000 in real estate mortgage and $1,467,000 in loans held for sale were
experienced after decreases in 1994.
Interest and fees on loans increased $1,886,000 (30%) to $8,094,000 in
1995 from $6,208,000 in 1994 which had increased $362,000 (6%) from $5,846,000
in 1993. As shown in Table 3, "Rate-Volume Analysis" the increase in 1995 was
due to increases in volume in lending and increases in interest rates. Table 1
shows the composition of earning assets and indicates that the average yield on
loans increased to 9.67% in 1995 from 9.22% in 1994, an increase of 45 basis
points which reflects the generally higher interest rate environment in which
the Bank operated during the majority of 1995 until the Federal Reserve lowered
rates in the third and fourth quarters. Interest income of $69,000 was not
recognized in 1995 and $102,000 was not recognized in 1994 due to the nonaccrual
status of certain loans.
Interest on Federal Funds sold increased $51,000 (44%) to $167,000 in
1995 from $116,000 in 1994 and decreased $17,000 (13%) in 1994 from $133,000 in
1993. Table 3 shows the increase in 1995 was due to the combined effect of
increases in income of $18,000 due to volume and an increase in income of
$33,000 due to an increase in interest rates. Table 1 shows that the average
yield on these funds increased by 1.22% from 4.66% in 1994 to 5.88% in 1995.
Interest on investment securities-taxable increased $613,000 (40%) to
$2,163,000 in 1995 from $1,550,000 in 1994 and increased $299,000 (24%) in 1994
from $1,251,000 in 1993. As indicated on Table 3, the increase in income was due
to an increase in volume of $370,000 and an increase in yield or rates of
$243,000. The average yield on taxable investments increased by 0.82% from 5.69%
in 1994 to 6.51% in 1995, as shown on Table 1. An analysis of the portfolio is
shown on Table 5 "Analysis of Investment Securities" and the maturity
distribution of the Company's investments is shown on Table 6 "Maturity
Distribution of Investment Portfolio at December 31, 1995". The Company's policy
is to concentrate investment maturities in the one to ten year range. As shown
on Table 6, 75% of the portfolio matures within ten years within which 13% of
the portfolio matures during one year and 35% matures in the one to five year
category. Many of the securities in the 5-10 year range have average life
expectancy of less than five years due to their cash flow characteristics.
Management continues to invest in securities which are guaranteed by the U.S.
Government or its agencies or securities which are investment grade.
Interest on tax-exempt securities increased to $307,000 in 1995 from
$88,000 in 1994 and average balances increased from $2,334,000 to $6,306,000. In
addition the yield on these investments improved 1.1% from 3.77% to 4.87%. The
majority of these securities are issued by municipalities in New Jersey.
Interest expense on deposits increased $2,067,000 (75%) to $4,814,000
in 1995 from $2,747,000 in 1994 and increased $310,000 (13%) in 1994 from
$2,437,000 in 1993. The increase in 1995 was due to the combined effect of
increases in volume of $1,356,000 and increases in interest rates of $711,000,
8
as indicated on Table 3. The average rate paid on deposits and borrowed funds
increased 1.09% from 3.41% in 1994 to 4.50% in 1995, as shown on Table 1 which
details each deposit category. This increase reflects the generally higher
interest rate environment in which the Bank operated during the majority of 1995
until rates started to ease in the fall.
The Bank experienced an increase in average interest bearing
liabilities, during 1995, of $26,443,000 from $81,226,000 in 1994 to
$107,669,000 in 1995.
As a result of the changing deposit mix and higher interest rates,
interest income before the provision for loan losses increased $706,000 (14%) to
$5,909,000 in 1995 from $5,203,000 in 1994 and increased $414,000 (9%) in 1994
from $4,789,000 in 1993. The increase from volume was partially reduced by the
increase in deposit rates as shown in Table 3. The net average interest margin
dropped 55 basis points from 5.22% in 1994 to 4.67% in 1995 as shown on Table 1.
The provision for possible loan losses decreased $45,000 to $115,000 in
1995 from $160,000 in 1994 and increased $85,000 in 1994 from $75,000 in 1993.
The lower provision in 1995 was a result of higher recoveries. Loans charged off
during 1995 were $144,000 compared with $308,000 in 1994, a decrease of
$164,000. In addition, the Bank received recoveries on loans of $160,000 in 1995
as compared to $65,000 in 1994.
The balance in the allowance for loan losses increased to $1,283,000 in
1995, representing 1.31% of total loans held for investment, from $1,152,000 in
1994 which represented 1.61% of total loans at December 31, 1994. Management
believes, based on its review of the current quality of the loan portfolio and
its historical experience, that the allowance for losses is adequate to cover
future loan losses. Adequacy of the allowance for losses is reviewed quarterly.
Noninterest operating income decreased $19,000 (2%) to $809,000 in 1995
from $828,000 in 1994 and decreased $82,000 (9%) in 1994 from $910,000 in 1993.
The decrease in 1995 was due largely to a decrease in service charges of
$150,000, gains on the sale of mortgage loans of $85,000 and a decrease in gains
on the sale of other real estate owned of $30,000. These decreases were
partially offset by an increase in gains on the sale of investment securities
available for sale of $81,000 and an increase in other income of $165,000. The
increase in other income included proceeds from an insurance settlement arising
from a loss on a property held as collateral for a letter of credit and funds
received in settlement of guarantees on loans that recovered costs incurred over
and above the amounts charged off in previous years.
Noninterest operating expense increased $563,000 (12%) to $5,189,000 in
1995 from $4,626,000 in 1994 and increased $354,000 (8%) in 1994 from $4,272,000
in 1993. The increase in 1995 was due to increases in salaries and benefits of
$365,000 (16%) occupancy costs of $68,000 (14%), furniture and equipment costs
of $58,000 (18%) and all other expenses of $215,000 (21%). These increases
reflect costs of opening the Cherry Hill office and increased staff in loan and
support areas to handle the increased business volume as the Bank increased
$39,377,000 or 33% in overall size. Partially offsetting the increased costs
were decreases in professional fees of $56,000 (15%), and FDIC assessment of
$87,000 (42%). During 1995, the Bank recovered $66,000 and in 1994, $16,000 of
legal fees and other expenses related to collection efforts of loans charged-off
in years prior to 1993. These recoveries are reflected as reductions of
professional fees and other miscellaneous expenses. Professional fees were
reduced as litigation for the collection of loans has been reduced. The FDIC
assessment was reduced by rebate and reduction of the assessment as the Bank
Insurance Fund was restored to regulatory levels.
Income before taxes increased $169,000 to $1,414,000 in 1995 compared
with 1994 income of $1,245,000, and decreased $107,000 in 1994 from $1,352,000
in 1993.
The Financial Accounting Standard Board issued Statement No.109
"Accounting for Income Taxes" in December 1991 which the Company adopted in
1993. The Statement required either retroactive application or cumulative catch
up to reflect the use of the liability method of accounting for income taxes
prescribed by SFAS No. 109 versus the deferral method under APB Opinion No. 11.
The Company adopted the statement during the first quarter of 1993 and chose not
to restate prior periods. The Company determined that the cumulative effect of
9
this change in accounting principle through January 1, 1993 was an increase in
the deferred income tax asset of approximately $100,000. This resulted in an
increase in earnings of $100,000 as of the beginning of the year ended December
31, 1993.
Liquidity and Rate Sensitivity
Liquidity involves the Bank's ability to meet both present and future
cash needs. The degree of liquidity in the Bank's assets should be sufficient to
meet the cash flow requirements of customers requesting credit and depositors
withdrawing funds. A bank's liquidity stems from deposit growth, scheduled loan
payments, and the bank's ability to raise funds in financial markets such as the
Federal Funds Market, the Federal Reserve Discount Window and in the equity
markets. In November 1995 the Bank became a stockholder in the Federal Home Loan
Bank of New York. This provides the Bank with several additional methods of
funding loans and investments at attractive rates. In addition, liquidity comes
from the Bank's cash position, short term investments and investment securities
available for sale and, of course, current earnings.
The Bank's liquid assets, consisting of cash, federal funds sold,
investments maturing within one year, interest and noninterest bearing balances
due from banks (including the Federal Reserve Bank of Philadelphia), decreased
to $12,065,000 in 1995 from $15,424,000 in 1994. Liquid assets represented 7.65%
and 13.0% of total assets at December 31, 1995 and 1994, respectively.
The effect of liabilities on liquidity is much more difficult to
quantify. Liquidity is enhanced by a stable core deposit base and the ability of
the Bank to renew maturing deposits. The ability to attract deposits and borrow
funds depends in large measure on continued interest rate competitiveness,
profitability, capitalization and overall financial condition of the Bank. As
indicated in Table 13, jumbo certificates of deposit are not a significant
source of funds to the Bank as they represent only 5.85% of total deposits
compared with 9.65% in 1994.
Management believes that liquidity is being maintained at adequate
levels, particularly in light of the Bank's large amount of core deposits.
Additionally, during 1995, the Bank increased its portfolio of securities
available for sale to $50,087,000. These securities serve as a potential
additional source of liquidity and include securities that management may employ
as part of its asset/liability management strategy and may be sold in response
to changes in interest rates or other factors.
The impact of changes in interest rates on net interest income depends
on the magnitude of the movement in rates, the relative volumes of the Bank's
assets and liabilities that reprice within a given period of time and the
relationships among rates. The interest sensitivity portion of asset/liability
management provides for managing the extent to which maturing rate sensitive
assets and maturing rate sensitive liabilities are matched. If maturing rate
sensitive assets exceed maturing rate sensitive liabilities, the financial
institution is said to be asset sensitive or have a positive gap. In this case,
interest rate changes will be reflected more rapidly in asset yields than in
liability rates and, in a period of rising interest rates, net interest income
will increase. Conversely, in a declining rate environment, net interest income
would decrease. If the financial institution is liability sensitive, it is
considered to have a negative gap. In this case, the above described interest
rate movement would have the opposite impact.
Table 4 presents the Bank's interest rate sensitivity position at
December 31, 1995. The Bank has a negative gap in the immediately adjustable,
one to 90 days, 91 to 180 days and 180 days to one year categories and positive
gaps in the remaining time periods. The cumulative gap for the one to five year
period is a negative $27,261,000 at December 31, 1995 which compares with a
negative cumulative gap of $2,076,000 at December 31, 1994. Management regularly
monitors the maturity structure of the Bank's assets and liabilities in order to
measure its level of interest rate risk and plan for future volatility.
