-----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, Mc0a4uzHyu4WX8B4qZNvVQOQQlZZ25hp760wtGAi/B7G9MsZZ8vsKVIbB/cMPQjx gQ9Ka5jqzN7UcFRAM00ykg== 0000893220-97-001366.txt : 19970813 0000893220-97-001366.hdr.sgml : 19970813 ACCESSION NUMBER: 0000893220-97-001366 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 97657308 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, 1997. 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 52-1712224 (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, 1997 Common Stock, $5.00 par value 978,774
2 INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 Consolidated Income Statements - Three Months ended June 30, 1997 and 1996; Six months ended June 30, 1997 and 1996. Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements - June 30, 1997 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders Signatures 3 COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30 DECEMBER 31 ------ ------- ----------- 1997 1996 ---- ---- Cash and Due from Banks $ 7,877,189 $ 8,282,683 Federal Funds Sold 0 8,050,000 Securities Available for Sale 15,028,531 14,590,571 Investment Securities (Market Value of $20,822,442 June 30,1997 and $18,213,864 at December 31, 1996) 21,106,563 18,137,427 Loans Held for Sale 1,502,536 1,304,840 Loans 78,093,494 72,387,490 Less: Allowance for Loan Losses (808,523) (738,353) ------------- ------------- Net Loans 77,284,971 71,649,137 Bank Premises and Equipment, Net 4,413,157 3,120,643 Accrued Interest Receivable 1,025,288 902,084 Deferred Tax Assets 91,908 88,320 Other Assets 679,141 401,614 ------------- ------------- Total Assets $ 129,009,284 $ 126,527,319 ============= ============= LIABILITIES Demand Deposits $ 73,125,731 $ 70,910,844 Savings Deposits 17,824,572 17,266,946 Time Deposits 23,107,280 23,270,538 ------------- ------------- Total Deposits 114,057,583 111,448,328 Accrued Interest Payable 599,681 584,769 Securities Sold Under Repurchase Agreements 2,826,739 3,280,586 Other Liabilities 270,851 267,881 ------------- ------------- Total Liabilities 117,754,854 115,581,564 ------------- ------------- SHAREHOLDERS' EQUITY Common Stock $5 Par Value Authorized 3,200,000 Shares Issued 988,974 Shares 1997 and 1996 4,944,870 4,944,870 Additional Paid In Capital 4,899,873 4,899,873 Retained Earnings 1,576,892 1,228,457 Less Treasury Stock, at Cost, 10,200 Shares (118,844) (118,844) Unrealized Loss on Securities Available for Sale (48,361) (8,601) ------------- ------------- Total Shareholders' Equity 11,254,430 10,945,755 ------------- ------------- Total Liabilities & Shareholders' Equity $ 129,009,284 $ 126,527,319 ============= =============
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 ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Interest Income: Interest and Fees on Loans $3,291,407 $2,938,633 $1,680,115 $1,480,303 Interest on Federal Funds Sold 70,891 107,117 37,195 66,710 Interest and Dividends on Investments 1,077,249 1,057,993 545,351 516,355 ---------- ---------- ---------- ---------- Total Interest Income 4,439,547 4,103,743 2,262,661 2,063,368 ---------- ---------- ---------- ---------- Interest Expense: Interest on Demand Deposits 554,485 538,159 277,064 263,618 Interest on Savings Deposits 215,809 201,768 113,011 100,829 Interest on Time Deposits 602,693 575,690 304,025 279,404 Interest on Short Term Borrowings 26,956 63,130 16,331 28,017 ---------- ---------- ---------- ---------- Total Interest Expense 1,399,943 1,378,747 710,431 671,868 ---------- ---------- ---------- ---------- Net Interest Income 3,039,604 2,724,996 1,552,230 1,391,500 Provision for Loan Losses 165,000 145,000 90,000 90,000 ---------- ---------- ---------- ---------- Net Int Income After Provision for Loan Losses 2,874,604 2,579,996 1,462,230 1,301,500 ---------- ---------- ---------- ---------- Other Income: Service Charges on Deposit Accounts 279,052 239,017 142,452 123,127 Other Income, Service Charges and Fees 248,167 197,886 170,734 128,642 ---------- ---------- ---------- ---------- Total Other Income 527,219 436,903 313,186 251,769 ---------- ---------- ---------- ---------- Other Expenses: Salaries, Wages and Employee Benefits 1,505,013 1,169,278 777,889 592,537 Occupancy and Equipment Expenses 505,582 375,388 262,345 183,980 Advertising Expense 90,000 72,000 45,000 36,000 Data Processing Expense 212,577 174,942 104,337 86,095 Other Operating Expenses 624,453 526,624 328,856 294,966 ---------- ---------- ---------- ---------- Total Other Expenses 2,937,625 2,318,232 1,518,427 1,193,578 ---------- ---------- ---------- ---------- Income Before Income Taxes 464,198 698,667 256,989 359,691 Income Tax Expense 115,763 209,764 49,250 112,764 ---------- ---------- ---------- ---------- Net Income 348,435 488,903 207,739 246,927 ========== ========== ========== ==========
