-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I9jQkAjYLzuWq7RNxAGnZUP4UDjRWJyqd/qkbI12KxLXdD8s8AjXiR29Ce8DWmtZ yVP+soz4ak4CQ+R+Sf642Q== 0000893220-96-001356.txt : 19960814 0000893220-96-001356.hdr.sgml : 19960814 ACCESSION NUMBER: 0000893220-96-001356 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY FINANCIAL HOLDING CORPORATION CENTRAL INDEX KEY: 0000872401 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222762462 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24316 FILM NUMBER: 96610260 BUSINESS ADDRESS: STREET 1: 222 HADDON AVE CITY: WESTMONT STATE: NJ ZIP: 08108 BUSINESS PHONE: 6098697900 MAIL ADDRESS: STREET 1: 222 HADDON AVENUE CITY: WESTMONT STATE: NJ ZIP: 08108 10-Q 1 FORM 10-Q COMMUNITY FINANCIAL HOLDING CORPORATION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 1996. OR ( ) TRANSIT REPORT PURSUANT TO SECTION 35 OR 15 (d) OF THE SECURITIES ACT OF 1934. For the transition period from to . ------------ ------------- Commission File Number: 0-24316 COMMUNITY FINANCIAL HOLDING CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2762462 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 222 HADDON AVENUE 08108 WESTMONT NJ (Zip Code) (Address of Principal Executive Offices) (609) 869-7900 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
NUMBER OF SHARES CLASS OUTSTANDING AS OF AUGUST 8, 1996 ----- -------------------------------- Common Stock, $5.00 par value 928,869
2 INDEX TO FORM 10-Q PAGE PART I. FINANCIAL INFORMATION NO. --- Item 1 Financial Statements Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Income Statements - Three Months ended June 30, 1996 and 1995; Six months ended June 30, 1996 and 1995. 4 Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995 5 Notes to Consolidated Financial Statements - June 30, 1996 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 16 Item 5 Other Information Signatures 17 3 COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30 DECEMBER 31 ------ ------- ----------- 1996 1995 ---- ---- Cash and Due from Banks $ 7,237,315 $ 5,473,753 Federal Funds Sold 7,402,094 1,550,000 Securities Available for Sale 18,042,206 23,375,476 Investment Securities (Market Value of $13,706,783 June 30,1996 and $15,888,289 at December 31, 1995) 13,444,721 15,684,985 Loans 67,137,653 63,137,885 Less: Allowance for Loan Losses (719,470) (595,593) ------------- ------------- Net Loans 66,418,183 62,542,292 Bank Premises and Equipment, Net 1,996,998 1,934,602 Accrued Interest Receivable 834,040 978,455 Deferred Tax Assets 135,021 45,085 Other Assets 1,228,182 1,260,465 ------------- ------------- Total Assets $ 116,738,760 $ 112,845,113 ============= ============= LIABILITIES Demand Deposits $ 66,566,162 $ 60,762,250 Savings Deposits 15,632,603 15,752,883 Time Deposits 21,020,279 22,989,356 ------------- ------------- Total Deposits 103,219,044 99,504,489 Accrued Interest Payable 553,536 471,805 Securities Sold Under Repurchase Agreements 2,452,124 2,777,677 Other Liabilities 238,460 129,866 ------------- ------------- Total Liabilities 106,463,164 102,883,837 ------------- ------------- SHAREHOLDERS' EQUITY Common Stock $5 Par Value Authorized 1,600,000 Shares Issued 928,869 Shares 1996 and 884,637 Shares 1995 4,695,345 4,695,345 Additional Paid In Capital 4,327,162 4,327,162 Retained Earnings 1,503,983 1,015,080 Less Treasury Stock, at Cost, 10,200 Shares (118,844) (118,844) Unrealized Gain/(Loss) on Securities Available for Sale (132,050) 42,533 ------------- ------------- Total Shareholders' Equity 10,275,596 9,961,276 ------------- ------------- Total Liabilities & Shareholders' Equity $ 116,738,760 $ 112,845,113 ============= =============
The accompanying notes are an integral part of these statements. 4 COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS END JUNE 30, JUNE 30 1996 1995 1996 1995 ---- ---- ---- ---- Interest Income: Interest and Fees on Loans $2,938,633 $2,656,649 $1,480,303 1,390,451 Interest on Federal Funds Sold 107,117 112,813 66,710 62,904 Interest and Dividends on Investments 1,057,993 765,788 516,355 378,735 ---------- ---------- ---------- ---------- Total Interest Income 4,103,743 3,545,250 2,063,368 1,832,090 ---------- ---------- ---------- ---------- Interest Expense: Interest on Demand Deposits 601,289 548,045 291,635 270,441 Interest on Savings Deposits 201,768 197,672 100,829 103,187 Interest on Time Deposits 575,690 433,093 279,404 232,119 ---------- ---------- ---------- ---------- Total Interest Expense 1,378,747 1,178,810 671,868 605,747 ---------- ---------- ---------- ---------- Net Interest Income 2,727,996 2,366,440 1,391,500 1,226,343 Provision for Loan Losses 145,000 150,000 90,000 75,000 ---------- ---------- ---------- ---------- Net Int Income After Provision for Loan Losses 2,579,996 2,216,440 1,301,500 1,151,343 ---------- ---------- ---------- ---------- Other Income: Service Charges on Deposit Accounts 239,017 246,273 123,127 127,827 Other Income, Service Charges and Fees 197,886 51,218 128,642 31,469 ---------- ---------- ---------- ---------- Total Other Income 436,903 297,491 251,769 159,296 ---------- ---------- ---------- ---------- Other Expenses: Salaries, Wages and Employee Benefits 1,169,278 1,038,284 592,537 543,508 Occupancy and Equipment Expenses 375,388 340,758 183,980 169,819 FDIC Insurance Expense 1,500 88,500 1,250 44,250 Data Processing Expense 174,942 153,311 86,095 76,989 Other Operating Expenses 597,124 485,500 329,716 258,276 ---------- ---------- ---------- ---------- Total Other Expenses 2,318,232 2,106,353 1,193,578 1,092,842 ---------- ---------- ---------- ---------- Income Before Income Taxes 698,667 407,578 359,691 217,797 Income Tax Expense 209,764 120,000 112,764 58,000 ---------- ---------- ---------- ---------- Net Income 488,903 287,578 246,927 159,797 ========== ========== ========== ==========