Management will continue to emphasize the maintenance of adequate
liquidity levels utilizing a balanced relationship between earning assets and
interest paying liabilities reflecting maturity and rate sensitivity. The Bank
will offer, from time to time, competitive deposit instruments to aid in the
matching of rates and terms with asset maturities and rates.
10
Capital
During 1989, the Federal Reserve Board, which regulates the Company,
and the Office of the Comptroller of the Currency, which regulates the Bank's
activities, adopted and issued new capital guidelines. The adoption of these
guidelines, in conjunction with the Basel Capital Accord places United States
financial institutions on the same guidelines as those of financial institutions
throughout the rest of the world.
The guidelines attempt to more closely measure capital adequacy by
taking into consideration the differences in risk associated with types of
assets as well as exposure to off-balance sheet commitments. The guidelines were
phased in through December 31, 1992 and call for a minimum Tier I capital
percentage of 4.0% of risk based assets and a total capital minimum standard of
8.0% of risk based assets. Tier I capital includes common stockholders' equity,
non-cumulative preferred stock and minority interests less goodwill. Total
capital includes Tier I capital plus cumulative preferred stock, hybrid
debt-capital securities, qualified subordinated debt and the allowance for loan
losses to 1.25% of risk-based assets.
At December 31, 1995, the Bank's Tier I capital ratio was 10.04% and
its total capital to risk-based assets ratio was 11.29%, well within the new
capital guidelines. The regulators also established guidelines of a minimum of
4.0% for the leverage ratio which is the ratio of equity capital to total
assets. At December 31, 1995 the Bank's leverage ratio was 6.37% and the
Corporation's leverage ratio was 7.36%. In addition, guidelines were established
by the regulators to define the requirements of being well-capitalized. To be
considered well-capitalized the regulators require total capital plus the
admissible allowance for loan losses divided by total risk adjusted assets to be
in excess of 10%, Tier I capital (stockholders' equity) divided by total
adjusted risk based assets of 6% and a leverage ratio of stockholders' equity
divided by average total assets in excess of 5%. Currently the Bank and the
Corporation are considered well-capitalized.
Loan Quality
Table 7 presents an analysis of the loan portfolio for 1995 and 1994.
At December 31, 1995, about 48% of the portfolio was secured by real estate
(primarily first mortgage residential and construction loans); at December 31,
1994, the percentage was 49%. Commercial loans represented 28% of the portfolio
in 1995 and 25% in 1994. The balance of the portfolio was in consumer loans, of
which $4,538,000 represented home equity lines of credit in 1995 versus about
$5,305,000 in 1994. In addition, consumer loans increased approximately
$4,351,000 related to automobile loans, fixed rate equity/second mortgage loans,
and municipal vehicle lease loans which management emphasized during 1994 and
1995 in order to diversify its portfolio and take advantage of generally better
yields for these credits.
The Bank has continued to decrease the percentage of non-performing
assets as shown in Table 9. At December 31, 1995, non-performing assets
represented 1.08% of total assets, an increase of 0.03% from the year earlier
level of 1.05%. Total non-performing assets were 1.74% of total loans at
December 31, 1995 versus 1.73% at December 31, 1994.
Management believes that it is operating in compliance with sound loan
approval policies and considers the quality of its loan portfolio to be
satisfactory and the level of non-performing loans to be within the normal range
for a bank of its size.
Effects of Inflation/Changing Prices
Management is aware of the impact of inflation on interest rates and
the impact it can have on performance. The ability of the Bank to cope with
inflation can only be determined by analysis and monitoring of its asset and
liability position, particularly the mix of interest rate sensitive assets and
liabilities in order to reduce the effects of inflation on performance. The
asset and liability structure of a bank is significantly different from that of
industrial corporations in that virtually all assets and liabilities are
monetary in nature, meaning that they have been, or will be, converted to a
fixed number of dollars regardless of price changes. Monetary items would
include cash, loans and deposits. Nonmonetary items are those assets and
liabilities that do not gain or lose purchasing power solely as a result of
price level changes. Nonmonetary items for the Bank consist primarily of
premises and equipment.
11
Inflation can have a more direct impact on certain categories of
operating expenses such as salaries and wages, employee benefits and supplies.
These expenses fluctuate more in line with changes in general price levels and
are very closely monitored by management for both the effects on inflation and
increases relating to such items as staffing levels, supply usage and occupancy
costs.
Accounting Standards Issued But Not Effective
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights" in May
1995; No. 123 "Accounting for Stock-Based Compensation" in October 1995.
Statement No. 122 which is required to be adopted in 1996 mandates that mortgage
banking enterprises recognize as separate assets rights to service mortgage
loans for others. The adoption of this statement in 1996 will not have an effect
on the financial statements since the Bank does not sell loans and retain
servicing rights.
Statement No. 123 is also required to be adopted in 1996 and requires that
financial statements include certain disclosures about stock-based employee
compensation arrangements. The adoption of this statement in 1996 will not have
an effect on the financial statements since the Bank has not used stock-based
compensation as a compensation vehicle. In the event that the Bank uses
stock-based compensation, the pro forma effect will be disclosed in the
footnotes to the financial statements in accordance with the statement.
12
SUMMARY OF AVERAGE BALANCES,
TABLE 1
INCOME /EXPENSE AND AVERAGE RATES
(In thousands except percentages)
Year Ended Year Ended
December 31, 1995 December 31, 1994
---------------------------------------------------------------------------
Average Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------------------
INTEREST EARNING ASSETS
Interest-bearing deposits
in other banks $ 550 $ 22 4.00% $ 206 $ 7 3.40%
Investments-
Taxable (1) (2) 33,224 2,163 6.51% 27,256 1,550 5.69%
Nontaxable 6,306 307 4.87% 2,334 88 3.77%
Federal Funds 2,842 167 5.88% 2,489 116 4.66%
Loans, net (3) 83,665 8,094 9.67% 67,315 6,208 9.22%
---------------------------------------------------------------------------
Total Interest Earning Assets $126,587 $ 10,753 8.49% $ 99,600 $ 7,969 8.00%
NONINTEREST EARNING ASSETS 8,361 6,908
Total Assets $134,948 $106,508
-------- --------
INTEREST-BEARING LIABILITIES
NOW, Super NOW and MMA 31,088 1,188 3.82% 20,223 511 2.53%
Savings accounts 23,490 769 3.27% 34,612 1,132 3.27%
Time deposits 52,591 2,857 5.43% 25,958 1,104 4.25%
Federal funds purchased and
borrowed funds 500 30 6.00% 433 19 4.39%
Total Interest-bearing Liabilities $107,669 $ 4,844 4.50% $ 81,226 $ 2,766 3.41%
---------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES 18,227 17,120
SHAREHOLDERS' EQUITY 9,052 8,162
-------- --------
Total Liabilities and
Shareholders' Equity $134,948 $106,508
======== ========
NET INTEREST INCOME/NET
INTEREST MARGIN $ 5,909 4.67% $ 5,203 5.22%
======== ========
(1) The indicated interest and average yields are not presented on a
tax-equivalent basis.
(2) Investments include those held for sale.
(3) Nonaccruing loans have been included in the calculation of average
balances.
NET INTEREST INCOME
(In thousands except percentages)
1995 % Change 1994 % Change 1993
---------------------------------------------------------------
INTEREST INCOME $10,753 34.94% $7,969 10.05% $7,241
INTEREST EXPENSE 4,844 75.13% 2,766 12.81% 2,452
---------------------------------------------------------------
NET INTEREST INCOME $5,909 13.57% $5,203 8.64% $4,789
===============================================================
13
RATE-VOLUME ANALYSIS
(In thousands except percentages)
1995 compared to 1994 1994 compared to 1993
Increase (decrease) due to: Increase (decrease) due to:
VOLUME RATE NET VOLUME RATE NET
(1) (1) (1) (1)
-------------------------------------- ----------------------------------------------
Interest bearing deposits
in other banks $ 14 $ 1 $15 $ 2 $( 2) $0
Investments-
Taxable (2) 370 243 613 326 (27) 299
Nontaxable 187 32 219 81 3 84
Federal funds sold 18 33 51 (75) 58 (17)
Loans, net 1,570 316 1,886 668 (306) 362
-------------------------------------- ----------------------------------------------
Total Interest Income 2,159 625 2,784 1,002 (274) 728
INTEREST EXPENSE
NOW, Super NOW and MMA 347 330 677 38 42 80
Savings accounts (363) 0 (363) 224 (17) 207
Time deposits 1,372 381 1,753 84 (61) 23
Federal funds purchased and
borrowed funds 3 8 11 (4) 8 4
-------------------------------------- ----------------------------------------------
Total Interest Expense 1,359 719 2,078 342 (28) 314
====================================== ==============================================
NET INTEREST INCOME $800 $( 94) $ 706 $660 $( 246) $ 414
====================================== ==============================================
(1) Changes in interest income/expense not specifically attributable to rate or
volume have been allocated in proportion to the amounts attributable to
rate and volume.
(2) The indicated interest income changes are not presented on a tax equivalent
basis.
INTEREST RATE SENSITIVITY TABLE 4
(In thousands except percentages)
REPRICING PERIOD
BALANCE FIXED
AT IMMEDIATELY 1 TO 90 91 TO 180 181 TO 365 1 TO 5 BEYOND
12/31/95 ADJUSTABLE DAYS DAYS DAYS YEARS 5 YEARS
---------------------------------------------------------------------------------------
LOANS
Commercial, Industrial, and Agricultural $27,759 $110 $ 2,822 $ 1,907 $3,910 $ 8,010 $ 11,000
Real Estate 45,912 1,725 8,023 5,943 3,557 21,271 5,393
Installment Loans to Individuals 22,458 0 4,585 70 235 11,663 5,905
----------------------------------------------------------------------------------------
Total Loans (3) 96,129 1,835 15,430 7,920 7,702 40,944 22,298
INVESTMENT SECURITIES (1) 48,891 0 300 500 5,501 17,190 25,400
FEDERAL FUNDS SOLD 775 775 0 0 0 0 0
INTEREST BEARING DEPOSITS
IN OTHER BANKS 124 124 0 0 0 0 0
========================================================================================
Total $145,919 $2,734 $ 15,730 $8,420 $ 13,203 $58,134 $47,698
========================================================================================
SAVINGS/TIME DEPOSITS (2) $125,482 $ 8,116 $70,356 $8,650 $32,997 $ 5,363 $0
========================================================================================
Total Interest-bearing Liabilities $125,482 $8,116 $70,356 $8,650 $32,997 $5,363 $0
========================================================================================
INTEREST RATE SENSITIVITY $(5,382) $(54,626) $( 230) $( 19,794) $52,771 $ 47,698
CUMULATIVE GAP $(5,382) $(60,008) $(60,238) $(80,032) ($ 27,261) $20,437
(1) Investment securities include those held for sale and exclude Federal
Reserve Bank stock and Federal Home Loan Bank stock.