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,
1997 1996 ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 348,435 $ 488,903 Adjustments To Reconcile Net Income to Net Cash By Operating Activities: Depreciation and Amortization 167,495 116,721 Provision For Loan Losses 165,000 145,000 Accretion (Amortization) of Discount (Premium) on Securities, Net 4,323 (28,729) Loss On Sale of Securities Available For Sale 0 5,127 Loss On Sale of Other Real Estate 0 17,488 Decrease (Increase) In Accrued Interest Receivable (123,204) 144,415 Increase In Deferred Tax Assets (3,588) (89,936) Decrease (Increase) In Other Assets (277,527) 14,795 Increase In Accrued Interest Payable 14,912 81,731 Increase In Other Liabilities 2,970 108,594 ------------ ------------ Total Adjustments (49,619) 515,206 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 298,816 1,004,109 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds From Maturity and Sales Of Securities Available For Sale (AFS) 3,000,000 12,511,687 Proceeds From Maturities and Prepayments Of Investment Securities 957,870 3,912,462 Purchases Of Securities AFS (3,500,000) (7,656,733) Purchases Of Investment Securities (3,909,049) (1,344,863) Loans Made To Customers, Net (5,998,530) (4,020,891) Premises And Equipment Expenditures (1,460,009) (179,117) ------------ ------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (10,909,718) 3,222,545 CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Deposits 2,609,255 3,714,555 Net Decrease In Short (453,847) (325,553) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 2,155,408 3,389,002 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,455,494) 7,615,656 CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 16,332,683 7,023,753 ------------ ------------ CASH AND CASH EQUIVALENTS AS OF JUNE 30 $ 7,877,189 $ 14,639,409 ============ ============ SUPPLEMENTAL DISCLOSURE: Cash Paid During The Year: Interest $ 1,385,031 $ 1,235,123 Income Taxes 204,063 208,260 Non-Cash Items: Net Change In Unrealized Loss From Securities AFS (64,673) 200,076 Tax Effect Of Unrealized Loss From Securities AFS (24,913) 132,050 Acquisition of Real Estate in Settlement of Loans 0 0
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, 1997 and 1996 and the results of their operations for the three and six months ended June 30, 1997 and 1996. 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, 1996, which contains audited consolidated financial statements of the Corporation. The results of operations for the three and six months ended June 30, 1997 and 1996 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, 1997 and 1996 weighted average number of common shares gives retroactive recognition to a 5% stock dividend declared on November 7, 1996 payable to shareholders of record on December 1, 1996. The weighted average numbers of shares used in the computation for the three and six months ended June 30, 1997 was 1,049,854 and 1,054,841, respectively. The weighted average number of shares used in the computation for the three and six months ended June 30, 1996 was 966,490 and 972,117, respectively. On March 3, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per Share" ("EPS"). This statement, which supersedes APB Opinion No. 15, simplifies the standards for computing EPS and makes them comparable to international standards. SFAS No. 128 replaces the current "primary" and "fully diluted" earnings per share with "basic" and "diluted" earnings per share. Basic EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the company. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued for the periods ending December 31, 1997. Early application is not permitted and prior period restatement is required. Management does not believe application of this standard will have a material impact on the Corporations reported EPS. 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 7 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 $48,000 at June 30, 1997 as compared to a loss of $9,000 at December 31, 1996. This increase is primarily due to the current interest rate environment and the short term nature of portfolio maturities. NOTE 4. LOANS HELD FOR SALE The Bank originates residential real estate loans and sells primarily fixed rate loans to various investors such as mortgage companies and agencies. The Bank has purchase commitments at par value for all loans held for sale. The interest income earned from the loan closing date to the date of the sale is recorded as Interest And Fees On Loans. NOTE 5. 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. 