EX-99 2 cmsv992.txt COMMUNITY SAVINGS ANNUAL FINANCIAL STATEMENTS Exhibit 99.2 INDEPENDENT AUDITORS' REPORT Community Savings Bankshares, Inc.: We have audited the accompanying consolidated statements of financial condition of Community Savings Bankshares, Inc. ("Bankshares") as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of Bankshares' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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 condition of Bankshares as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Grand Rapids, Michigan February 16, 2001 18
COMMUNITY SAVINGS BANKSHARES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ------------------------------------------------------------------------------------------------------------------------ December 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------ (In Thousands) ASSETS Cash and amounts due from depository institutions $ 17,844 $ 22,057 Interest-earning deposits 27,274 23,182 -------- -------- Cash and cash equivalents 45,118 45,239 Securities available for sale 131,418 144,840 Securities held to maturity (Approximate fair value - 2000, $36,736; 1999, $41,271) 34,025 38,802 Loans receivable, net of allowance for loan losses 691,294 608,369 Accrued interest receivable 4,363 3,788 Federal Home Loan Bank stock - at cost 8,063 7,009 Premises and equipment, net 25,323 24,939 Real estate held for investment 2,193 1,872 Investment in and advances to real estate venture 14,612 11,633 Real estate owned, net 170 494 Other assets 6,126 5,989 -------- -------- Total assets $962,705 $892,974 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Demand deposits $ 44,662 $ 39,429 NOW and statement savings 79,110 76,073 Savings deposits 34,506 34,466 Money market deposits 91,214 100,299 Certificates of deposit 431,577 363,676 -------- -------- Total deposits 681,069 613,943 Mortgage-backed bond, net 13,582 14,508 Advances from Federal Home Loan Bank 146,714 140,186 Advances by borrowers for taxes and insurance 1,153 1,403 Other liabilities 7,724 7,233 -------- -------- Total liabilities 850,242 777,273 -------- -------- SHAREHOLDERS' EQUITY Preferred stock ($1 par value per share), 10,000,000 authorized shares, no shares issued -- -- Common stock ($1 par value per share), 60,000,000 authorized shares: 2000, 8,542,363; 1999, 9,319,873 shares issued and outstanding 10,571 10,571 Additional paid-in capital 94,043 93,744 Retained income - substantially restricted 39,832 37,869 Common stock purchased by Employee Stock Ownership Plan (4,038) (4,722) Common stock issued to Recognition and Retention Plans (1,907) (2,586) Accumulated other comprehensive income (855) (3,358) Treasury stock, at cost: 2000, 2,028,777; 1999, 1,251,267 shares (25,183) (15,817) -------- -------- Total shareholders' equity 112,463 115,701 -------- -------- Total liabilities and shareholders' equity $962,705 $892,974 ======== ======== See notes to consolidated financial statements
19
COMMUNITY SAVINGS BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------ (Dollars In Thousands Except Per Share Data) Interest income: Loans $ 50,565 $ 44,515 $ 40,228 Securities 12,576 11,258 11,629 Other interest and dividend income 2,519 2,691 2,632 ------------ ------------ ------------ Total interest income 65,660 58,464 54,489 ------------ ------------ ------------ Interest expense: Deposits 27,279 21,987 24,082 Advances from Federal Home Loan Bank and other borrowings 10,223 7,548 6,077 ------------ ------------ ------------ Total interest expense 37,502 29,535 30,159 ------------ ------------ ------------ Net interest income 28,158 28,929 24,330 Provision for loan losses 376 905 622 ------------ ------------ ------------ Net interest income after provision for loan losses 27,782 28,024 23,708 ------------ ------------ ------------ Other income: Servicing income and other fees 237 387 198 NOW account and other customer fees 3,519 3,446 3,441 Net gain on sale and early maturities of securities 75 -- 175 Loss on impairment of securities (138) (138) -- Net (loss) gain on real estate owned (18) (89) 18 Equity in net loss of real estate venture (95) (38) -- Net gain on termination of defined benefit plan 289 -- -- Miscellaneous 395 270 233 ------------ ------------ ------------ Total other income 4,264 3,838 4,065 ------------ ------------ ------------ Operating expense: Employee compensation and benefits 12,473 11,853 10,307 Occupancy and equipment 5,871 6,017 5,496 Advertising and promotion 670 866 915 Federal deposit insurance premium 125 342 342 Miscellaneous 3,394 3,907 3,612 ------------ ------------ ------------ Total operating expense 22,533 22,985 20,672 ------------ ------------ ------------ Income before provision for income taxes 9,513 8,877 7,101 ------------ ------------ ------------ Provision (benefit) for income taxes: Current 2,637 2,668 2,872 Deferred 464 (325) (765) ------------ ------------ ------------ Total provision for income taxes 3,101 2,343 2,107 ------------ ------------ ------------ Net income $ 6,412 $ 6,534 $ 4,994 ============ ============ ============ Basic earnings per share $ 0.76 $ 0.67 $ 0.49 ============ ============ ============ Diluted earnings per share $ 0.74 $ 0.65 $ 0.48 ============ ============ ============ Weighted average common shares outstanding - basic 8,432,346 9,748,916 10,175,899 ============ ============ ============ Weighted average common shares outstanding - diluted 8,669,726 10,123,717 10,448,327 ============ ============ ============ See notes to consolidated financial statements.