The accompanying notes are a integral part of these statements. 5 COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 488,903 $ 287,578 Adjustments To Reconcile Net Income to Net Cash By Operating Activities: Depreciation and Amortization 116,721 103,261 Provision For Loan Losses 145,000 150,000 Accretion (Amortization) of Discount (Premium) on Securities, Net (28,729) 16,568 Loss On Sale of Securities Available For Sale 5,127 0 Loss On Sale of Other Real Estate 17,488 0 Decrease (Increase) In Accrued Interest Receivable 144,415 (292) Decrease (Increase) In Deferred Tax Assets (89,936) 84,409 Decrease (Increase) In Other Assets 14,795 (379,162) Increase In Accrued Int. Payable 81,731 123,107 Increase In Other Liabilities 108,594 21,815 ------------ ------------ Total Adjustments 515,206 146,577 ------------ ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,004,109 434,155 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds From Maturity and Sales Of Securities Available For Sale (AFS) 12,511,687 3,000,000 Proceeds From Maturities and Prepayments Of Investment Securities 3,912,462 1,275,499 Purchases Of Securities AFS (7,656,733) 0 Purchases Of Investment Securities (1,344,863) (1,915,473) Repayments From (Loans Made To) Customers, Net (4,020,891) (4,169,455) Premises And Equipment Expenditures (179,117) (166,401) ------------ ------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,222,545 (1,975,830) CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Deposits 3,714,555 4,971,303 Net Decrease In Short Term Borrowings (325,553) (316,525) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 3,389,002 4,654,778 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 7,615,656 3,113,103 CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,023,753 7,527,626 ------------ ------------ CASH AND CASH EQUIVALENTS AS OF JUNE 30 $ 14,639,409 $ 10,640,729 ============ ============ SUPPLEMENTAL DISCLOSURE: Cash Paid During The Year: Interest $ 1,235,123 $ 906,759 Income Taxes 208,260 96,000 Non-Cash Items: Net Unrealized Loss From Securities AFS 200,076 83,756 Tax Effect Of Unrealized Loss From Securities AFS 132,050 55,279 Acquisition of Real Estate in Settlement of Loans 0 504,941
The accompanying notes are an integral part of these statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of Community Financial Holding Corporation (the Corporation) and its wholly owned subsidiary Community National Bank of New Jersey (the Bank) as of June 30, 1996 and 1995 and the results of their operations for the three and six months ended June 30, 1996 and 1995. The accounting policies and reporting practices of the Corporation are in accordance with generally accepted accounting principals and have been followed on a consistent basis. The accompanying consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and accordingly do not include all of the detailed schedules, information and notes necessary for a fair presentation of financial condition, results of operations and cash flows in accordance with generally accepted accounting principals. This quarterly report should be read in conjunction with Form 10-K dated December 31, 1995, which contains audited consolidated financial statements of the Corporation. The results of operations for the three and six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. NOTE 2. EARNINGS PER SHARE Earnings per share was calculated based on the weighted average number of shares of common stock outstanding for the respective periods. The computation of the June 30, 1996 and 1995 weighted average number of common shares gives retroactive recognition to a 5% stock dividend declared on November 13, 1995 payable to shareholders of record on December 1, 1995. The weighted average numbers of shares used in the computation for the three and six months ended June 30, 1996 and 1995 was 944,520. NOTE 3. SECURITIES On January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, (FAS 115) "Accounting for Certain Investments in Debt and Equity Securities", which requires, among other things, that debt and equity securities classified as available for sale be reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity, net of income taxes. The net effect of unrealized gains or losses, caused by marking an available for sale portfolio to market, causes fluctuations in the level of shareholders' equity and related financial ratios as market interest rates cause the fair value of fixed rate securities to fluctuate. The unrealized loss on securities available for sale was $132,000 at June 30, 1996 as compared to a gain of $42,533 at December 31, 1995. This decrease is primarily due to the current interest rate environment and the short term nature of portfolio maturities. 