8 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net income for the first six months of 1997 of $348,000, a decrease of $140,000 or 28.7% when compared to the first six months of 1996. The decrease in earnings was due primarily to an increase in operating expenses associated with four branch locations which were acquired in 1996. The Corporation opened branches in September 1996, February 1997 and another in May 1997. The Corporation plans to open its eighth branch location in October 1997. The increase in operating expenses was partially offset by increases in net interest income and fees and service charges. The Corporation also reported net income of $208,000 for the three months ended June 30, 1997, a decrease of $39,000 or 15.9% when compared to the three months ended June 30, 1996. The decrease in earnings was due primarily to an increase in operating expenses due primarily to additional branch locations. The increase in operating expenses was partially offset by increases in net interest income and fees and service charges. Net interest income for the six months ended June 30, 1997 was $3.0 million, an increase of $315,000 or 11.5% over the first six months of 1996. The provision for loan losses increased $20,000 or 13.8% from $145,000 for the first six months of 1996 to $165,000 for the first six months of 1997. Non-interest income for the first six months of 1997 was $527,000, an increase of $90,000 or 20.7% over the first six months of 1996. Non-interest expense was $2.9 million for the first six months of 1997, an increase of $619,000 or 26.7% over the first six months of 1996. Net interest income for the three months ended June 30, 1997 was $1.6 million, an increase of $161,000 or 11.5% over the three months ended June 30, 1996. Non-interest income for the three months ended June 30, 1997 was $313,000, an increase of $61,000 or 24.4% over the three months ended June 30, 1996. Non-interest expenses for the three months ended June 30, 1997 were $1.5 million, an increase of $325,000 or 27.2% as compared to the three months ended June 30, 1996. Expressed on a per share basis (after giving retroactive effect to the payment of a 5% stock dividend in 1996), net income for the first six months of 1997 was $0.33 per share compared to $0.50 per share for the first six months of 1996, a decrease of 34.0%. Net income for the three months ended June 30, 1997 was $0.20 per share compared to $0.25 per share for the three months ended June 30, 1996, a decrease of 20.0%. Book value per share as of June 30, 1997 was $10.67 an increase of 0.9% from book value per share of $10.57 at June 30, 1996. The Corporations' assets totalled $129.0 million at June 30, 1997, an increase of $2.5 million or 2.0% over total assets of $126.5 million at December 31, 1996. The increase was due primarily to growth in deposits which increased $2.6 million or 2.3% from December 31, 1996 primarily from increased market share in the Corporations' primary service area. The increase in deposits occurred primarily in demand deposits which increased $2.2 million or 3.1% from $70.9 million at December 31, 1996 to $73.1 million at June 30, 1997. Total loans were $78.1 million at June 30, 1997 compared to $72.4 million at December 31, 1996, an increase of $5.7 million or 7.9%. Cash and cash equivalents, including federal funds sold, decreased $8.5 million or 51.8% to $7.9 million at June 30, 1997 from $16.3 million at December 31, 1996. The investment portfolio was $36.1 million at June 30, 1997, an increase of $3.4 million or 10.4% from $32.7 million at December 31, 1996. The unrealized loss on securities available for sale at June 30, 1997, net of taxes, was $48,000 an increase of $40,000 from the loss of $9,000 at December 31, 1996. The increase in the amount of loss on securities available for sale is due primarily to the 9 short term maturities of the available for sale portfolio and the current nature of the interest rate environment. Loans held for sale were $1.5 million at June 30, 1997, an increase of $198,000 or 15.1% as compared to $1.3 million at December 31, 1996. Loans held for sale are residential mortgage loans originated by the Corporations' subsidiary bank for which commitments for sale at par have been obtained. Bank premises and equipment at June 30, 1997 were $4.4 million, an increase of $1.3 million or 41.4% from $3.1 million at December 31, 1996. The increase in bank premises and equipment is primarily related to improvements and renovations at the branches that were purchased in 1996. Other assets increased $278,000 or 69.1% from $402,000 at December 31, 1996 to $679,000 at June 30, 1997. The increase in other assets occurred primarily as a result of the Banks' purchase of mortgage servicing rights on March 1, 1997. Mortgage servicing rights increased $264,000 from $61,000 at December 31, 1996 to $320,000 at June 30, 1997. 