(2) Money market deposits are immediately adjustable. NOW and Savings accounts
are included in the 1 to 90 days category as these accounts can only be
repriced every 30 days.
(3) Excludes loans held for sale.
14
ANALYSIS OF INVESTMENT SECURITIES TABLE 5
(In thousands except percentages)
TABLE 5
Book Value As Of December 31,
1995 1994
-------------- -------------
U.S. TREASURY SECURITIES (1) $10,343 $16,077
U.S. GOVERNMENT AGENCIES 22,447 5,500
DEBT SECURITIES ISSUED BY 250 250
FOREIGN GOVERNMENTS
CORPORATE BONDS 4,835 5,702
MUNICIPAL SECURITIES 7,009 4,331
CMO'S 3,992 2,509
FEDERAL RESERVE BANK STOCK 224 198
OTHER SECURITIES 416 15
-------------- -------------
Total $49,516 $34,582
============== =============
(1) Investments include those held for sale.
MATURITY DISTRIBUTION OF INVESTMENT TABLE 6
PORTFOLIO AT DECEMBER 31, 1995
(In thousands except percentages)
After After
One year Five years
Within Within Within After
One year Five years 10 years 10 years Total
------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (1)
Book Value $5,012 $4,325 $1,006 - $10,343
Weighted average yield 5.77% 6.04% 7.17% - 6.02%
U.S. GOVERNMENT AGENCIES
Book Value - $7,429 $6,964 $8,054 $22,447
Weighted average yield - 7.18% 7.69% 7.81% 7.57%
DEBT SECURITIES ISSUED BY
FOREIGN GOV'TS
Book Value $250 - - - $250
Weighted average yield 6.75% - - - 6.75%
CORPORATE SECURITIES
Book Value - $2,078 $1,719 $1,038 $4,835
Weighted average yield - 5.84% 7.53% 6.03% 6.48%
MUNICIPAL SECURITIES
Book Value $1,039 $3,359 $2,091 $520 $7,009
Weighted average yield 4.20% 4.76% 4.98% 5.39% 4.79%
CMO'S
Book Value - - $1,463 $2,529 $3,992
Weighted average yield - - 5.77% 7.19% 6.67%
OTHER SECURITIES (2)
Book Value - - - $15 $15
Weighted average yield - - - 0.00% 0.00%
================================================================================================
Total Book Value $6,301 $17,191 $13,243 $12,156 $48,891
================================================================================================
Weighted average yield 5.55% 6.26% 6.99% 7.43% 6.67%
(1) Investments include those held for sale.
(2) Does not include Federal Reserve Bank stock and Federal Home Loan Bank
stock.
15
ANALYSIS OF LOAN PORTFOLIO Table 7
(In thousands except percentages)
December 31,
1995 1994
------------------------------
COMMERCIAL, FINANCIAL, AND AGRICULTURAL $27,759 $18,231
REAL ESTATE-CONSTRUCTION 9,628 6,374
REAL ESTATE-MORTGAGE 36,284 28,748
INSTALLMENT LOANS TO INDIVIDUALS 22,458 18,107
------------------------------
TOTAL LOANS HELD FOR INVESTMENT 96,129 71,460
LOANS HELD FOR SALE 1,467 0
------------------------------
Total Loans 97,596 71,460
Reserve for Loan Loss 1,283 1,152
==============================
Net Loans $96,313 $70,308
==============================
MATURITIES AND INTEREST RATE TERMS OF LOANS
(In thousands except percentages)
Stated maturities (or earlier call dates) of loans as of December 31, 1995 are
summarized in the table below.
After
one year
Within but within After
one year five years five years Total
---------------- ------------------ ------------- ------------
LOANS:
Real estate-construction $ 7,168 $ 2,460 $0 $ 9,628
Commercial, financial, and agricultural 8,749 8,010 11,000 27,759
================ ================== ============= ============
Total $15,917 $10,470 $11,000 $37,387
================ ================== ============= ============
The following table shows for the above loans the amounts which have
predetermined interest rates and the amounts which have variable interest rates
at December 31, 1995:
After
one year
Within but within After
one year five years five years Total
--------- ----------- ------------ ---------
Loans with predetermined rates $ 9,350 $4,222 $ 10,809 $ 24,381
Loans with variable rates 6,567 6,248 191 13,006
========= ========= ========== =========
Total $15,917 $10,470 $11,000 $37,387
========= ========= ========== =========
The above classification of loans is based on the period in which the loans
mature (or earlier call dates) and does not necessarily correspond to the
repricing period.
16
NON-PERFORMING ASSETS TABLE 9
(In thousands except percentages)
December 31, December 31,
1995 1994
---------- ----------
NONACCRUAL LOANS: (1) (2)
Real estate $ 531 $ 193
Commercial and industrial 559 547
Installment loans to individuals 0 249
========== ==========
Total 1,090 989
========== ==========
OVERDUE LOANS:
Loans past due 90 days 148 210
Renogiated loans 0 0
---------- ----------
Total non-performing loans 1,238 1,199
OTHER REAL ESTATE (3) 464 39
========== ==========
Total non-performing assets $1,702 $1,238
========== ==========
TOTAL NON-PERFORMING ASSETS AS A
PERCENTAGE OF TOTAL ASSETS (4) 1.08% 1.05%
TOTAL NON-PERFORMING ASSETS AS A
PERCENTAGE OF LOANS 1.74% 1.73%
(1) Unsecured loans are placed in nonaccruing status when 90 days past due.
Interest continues to accrue on delinquent secured loans until the total
principal and interest due is equal to management's estimate of the value
of the collateral held.
(2) Income of approximately $69,000 and $102,000 was not recognized as interest
income due to the nonaccrual status of loans during 1995 and 1994,
respectively.
(3) Other Real Estate balances are shown net of the Allowance for ORE of
$13,000 at 12/31/95 and $12,000 at 12/31/94.
(4) Not included in the non-performing totals are loans for which the Bank has
reached agreements with various borrowers that provide for a modification
to the original contract maturity due to a change in the borrower's
financial condition. At December 31, 1995 and 1994, the Bank maintained
$2,573,000 and $3,337,000, respectively, of such loans, considered by
Management to be potential problem loans.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES TABLE 10
(In thousands except ratios)
December 31, December 31,
1995 1994
---------- ---------
BALANCE AT BEGINNING OF YEAR $ 1152 $ 1235
CHARGEOFFS-
Commercial, financial, and agricultural 46 170
Real estate 28 97
Installment loans to individuals 70 41
---------- ---------
Total Chargeoffs 144 308
RECOVERIES-
Commercial, financial, and agricultural 29 35
Real estate 120 15
Installment loans to individuals 11 15
---------- ---------
Total Recoveries 160 65
Net Chargeoffs (16) 243
PROVISIONS FOR POSSIBLE LOAN LOSSES 115 160
========== =========
BALANCE AT END OF YEAR $1,283 $1,152
========== =========
RATIO OF NET CHARGEOFFS TO NET AVERAGE
LOANS OUTSTANDING DURING PERIOD (0.02)% 0.36%
RATIO OF RESERVE BALANCE TO TOTAL LOANS 1.31% 1.61%
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. The amount charged to earnings is based
on several factors which include, but are not limited to, the following:
- - A continuing review of past-due, nonaccrual, and renegotiated loans, and
overall portfolio quality;
17
- Regular examinations of the loan portfolio by bank regulatory agencies
and review by independent public accountants in connection with the audit
of the financial statements taken as a whole;
- - Analytical review of charge-off experience by specific category of loans
and the total loan portfolio;
- - Management's judgment with respect to economic conditions and the impact of
such conditions on the existing portfolio.
The adequacy of the allowance for loan losses is determined in accordance
with the foregoing factors on a quarterly basis. In the opinion of management,
the balance in the allowance for loan losses at December 31, 1995 is adequate to
cover future losses.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES TABLE 11
(In thousands except percentages)
The following table shows the allocation of the allowance for loan losses by
major loan category and the percentage of the loans in each category to total
loans at year-end:
December 31, 1995 December 31, 1994
Amount % Amount %
-------- -------------- ---------- ------------
Commericial, Financial, and
Agricultural $ 480 28.88% $ 321 25.51%
Real Estate-Construction 0 10.02% 76 8.92%
Real Estate-Mortgage 591 37.75% 496 40.23%
Installment Loans to Individuals 135 23.36% 252 25.34%
Unallocated 77 - 7 -
======== ============== ========== ============
Total $1,283 100.00% $1,152 100.00%
======== ============== ========== ============
DEPOSITS TABLE 12
(In thousands except rates)
Year Ended Year Ended
December 31, 1995 December 31, 1994
-----------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS $17,142 - - $16,313 - -
INTEREST-BEARING
DEMAND DEPOSITS 31,088 1,188 3.82% 20,223 511 2.53%
SAVINGS DEPOSITS 23,490 769 3.27% 34,612 1,132 3.27%
TIME DEPOSITS 52,591 2,857 5.43% 25,958 1,104 4.25%
====================================================================================================
Total $124,311 $4,814 3.87% $97,106 $2,747 2.83%
====================================================================================================
18
MATURITIES OF CERTIFICATES OF DEPOSIT TABLE 13
OF $100,000 OR MORE
(In thousands)
December 31, 1995
------------------
Three months or less $1,835
Over three months through six months 2,957
Over six months through twelve months 3,462
Over twelve months 241
=============
Total $8,495
=============
RETURN ON EQUITY AND ASSETS TABLE 14
December 31,
-----------------------------------
1995 1994
-----------------------------------
RETURN ON AVERAGE ASSETS 0.78% 0.80%
RETURN ON AVERAGE EQUITY 11.64% 10.50%
AVERAGE EQUITY TO
AVERAGE ASSETS 6.71% 7.66%
DIVIDEND PAYOUT 45.35% 53.10%
19
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Public Accountants....................................21
Consolidated Balance Sheets.................................................22
Consolidated Statements of Income...........................................23
Consolidated Statements of Changes in Shareholders Equity...................24
Consolidated Statement of Cash Flows........................................25
Notes to Consolidated Financial Statements..................................26
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Atcorp, Inc.:
We have audited the accompanying consolidated balance sheets of Atcorp, Inc.