7 NOTE 4. LOANS In May 1993, FASB issued SFAS 114, "Accounting by Creditors for Impairment of a Loan" and in October 1994, FASB issued SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," an amendment of SFAS 114. Under SFAS 114 and 118, "impaired" loans must be measured based on the present value of expected future cash flows discounted at the loans' effective interest rate or, as a practical expedient, at the loans' observable market price or the fair value of the collateral if the loan is collateral dependent. Based on management's analysis, the adoption of SFAS 114 and 118, which is effective beginning in 1995, has not had and is not expected to have a material effect on the Corporation's consolidated financial statements. NOTE 5. OTHER ASSETS In June 1995, the Bank foreclosed on a commercial property which is classified as Other Real Estate Owned (OREO). The fair value of the property is recorded as $440,000 and is currently being marketed for sale. The loan was written down to its fair value with an offset to the reserve for possible loan losses. The loan secured by the property was previously classified by management and as such was included in managements' analysis of the adequacy of the reserve for possible loan losses. 8 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net income for the first six months of 1996 of $489,000, an increase of $201,000, or 70.0% when compared to the first six months of 1995. The increase in earnings was due primarily to an increase in net interest income and non-interest income. The increase in earnings was partially offset by increases in non-interest expense. The Corporation also reported net income of $247,000 for the three months ended June 30, 1996, an increase of $87,000 or 54.5% when compared to the three months ended June 30, 1995. The increase in earnings was due primarily to an increase in net interest income and non-interest income. These increases were partially offset by increases in the provision for loan losses and non-interest expense. Net interest income for the six months ended June 30, 1996 was $2.7 million, an increase of $362,000 or 15.3% over the first six months of 1995. Non-interest income for the first six months of 1996 was $437,000, an increase of $140,000 or 46.9% over the first six months of 1995. Non- interest expense was $2.3 million for the first six months of 1996, an increase of $212,000 or 10.1% over the first six months of 1995. Net interest income for the three months ended June 30, 1996 was $1.4 million, an increase of $165,000 or 13.5% over the three months ended June 30, 1995. Non-interest income for the three months ended June 30, 1996 was $252,000, an increase of $92,000 or 58.1% over the three months ended June 30, 1995. The provision for loan losses for the three months ended June 30, 1996 was $90,000, an increase of $15,000 or 20.0% from the provision for the three months ended June 30, 1995. The increase in the provision for loan losses is the result of managements analysis of the risk inherent in the loan portfolio. Non-interest expenses for the three months ended June 30, 1996 were $1.2 million, an increase of $101,000 or 9.2% as compared to the three months ended June 30, 1995. Expressed on a per share basis (after giving retroactive effect to the payment of a 5% stock dividend in 1995), net income for the first six months of 1996 was $0.52 per share compared to $0.30 per share for the first six months of 1995, an increase of 73.3%. Net income for the three months ended June 30, 1996 was $0.26 per share compared to $0.17 per share for the three months ended June 30, 1995, an increase of 52.9%. Book value per share as of June 30, 1996 was $11.06 an increase of 10.0% from book value per share of $10.05 at June 30, 1995. The Corporations' assets totalled $117.0 million at June 30, 1996, an increase of $3.9 million or 3.5% over total assets of $112.8 million at December 31, 1995. The increase was due primarily to growth in deposits which increased $3.7 million or 3.7% from December 31, 1995 primarily from increased market share in the Corporations' primary service area. Total loans were $67.1 million at June 30, 1996 compared to $63.1 million at December 31, 1995, an increase of $4.0 million or 6.3%. Cash and cash equivalents, including federal funds sold, increased $7.6 million or 108.4% to $14.6 million at June 30, 1996 from $7.0 million at December 30, 1995. This increase reflects management's decision to temporarily invest the deposit increase and proceeds from the sale and maturity of securities in short term federal funds. The Corporation sold $5.0 million of securities in anticipation of a temporary outflow of deposits. The investment portfolio was $31.5 million at June 30, 1996, a decrease of $7.6 million or 19.4% from $39.1 million at December 31, 1995. The unrealized loss on securities available for sale at June 30, 1996, net of taxes, was $132,000. The change from a gain of $42,000 at December 31, 1995 is due primarily to the short term maturities of the available for sale portfolio and the current nature of the interest rate environment. Maturities have primarily been used to fund loans and short term investments. 