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 $3.0 million for the six months ended June 30, 1997. This represents a 11.5% increase when compared to net interest income of $2.7 million for the same period in 1996. Net interest income for the three months ended June 30, 1997 was $1.6 million. This represents an 11.6% increase when compared to net interest income of $1.4 million for the same period in 1996. Average interest-earning assets for the first six months of 1997 were $113.3 million, an increase of $8.8 million or 8.4% as compared to the first six months of 1996. The most significant increase in average earning assets occurred in the loan portfolio. The loan portfolio average balance for the first six months of 1997 was $75.0 million, an increase of $11.2 million or 17.5% as compared to the first six months of 1996. This increase was funded primarily from an increase in deposits. Average interest-earning assets for the three months ended June 30, 1997 were $114.9 million, an increase of $9.5 million or 9.0% as compared to the three months ended June 30, 1996. The most significant increase in average earning assets also occurred in the loan portfolio. The loan portfolio average balance for the three months ended June 30, 1997 was $76.3 million, an increase of $17.9 million or 17.9% as compared to the three months ended June 30, 1996. This increase was 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 1997 as compared to the first six months of 1996 was partially offset by an increase in interest-bearing liabilities. Average interest-bearing liabilities for the first six months of 1997 were $81.9 million, an increase of $2.9 million or 3.7% as compared to the first six months of 1996. The most significant increase in interest-bearing liabilities occurred in interest-bearing demand deposits and savings deposits. The interest-bearing demand deposit average balance for the first six months of 1997 was $39.1 million, an increase of $1.2 million or 3.2% over the first six months of 1996. The savings deposit average balance for the first six months of 1997 was $18.1 million, an increase of $2.0 million or 12.1% as compared to the first six months of 1996. The positive impact on net interest income from increased interest-earning assets for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996 was also partially offset by an increase in interest-bearing liabilities. Average interest-bearing liabilities for the three months ended 10 June 30, 1997 were $82.5 million, an increase of $3.4 million or 4.3% as compared to the three months ended June 30, 1996. The most significant increase in interest-bearing liabilities occurred in savings deposits and certificates of deposit. The savings deposit average balance for the three months ended June 30, 1997 was $18.7 million, an increase of $1.9 million or 11.5% as compared to the three months ended June 30, 1996. The certificates of deposit average balance for the three months ended June 30, 1997 was $23.7 million, an increase of $2.3 million or 10.6% as compared to the three months ended June 30, 1996. 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 5.34% to 5.56% for the six months ended June 30, 1996 and 1997, respectively. This increase is primarily resultant from the interest yield of interest-earning assets which increased 7 basis points from 8.00% to 8.07% for the six months ended June 30, 1996 and 1997, respectively. The most significant increase in yield occurred in the investment portfolio. The yield from the investment portfolio increased 46 basis points from 6.09% to 6.55%. In addition, the yield from federal funds sold increased 18 basis points from 5.32% for the first six months of 1996 to 5.50% for the first six months of 1997. These increases in interest yields were partially offset by a decrease in the yield from loans which declined 41 basis points from 9.26% to 8.85% for the six months ended June 30, 1996 and 1997, respectively. Average interest earning assets for the first six months of 1997 increased $8.8 million or 8.4% from $104.5 million for the first six months of 1996 also partially offsetting increases in interest yields. The increased net interest margin was also resultant from the cost of average interest bearing deposits which decreased 6 basis points to 3.45% for the first six months of 1997 as compared to 3.51% for the first six months of 1996. The most significant decrease in interest rates was in the rate paid for time deposit (savings and certificates of deposit) balances