(a New Jersey Corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atcorp, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for income taxes and, effective
January 1, 1994, the Company changed its method of accounting for investments in
debt and equity securities.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 27, 1996
21
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31
--------------------------
ASSETS 1995 1994
------ ---- ----
CASH AND DUE FROM BANKS $ 4,865 $ 3,861
FEDERAL FUNDS SOLD 775 5,613
INTEREST-BEARING DEPOSITS WITH OTHER INSTITUTIONS
124 56
INVESTMENT SECURITIES
Held to maturity (market value of $250 in
1995 and $23,262 in 1994) 250 24,165
Available for sale (cost of $49,266 in 1995
and $10,417 in 1994) 50,087 10,281
50,337 34,446
------ ------
LOANS HELD FOR SALE 1,467 --
LOANS 96,129 71,460
Less-- Allowance for loan losses (1,283) (1,152)
------ ------
Net loans 94,846 70,308
------ ------
BANK PREMISES AND EQUIPMENT, net 2,950 2,224
ACCRUED INTEREST RECEIVABLE 1,610 1,102
OTHER ASSETS 801 788
------ ------
Total assets $ 157,775 $118,398
========= ========
December 31
---------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY 1995 1994
-------------------- ---- ----
DEPOSITS:
Demand $ 19,812 $ 18,264
Interest-bearing demand 46,355 22,838
Savings 21,155 28,391
Certificates of deposit--$100,000 or more 8,495 10,471
Other time deposits 49,477 28,599
------ ------
Total deposits 145,294 108,563
ACCRUED INTEREST PAYABLE 521 246
OTHER LIABILITIES 1,492 807
------ ------
Total liabilities 147,307 109,616
COMMITMENTS AND CONTINGENCIES
(Notes 10 and 14)
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value per share;
1,000,000 shares authorized, none issued
and outstanding -- --
Common stock, $5 par value per share;
2,000,000 shares authorized, 780,266 and
743,516 shares issued and 771,750 and
735,000 outstanding in 1995 and 1994,
respectively 3,718
3,902
ADDITIONAL PAID-IN CAPITAL 3,804 3,510
RETAINED EARNINGS 2,265 1,689
NET UNREALIZED HOLDING GAIN (LOSS) ON SECURITIES
542 (90)
TREASURY STOCK, at cost (8,516 shares) (45) (45)
------ ------
Total shareholders' equity 10,468 8,782
------ ------
Total liabilities and
shareholders' equity $ 157,775 $ 118,398
========== ==========
The accompanying notes are an integral part of these statements.
22
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31
--------------------------------------------------------
1995 1994 1993
---- ---- ----
INTEREST INCOME:
Interest and fees on loans $ 8,094 $ 6,208 $ 5,846
Interest on federal funds sold 167 116 133
Interest on interest-bearing deposits 22 7 7
Interest on investment securities--taxable 2,163 1,550 1,251
Interest on investment securities--tax-exempt 307 88 4
-------- -------- --------
Total interest income 10,753 7,969 7,241
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits 4,814 2,747 2,437
Interest on other borrowed funds 30 19 15
-------- -------- --------
Total interest expense 4,844 2,766 2,452
-------- -------- --------
Net interest income 5,909 5,203 4,789
PROVISION FOR LOAN LOSSES 115 160 75
-------- -------- --------
Net interest income after provision for loan losses 5,794 5,043 4,714
-------- -------- --------
NONINTEREST OPERATING INCOME:
Service charges, commissions and fees 426 576 442
Investment security gains 122 41 127
Gain on sale of real estate owned 3 33 181
(Loss) gain on sale of loans (2) 83 94
Other 260 95 66
-------- -------- --------
Total noninterest operating income 809 828 910
-------- -------- --------
NONINTEREST OPERATING EXPENSE:
Salaries and employee benefits 2,578 2,213 2,018
Occupancy 569 501 476
Furniture and equipment 379 321 307
Professional fees 306 362 315
FDIC assessment 121 208 195
Other 1,236 1,021 961
-------- -------- --------
Total noninterest operating expense 5,189 4,626 4,272
-------- -------- --------
Income before income taxes 1,414 1,245 1,352
INCOME TAXES 360 388 449
-------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 1,054 857 903
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- -- 100
-------- -------- --------
NET INCOME $ 1,054 $ 857 $ 1,003
======== ======= ========
EARNINGS PER COMMON SHARE:
Income before change in accounting principle $ 1.37 $ 1.11 $ 1.17
-------- -------- --------
Change in accounting principle -- -- .13
Net income $ 1.37 $ 1.11 $ 1.30
======== ======= =======
The accompanying notes are an integral part of these statements.
23
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Net Unrealized
Additional Holding
Common Paid-In Retained (Loss)/Gain Treasury
Stock Capital Earnings On Securities Stock
----- ------- -------- ------------- -----
BALANCE AT
JANUARY 1, 1993 $ 3,125 $ 2,880 $ 1,052 $ --
Stock dividends
issued (Note 1
and 13) 418 350 (768) -- --
Net income -- -- 1,003 -- --
---------- --------- ---------- --------
BALANCE AT
DECEMBER 31, 1993 3,543 3,230 1,287 -- (45)
---------- --------- ---------- --------
Stock dividends
issued (Note 1
and 13) 175 280 (455) -- --
Net income -- -- 857 -- --
Net unrealized
holding loss on
securities -- -- -- (90) --
---------- --------- ---------- -------- ---------
BALANCE AT
DECEMBER 31, 1994 3,718 3,510 1,689 (90) (45)
---------- --------- ---------- -------- ---------
Stock dividends
issued (Note 1
and 13) 184 294 (478) -- --
Net income -- -- 1,054 -- --
Net unrealized
holding gain on
securities -- -- -- 632 --
---------- --------- ---------- -------- ---------
BALANCE AT
DECEMBER 31, 1995 $ 3,902 $ 3,804 $ 2,265 $ 542 $ (45)
=== ==== ========== ========= ========= ======= =========
The accompanying notes are an integral part of these statements.
24
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31
------------------------------------------------------
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,054 $ 857 $ 1,003
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 350 240 233
Provision for loan losses 115 160 75
Provision for ORE losses 1 29 131
(Benefit) provision for deferred taxes (2) 12 (214)
Gain on sale of other real estate owned (3) (33) (181)
Gain on sale of investment securities (122) (41) (127)
Loss (gain) on sale of mortgage loans 2 (83) (94)
Decrease in accrued interest receivable (508) (343) (25)
Decrease (increase) in other assets 135 (314) 20
Increase (decrease) in other liabilities 685 (31) 427
Increase (decrease) in accrued interest payable 275 57 (3)
--------------- --------------- ---------------
Total adjustments 928 (347) 242
--------------- --------------- ---------------
Net cash provided by operating activities 1,982 510 1,245
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (38,960) (15,879) (14,331)
Proceeds from maturities of investment securities 4,320 3,715 168
Proceeds from sales of available for sale securities 19,782 5,664 5,696
(Increase) decrease in interest-bearing deposits (68) (4) 81
Purchases of premises and equipment, net (1,076) (860) (66)
Proceeds from sale of other real estate owned 107 1,365 926
Net increase in loans (26,652) (4,455) (9,840)
--------------- --------------- ---------------
Net cash used in investing activities (42,547) (10,454) (17,366)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings and demand deposit accounts 17,829 (2,385) 10,119
Net increase in time deposits 18,902 14,836 3,076
Net decrease in federal funds purchased -- -- (200)
--------------- --------------- ---------------
Net cash provided by financing activities 36,731 12,451 12,995
--------------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,834) 2,507 (3,126)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 9,474 6,967 10,093
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 5,640 $ 9,474 $ 6,967
--------------- --------------- ---------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Transfers from loans to other real estate $ 530 $ 508 $ 878
Cash paid during the year for-
--------------- --------------- ---------------
Interest $ 4,569 $ 2,709 $ 2,455
--------------- --------------- ---------------
Income taxes $ 280 $ 450 $ 186
--------------- --------------- ---------------
The accompanying notes are an integral part of these statements.
25
ATCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies of Atcorp, Inc. and its subsidiaries conform to
generally accepted accounting principles and to generally accepted industry
practices. The more significant accounting policies are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of Atcorp, Inc. and
its subsidiary, Equity National Bank (the "Bank"), and AT Corp, the Bank's
subsidiary (collectively, the "Corporation"). All significant intercompany
transactions and account balances have been eliminated in consolidation.
Nature of Operations
The Company offers retail banking services through the Bank's four offices and
by mail. The primary sources of revenue are from loans to individuals and small
businesses and investment securities. Loans are originated by the Bank for many
purposes including home construction and remodeling, automobile financing,
business working capital, and commercial real estate. Other loans and pools of
loans are purchased in the secondary market. Funding for loans and investments
is provided by traditional deposit products and borrowed funds. Deposits are
usually from the customer base within the general surrounding are of the office
locations.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment Securities
Effective January 1, 1994, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that
securities "held-to-maturity" be stated at cost adjusted for amortization of
premiums and accretion of discounts and securities "available-for-sale" be
carried at market value, with valuation adjustments (after tax) included in a
separate component of shareholders' equity.
26
Investment securities include primarily debt securities of the U.S. Treasury and
obligations of U.S. Government corporations and agencies. Debt securities
classified as "held-to-maturity" are acquired with the intent to maintain the
securities in the portfolio until maturity. In management's opinion, the
Corporation has the ability to hold these securities to maturity. As such, these
securities are stated at cost adjusted for amortization of premiums and
accretion of discounts using the effective interest method. Certain securities
are classified as securities "available-for-sale" and serve as a potential
source of liquidity. Available-for-sale securities are debt and equity
securities that are not classified as either trading securities or
held-to-maturity securities. These securities are valued at aggregate fair
value, with unrealized holding gains and losses, net of taxes, excluded from
earnings and reported as a separate component of shareholders' equity until
realized. Security gains and losses are computed using the specific
identification method and are recorded on a trade date basis.
In December 1995, the Bank reclassified investment securities with a book value
of approximately $24,415,000 and a fair value of approximately $24,571,000 from
held to maturity to available for sale. This reclassification was allowable
under Financial Accounting Standards Board guidance which permitted institutions
to make a one-time reassessment of the appropriateness of investment security
classifications. As a result of the reclassification, the unrealized gain on
securities recorded as a component of retained earnings increased approximately
$103,000, net of tax.