9 NET INTEREST INCOME The principal source of revenue for the Corporation is net interest income. Net interest income is the difference between interest income earned on loans and other interest-earning assets and interest expense paid on deposits. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. Net interest income was $2.7 million for the six months ended June 30, 1996. This represents a 15.3% increase when compared to net interest income of $2.4 million for the same period in 1995. Net interest income for the three months ended June 30, 1996 was $1.4 million. This represents a 13.5% increase when compared to net interest income of $1.2 million for the same period in 1995. Average interest-earning assets for the first six months of 1996 were $104.5 million, an increase of $14.4 million or 16.0% as compared to the first six months of 1995. The most significant increase in average earning assets occurred in the loan and investment portfolios. The loan portfolio average balance for the first six months of 1996 was $63.8 million, an increase of $7.7 million or 13.6% as compared to the first six months of 1995. The investment portfolio average balance for the first six months of 1996 was $36.7 million, an increase of $6.8 million or 22.9% over the average balance for the first six months of 1995. These increases were funded primarily from an increase in deposits. Average interest-earning assets for the three months ended June 30, 1996 were $105.4 million, an increase of $13.8 million or 15.1% as compared to the three months ended June 30, 1995. The most significant increase in average earning assets occurred in the loan and investment portfolios. The loan portfolio average balance for the three months ended June 30, 1996 was $64.8 million, an increase of $7.2 million or 12.5% as compared to the three months ended June 30, 1995. The investment portfolio average balance for the three months ended June 30, 1996 was $35.6 million, an increase of $5.8 million or 19.3% as compared to the three months ended June 30, 1995. These increases were also funded primarily from an increase in deposits. The positive impact on net interest income from increased interest-earning assets for the first six months of 1996 as compared to the first six months of 1995 was partially offset by an increase in interest-bearing deposits. Average interest-bearing deposits for the first six months of 1996 were $79.0 million, an increase of $10.9 million or 16.0% as compared to the first six months of 1995. The most significant increase in interest-bearing deposits occurred in interest-bearing demand deposits and certificates of deposit. The interest-bearing demand deposit average balance for the first six months of 1996 was $37.9 million, an increase of $5.8 million or 18.1% over the first six months of 1995. The certificate of deposit average balance for the first six months of 1996 was $22.0 million, an increase of $3.7 million or 20.3% as compared to the first six months of 1995. The positive impact on net interest income from increased interest-earning assets for the three months ended June 30, 1996 as compared to the three months ended June 30, 1995 was also partially offset by an increase in interest-bearing deposits. Average interest-bearing deposits for the three months ended June 30, 1996 were $79.1 million, an increase of $10.8 million or 15.8% as compared to the three months ended June 30, 1995. The most significant increase in interest-bearing deposits occurred in interest-bearing demand deposits and certificates of deposit. The interest-bearing demand deposit average balance for the three months ended June 30, 1996 was $38.2 million, an increase of $6.5 million or 20.5% as compared to the three months ended June 30, 1995. The certificate of deposit average balance for the three months ended June 30, 1996 was $21.5 million, an increase of $2.8 million or 14.9% as compared to the three months ended June 30, 1995. 10 Net interest margin is calculated as the tax-equivalent net interest income divided by the average earning assets and represents the Corporations' net yield on its earning assets. The net interest margin increased from 5.20% to 5.34% for the six months ended June 30, 1995 and 1996, respectively. This increase is primarily resultant from the interest yield of interest-earning assets which increased 18 basis points from 7.82% to 8.00% for the six months ended June 30, 1995 and 1996, respectively. The most significant increase in yield occurred in the investment and loan portfolios. The yield from the investment portfolio increased 58 basis points from 5.51% to 6.09%. The yield from the loan portfolio increased 8 basis points from 9.18% to 9.26% for the six months ended June 30, 1995 and 1996, respectively. These increases in interest yields were partially offset by a decrease in the yield from federal funds sold which declined 71 basis points from 6.03% to 5.32% for the six months ended June 30, 1995 and 1996, respectively. The increased yield from interest-earning assets was also partially offset by the cost of average interest-bearing deposits which increased 4 basis points to 3.51% for the first six months of 1996 as compared to 3.47% for the first