which decreased 16 basis points from 4.11% to 3.95% for the six months ended June 30, 1996 and 1997, respectively. The net interest margin for the three months ended June 30, 1997 was 5.59%, an increase of 18 basis points from 5.41% for the three months ended June 30, 1996. This increase is primarily resultant from an increase in the interest yield from interest earning assets of 12 basis points from 7.97% to 8.09% for the three months ended June 30, 1996 and 1997, respectively. The most significant increase in interest yield was in the securities portfolio which increased 52 basis points from 6.13% to 6.65% for the three months ended June 30, 1996 and 1997, respectively. The interest yield from federal funds sold also increased 24 basis points from 5.30% to 5.54% for the three months ended June 30, 1996 and 1997, respectively. Partially offsetting the increase in yield from the securities portfolio and federal funds sold was the loan portfolio for which the yield decreased 36 basis points from 9.19% to 8.83% for the three months ended June 30, 1996 and 1997, respectively. Average interest-earning assets for the three months ended June 30, 1997 increased $9.5 million or 9.0% from $105.4 for the three months ended June 30, 1996 also partially offsetting increases in interest yields. The net increased yield from interest earning assets was also partially offset by an increase in the rate paid for interest bearing deposits which increased 3 basis points from 3.42% for the three months ended June 30, 1996 to 3.45% for the three months ended June 30 1997. This increase was primarily resultant from the rate paid for interest bearing demand deposits which increased 9 basis points from 2.77% for the three months ended June 30, 1996 to 2.86% for the three months ended June 30, 1997. 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, 1997 and 1996.
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ---- ---- ---- ---- ASSETS Securities 6.55% 6.09% 6.65% 6.13% Fed Funds 5.50% 5.32% 5.54% 5.30% Loans 8.85% 9.26% 8.83% 9.19% ----- ----- ----- ----- Total Earning Assets 8.07% 8.00% 8.09% 7.97% ===== ===== ===== ===== LIABILITIES Demand Deposits 2.86% 2.85% 2.86% 2.77% Savings Deposits 2.40% 2.51% 2.43% 2.42% Time Deposits 5.15% 5.26% 5.13% 5.23% Short Term Borrowings 5.08% 4.41% 5.39% 4.31% ----- ----- ----- ----- Total Int Bearing Liabilities 3.45% 3.51% 3.45% 3.42% ===== ===== ===== ===== Net Interest Rate Spread 4.62% 4.49% 4.64% 4.55% Net Interest Rate Margin 5.56% 5.34% 5.59% 5.41%
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, 1997 were 60.1% of average assets as compared to 55.9% of average assets for the six months ending June 30, 1996. The average balance for certificates of deposit and repurchase agreements, which are the highest yielding liabilities, for the six months ending June 30, 1997 were 19.8% of average assets as compared to 21.8% for the six months ending June 30, 1996. Average non-interest bearing deposits for the six months ending June 30, 1997 were 24.9% of average assets as compared to 21.3% for the six months ended June 30, 1996. The average balance for non-interest bearing deposits was $31.0 million for the six months ended June 30, 1997 as compared to $24.4 million for the six months ended June 30, 1996, an increase of $6.6 million or 27.1%. Average loans for the three months ended June 30, 1997 were 60.2% of average assets as compared to 56.3% of average assets for the three months ended June 30, 1996. The average balance for certificates of deposit and repurchase agreements for the three months ended June 30, 1997 was 19.7% of average assets as compared to 20.9% for the three months ended June 30, 1996. Average non-interest demand deposit balances for the three months ended June 30, 1997 were 25.7% of average assets as compared to 21.7% for the three months ended June 30, 1996. The average balance for non-interest demand deposits was $32.5 million for the three months ended June 30, 1997 as compared to $25.0 million for the three months ended June 30, 1996, an increase of $7.5 million or 30.1%. NON-INTEREST INCOME Non-interest income was $527,000, an increase of 20.7% or $90,000 for the first six months of 1997 compared to $437,000 for the first six months of 1996. A significant component of non-interest income is fee income generated by the Corporations' Residential Mortgage Department. This fee income was $194,000 for the first six months of 1997, compared to $112,000 for the first six months of 1996. Service charges on depositor accounts, the primary component of non-interest income, was $279,000 for the first six months of 1997 an increase of 16.7% from $239,000 from the first six months of 1996. Non-interest income was $313,000, an increase of 24.4% or $61,000 for the three months ended June 30, 1997 compared to $252,000 for the three months ended June 30, 1996. Fee income from the Residential Mortgage Department was $131,000 for the three months ended June 30, 1997 as compared to $60,000 for the three months ended June 30, 1996. Service charges on depositor accounts was $142,000 for the three months ended June 30, 1997 an increase of $19,000 or 15.7% from $123,000 for the three months ended June 30, 1996. 