Loans Held for Sale
At December 31, 1995, loans held for sale consisted of the following loans sold
but not yet settled:
SBA loans $1,265,000
Mortgage loans 202,000
-------
$1,467,000
==========
These loans held for sale are carried at the lower of aggregate cost or market
value.
Loans
Interest on all loans is accrued over the term of the loans based on the amount
of principal outstanding, except on certain consumer loans on which interest is
recognized as income on a basis that approximates the interest method.
Loans are generally placed on nonaccrual status when they are past due 90 days
as to either principal or interest. However, loans that are in the process of
renewal or are well secured and in the process of collection may not be placed
on nonaccrual status, based on the judgment of management as to ultimate
collectibility. When a loan is placed on nonaccrual status, interest income is
reduced by the amount of any accrued and uncollected interest.
27
Loan Origination Fees and Costs
Loan origination fees and related direct loan origination costs of completed
loans are deferred and recognized over the life of the loan as an adjustment to
yield. During 1995 and 1994, the Bank amortized loan origination fees in excess
of loan origination costs of $458,000 and $263,000, respectively. At
December 31, 1995 and 1994, the unamortized portion of net deferred fees and
costs amounted to $292,000 and $224,000, respectively.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level believed by
management to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on the risk
characteristics of the portfolio, past loan loss experience, local economic
conditions and other relevant factors. The allowance is increased by provisions
for possible loan losses charged against income. The provision is based on
management's estimates and actual losses may vary from the current estimates.
These estimates are reviewed periodically. Adjustments, as they become
necessary, are reported in earnings in the period in which they become known.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," ("SFAS 114") in May 1993 and Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures," ("SFAS 118") in October 1994. These statements require
creditors to measure certain impaired loans based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
at the loan's observable market price or the fair value of the collateral for
collateral dependent loans, except for loans considered to be homogeneous pools
collectively evaluated for impairment and leases for which this statement does
not apply. The in-substance foreclosure rules also changed in that "in-substance
foreclosures" are classified as loans and stated at the lower of cost or fair
value, as defined. The Bank adopted SFAS No. 114 and No. 118 effective January
1, 1995. The effect of the adoption of SFAS No. 114 and No. 118 was immaterial.
Total impaired loans at December 31, 1995 were $4,088,000. The amount of loans
that had modifications to the original contractual terms of the loan due to the
dependency on income production and/or future collateral value was $2,573,000 at
December 31, 1995. Management expects to collect the current contractual
principal and interest on these loans with modifications. The reserve on the
remaining impaired loans of $1,505,000 at December 31, 1995, was $619,000. All
impaired loans were evaluated on the fair value of the collateral, the majority
of which is real estate.
Real Estate Acquired in Settlement of Loans
Real estate acquired through foreclosure is recorded at the lower of cost or
fair value, less estimated disposal costs. Subsequent costs directly related to
the completion of construction or improvement of the real estate are capitalized
to the extent realizable. Gains on sale of real estate are recognized upon
disposition of the property to the extent allowable based on accounting
requirements. Losses on such sales are charged to operations as incurred.
Carrying costs, such as maintenance, interest, and taxes, are charged to
operations as incurred.
28
At December 31, 1995 and 1994, the Bank maintained real estate acquired in
settlement of loans of $477,000 and $51,000, respectively, which is included in
other assets.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives, which are as follows:
Buildings and improvements 5 to 40 years
Furniture and equipment 3 to 10 years
Leasehold improvements 3 to 10 years
When assets are retired or disposed of, the assets and related accumulated
depreciation are eliminated from the respective accounts, and any resultant gain
or loss is included in the statement of income. The cost of maintenance and
repairs is charged to operating expense as incurred and the cost of major
additions and improvements is capitalized.
Income Taxes
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
this accounting standard, deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of assets
and liabilities using the applicable enacted marginal tax rates. Deferred income
tax expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
The Corporation recorded the cumulative effect of this adoption on its financial
position at January 1, 1993, as a change in accounting principle. The
recognition of this cumulative effect resulted in an increase in earnings of
$100,000 as of the beginning of the year ended December 31, 1993. The adoption
of SFAS 109 (exclusive of the cumulative effect adjustment) did not have a
material effect on the results of operations of the Corporation.
Consolidated Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
Earnings Per Share
Earnings per share are based on the weighted average number of common shares
outstanding during each year, adjusted retroactively for stock dividends. The
weighted average number of common shares outstanding, as adjusted for stock
dividends, amounted to 771,750 shares in 1995, 1994 and 1993, respectively (see
Note 13).
29
Interest Rate Risk
The Bank is principally engaged in the business of attracting deposits from the
general public and using these deposits, together with borrowings and other
funds, to make loans primarily secured by real estate as well as commercial and
consumer loans. The potential for interest rate risk exists as a result of the
shorter duration of the Bank's interest-sensitive liabilities compared to the
generally longer duration of interest-sensitive assets. In a rising interest
rate environment, liabilities will reprice faster than assets, thereby reducing
the market value of long-term assets and reducing net interest income. For this
reason, management regularly monitors the maturity structure of the Bank's
assets and liabilities in order to measure its level of interest rate risk and
plan for future volatility.
Recent Accounting Pronouncements
The FASB has issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123"). This statement is
effective for fiscal years beginning after December 15, 1995, and requires that
an employer's financial statements include certain disclosures about stock-based
employee compensation arrangements. The required information, if the Company
chooses to continue to apply certain allowable accounting provisions, will not
reflect any adjustments to reported net income or earnings per share.
Reclassifications
Certain account balances for 1994 and 1993 have been reclassified to conform
with 1995 presentation.
2. REGULATORY MATTERS:
At periodic intervals, both the Office of the Comptroller of the Currency (OCC)
and the Federal Deposit Insurance Corporation (FDIC
) examine the Bank as part of
their legally prescribed oversight of the Banking industry. Based on these
examinations, the regulators can direct that the Bank's financial statements be
adjusted in accordance with their findings. However, the extent, if any, to
which a forthcoming regulatory examination may ultimately result in adjustments
to the 1995 financial statements cannot presently be determined.
The Federal Reserve Board that regulates the Corporation and the Office of the
Comptroller of the Currency that regulates the Bank's activities have specific
guidelines for the purpose of evaluating a financial institution's capital
adequacy. Currently, the Bank must maintain a minimum Tier 1 capital percentage
of 4.0% of risk-based assets, a total minimum capital of 8.0% of risk-based
assets, and a leverage ratio of 4.0% of total assets. The Bank's ratios at
December 31, 1995 were (unaudited): Tier 1 of 10.04%, total capital to
risk-based assets of 11.29% and a leverage ratio of 6.37%. The Corporation's
leverage ratio at December 31, 1995, was 7.36% (unaudited).
3. RESTRICTED CASH BALANCES:
Aggregate cash reserves of approximately $1,584,000 and $1,166,000 were
maintained to satisfy federal regulatory requirements at December 31, 1995 and
1994, respectively.
30
4. INVESTMENT SECURITIES:
The following summarizes the amortized cost and approximate market value of
investment securities at December 31, 1995 and 1994:
December 31, 1995
---------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ---------- ---------- ------
AVAILABLE FOR SALE:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies
$ 20,641,000 $ 433,000 $ -- $ 21,074,000
Obligations of states and political
subdivisions 7,009,000 144,000 -- 7,153,000
Corporate debt securities 4,835,000 153,000 -- 4,988,000
Collateralized mortgage obligations
3,992,000 16,000 -- 4,008,000
Federal Reserve and FHLB stock
625,000 -- -- 625,000
SBA loan pools 12,149,000 63,000 -- 12,212,000
Other 15,000 12,000 -- 27,000
--------------- --------------- --------- --------------
Total $ 49,266,000 $ 821,000 $ -- $ 50,087,000
=============== =============== ========= ==============
Included in investment securities classified as held-to-maturity are debt
securities issued by foreign governments with an amortized cost of $250,000 and
a market value of $250,000 as of December 31, 1995.
December 31, 1994
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ---------- ---------- ------
HELD TO MATURITY:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies
$ 11,868,000 $ -- $ 460,000 $ 11,408,000
Obligations of states and political
subdivisions 4,331,000 -- 69,000 4,262,000
Debt securities issued by foreign
governments 250,000 -- -- 250,000
Corporate debt securities 5,207,000 -- 244,000 4,963,000
Collateralized mortgage obligations
2,509,000 -- 130,000 2,379,000
--------------- ------- ---------- ------------
Total $ 24,165,000 $ -- $ 903,000 $ 23,262,000
=============== ======= ========== ============
31
Gross Gross
Amortized Unrealized Unrealized MarketValue
--------------- --------------- --------------- ---------------
Cost Gains Losses
AVAILABLE FOR SALE:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 9,709,000 $ -- $ 130,000 $ 9,579,000
Corporate debt securities 495,000 -- 18,000 477,000
Federal Reserve Bank stock 198,000 -- -- 198,000
Other 15,000 12,000 -- 27,000
--------------- --------------- --------------- ---------------
Total $ 10,417,000 $ 12,000 $ 148,000 $ 10,281,000
=============== =============== =============== ===============
The amortized cost and estimated market value of investment securities at
December 31, 1995, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Market
Cost Value
---- -----
Due in one year or less $ 6,301,000 $ 6,321,000
Due after one year through five years 14,762,000 14,982,000
Due after five years through ten years 10,800,000 10,541,000
Due after ten years 5,584,000 5,629,000
--------- ---------
36,727,000 37,473,000
---------- ----------
Federal Reserve Band stock and other 12,789,000 12,864,000
---------- ----------
$49,516,000 $50,337,000
=========== ===========
Debt securities and corporate bonds at December 31, 1995, 1994 were comprised of
securities for which there is an active market. It is management's intent to
invest in securities that are guaranteed by the U. S. Government or its
agencies, or securities that are investment grade.
Proceeds from the sales of investment securities during 1995, 1994 and 1993 were
$19,782,000, $5,664,000 and $5,696,000, respectively. Gross gains of $122,000,
$41,000 and $127,000 were realized on those sales during 1995, 1994 and 1993,
respectively.
At December 31, 1995 and 1994, investment securities with a carrying value of
$1,615,000 and $5,452,000 (market value of $1,624,000 and $5,258,000,
respectively), were pledged to secure public funds and for other purposes.