six months of 1995. In addition, average interest-earning assets for the first six months of 1996 increased $14.4 million or 16.0% from $90.1 million for the first six months of 1995. The most significant increase in interest rates was in the rate paid for time deposit balances which increased 24 basis points from 3.88% to 4.12% for the six months ended June 30, 1995 and 1996, respectively. This increase was offset partially by a decrease in the rate paid for interest-bearing demand deposits. This rate decreased 17 basis points from 3.02% for the first six months of 1995 to 2.85% for the first six months of 1996. The net interest margin for the three months ended June 30, 1996 was 5.41%, a decrease of 9 basis points from 5.50% for the three months ended June 30, 1995. This decrease is primarily resultant from a decline in the interest yield from interest-earning assets of 18 basis points from 8.15% to 7.97% for the three months ended June 30, 1995 and 1996, respectively. The most significant decline in interest yield was in the loan portfolio which declined 50 basis points from 9.69% to 9.19% for the three months ended June 30, 1995 and 1996, respectively. The interest yield from federal funds sold also declined 76 basis points from 6.06% to 5.30% for the three months ended June 30, 1995 and 1996, respectively. In addition, average interest-earning assets for the three months ended June 30, 1996 increased $13.8 million or 15.1% from $91.6 for the three months ended June 30, 1995. Partially offsetting the decrease in yield from the loan portfolio and federal funds sold was the investment portfolio for which the yield increased 65 basis points from 5.48% to 6.13% for the three months ended June 30, 1995 and 1996, respectively. The decreased yield from interest-earning assets was also partially offset by a decrease in the rate paid for interest-bearing deposits which decreased 14 basis points from 3.56% for the three months ended June 30, 1995 to 3.42% for the three months ended June 30 1996. This decrease was primarily resultant from the rate paid for interest-bearing demand deposits which declined 27 basis points from 3.04% for the three months ended June 30, 1995 to 2.77% for the three months ended June 30, 1996. 11 The table below illustrates the changes in interest rate margin and interest rate spread based on average amounts outstanding for the six and three months ended June 30, 1996 and 1995.
SIX MONTHS ENDED THREE MONTHS ENDED ---------------- ------------------ JUNE 30, JUNE 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- ASSETS Securities 6.09% 5.51% 6.13% 5.48% Fed Funds 5.32% 6.03% 5.30% 6.06% Loans 9.26% 9.18% 9.19% 9.69% ----- ----- ----- ----- Total Earning Assets 8.00% 7.82% 7.97% 8.15% ===== ===== ===== ===== LIABILITIES Demand Deposits 2.85% 3.02% 2.77% 3.04% Savings Deposits 2.51% 2.63% 2.42% 2.67% Time Deposits 5.26% 4.75% 5.23% 4.98% Repurchase Agreements 4.41% 4.93% 4.31% 5.07% ----- ----- ----- ----- Total Int Bearing Liabilities 3.51% 3.47% 3.42% 3.56% ===== ===== ===== ===== Net Interest Rate Spread 4.49% 4.35% 4.55% 4.59% Net Interest Rate Margin 5.34% 5.20% 5.41% 5.50%
Net interest income is also affected by the mix of interest-earning assets and interest-bearing and non-interest bearing liabilities. Average loans, which are the highest yielding earning assets, for the six months ending June 30, 1996 were 55.9% of average assets as compared to 57.3% of average assets for the six months ending June 30, 1995. The average balance for certificates of deposit and repurchase agreements, which are the highest yielding liabilities, for the six months ending June 30, 1996 were 21.8% of average assets as compared to 21.3% for the six months ending June 30, 1995. Average non-interest bearing deposits for the six months ending June 30, 1996 were 21.3% of average assets as compared to 21.0% for the six months ended June 30, 1995. The average balance for non-interest bearing deposits was $24.4 million for the six months ended June 30, 1996 as compared to $20.6 million for the six months ended June 30, 1995, an increase of $3.8 million or 18.5%. Average loans for the three months ended June 30, 1996 were 56.3% of average assets as compared to 58.1% of average assets for the three months ended June 30, 1995. The average balance for certificates of deposit and repurchase agreements for the three months ended June 30, 1996 was 20.9% of average assets as compared to 21.3% for the three months ended June 30, 1995. Average non-interest demand deposit balances for the three months ended June 30, 1996 were 21.7% of average assets as compared to 20.5% for the three months ended June 30, 1995. The average balance for non-interest demand deposits was $25.0 million for the three months ended June 30, 1996 as compared to $18.9 million for the three months ended June 30, 1995, an increase of $6.1 million or 32.5%. NON-INTEREST INCOME Non-interest income was $437,000, an increase of 46.9% or $140,000 for the first six months of 1996 compared to $297,000 for the first six months of 1995. A primary component of non-interest income is fee income generated by the Corporations' Residential Mortgage Department. This fee income was $112,000 for the first six months of 1996, compared to $13,000 for the first six months of 1995. Service charges on depositor accounts, a component of non-interest income, was $239,000 for the first six months of 1996 a decrease of 2.9% from $246,000 from the first six months of 1995. Non-interest income was $252,000, an increase of 58.1% or $92,000 for the three months ended June 30, 1996 compared to $159,000 for the three months ended June 30, 1995. Fee income from the Residential Mortgage Department was $60,000 for the three months ended June 30, 1996 as compared to $6,000 an increase of $54,000. Service charges on depositor accounts was $123,000 for the three months ended June 30, 1996 a decrease of $5,000 or 3.7% from $128,000 for the three months ended June 30, 1995. 