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. The Corporation had 9,927 demand deposit accounts at June 30, 1997, an increase of 2,800 accounts or 39.3% from June 30, 1996. Management also believes that non-interest bearing deposits will increase which will help maintain a relatively lower average cost of funds. The Corporation had $34.9 million of non-interest bearing demand deposits at June 30, 1997, an increase of $4.5 million or 14.7% from $30.4 million at June 30, 1996. NON-INTEREST EXPENSES Non-interest expense increased $619,000 or 26.7% in the first six months of 1997 compared to the first six months of 1996. Non-interest expense increased $324,000 or 27.2% for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996. 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 28.7% or $336,000 in the first six months of 1997 compared to the first six months of 1996. Salaries and benefits increased 31.3% or $185,000 for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996. These increases were due primarily to staff additions for the residential mortgage department, the addition of three branch locations as well as merit increases in salaries. Occupancy and equipment expenses increased $130,000 or 34.7% in the first six months of 1997 compared to the first six months of 1996. Occupancy and equipment expenses increased $78,000 or 42.6% for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996. These increases were primarily due to the branch expansion. Data Processing expense increased $38,000 or 21.5% for the six months ended June 30,1997 as compared to the six months ended June 30, 1996. Data processing expense increased $18,000 or 21.2% for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996. These increases were primarily the result of increased transaction processing costs associated with growth of the depositor base. Advertising expenses increased $18,000 or 25.0% to $90,000 for the six months ending June 30, 1997 as compared to $72,000 for the six months ending June 30, 1996. Advertising expenses also increased $9,000 or 25.0% to $45,000 for the three months ending June 30, 1997 as compared to $36,000 for the three months ending June 30, 1996. These increases are due primarily to increased promotional activities associated with the branch expansion. A primary component in the $98,000 or 18.6% increase in other operating expenses for the first six months of 1997 as compared to the first six months of 1996 is loan processing expenses which for the first six months of 1997 increased $41,000 from the first six months of 1996 due to increased loan activity. Audit expenses also increased $18,000 with implementation of an internal audit function during 1996. Expenses for supplies increased $27,000 for the six months ending June 30, 1997 as compared to the six months ending June 30, 1996 primarily as a result of additional branch locations and growth of the Bank. INCOME TAXES Income taxes decreased $94,000 or 81.2% to $116,000 from $210,000 in the first six months of 1997 and 1996, respectively and decreased $64,000 from $113,000 for the three months ending June 30, 1996 to $49,000 for the three months ending June 30, 1997. The decrease resulted primarily from a lower level of pre-tax income along with a higher level of non-taxable income. Non-taxable 13 income, primarily from local municipal Bond Anticipation Notes, was $208,000 for the first six months of 1997, an increase of $99,000 from $108,000 for the first six months of 1996. The effective tax rates for the first six months of 1997 and 1996 were 24.9% and 30.0% respectively. 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 $165,000 for the first six months of 1997 as compared to a provision of $145,000 for the first six months of 1996. The higher provision for the first six months of 1997 was due to growth of the loan portfolio. The allowance for possible loan losses was $808,000 at June 30, 1997 and $738,000 at June 30, 1996. The Bank had net charge-offs of $95,000 and $21,000 for the six months ended June 30, 1997 and 1996, respectively. The following is a summary of the activity in the allowances for loan losses for the six months ended June 30, 1997 and 1996.