32
5. LOANS:
A summary of the Bank's outstanding loans at December 31, 1995 and 1994,
follows:
1995 1994
----------- -----------
Commercial, financial and agricultural loans $27,759,000 $18,231,000
Real estate - construction 9,628,000 6,374,000
Real estate - mortgage loans 36,284,000 28,748,000
Consumer loans 22,458,000 18,107,000
---------- ----------
Total $96,129,000 $71,460,000
=========== ===========
Nonaccrual loans amounted to $1,090,000, $989,000 and $862,000 at December 31,
1995, 1994 and 1993, respectively. Interest income of approximately $69,000,
$102,000 and $42,000 was not recognized as operating income due to the
nonaccrual status of loans during 1995, 1994 and 1993, respectively. Loans over
90 days delinquent and accruing interest amounted to $148,000, $210,000 and
$312,000 at December 31, 1995, 1994 and 1993, respectively.
The Bank has reached agreements with various borrowers that provide for a
modification to the original contract maturity due to a change in the borrower's
financial condition. At December 31, 1995 and 1994, the Bank maintained
$2,573,000 and $3,337,000, respectively, of such loans, considered by management
to be potential problem loans due to the dependency on income production and/or
future collateral value. These loans carry a market rate of interest.
At December 31, 1995 and 1994, there were $4,953,000 and $3,490,000,
respectively, of loans outstanding to directors, principal shareholders and
executive officers and their affiliated interests. Management believes
related-party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility.
The Bank customarily originates secured loans which remit interest only. At
December 31, 1995 and 1994, such loans amounted to $37,136,000 and $23,251,000,
respectively.
The Bank recovered $66,000, $16,000 and $94,000 in 1995, 1994 and 1993,
respectively of legal fees and other expenses related to collection efforts of
loans charged-off in years prior to 1994. These recoveries are reflected as
reductions of professional fees and other miscellaneous expenses.
33
6. ALLOWANCE FOR LOAN LOSSES:
A summary of the activity in the allowance for possible loan losses for the
years ended December 31, 1995, 1994 and 1993, follows:
1995 1994 1993
---- ---- ----
BALANCE, BEGINNING OF YEAR $ 1,152,000 $1,235,000 $ 1,058,000
Provision for loan losses 115,000 160,000 75,000
Recoveries of loans previously
charged off 160,000 65,000 162,000
Loans charged off (144,000) (308,000) (60,000)
-------- -------- -------
BALANCE, END OF YEAR $ 1,283,000 $1,152,000 $1,235,000
=========== ========== ==========
7. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are comprised of the following at December 31, 1995
and 1994:
1995 1994
---- ----
Land $ 139,000 $ 139,000
Buildings and improvements 1,922,000 1,361,000
Leasehold improvements 610,000 563,000
Furniture and equipment 2,409,000 1,989,000
--------- ---------
Total 5,080,000 4,052,000
Less-- Accumulated depreciation
and amortization 2,130,000 1,828,000
--------- ---------
Bank premises and equipment, net $2,950,000 $2,224,000
========== ==========
Depreciation and amortization expense amounted to $350,000, $240,000 and
$233,000 in 1995, 1994 and 1993, respectively.
During 1988, the Bank entered into a ten-year operating lease agreement for a
new corporate headquarters and branch location that began in 1989. The lease
contains an option for two additional ten-year periods. Rental expense in
connection with the lease was approximately $242,000 in 1995, 1994 and 1993,
respectively.
Future minimum lease payments as of December 31, 1995, in connection with leases
are:
1996 $ 361,000
1997 371,000
1998 382,000
1999 343,000
2000 102,000
2001 and thereafter 948,000
-------
Total minimum payments required $ 2,507,000
===========
34
On January 31, 1995, the Bank entered into an agreement to sell the Cherry Hill
Branch building, property and equipment with the intent to lease back the
property for a period of fifteen years with two five-year renewal options. Terms
of the capital lease will require lease payments by the Bank of $98,000 for the
first five years, $102,000 for the second five years and $108,000 for the
remaining five years.
8. INCOME TAXES:
On January 1, 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). As a result of adopting SFAS 109, the
Corporation recognized a cumulative benefit of the change in accounting
principle of $100,000 as of January 1, 1993. The benefit is included under the
caption "Cumulative Effect of Change in Accounting Principle" in the
consolidated statement of income.
The net deferred tax asset recorded by the Corporation at December 31, 1994, and
changes thereto during the year ended December 31, 1995, consisted of the
following temporary differences:
Deferred
Tax
December 31 December 31 Benefit December 31
1993 1994 (Expense) 1995
----------- ------------ ---------- -----------
Provision for loan losses $247,000 $218,000 $45,000 $263,000
Deferred loan fees and costs, net 61,000 81,000 (33,000) 48,000
Depreciation (64,000) (66,000) (3,000) (69,000)
Rent expense 51,000 51,000 (4,000) 47,000
Accrued bonus and profit
sharing 30,000 24,000 4,000 28,000
Other, net (7,000) (2,000) (7,000) (9,000)
------ ------ ------ ------
Deferred tax asset 318,000 306,000 2,000 308,000
Valuation allowance (45,000) (45,000) -- (45,000)
------ ------ ------ ------
Net deferred tax asset $273,000 $261,000 $ 2,000 $263,000
======== ======== ======= ========
The Corporation has established a valuation allowance of $45,000 against
deferred tax assets. Management believes that the remaining deferred tax assets
are realizable either through carryback availability against prior year taxable
income or the reversal of existing deferred tax liabilities.
The components of the provision for income taxes are as follows:
For the Year Ended December 31, 1995
---------------------------------------------------
Federal State Total
------- ----- -----
Current taxes payable $ 362,000 $ -- $ 384,000
Deferred tax benefit (2,000) -- (24,000)
--------------- ------ ------------
Tax provision $ 360,000 $ -- $ 360,000
=============== ====== ===========
35
For the Year Ended December 31, 1994
---------------------------------------------------
Federal State Total
------- ----- -----
Current taxes payable $ 376,000 $ -- $ 376,000
Deferred tax provision 12,000 -- 12,000
--------------- -------- ----------
Tax provision $ 388,000 $ -- $ 388,000
=============== ========= ==========
For the Year Ended December 31, 1993
---------------------------------------------------
Federal State Total
Current taxes payable $ 513,000 $ 50,000 $ 563,000
Deferred tax benefit (86,000) (28,000) (114,000)
--------------- -------- ----------
Tax provision $ 427,000 $ 22,000 $ 449,000
=============== ========= ==========
The difference between the provision for income taxes and the amount computed by
applying the federal statutory income tax rate to income before income taxes is
as follows:
1995 1994 1993
---- ---- ----
Tax provision at staturoty rate $ 481,000 $423,000 $459,000
Tax exempt interest (123,000) (38,000) --
Other, net 2,000 3,000 (10,000)
----- ----- -------
Tax provision $ 360,000 $388,000 $449,000
========== ======== ========
9. RELATED-PARTY TRANSACTIONS:
The Corporation incurred professional fees of $286,000, $331,000 and $315,000 in
1995, 1994 and 1993, respectively. Included in these amounts were approximately
$69,000, $154,000 and $169,000 in 1995, 1994 and 1993, respectively, of fees
paid to law firms that were shareholders of the Corporation or had
representatives who were shareholders and members of the Board of Directors.
In 1995, the Bank began purchasing automobile loans from a financial services
corporation whose president was a member of the Bank's Board of Directors. This
company provides all the servicing for these loans. The balance of this
automobile loan portfolio was $5,280,000 and $252,000 as of December 31, 1995
and 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES:
The Corporation, from time to time, may be a defendant in legal proceedings
relating to the conduct of its banking business. Such legal proceedings are a
normal part of the banking business and, in management's opinion, the financial
position and the results of operations of the Corporation will not be materially
adversely affected by the resolution of such legal proceedings.
36
In November 1995, the Bank entered into an operating lease agreement to rent the
building and property of the Moorestown Branch for a period of twenty years with
two five-year renewal options. Terms of the lease, commencing in July 1996, will
require lease payments of $127,000 for the first five years, $130,000 for the
second five years, $133,000 for the third five years and $137,000 for the
remaining five years.
11. PROFIT SHARING PLAN:
The Bank has a profit sharing plan covering substantially all employees who meet
the age and service qualifications. Contributions made to the plan by the Bank
are allocated to the employees' accounts on a unit basis based on employee
compensation. The Bank is not obligated to make a contribution in any given
year. The Bank made no contributions in 1995 and 1994 and $21,000 in 1993. The
total funded assets of the plan amounted to $102,000 at December 31, 1995. The
Plan was amended to a 401(k) plan in 1995 which permits employee contributions
and investment decisions. The Bank may, at its discretion, match employee
contributions with a percentage contribution to be decided annually.
12. STOCK OPTION PLAN:
The aggregate number of shares of common stock for which options may be issued
under the Incentive Stock Option Plan is 50,000 shares. Participants and number
of shares granted are determined at the discretion of the Board of Directors. As
of December 31, 1995 no options had been granted.
13. SHAREHOLDERS' EQUITY:
The Corporation declared a stock dividend of 5.0% on February 7, 1996 and
January 25, 1995 which has been reflected in the accompanying financial
statements. The stock dividend increased the number of common shares outstanding
by 36,750 shares and 34,000 shares in 1995 and 1994, respectively, and resulted
in a transfer from retained earnings of approximately $184,000 and $175,000 to
common stock in 1995 and 1994, respectively, and $294,000 and $280,000 to
additional paid-in-capital in 1995 and 1994, respectively.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK AND CONCENTRATIONS OF CREDIT RISK:
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, in varying degrees, elements of credit and
interest rate risk that are not recognized in the consolidated financial
statements.
The Bank's exposure to credit loss in the event of nonperformance by other
parties to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
37
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses with the
exception of home equity lines and personal lines of credit 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 Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained if deemed necessary by
the Bank upon the extension of credit is based on management's credit evaluation
of the counterparty. Collateral for commercial commitments varies but may
include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
At December 31, 1995, the Bank had approved outstanding loan commitments of
approximately $36,894,000 relating to undisbursed loans and lines of credit at
normal terms.
Standby letters of credit are instruments issued by the Bank that guarantee the
beneficiary payment by the Bank in the event of default by the Bank's customer
in the nonperformance of an obligation or service. Most standby letters of
credit are extended for one-year periods. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting those commitments
for which collateral is deemed necessary primarily in the form of certificates
of deposit and liens on real estate. The amount of standby letters of credit
issued and outstanding as of December 31, 1995 and 1994, were approximately
$552,000 and $219,000, respectively.