12 In February 1996, the Corporation announced that monthly charges for demand deposit accounts would be discontinued. Management expects the discontinuance of monthly charges to reduce non-interest income. Management also believes the "free-checking accounts" will enable greater access to new and existing markets. Management also believes that non-interest bearing deposits will increase which will help maintain a relatively lower average cost of funds. NON-INTEREST EXPENSES Non-interest expense increased $212,000 or 10.1% in the first six months of 1996 compared to the first six months of 1995. Non-interest expense increased $101,000 or 9.2% for the three months ended June 30, 1996 as compared to the three months ended June 30, 1995. Expenditures related to salaries and occupancy and equipment are the primary components of non-interest expense and represent the largest portion of the increase. Salaries and benefits increased 12.6% or $131,000 in the first six months of 1996 compared to the first six months of 1995. Salaries and benefits increased 9.0% or $49,000 for the three months ended June 30, 1996 as compared to the three months ended June 30, 1995. These increases were due primarily to staff additions for the residential mortgage department as well as merit increases in salaries. Occupancy and equipment expenses increased $35,000 or 10.2% in the first six months of 1996 compared to the first six months of 1995. This increase was primarily due to repair and maintenance expenses, the most significant of which was snow removal expense. There was minimal expense for FDIC insurance for the six months and three months ended June 30, 1996 as compared to $89,000 for the six months ended June 30, 1995 and $44,000 for the three months ended June 30, 1995. This decrease was the result of recently enacted federal legislation which lowered the premium for the Corporation. Data Processing expense increased $22,000 or 14.1% for the six months ended June 30,1996 as compared to the six months ended June 30, 1995. This increase is primarily the result of increased transaction processing costs associated with growth of the depositor base. A primary component in the $112,000 or 23.0% increase in other operating expenses for the first six months of 1996 as compared to the first six months of 1995 is a loss of $17,000 on the sale of other real estate owned (OREO) properties. These were residential properties taken in foreclosure and sold. Legal fees, primarily related to Securities and Exchange Commission filings and debt collection, increased $28,000 for the first six months of 1996 as compared to the first six months of 1995. In addition, audit expenses increased $14,000 with implementation of an internal audit function. Expenses for supplies increased $11,000 for the six months ending June 30, 1996 as compared to the six months ending June 30, 1995. INCOME TAXES Income taxes increased $90,000 or 74.8% to $210,000 from $120,000 in the first six months of 1996 and 1995, respectively. The increase resulted primarily from the higher level of pre-tax income. The effective tax rates for the first six months of 1996 and 1995 were 30.0% and 29.4% respectively. 13 PROVISIONS FOR POSSIBLE LOAN LOSSES The Corporation determines the provision for possible loan losses through a quarterly analysis of the adequacy of the loan loss reserve. Factors such as economic conditions and trends, the volume of non-performing loans, concentrations of credit risk, adverse situations that may affect a borrower's ability to pay, and prior loss experience within the various categories of the portfolio are considered when reviewing the risks in the portfolio. While management believes the allowance for loan losses is currently adequate, further additions to the allowance will be predicated upon general economic conditions and/or the condition of specific borrowers and overall growth of the loan portfolio. Provisions for possible loan losses were $145,000 for the first six months of 1996 as compared to a provision of $150,000 for the first six months of 1995. The lower provision for the first six months of 1996 was due to overall improvement in credit quality. The allowance for possible loan losses was $719,000 at June 30, 1996 and $651,000 at June 30, 1995. The Bank had net charge-offs of $21,000 and $103,000 for the six months ended June 30, 1996 and 1995, respectively. The following is a summary of the activity in the allowances for loan losses for the six months ended June 30, 1996 and 1995.