20
COMMUNITY SAVINGS BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 ----------------------------------------------------------------------------------------------------------------------------------- Retained Employee Recognition Accumulated Additional Income- Stock and Other Common Paid-In Substantially Ownership Retention Comprehensive Treasury Stock Capital Restricted Plan Plans Income Stock Total ----------------------------------------------------------------------------------------------------------------------------------- (In Thousands) Balance - December 31, 1997 $ 5,095 $ 30,278 $ 47,887 $ (1,424) $ (423) $ (154) $ -- $ 81,259 Net income for the year ended December 31, 1998 -- -- 4,994 -- -- -- -- 4,994 Other comprehensive income: Unrealized decrease in market value of securities available for sale ( net of income taxes) -- -- -- -- -- (278) -- (278) --------- Comprehensive income 4,716 Stock options exercised 9 92 -- -- -- -- -- 101 Shares committed to be released - Employee Stock Ownership Plan and Recognition and Retention Plans -- 445 -- 394 186 -- -- 1,025 Merger of Mutual Holding Company pursuant to Reorganization -- -- 201 -- -- -- -- 201 Exchange due to Reorganization (5,104) (30,815) (14,863) -- -- -- -- (50,782) Issuance of common stock pursuant to Reorganization, net of costs of issuance of $1,672 10,549 93,268 -- -- -- -- -- 103,817 Purchase of common stock by Employee Stock Ownership Plan -- -- -- (4,377) -- -- -- (4,377) Dividends declared -- -- (2,674) -- -- -- -- (2,674) --------------------------------------------------------------------------------------------- Balance - December 31, 1998 10,549 93,268 35,545 (5,407) (237) (432) -- 133,286 Net income for the year ended December 31, 1999 -- -- 6,534 -- -- -- -- 6,534 Other comprehensive income: Unrealized decrease in market value of securities available for sale (net of income taxes) -- -- -- -- -- (2,926) -- (2,926) --------- Comprehensive income 3,608 Stock options exercised 22 99 -- -- -- -- 88 209 Shares committed to be released - Employee Stock Ownership Plan and Recognition and Retention Plans -- 371 -- 685 539 -- -- 1,595 Purchase of common stock by 1999 and 1995 Recognition and Retention Plans -- 60 (95) -- (2,888) -- -- (2,923) Cost of stock issuance -- (54) -- -- -- -- -- (54) Purchase of treasury stock -- -- -- -- -- -- (15,905) (15,905) Dividends declared -- -- (4,115) -- -- -- -- (4,115) --------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 1999 10,571 93,744 37,869 (4,722) (2,586) (3,358) (15,817) 115,701 NET INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 -- -- 6,412 -- -- -- -- 6,412 OTHER COMPREHENSIVE INCOME: UNREALIZED INCREASE IN MARKET VALUE OF SECURITIES AVAILABLE FOR SALE (NET OF INCOME TAXES) -- -- -- -- -- 2,503 -- 2,503 --------- COMPREHENSIVE INCOME -- -- -- -- -- -- -- 8,915 STOCK OPTIONS EXERCISED -- -- (986) -- -- -- 1,740 754 SHARES COMMITTED TO BE RELEASED - EMPLOYEE STOCK OWNERSHIP PLAN AND RECOGNITION AND RETENTION PLANS -- 299 -- 684 679 -- -- 1,662 STOCK BENEFIT PLAN TAX ADJUSTMENT -- -- 159 -- -- -- -- 159 PURCHASE OF TREASURY STOCK -- -- -- -- -- -- (11,106) (11,106) DIVIDENDS DECLARED -- -- (3,622) -- -- -- -- (3,622) --------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 2000 $ 10,571 $ 94,043 $ 39,832 $ (4,038) $ (1,907) $ (855) $ (25,183) $ 112,463 ============================================================================================= See notes to consolidated financial statements
21
COMMUNITY SAVINGS BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 --------------------------------------------------------------------------------------------------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,412 $ 6,534 $ 4,994 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,209 2,297 1,523 ESOP and Recognition and Retention Plans compensation expense 1,821 1,595 1,025 Accretion of discounts, amortization of premiums, and other deferred yield items (1,782) (1,572) (1,731) Provision for loan losses 376 905 622 Gain on sale of securities available for sale (75) -- -- Impairment loss on securities 138 138 -- (Increase) decrease in other assets (388) 1,469 (686) Decrease in other liabilities (1,016) (369) (4,859) --------- --------- --------- NET CASH FROM OPERATING ACTIVITIES 7,695 10,997 888 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net change in loans (45,563) (65,004) (48,980) Principal payments, calls and maturities received on securities and FHLB stock 11,237 35,091 88,983 PURCHASES OF: Loans and participations (37,738) (6,066) (38,354) Securities available for sale and FHLB stock (3,688) (76,167) (26,544) Office property and equipment, net (2,454) (2,628) (7,236) Proceeds from sales of: Securities available for sale 15,075 -- -- Investment in real estate venture (2,979) (11,633) -- --------- --------- --------- NET CASH FROM INVESTING ACTIVITIES (66,260) (126,407) (32,131) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 67,126 19,543 43,692 Advances from FHLB 70,000 65,000 42,000 Repayment of advances and calls from FHLB (63,472) (16,734) (7,421) Repayment of ESOP loan -- -- (1,424) Sale of common stock-net of issuance costs -- (54) 53,236 Purchase of common stock by Recognition and Retention Plans -- (2,923) -- Purchase of treasury stock (11,106) (15,905) -- Purchase of ESOP shares -- -- (4,377) Proceeds from exercise of stock options 754 209 101 Payments made on mortgage-backed bond (1,386) (1,387) (1,387) Dividends paid (3,622) (4,115) (2,116) --------- --------- --------- NET CASH FROM FINANCING ACTIVITIES 58,294 43,634 122,304 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (121) (71,776) 91,061 Cash and cash equivalents, beginning of period 45,239 117,015 25,954 --------- --------- --------- Cash and cash equivalents, end of period $ 45,118 $ 45,239 $ 43,692 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 3,534 $ 1,829 $ 2,943 Cash paid for interest on deposits and other borrowings $ 37,118 $ 28,841 $ 29,682 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Real estate acquired in settlement of loans $ 614 $ 656 $ 713 Transfer of securities from held to maturity to available $ -- $ 413 $ -- for sale See notes to consolidated financial statements.