The Bank originates residential, commercial real estate and consumer loans to
customers in southern New Jersey. The majority of these loans are concentrated
in southern Burlington County, Camden County, Gloucester County and northern
Atlantic County.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined by the Bank using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Bank could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
38
December 31, 1995
----------------------------------
Carrying Estimated
Amount Fair Value
------ ----------
(in thousands)
ASSETS:
Investment securities $ 50,337,000 $ 50,337,000
Loans held for sale 1,467,000 1,467,000
Loans held to maturity 96,129,000 96,335,000
LIABILITIES:
Demand deposit accounts 19,812,000 19,812,000
Interest bearing demand 46,355,000 46,355,000
Savings accounts 21,155,000 21,155,000
Time certificates of deposit 57,972,000 58,121,000
The fair value of investment securities is based on quoted market prices, dealer
quotes and prices obtained from independant pricing services. The fair value of
loans held for sale is based upon the commitment made by the purchaser. The fair
value of loans is estimated by discounting future cash flows using current
interest rates at which similar loans would be made to borrowers with similar
credit ratings and remaining maturities.
The fair value of deposit liabilities for demand and savings deposits is the
amount payable on demand at the reporting date. The fair value of fixed-maturity
time certificates of deposit was estimated using the rates currently offered for
deposits of similar remaining maturities.
39
16. ATCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
CONDENSED BALANCE SHEETS
December 31
-----------------------------------
1995 1994
---- ----
ASSETS:
Cash $ 263,000 $ 307,000
Investment in bank subsidiary 10,217,000 8,506,000
--------------- ---------------
$ 10,480,000 $ 8,813,000
=============== ===============
LIABILITIES:
Other liabilities 12,000 31,000
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock 3,902,000 3,718,000
Additional paid-in capital 3,804,000 3,510,000
Retained earnings 2,265,000 1,689,000
Net unrealized holding gain (loss) on securities 542,000 (90,000)
Treasury stock (45,000) (45,000)
--------------- ---------------
Total shareholders' equity 10,468,000 8,782,000
--------------- ---------------
$ 10,480,000 $ 8,813,000
=============== ===============
CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31
--------------------------------------------------------
1995 1994 1993
INCOME:
Interest income $ 10,000 $ 30,000 $ 7,000
EXPENSE:
Amortization of organization costs -- -- 25,000
Other operating expenses 15,000 13,000 13,000
Legal and professional 20,000 31,000 4,000
--------------- --------------- ---------------
Loss before income taxes and
equity in undistributed net
income of subsidiaries (25,000) (14,000) (35,000)
FEDERAL INCOME TAX BENEFIT -- -- 12,000
--------------- --------------- ---------------
Loss before equity in undistri-
buted net income of
subsidiaries (25,000) (14,000) (23,000)
EQUITY IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES 1,079,000 871,000 1,026,000
--------------- --------------- ---------------
NET INCOME $ 1,054,000 $ 857,000 $ 1,003,000
=============== =============== ===============
40
CONDENSED STATEMENTS OF CASH FLOWS
For the Year Ended December 31
--------------------------------------------------------
1995 1994 1993
Cash flows from operating activities:
Net income $ 1,054,000 $ 857,000 $ 1,003,000
Adjustments to reconcile net income
to net cash provided by
operating activities-
Amortization of organization
costs -- -- 25,000
(Increase) decrease in receivable
from bank subsidiary -- 12,000 (2,000)
(Decrease) increase in other
liabilities (19,000) 24,000 3,000
Undistributed earnings of
subsidiaries (1,079,000) (871,000) (1,026,000)
---------- -------- ----------
Total adjustments (1,098,000) (835,000) (1,000,000)
Net cash provided by operating
activities (44,000) 22,000 3,000
Cash, beginning of year 307,000 285,000 282,000
---------- -------- ----------
Cash, end of year $ 263,000 $ 307,000 $ 285,000
=============== =============== ===============
41
Item 9...Disagreements on Accounting and Financial Disclosure.
None
42
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The Board of Directors of the Company currently consists of 14 members.
Each member of the Company's Board of Directors also serves as a director of the
Bank. The directors serve one-year terms. The following table sets forth certain
information about the directors of the Company.
Director
Principal Occupation Of Bank
Name Age for Past Five Years Since
Frank J. Bartolone 62 Principal owner of the public 1985
accounting firm of Bartolone &
Snyder, PA.
Stewart A. Collins 56 Senior Vice President and 1983
Cashier of the Bank and Senior
Vice President, Secretary and
Treasurer of the Company.
Walter F. Crossley 53 President of Becca, Inc., a 1985
real estate holding company.
Jerold D. Gerstein 64 Principal owner of Jerold D. 1985
Gerstein and Associates, PC, and
a Certified Public Accountant.
Dorothy S. Hannaway 74 Retired, merchandise control 1974
employee, Sears, Roebuck & Co.
Warren H. Hannaway 74 Retired, Chief Chemist, BGA 1971
International Co.
Donald A. Morano 55 President, Donald A. Morano, 1985
Inc., a corporation engaged in
home building, and Pro-Mor Corp.,
a corporation which constructs and
markets residential real estate.
Michael M. Quick 48 President and Chief Operating 1994
Officer of the Company and the Bank
and Chief Credit Administrator of the Bank
William E. Reifsteck 64 Attorney-at-Law, Capehart & 1983
Scatchard, PA.
Marc L. Reitzes 56 Chairman and Chief Executive 1983
Officer of the Company and of the Bank
M. Zev Rose 58 Attorney-at-Law, Sherman, 1985
Silverstein, Kohl, Rose &
Podolsky.
Stephen D. Samost 39 Attorney-at-Law 1986
43
Jonathan D. Weiner 51 Attorney-at-Law, Fox, 1983
Rothschild, O'Brien & Frankel.
Michael J. Wimmer 43 A principal in Hann & Co., 1985
and intermediary in the sale
and servicing of secured motor
vehicle loans.
See also "Executive Officers of the
Registrant" in Part I above.
Item 11. Board Personnel Committee Report on Executive Compensation.
No compensation was paid during 1995 by the Company. Compensation paid
by the Bank on an annual basis to its executive officers is initially determined
by the Personnel Committee of the Board of Directors of the Bank and then
approved by the Board as a whole. In 1995, the Personnel Committee was comprised
of Directors Jonathan D. Weiner (Chairman), Michael J. Wimmer, and Walter
Crossley. Other than as set forth below, none of the compensation paid by the
Bank to its executive officers is based upon their performance in carrying out
their duties or upon the performance, financial or otherwise, of the Bank. The
Bank has a total of six executive officers, including three senior executive
officers.
The Personnel Committee sets the annual compensation levels for the
executive officers of the Bank, other than for three of its senior executive
officers as noted below, through the Committee's evaluations of those officers
based upon reports from their superiors submitted to the Personnel Committee.
The Committee's assessment of each executive officer and of the amount of
compensation the Committee believes should be paid to each is essentially a
subjective process.
The reports submitted to the Committee contain detailed analyses of
each executive officer's performance in his given assignments within the Bank;
his stated performance goals and the degree to which he achieved his goals; and
his general comportment and efficiency in the performance of the tasks assigned
to him. The Committee also reviews the compensation levels paid to executive
officers of similar standing and responsibilities in sister banking institutions
in the immediate geographic area of the Bank to determine whether the
compensation levels paid, or proposed to be paid, to the Bank's executive
officers are comparable or excessive. The Committee then sets the proposed
compensation level of each executive officer of the Bank and reports same to the
Bank's Board of Directors. The Bank's Board of Directors then adopts, amends or
rejects the committee's report and sets the final level of compensation for each
executive officer.
Compensation to Senior Executive Officers. The Bank has three senior
executive officers. Marc L. Reitzes is the Chairman, Chief Executive Officer and
a Director of the Company and of the Bank. Michael M. Quick is President, Chief
Operating Officer and Director of the Company and of the Bank In addition, he is
Chief Credit Administrator of the Bank. Stewart A. Collins is a Senior Vice
President, Cashier and a Director of the Bank and Senior Vice President,
Secretary, Treasurer and a Director of the Company.
The annual salaries and certain other benefits paid by the Bank to all
three senior executive officers are based upon written employment agreements
with the Bank. These employment agreements will terminate on March 1, 1997;
however, each agreement will automatically be renewed for successive three-year
terms unless either party to the agreement notifies the other party at least 180
days prior to the expiration date of any three-year term that the agreement will
not be renewed. The Company is a party to the written employment agreements
between the Bank and Messrs. Reitzes, Quick and Collins and, pursuant to each
agreement, is the guarantor of the Bank's performance of the financial terms of
each agreement.
The employment agreements for senior executive officers Reitzes, Quick
and Collins required the Bank to pay base annual salaries for 1995 of $152,000,
$100,000 and $89,000, respectively, along with the use by each of an automobile,
the cost of the insurance for the automobile, and the cost of maintenance and
gasoline for each's use of the automobile; basic medical, major medical and
hospitalization insurance; term life insurance in amounts of $500,000, $300,000
44
and $300,000 respectively; long-term total disability insurance providing
payments in the event of total disability in the amounts of $90,000, $60,000 and
$55,000 respectively. Under their employment agreements, Messrs. Reitzes, Quick
and Collins are also eligible for annual bonuses based upon the gross assets and
after-tax profits of the Bank. The bonuses and the amounts thereof for each
senior executive officer are set at the sole discretion of the Board of
Directors of the Bank. Messrs. Reitzes and Collins are participants in the
Bank's profit sharing plan and each has been designated as a "key employee" of
the Bank for the purpose of participating in the Incentive Stock Option Plan of
the Company and its subsidiaries. In 1995 through December 31, Messrs. Reitzes,
Quick and Collins were paid total compensation of $204,897, $122,704 and
$113,215, respectively.
The following table sets forth all cash compensation paid by the Bank,
for services rendered in all capacities to the Bank during 1995, to Messrs.
Reitzes, Quick and Collins, the only executive officers of the Bank who earned
in excess of $100,000 per year:
Summary Compensation Table
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
Marc L. Reitzes 1995 152,000 15,000 30,697 7,200
Chairman, CEO 1994 149,000 15,000 28,044 4,650
1993 146,000 None 25,706 3,400
Michael Quick 1995 100,000 12,000 3,704 7,000
President, COO. 1994 90,000 12,000 4,114 2,600
1993 80,000 None 9,624 None
Stewart A. Collins 1995 89,000 8,000 16,215 7,050
Senior Vice Pres. 1994 87,000 8,000 16,238 4,650
1993 85,000 None 11,826 3,400
In 1995 the Bank paid Directors' fees of $500 per month to each of its
Directors and plans to continue such practice in 1996. The Company did not pay
any fees to Directors in 1995 and intends to continue such practice in 1996.