1996 1995 ---- ---- Balance at the beginning of period $595,593 $604,054 Provision for loan losses 145,000 150,000 Recoveries 16,919 12,384 Losses charged against the allowance (38,042) (115,458) -------- -------- Balance at June 30, 1996 $719,470 $650,980 ======== ========
The slight reduction in the provision for loan losses in the first six month period of 1996 along with an increase in total loans reflects the improvement in total loan quality at June 30, 1996. Management has, through its most recent analysis of the adequacy of the allowance for loan losses completed as of June 30, 1996, determined the allowance to be adequate. Future additions to the allowance for possible loan losses through provisions charged to operations will be determined as a result of managements' continuing analysis of the adequacy for the allowance of possible loan losses. The following is a summary of the Company's non-performing assets as of June 30, 1996 and December 31, 1995.
JUNE 30 DEC 31 (DOLLARS IN THOUSANDS) 1996 1995 ---------------------- ---- ---- Past due 90 days or more and still accruing $27 $10 Non-Accrual loans 292 320 --- --- Total non-performing loans 319 330 Other Real Estate Owned 440 638 --- --- Total Non-Performing Assets $759 $968 ==== ==== Non-performing loans as a percentage of loans 0.48% 0.52% Non-performing loans as a percentage of loans and OREO 0.47% 1.52% Non-performing assets as a percentage of assets 0.65% 0.86%
14 One OREO property in the amount of $440,000 accounts primarily for the non-performing assets. This loan was previously classified by the Bank and included in management's analysis of the adequacy of the loan loss reserve. The OREO at June 30, 1996 is one commercial property valued at $440,000 taken in foreclosure The ratio of non-performing loans as a percentage of loans and OREO decreased from 0.86% to 0.65% from December 31, 1995 to June 30, 1996. This decrease was primarily due to the sale of OREO and decrease of total non-performing loans. The amount of loans past due more than ninety days and still accruing has decreased, the decrease is the result of several unrelated loans. These loans were previously classified by Management and considered in the reserve for loan loss analysis. When loans are placed on non-accrual, accrued income form the current period is reversed from current earnings. Consumer loans are charged off when principal or interest is 120 or more days delinquent, or are placed on non-accrual if the collateral is sufficient to recover the principal. All non-accrual loans are, in the opinion of management, either adequately collateralized, in process of collection, or adequately provided for in the Corporations' allowance for possible loan losses. The Corporation's commercial loan portfolio is largely loans secured by owner occupied commercial real estate with an average loan to value ratio under 75%. There is no significant concentration in the portfolio with any business or industrial segment. The Corporation's consumer loan portfolio consists of home equity, automobile, credit cards and personal loans. Approximately 50% of the consumer portfolio consists of home equity loans. The average loan to value ratio of these loans is under 75%. The Corporations' lending activity extends to individuals and small and medium sized businesses within its primary service area, which is predominantly Camden, Gloucester and Burlington counties, New Jersey. The Corporation does not attempt to make significant loans outside its primary service area. The primary service area is a diverse economic and employment market with no significant dependence on any one industry or large employer. LIQUIDITY Liquidity represents the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, federal funds sold, securities classified as available for sale, and loans maturing within one year. As a result of the Corporations' management of liquid assets, and the ability to generate liquidity through liability funds, management believes that the Corporation maintains overall liquidity sufficient to satisfy its deposit requirements and meet its customers' credit needs. At June 30, 1996, cash, securities classified as available for sale, and federal funds sold were 28.0% of total assets compared to 26.9% of total assets at December 31, 1995. Asset liquidity is also provided by managing loan and securities investment maturities. At June 30, 1996, approximately $21.8 million or 32.4% of loans would mature or reprice within a one year period. To the extent possible, loans are funded with deposits or other funding with coinciding maturity or repricing dates. 