22 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 1. SIGNIFICANT ACCOUNTING POLICIES On December 15, 1998, Community Savings Bankshares, Inc. ("Bankshares"), a Delaware corporation, became the holding company for Community Savings, F. A. (the "Association") as a result of the completion of the conversion and reorganization of the Association from the two-tier mutual holding company structure to the stock holding company structure and the related stock offering of Bankshares. In the course of this reorganization, ComFed, M. H. C. (the "Holding Company") and Community Savings Bankshares, Inc. (the "Mid-Tier Holding Company"), the Holding Company and Mid-Tier Holding Company, respectively, of the Association were merged with and into the Association. Such mergers were accounted for in a manner similar to a pooling of interests and did not result in any significant accounting adjustments. The Association is chartered and regulated by the Office of Thrift Supervision (the "OTS"). Bankshares' most significant asset is the common stock of the Association. Consequently, the majority of its net income is derived from the operations of the Association. The accounting and reporting policies of Bankshares, the Association, and the Association's wholly-owned subsidiaries ComFed, Inc. ("ComFed") and Palm River Development Co., Inc. ("Palm River") conform to generally accepted accounting principles and to general practices within the savings and loan industry. The following summarizes the more significant of these policies and practices: PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Bankshares, the Association, ComFed, and Palm River. ComFed, formed in 1971, operates an insurance agency, Community Insurance Agency. Palm River, incorporated in July 1999, is engaged in a real estate development joint venture in Indian River County, Florida. (See Note 7.) All significant intercompany balances and transactions have been eliminated. 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, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period, as well as the disclosures provided. Areas involving the use of significant estimates and assumptions in the accompanying financial statements include the allowance for loan losses, fair values of securities and other financial instruments, determination and carrying value of impaired loans, the fair value of the investment in and advances to the real estate venture, and the determination of depreciation of premises and equipment recognized in Bankshares' financial statements. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, defined benefit plan obligation, and the fair values of securities and other financial instruments are particularly susceptible to material change in the near term. INTEREST RATE RISK - The Association is engaged principally in providing first mortgage loans (adjustable-, fixed-, and hybrid-rate) to individuals and commercial enterprises. In addition, the Association invests in adjustable and fixed rate securities. At December 31, 2000 and 1999, the Association's assets that earned interest at adjustable interest rates comprised 48% and 45.0%, respectively, of total interest-earning assets. Those assets were funded primarily with short-term liabilities that have interest rates that vary with market rates over time. CASH AND CASH EQUIVALENTS - Cash and cash equivalents are defined to include the Association's cash on hand, amounts due from financial institutions and short-term interest-earning deposits in other financial institutions with original maturities of 90 days or less. Bankshares reports net cash flows for customer loan and deposit transactions and advance payments by borrowers for taxes and insurance. SECURITIES - Bankshares classifies securities into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those which Bankshares has the positive intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those Bankshares may decide to sell if needed for liquidity, asset liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders' equity, net of tax, until realized or incurred. Other securities, such as Federal Home Loan Bank ("FHLB") stock are carried at cost. Securities are written down to fair value when a decline in fair value is determined not to be temporary. Realized gains and losses resulting from the sale of securities are computed by the specific identification method. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. 23 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS RECEIVABLE, NET - Loans receivable are reported at the unpaid principal balance, less the allowance for loan losses, deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Discounts on mortgage loans are amortized to income using the level-yield method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Interest income is reported on the interest method and includes amortization of net deferred fees and costs over the loan term. When full loan repayment is in doubt, interest income is not reported. Payments received on such loans are reported as principal reductions. Because some loans may not be repaid in full, an allowance for loan losses is recorded. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are probable. Management's periodic evaluation of the adequacy of the allowance is based on the Association's past loan loss experience, known and inherent risks in the portfolio, changes in the composition of the portfolio, adverse situations that may affect the borrowers' ability to repay, the estimated value of any underlying collateral, and current economic conditions. A loan is charged off against the allowance by management when deemed uncollectible, although collection efforts continue and future recoveries may occur. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Association's allowances for losses on loans and foreclosed real estate. Such agencies may require the Association to recognize additions to the allowances based on their judgments of information available to them at the time of their examination. Loan impairment is reported when full payment under the loan terms is not expected to occur. Impairment is evaluated in the aggregate for smaller balance loans of similar nature such as residential mortgage, consumer and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of the collateral if the loan is collateral dependent. The Association's policy on interest income on impaired loans is to reverse all accrued interest against interest income if a loan becomes more than 90 days delinquent or if management determines at an earlier date that the loan is not performing and ceases accruing interest thereafter. Such interest ultimately collected is credited to income in the period of recovery. LOANS HELD FOR SALE - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value determined on an aggregate loan basis. Net unrealized losses are recognized in a valuation allowance by charges to income. OFFICE PROPERTIES AND EQUIPMENT AND REAL ESTATE HELD FOR INVESTMENT - Office properties and equipment and real estate held for investment are carried at cost less accumulated depreciation. These assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. Depreciation is computed on the straight-line method over the estimated useful lives of the assets which range from 13 to 50 years for buildings, executed lease terms for leasehold improvements, and from 3 to 10 years for furniture and equipment. INVESTMENT IN REAL ESTATE VENTURE - The Association's wholly-owned subsidiary, Palm River, participates in the River Club at Vero Beach Joint Venture (the "River Club") real estate development and shares equally in the profits and losses from the development with CRC Development Company. The Association accounts for Palm River's investment in the River Club using the equity method. Additional information is provided in Note 7. REAL ESTATE OWNED - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of acquisition, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses. After acquisition, the property is carried at fair value, less estimated costs to sell. A valuation allowance is recorded through a charge to income for the amount of selling costs. Valuations are periodically performed by management and valuation allowances are adjusted through a charge to income for changes in fair value or estimated selling costs. Costs relating to improvement of the property are capitalized, whereas costs and revenues relating to the holding of the property are expensed. 24 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIMITED PARTNERSHIP INVESTMENT IN QUALIFIED AFFORDABLE HOUSING PROJECT - The Association has an approximate 4% limited partner interest in three separate real estate partnerships that operate qualified affordable housing projects. The Association receives tax benefits from the partnerships in the form of tax deductions resulting from operating losses and tax credits. The Association accounts for its investments in the partnerships on the effective yield method and is amortizing the cost over the estimated lives of the partnerships (15 years). The amortized cost of the investments at December 31, 2000 and 1999 was $3.6 million and $3.9 million, respectively, and is included in other assets. Amortization for the years ended December 31, 2000, 1999 and 1998 was $261,000, $496,000, and $246,000, respectively, and is included in miscellaneous expense. In addition to the tax benefit related to the amortization, tax credits of $305,000, $600,000, and $320,000 were recognized for the years ended December 31, 2000 1999, and 1998, respectively, as a reduction of the provision for income taxes. INCOME TAXES - The entities included in these consolidated financial statements file a consolidated federal income tax return. Income tax expense is recorded based on the amount of taxes due on its tax return plus the change in deferred tax assets and liabilities computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") - The ESOP for the employees of the Association is accounted for in accordance with AICPA Statement of Position 93-6. The cost of shares issued to the ESOP, but not yet allocated to participants, are presented as a reduction of shareholders' equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unearned ESOP shares are reflected as a reduction of debt and accrued interest. RECOGNITION AND RETENTION PLANS ("1995 RRP", "1999 RRP" OR COLLECTIVELY "RRPS") - The RRPs are stock award plans for which the measurement of total compensation cost is based upon the fair value of the shares on the date of grant. RRP awards vest in five equal annual installments from the date of grant, subject to the continuous employment of the recipients as defined under the RRPs. Compensation expense for the RRPs is recognized on a pro rata basis over the vesting period of the awards. The unearned compensation value of the RRP awards is shown as a reduction of shareholders' equity. STOCK OPTION PLANS ("1995 SOP" AND "1999 SOP" OR COLLECTIVELY "SOPS") - Expense for employee compensation under the SOPs would be recognized only if options are granted below the market price at the grant date which the existing SOPs do not allow. As shown in a separate note, pro forma disclosures of net income and earnings per share are provided as if the fair value method were used for stock-based compensation. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - The Association, in the normal course of business, makes commitments to fund loans which are not reflected in the financial statements. A summary of these commitments is disclosed in Note 12. EARNINGS PER SHARE - Earnings per share are determined in accordance with the provisions of SFAS No. 128 "Earnings per Share" ("SFAS No. 128"). The weighted average number of shares of common stock used in calculating basic earnings per share was determined by reducing outstanding shares by unallocated ESOP shares and unvested RRP shares. Diluted earnings per share includes the maximum dilutive effect of common stock issuable upon exercise of common stock options and unallocated ESOP and RRP shares of common stock. The effect of common stock options on weighted average shares outstanding is calculated using the treasury stock method. COMPREHENSIVE INCOME - Comprehensive income includes both net income and the change in unrealized gains and losses on securities available for sale. FAIR VALUES OF FINANCIAL INSTRUMENTS - Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on- and off-balance-sheet financial instruments does not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments. SEGMENT INFORMATION - While Bankshares' management monitors the revenue streams of various products, and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of Bankshares' operations are considered by management to be aggregated in one reportable operating segment, banking. 25 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IMPACT OF NEW ACCOUNTING ISSUES - For fiscal years beginning after June 15, 2000, a new accounting standard requires all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values are recorded in the income statement. Fair value changes involving hedges are generally recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. Adoption of this standard in January 2001 did not have a material effect on Bankshares' financial statements. RECLASSIFICATIONS - Certain items in the 1999 and 1998 financial statements and the notes thereto have been reclassified to conform with the 2000 presentation. 2. SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 2000 and 1999 are summarized as follows:
---------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------------------------------------------------------------------------------------------------- (In Thousands) DECEMBER 31, 2000: EQUITY SECURITIES $ 32 $ 28 $ -- $ 60 UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS 34,395 17 (171) 34,241 MUTUAL FUNDS 36,000 -- (763) 35,237 CORPORATE DEBT ISSUES: PREFERRED TERM SECURITIES 2,000 -- -- 2,000 BEAR STEARNS CORPORATE BOND 4,915 -- (285) 4,630 AUTO BONDS RECEIVABLE CORP 254 -- (25) 229 -------- -------- -------- -------- TOTAL CORPORATE DEBT ISSUES 7,169 -- (310) 6,859 -------- -------- -------- -------- MORTGAGE-BACKED AND RELATED SECURITIES: UNITED STATES AGENCY PASS-THROUGH CERTIFICATES 43,021 391 (184) 43,228 COLLATERALIZED MORTGAGE OBLIGATIONS 11,728 94 (29) 11,793 -------- -------- -------- -------- TOTAL MORTGAGE-BACKED AND RELATED SECURITIES 54,749 485 (213) 55,021 -------- -------- -------- -------- TOTAL SECURITIES AVAILABLE FOR SALE $132,345 $ 530 $ (1,457) $131,418 ======== ======== ======== ======== December 31, 1999: Equity securities $ 32 $ 18 $ -- $ 50 United States Government and agency obligations 34,385 -- (906) 33,479 Mutual funds 51,000 -- (1,155) 49,845 Corporate debt issues: Bear Stearns Corporate Bond 4,890 -- (437) 4,453 Auto Bonds Receivable Corp. 413 -- -- 413 -------- -------- -------- -------- Total corporate debt issues 5,303 -- (437) 4,866 -------- -------- -------- -------- Mortgage-backed and related securities: United States agency pass-through certificates 46,172 -- (1,862) 44,310 Collateralized mortgage obligations 12,635 1 (346) 12,290 -------- -------- -------- -------- Total mortgage-backed and related securities 58,807 1 (2,208) 56,600 -------- -------- -------- -------- Total securities available for sale $149,527 $ 19 $ (4,706) $144,840 ======== ======== ======== ========
26 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below sets forth the contractual maturity distribution of securities available for sale at December 31, 2000. ---------------------------------------------------------------------- December 31, 2000 Amortized Fair Cost Value ---------------------------------------------------------------------- (In Thousands) Due in one year or less $ 7,749 $ 7,706 Due after one year through five years 26,900 26,764 Due after five years through ten years -- -- Due after ten years 6,915 6,630 Mortgage-backed and related securities 54,749 55,021 Equity securities 36,032 35,297 -------- -------- Total $132,345 $131,418 ======== ======== Proceeds from the sale of securities available for sale were $15,075,000, $0, and $0, during the years ended December 31, 2000, 1999 and 1998, respectively. A $75,000 gain was realized for the year ended December 31, 2000. There were no gross realized gains or losses during the years ended December 31, 1999 and 1998. Securities, with carrying values of approximately $7,638,000 and $7,940,000 at December 31, 2000 and 1999, were pledged as collateral for purposes required or permitted by law. During the quarter ended December 31, 1999, management determined that the decline in fair value on the Association's investment in Auto Bond Receivables was other than temporary resulting in a write down of $138,000 and a reclassification from held to maturity to available for sale. During the year ended December 31, 2000, management determined that a further decline in the fair value had occurred resulting in an additional write down of $138,000. 27 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SECURITIES HELD TO MATURITY Securities held to maturity at December 31, 2000 and 1999 are summarized as follows:
-------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------------------------------------------------------------- (In Thousands) DECEMBER 31, 2000: UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS $16,207 $ 2,569 $ -- $18,776 MORTGAGE-BACKED AND RELATED SECURITIES: UNITED STATES AGENCY PASS THROUGH CERTIFICATES 3,900 48 (42) 3,906 AGENCY FOR INTERNATIONAL DEVELOPMENT PASS THROUGH CERTIFICATES 98 -- -- 98 COLLATERALIZED MORTGAGE OBLIGATIONS 8,356 14 (82) 8,288 CMO RESIDUAL INTEREST BONDS 1 -- -- 1 ------- ------- ------- ------- TOTAL MORTGAGE-BACKED AND RELATED SECURITIES 12,355 62 (124) 12,293 ------- ------- ------- ------- CORPORATE DEBT ISSUES: CHASE FEDERAL MORTGAGE-BACKED BOND 5,463 204 -- 5,667 ------- ------- ------- ------- TOTAL SECURITIES HELD TO MATURITY $34,025 $ 2,835 $ (124) $36,736 ======= ======= ======= ======= December 31, 1999: United States Government and agency obligations $14,564 $ 2,502 $ -- $17,066 Mortgage-backed and related securities: United States agency pass through certificates 6,322 59 (84) 6,297 Agency for International Development pass through Certificates 141 -- -- 141 Collateralized mortgage obligations 11,829 5 (253) 11,581 CMO residual interest bonds 2 -- -- 2 ------- ------- ------- ------- Total mortgage-backed and related securities 18,294 64 (337) 18,021 ------- ------- ------- ------- Corporate debt issues: Chase Federal mortgage-backed bond 5,944 240 -- 6,184 ------- ------- ------- ------- Total securities held to maturity $38,802 $ 2,806 $ (337) $41,271 ======= ======= ======= =======
The table below sets forth the contractual maturity distribution of the securities held to maturity at December 31, 2000. ---------------------------------------------------------------------- December 31, 2000 Carrying Fair Value Value ---------------------------------------------------------------------- (In Thousands) Due in one year or less $ -- $ -- Due after one year through five years 16,207 18,776 Due after five years through ten years 5,463 5,667 Mortgage-backed and related securities 12,355 12,293 ------- ------- Total $34,025 $36,736 ======= ======= 28 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities held to maturity were called during the year ended December 31, 1998 which resulted in a gain of $175,000. There were no sales of securities held to maturity during the years ended December 31, 2000, 1999, and 1998. The fair value of securities held to maturity is based on quoted market prices. Mortgage-backed securities represent participating interest in pools of long-term first mortgage loans. Although mortgage-backed securities are initially issued with a stated maturity date, the underlying mortgage collateral may be prepaid by the mortgagee and, therefore, such certificates may not reach their maturity date. The Association also invests in mortgage-related securities such as collateralized mortgage obligations ("CMOs"), CMO residual interest bonds, and real estate mortgage investment conduits ("REMICs"). These securities are generally divided into tranches whereby principal repayments from the underlying mortgages are used sequentially to retire the securities according to the priority of the tranches. The Association invests primarily in senior sequential tranches of CMOs. Such tranches have stated maturities ranging from 6.5 years to 30 years; however, because of prepayments, the expected weighted average life of these securities is less than the stated maturities. At December 31, 2000, the Association had $8,356,000 in such mortgage-related securities, which were held for investment and had a fair value of $8,288,000. The fixed-rate CMOs have coupon rates ranging from 6.0% to 10.0%. FEDERAL HOME LOAN BANK ("FHLB") STOCK - At December 31, 2000 and 1999, the Association held $8,063,000 and $7,009,000, respectively, of FHLB Stock, which approximates fair value. FHLB Stock is not readily marketable as it is not traded on a registered security exchange. The Association is required to purchase stock as a member of the FHLB. The required purchases are determined by the level of the Association's FHLB advances. 4. LOANS RECEIVABLE Loans receivable consisted of the following: --------------------------------------------------------------------- December 31, 2000 1999 --------------------------------------------------------------------- (In Thousands) Real estate loans: Residential 1-4 family $ 511,324 $ 420,845 Residential 1-4 family construction 113,179 105,282 Multi-family 10,501 11,135 Multi-family construction 33,960 17,251 Commercial 37,255 32,627 Non-residential construction 8,170 9,633 Land 20,216 50,885 --------- --------- Total real estate loans 734,605 647,658 --------- --------- Non-real estate loans: Consumer 14,029 12,685 Commercial business 5,454 7,408 --------- --------- Total non-real estate loans 19,483 20,093 --------- --------- Total loans receivable 754,088 667,751 Less: Undisbursed loan proceeds 60,874 56,948 Unearned discount and premium and net deferred loan fees and costs (1,955) (1,489) Allowance for loan losses 3,875 3,923 --------- --------- Total loans receivable, net $ 691,294 $ 608,369 ========= ========= LOANS SERVICED FOR OTHERS - Mortgage loans serviced for others are not included in the consolidated statements of financial condition. The unpaid balances of these loans at December 31, 2000, 1999, and 1998 were $9,173,000, $11,277,000, and $14,173,000, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were $34,000, $54,000, and $53,000, respectively. 29 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS HELD FOR SALE - The Association originates both adjustable- and fixed-rate loans. Adjustable-rate as well as fixed-rate loans with original maturities of 15 years or less are held in the Association's portfolio. Based on management's assessment of current portfolio mix and Board of Directors' established limits, fixed-rate loans with maturities greater than 15 years are either held in the portfolio or sold in the secondary market when originated, except those originated for special financing on low income housing. There were no loans held for sale included in loans receivable at December 31, 2000 and 1999. ALLOWANCE FOR LOAN LOSSES - An analysis of the changes in the allowance for loan losses for the years ended December 31, 2000, 1999, and 1998, is as follows: ---------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 ---------------------------------------------------------------------- (In Thousands) Balance, beginning of period $ 3,923 $ 3,160 $ 2,662 Provision charged to income 376 905 622 Losses