Compensation Pursuant to Plans. The Bank maintains a profit sharing
plan (the "Plan") which covers substantially all employees. The Plan was amended
in 1995 to a 401 (k) plan which permits employee contributions and transfers
investment control from the trustees to the employees. No further contributions
will be made to the former profit sharing component of the Plan by the Bank. The
Bank may, at its discretion, match employee contributions with a percentage
contribution to be decided annually. A participating employee's interest in the
Plan contributions made by the Bank is 10% vested after two full years of
service and his/her vested interest in the Plan increases 10% the third year,
20% in the fourth through seventh years, and she/he is 100% vested after seven
years of service. No contributions were made to the Plan for 1994. In 1995
amounts accrued were $1,000 for Mr. Reitzes, $875 for Mr. Quick and $779 for Mr.
Collins.
In 1990, the Board of Directors adopted and the stockholders approved
an Incentive Stock Option Plan for key employees of the Company and its
subsidiaries. At present, no options have been granted under such plan.
45
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
The following table sets forth, as of March 27, 1996, the amount and
percentage of the outstanding Common Stock beneficially owned by each director,
and all executive officers and directors of the Company as a group, as reflected
on the Company's stock records.
Percent of
Common Stock Common Stock
Name Owned Owned
Frank J. Bartolone................................... 33,236 (1) 4.31%
Stewart A. Collins................................... 4,978 0.65%
Walter F. Crossley................................... 69,343 8.99%
Jerold D. Gerstein................................... 9,533 1.24%
Dorothy S. Hannaway.................................. 3,057 0.40%
Warren H. Hannaway................................... 2,905 0.38%
Michael M. Quick..................................... 1,700 0.22%
Donald A. Morano..................................... 36,129 4.68%
William E. Reifsteck................................. 20,130 2.61%
Marc L. Reitzes...................................... 33,133 (2) 4.29%
M. Zev Rose.......................................... 11,660 1.51%
Stephen D. Samost.................................... 8,571 1.11%
Jonathan D. Weiner................................... 18,042 2.34%
Michael J. Wimmer.................................... 28,584 (3) 3.70%
Directors & Executive Officers
as a Group (17 Persons)............................. 281,265 36.45%
(1) Includes 6,821 shares owned by members of Mr. Bartolone's immediate family
and 788 shares owned by Bartolone & Snyder, PA, of which Mr. Bartolone is a
principal owner.
(2) Includes 9,732 shares owned by members of Mr. Reitzes' immediate family.
(3) Includes 22,647 shares registered to Hann & Co., of which Mr. Wimmer is a
principal owner.
Certain Beneficial Owners.
The following table sets forth, as of March 27, 1996, the name and
address of each person who is known by the Board of Directors of the Company to
be the beneficial owner of 5% or more of the Company's outstanding Common Stock,
the number of shares beneficially owned by such person, and the percentage of
the Company's outstanding Common Stock so owned.
Percent of
Common Stock Common Stock
Name and Address Owned (1) Owned
Walter F. Crossley 69,343 8.99%
401 Rt. 70 East
Cherry Hill, NJ 08034
A. R. DeMarco Enterprises 43,563 5.64%
Profit Sharing Trust
44 Packard Street
Hammonton, NJ 08037
L&S Rest Home Employees 163,806 21.23%
------- ------
Retirement Plan Trust
Pliner Designated Fund (2)
TOTAL 276,712 35.86%
======= ======
(1) A person is deemed to be the beneficial owner of securities if he has or
shares voting power (which includes the power to vote, or to direct the
voting of such securities) or investment power (which includes the power to
46
dispose, or to direct the disposition, of such securities). A person is
also deemed to be the beneficial owner of any securities of which he has
the power to acquire beneficial ownership within 60 days. Under these
rules, more than one person may be deemed the beneficial owner of the same
securities. The information set forth in the table above includes all
shares of Common Stock of the Company over which the above-named persons,
individually or together, share voting power or investment power, adjusted,
however, to eliminate the reporting of shares more than once in order not
to overstate the aggregate beneficial ownership of such persons.
(2) Does not include any shares held by beneficiaries of the trust.
Beneficiaries of the trust include the following individuals, whose direct
stock ownership if aggregated with the shares owned by the trust which are
attributable to their respective accounts are as follows:
Shares Owned If
Aggregated with
Shares Owned The Trust
Name and Address Number/Percent Number/Percent
Ilene Pliner Armato 8,737/1.13% 35,414/4.59%
401 Jackson Road
Atco, NJ 08004
Victoria Pliner Kravitz 7,336/0.95% 52,218/6.77%
401 Jackson Road
Atco, NJ 08004
Gerald Pliner 17,577/2.28% 101,002/13.09%
401 Jackson Road
Atco, NJ 08004
Judith Pliner 1,282/0.17% 10,205/1.32%
401 Jackson Road
Atco, NJ 08004
Such individuals, who are related, disclaim beneficial ownership of
shares owned by each other, as well as the shares owned by the trust not
attributable to their respective accounts. See Item 3 - "Legal Proceedings" for
a description of restrictions on the voting of certain of these shares.
Item 13. Certain Relationships and Related Transactions.
During 1995, the Company did not extend any credit to, nor did it have
any transactions with, any of its Directors, executive officers or holders of at
least 5% of the Company's or the Bank's outstanding shares of Common Stock or
any members of the immediate families of the foregoing persons. Since January 1,
1995, the maximum amount of credit extended by the Bank to the Company's and the
Bank's Directors, executive officers and holders of at least 5% of the Company's
outstanding shares of Common Stock, as a group, was approximately $4,953,000 on
December 31, 1995, which amount was equal to approximately 51% of the Bank's
equity capital accounts as of that date.
All extensions of credit to Directors, executive officers and major
shareholders of the Company, and their associates, by the Bank have been, and
are expected to be, banking transactions in the ordinary course of business on
substantially the same terms, including interest rates and collateral for loans,
as those prevailing at the time for comparable transactions with unaffiliated
parties, and not involving more than the normal risk of collect ability or
presenting other unfavorable features. There were no defaults under the terms of
any extension of credit from the Bank to any Director, executive officer or
major shareholder.
During 1995, the Bank paid approximately $69,000 for legal services to
law firms in which several of its Directors are associated, which practice the
Bank anticipates will continue in the future.
47
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Financial Statements, Schedules and Exhibits
(1) Financial Statements
The following consolidated financial statements of Atcorp,
Inc. and Subsidiaries are included in Item 8 above.
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1995 and
1994
Consolidated Statements of Income - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. Financial
statement schedules are omitted because they are not
applicable or the required information is shown in
the financial statements or notes thereto.
(3) Exhibits filed pursuant to Item 601 of Regulation
S-K.
Exhibit Description
------- -----------
3(a) Restated Certificate of Incorporation (1)
3(a)(i) Second Restated Certificate of
Incorporation
3(b) By-Laws of the Registrant (1)
10(a) Atco National Bank Profit Sharing Plan (1)
10(b) Employment Agreement between Atco
National Bank and Marc L. Reitzes (1)
10(c) Employment Agreement between Atco
National Bank and Stewart A. Collins (1)
10(d) Lease Agreement between Atco National
Bank and Davis Enterprises (1)
48
Exhibit Description
------- -----------
10(e) Reserve Premium Account Agreement
between Atco National Bank and American
Bankers Professional and Fidelity
Insurance Company Limited (1)
10(f) 1990 Incentive Stock Option Plan
11 Computation of Earnings Per Share
22 Subsidiaries of the Company (2)
28 Letter from Comptroller of the Currency to
Atco National Bank, dated June 12, 1986 (1)
(1) Incorporated by reference to exhibits to registrant's registration
statement on Form S-4 (No. 33-24649).
(2) Incorporated by reference to exhibits to registrant's registration
statement on Form S-1 filed with the Securities and Exchange Commission on
March 14, 1989.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the year ended
December 31, 1995.
49
EXHIBIT 11
ATCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
For Years Ended December 31,
1995 1994 1993
COMPUTATION OF EARNINGS PER
COMMON SHARE:
Shares -
Weighted average shares
outstanding (1) 771,750 771,750 771,750
Earnings -
Net Income before cumulative effect
of change in accounting principle $1,054,000 $857,000 $ 903,000
Cumulative effect of change in
accounting principle $ 0 $ 0 $ 100,000
---------- -------- ----------
NET INCOME $1,054,000 $857,000 $1,003,000
========== ======== ==========
Earnings per common share-
Income before Change in
accounting principle $1.37 $1.11 $1.17
Change in accounting principle $0.00 $0.00 $0.13
----- ----- -----
NET EARNINGS PER SHARE $1.37 $1.11 $1.30
===== ===== =====
(1) Weighted average shares outstanding were adjusted retroactively to reflect
the stock dividend paid February 26, 1996 to shareholders of record
February 16, 1996
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATCORP, INC.
By:(s) Marc L. Reitzes
----------------------------
Marc L. Reitzes, Chairman & C.E.O.
Date: March 27, 1996
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 dates indicated.
Signature Title Date
(s) Marc L. Reitzes Chairman and Chief Executive
- ---------------------------- Officer and Director 3/27/96
Marc L. Reitzes
(s) Michael M. Quick President and Chief Operating Officer
- ---------------------------- and Director 3/27/96
Michael M. Quick
(s) Stewart A. Collins Sr. Vice President/Treasurer-Director
- ---------------------------- (Principal Accounting Officer) 3/27/96
Stewart A. Collins
(s) Frank J. Bartolone
- ----------------------------
Frank J. Bartolone Director 3/27/96
(s) Walter F. Crossley
- ----------------------------
Walter F. Crossley Director 3/27/96
(s) Jerold D. Gerstein
- ----------------------------
Jerold D. Gerstein Director 3/27/96
(s) Dorothy S. Hannaway
- ----------------------------
Dorothy S. Hannaway Director 3/27/96
(s) Warren H. Hannaway
- ----------------------------
Warren H. Hannaway Director 3/27/96
- ----------------------------
Donald A. Morano Director
(s) William E. Reifsteck
- ----------------------------
William E. Reifsteck Director 3/27/96
(s) M. Zev Rose
- ----------------------------
M. Zev Rose Director 3/27/96
(s) Stephen D. Samost
- ----------------------------
Stephen D. Samost Director 3/27/96
(s) Jonathan D. Weiner
- ----------------------------
Jonathan D. Weiner Director 3/27/96
(s) Michael J. Wimmer
- ----------------------------
Michael J. Wimmer Director 3/27/96