15 CAPITAL RESOURCES The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions, economic forces and growth and expansion activities. The Corporation seeks to maintain a capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. On June 16, 1994 the Corporation completed a sale of 450,000 shares of common stock which improved capitalization of the Bank by approximately $4.1 million. The Corporations' capital position continues to exceed regulatory minimums. The primary indicators relied on by the Federal Reserve Board and other bank regulators in measuring strength of capital position are the Tier 1 Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratio. Tier 1 Capital consists of common and qualifying preferred stockholders equity less goodwill. Total Capital consists of Tier 1 Capital, and a portion of the allowance for possible loan losses. Risk-based capital ratios are calculated with reference to risk weighted assets which consists of both on and off balance sheet risks (such as letters of credit and unused lines of credit). The Corporations' Tier 1 Risk Based Capital Ratio was 15.1% at June 30, 1996 compared to 15.8% at December 31, 1995. The Corporations' Total Risk Based Capital Ratio was 16.2% at June 30, 1996 compared to 16.8% at December 31, 1995. These ratios are in excess of the mandated minimum requirements of 4.0% and 8.0% respectively. The Leverage Ratio consists of Tier 1 capital divided by quarterly average assets. At March 31, 1996, the Corporations' Leverage Ratio was 9.0% which exceeded the required minimum leverage ratio of 4.0%. 16 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Election of Directors. Set forth below is information concerning each matter submitted to a vote at the Corporation's Annual Meeting of Shareholders on May 14,1996 (the "Annual Meeting"): Each of the following persons was elected as a director of the Corporation to serve until the Annual Meeting in the year indicated:
TERM TO NUMBER OF VOTES ------- --------------- NAME EXPIRE FOR AGAINST ---- ------ --- ------- Michael G. Brennan 1999 745,096 0 Joseph A. Riggs 1999 744,457 0 Doris M. Damm 1999 741,718 0
In addition, the following directors continued as directors with terms expiring in the years indicated:
NAME TERM TO EXPIRE ---- -------------- Gerard M. Banmiller 1997 Elizabeth Burns 1998 Letitia Colombi 1998 Gerald DeFelicis 1998 Robert T. Pluese 1997 Frank Smith 1997
(b) Auditors. Shareholders also ratified the appointment of KPMG Peat Marwick as auditors.
FOR AGAINST ABSTENTIONS NON-VOTES --- ------- ----------- --------- KPMG Peat Marwick as Independent Auditors: 741,340 11,133 854 175,542
ITEM 5 OTHER INFORMATION The Corporation purchased three existing branch locations from Pittsburgh National Bank for a total of $940,000 and anticipates rennovations to total $500,000. These costs will be depreciated over the expected useful lives of the buildings. In addition, the Corporation has assumed a lease for a fourth branch location from Meridian Bank. The cost of the lease averages $54,000 annually over the next five years. The Corporation has the option to extend the lease for four additional five year periods. The lease amount at the renewal dates increases approximately 10%. The cost of improvements is anticipated to be $75,000 which will be expensed over the lease period. The Corporation plans to open the leased branch in September 1996. The other locations are anticipated to be opened at the pace of one in each of the first three quarters of 1997. These branches are located in the Corporations primary service areas or in areas congruent to the primary service areas. The Corporations anticipates the branches will be profitable within eighteen to twenty-four months after opening. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMUNITY FINANCIAL HOLDING CORPORATION Date: August 12, 1996 By: /s/ Gerard M. Banmiller -------------------------------------- Gerard M. Banmiller President & Chief Executive Officer Date: August 12, 1996 By: /s/ Kevin L. Kutcher -------------------------------------- Kevin L. Kutcher Executive Vice President/Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 7,237,315 0 7,402,094 0 18,042,206 13,444,721 13,706,783 67,137,653 719,470 116,738,760 103,219,044 2,452,124 791,996 0 4,695,345 0 0 5,580,251 116,738,760 2,938,633 1,057,993 107,117 4,103,743 1,378,747 1,378,747 2,727,996 145,000 (5,127) 2,313,105 698,667 698,667 0 0 488,903 0.52 0.52 8.00 292,000 27,000 0 0 595,593 38,042 16,919 719,470 719,470 0 0
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