charged to allowance (424) (146) (376) Recoveries -- 4 252 ------- ------- ------- Balance, end of year $ 3,875 $ 3,923 $ 3,160 ======= ======= ======= IMPAIRED LOANS - An analysis of the recorded investment in impaired loans is as follows: -------------------------------------------------------------------------- At or for the Years Ended December 31, 2000 1999 1998 -------------------------------------------------------------------------- (In Thousands) Impaired loan balance $ 2,667 $ 5 $ 25 Related allowance -- -- -- Average impaired loan balance 2,180 71 13 Interest income recognized 243 -- 1 NON-PERFORMING LOANS AND REAL ESTATE OWNED - The following table sets forth information regarding non-accrual loans delinquent 90 days or more, and real estate acquired or deemed acquired by foreclosure at the dates indicated. When a loan is delinquent 90 days or more, all accrued interest on such loans is reversed and the loan ceases to accrue interest thereafter, until the loan is brought current or it is acquired through foreclosure. -------------------------------------------------------------------------- December 31, 2000 1999 1998 -------------------------------------------------------------------------- (Dollars In Thousands) Non-performing loans: One- to four-family residential $ 2,888 $ 1,015 $ 1,537 Commercial and multi-family real estate -- 5 52 Consumer and commercial business loans 8 12 67 Land 420 7 12 ------- ------- ------- Total non-performing loans 3,316 1,039 1,668 REO 170 494 522 Other repossessed assets -- -- 22 ------- ------- ------- Total non-performing assets, net of specific valuation allowances $ 3,486 $ 1,533 $ 2,212 ======= ======= ======= Total non-performing loans to net loans 0.48% 0.17% 0.31% receivable Total non-performing loans to total assets 0.36 0.12 0.20 Total non-performing assets to total assets 0.36 0.17 0.26 30 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS TO OFFICERS AND DIRECTORS - The Association offers loans to its employees, including directors and executive officers, at prevailing market interest rates. The total loans to such persons did not exceed 5% of shareholders' equity at December 31, 2000. At December 31, 2000 and 1999, the total amount of loans to directors, executive officers, and associates of such persons was $784,000 and $834,000, respectively. During 2000, principal advances and repayments on loans to officers and directors totaled $40,000 and $90,000, respectively. 5. PLEDGED ASSETS In the normal course of doing business, the Association is required to comply with certain collateral requirements. The following tables set forth amounts of various asset components, as of December 31, 2000 and 1999, which were pledged as collateral. ----------------------------------------------------------------------- December 31, 2000 1999 ----------------------------------------------------------------------- (In Thousands) Real estate loans (unpaid principal balance) $138,494 $133,047 FHLB stock and accrued dividends 8,220 7,139 -------- -------- Total pledged to the FHLB $146,714 $140,186 ======== ======== Other pledged assets: Deposits of public funds - State of Florida Mortgage-backed and related securities $ 5,538 $ 5,840 Line of credit - Federal Reserve Bank of Atlanta United States Government and agency obligations 1,800 1,800 Treasury tax and loan deposits United States Government and agency obligations 300 300 Mortgage-backed bond Unpaid principal balance of loans 27,074 33,642 -------- -------- Total of other pledged assets $ 34,712 $ 41,582 ======== ======== FHLB ADVANCES - The Association has a security agreement with the FHLB which includes a blanket floating lien that requires the Association maintain as collateral for its advances the Association's FHLB capital stock and first mortgage loans equal to 100% of the unpaid amount of FHLB advances outstanding. 6. PREMISES AND EQUIPMENT AND REAL ESTATE HELD FOR INVESTMENT Premises and equipment and real estate held for investment at December 31, 2000 and 1999 are summarized as follows: --------------------------------------------------------------------- December 31, 2000 1999 --------------------------------------------------------------------- (In Thousands) PREMISES AND EQUIPMENT: Land $ 8,488 $ 8,458 Buildings and improvements 20,069 18,984 Furniture and equipment 15,418 16,404 -------- -------- Total 43,975 43,846 Less accumulated depreciation (18,652) (18,907) -------- -------- Total office properties and equipment - net $ 25,323 $ 24,939 ======== ======== REAL ESTATE HELD FOR INVESTMENT: Land $ 604 $ 604 Buildings and improvements 1,706 1,268 -------- -------- Total 2,310 1,872 Less accumulated depreciation (117) -- -------- -------- Total real estate held for investments - net $ 2,193 $ 1,872 ======== ======== 31 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. INVESTMENT IN AND ADVANCES TO REAL ESTATE VENTURE On July 12, 1999, the Association's wholly-owned subsidiary, Palm River, entered into a development agreement (the "Agreement") with CRC Development Company ("CRC") to develop and sell 17 riverfront single-family lots and to construct and sell 48 condominiums, 22 carriage duplex homes and 113 villa single-family homes. The project consists of 117 acres of land in Indian River County, Florida. The project is known as the River Club at Vero Beach Joint Venture. The terms of the Agreement provide for Palm River to fund all construction and development costs, via advances from the Association or Bankshares, to Palm River, including the costs of acquiring the land, and to receive interest on any outstanding funding. Such loans are included within "Investment in and Advances to Real Estate Venture" in the Consolidated Statements of Financial Condition. Profits from home and lot sales, after interest, are to be split equally between CRC and Palm River. Cash flows are first allocated to Palm River to pay off any outstanding funding and interest, then split evenly