1997 1996 ---- ---- Balance at the beginning of period $ 738,353 $595,593 Provision for loan losses 165,000 145,000 Recoveries 40,758 16,919 Losses charged against the allowance (135,588) (38,042) --------- -------- Balance at June 30 $ 808,523 $719,470 ========= ========
Management has, through its most recent analysis of the adequacy of the allowance for loan losses completed as of June 30, 1997, 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, 1997 and December 31, 1996.
JUNE 30 DEC 31 (DOLLARS IN THOUSANDS) 1997 1996 ---------------------- ---- ---- Past due 90 days or more and still accruing $ 65 $ 14 Non-Accrual loans 484 528 ---- ---- Total non-performing loans 549 542 Other Real Estate Owned 0 0 ---- ---- Total Non-Performing Assets $549 $542 ==== ==== Non-performing loans as a percentage of loans 0.70% 0.75% Non-performing loans as a percentage of loans and OREO 0.70% 0.75% Non-performing assets as a percentage of assets 0.42% 0.43%
14 The amount of non-performing loans has decreased as a percentage of loans and as a percentage of assets. The decrease is the result of the charge off of several unrelated loans 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, 1997, cash, securities classified as available for sale, and federal funds sold were 17.7% of total assets compared to 24.4% of total assets at December 31, 1996. Asset liquidity is also provided by managing loan and securities investment maturities. At June 30, 1997, approximately $17.6 million or 22.5% of loans would mature within a one year period. Also, at June 30, 1997 approximately $9.2 million or 25.5% of securities would mature within a one year period. To the extent possible, loans are funded with deposits or other funding with coinciding maturity or repricing dates. CAPITAL RESOURCES The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions, economic forces and growth and expansion activities. The Corporation seeks to maintain a capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. The 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). 15 The Corporations' Tier 1 Risk Based Capital Ratio was 13.4% at June 30, 1997 compared to 13.9% at December 31, 1996. The Corporations' Total Risk Based Capital Ratio was 14.3% at June 30, 1997 compared to 16.7% at December 31, 1996. 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 June 30, 1997, the Corporations' Leverage Ratio was 8.9% 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 13, 1997 (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 ---- ------ --- ------- Robert T. Pluese 2000 748,780 0 Gerard M. Banmiller 2000 750,692 0 Frank B. Smith 2000 752,532 0
In addition, the following directors continued as directors with terms expiring in the years indicated:
NAME TERM TO EXPIRE ---- -------------- Michael G. Brennan 1999 Elizabeth Burns 1998 Letitia Colombi 1998 Doris M. Damm 1999 Gerald DeFelicis 1998 Joseph A. Riggs 1999 Marvin Samson 1998
(b) Auditors. Shareholders also ratified the appointment of KPMG Peat Marwick as auditors.
FOR AGAINST ABSTENTIONS NON-VOTES KPMG Peat Marwick as Independent Auditors: 753,710 715 3,599 220,751
(c) Other. Shareholders voted to increase the number of authorized shares of the Corporations' common stock from 1,600,000 to 3,200,000.
FOR AGAINST ABSTENTIONS NON-VOTES Increase Authorized Shares to 3,200,000 712,554 42,295 3,173 220,751
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, 1997 By: Gerard M. Banmiller ------------------- Gerard M. Banmiller President & Chief Executive Officer Date: August 12, 1997 By: Kevin L. Kutcher ---------------- Kevin L. Kutcher Executive Vice President/Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 7,877,189 0 0 0 15,028,531 21,106,563 20,822,442 79,596,030 808,523 129,009,284 114,057,583 2,826,739 870,532 0 0 0 4,944,870 6,309,560 129,009,284 3,291,407 1,077,249 70,891 4,439,547 1,372,987 1,399,943 3,039,604 165,000 0 2,937,625 464,198 464,198 0 0 348,435 0.33 0.33 8.07 484,000 65,000 32,000 0 738,353 135,588 40,758 808,523 808,523 0 0
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