between the parties. Since the substance of the Agreement is that of a joint venture, the Association accounts for it as such. The condensed financial information for the River Club is as follows: --------------------------------------------------------------------- December 31, Balance Sheet 2000 1999 --------------------------------------------------------------------- (In Thousands) ASSETS: Cash $ 65 $ 59 Land 11,499 10,764 Construction in progress 1,606 454 Receivables from partners 61 22 -------- -------- Total assets $ 13,231 $ 11,299 ======== ======== LIABILITIES AND PARTNERS' CAPITAL: Advances and interest due to Palm River $ 16,383 $ 11,899 Other liabilities 88 18 Partners' capital: Palm River (1,625) (314) CRC (1,615) (304) -------- -------- Total liabilities and partners' capital $ 13,231 $ 11,299 ======== ======== -------------------------------------------------------------------- For the Years Ended December 31, Summary of Operations 2000 1999 -------------------------------------------------------------------- (In Thousands) INCOME: Sales $ -- $ -- Interest income 6 -- ------- ------- Total income 6 -- ------- ------- EXPENSES: Cost of sales 1 5 General and administrative 859 396 Sales and marketing 357 -- Interest expense 1,411 227 ------- ------- Total expenses 2,628 628 ------- ------- Net loss $(2,622) $ (628) ======= ======= 32 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------------------------------------- Statement of Changes in Partners' Capital Palm River CRC --------------------------------------------------------------------- (In Thousands) Balance - December 31, 1998 $ -- $ -- Cash contributed by CRC -- 10 Net loss for the year ended December 31, 1999 (314) (314) ------- ------- BALANCE - DECEMBER 31, 1999 (314) (304) NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2000 (1,311) (1,311) ------- ------- BALANCE - DECEMBER 31, 2000 $(1,625) $(1,615) ======= ======= 8. DEPOSITS Individual deposits greater than $100,000 at December 31, 2000 and 1999 aggregated approximately $119,409,000 and $112,003,000, respectively. Deposits in excess of $100,000 are not insured. The total of related party deposits owned by directors, executive officers, and associates of such persons was $3,958,000 and $3,071,000 at December 31, 2000 and 1999, respectively. Scheduled maturities of certificate accounts at December 31, 2000 and 1999 were as follows: ---------------------------------------------------------------------- December 31, 2000 1999 ---------------------------------------------------------------------- (In Thousands) Maturity: Less than 1 year $273,990 $257,928 1 year - 2 years 118,210 70,015 2 years - 3 years 9,441 15,743 3 years - 4 years 6,235 9,856 4 years - 5 years 23,701 9,963 Thereafter -- 171 -------- -------- Total certificates of deposit $431,577 $363,676 ======== ======== 9. ADVANCES FROM FEDERAL HOME LOAN BANK At December 31, 2000 and 1999, outstanding advances from the FHLB totaled $146,714,000 and $140,186,000, respectively. Scheduled maturities of FHLB advances at December 31, 2000 were as follows: ----------------------------------------------------------- Years Ending Average Interest Amount December 31, Rate Maturing ----------------------------------------------------------- (Dollars in Thousands) 2001 6.36% $ 7,571 2002 6.63 16,071 2003 6.56 19,072 2004 5.76 35,000 2008 5.51 27,000 2009 5.06 10,000 2010 5.63 32,000 -------- TOTAL FHLB ADVANCES 5.87% $146,714 ======== Prepayment of certain remaining advances is permitted only upon the Association's termination of its FHLB membership, while others are subject to prepayment penalties under the provisions and conditions of the credit policy of the FHLB. The Association did not incur prepayment penalties for the years ended December 31, 2000, 1999, and 1998. 33 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. MORTGAGE-BACKED BOND On September 30, 1983, the Association sold two of its branch offices to another financial institution with the approval of the Federal Home Loan Bank Board ("FHLBB"), the predecessor to the OTS. Under terms of the sale, the Association issued a 10.94%, 30-year term mortgage-backed bond (the "Bond") for approximately $41,601,000. The Bond issue has a stated interest rate which was less than the market rate (assumed to have been 17.53%) for similar debt at the effective date of the sale. Accordingly, the Association recorded a discount on the Bond which is being accreted on the interest method over the life of the Bond. The Bond bears an interest rate that is adjustable semi-annually, on April 1 and October 1, to reflect changes in the average of the United States 10-year and 30-year long-term bond rates. The Bond's interest rate on December 31, 2000 and 1999 was 5.08% and 5.27%, respectively. The unamortized discount at December 31, 2000 and 1999 was $4,030,000 and $4,491,000, respectively. Principal and interest payments are due quarterly. During the years ended December 31, 2000, 1999 and 1998, approximately $460,000, $464,000, and $484,000, respectively, of the discount was accreted. At December 31, 2000 and 1999, the Association held $16,207,000 and $14,316,000 (net of discounts of $5,593,000 and $7,484,000), respectively, of Salomon Brothers Certificates of Accrual on Treasury Securities ("CATS") which were purchased at the time of issuing the Bond. The accrual of interest on the CATS offsets the discount amortization of the Bond. The CATS are included in United States Government and agency obligations described in Note 3 to the consolidated financial statements. At December 31, 2000, the Bond was repayable as follows: --------------------------------------------------------------------- Years Ending December 31, Amount --------------------------------------------------------------------- (In Thousands) 2001 $ 1,387 2002 1,387 2003 1,387 2004 1,387 2005 1,387 2006 AND THEREAFTER 10,677 ------- TOTAL 17,612 LESS UNAMORTIZED DISCOUNT 4,030 ------- TOTAL MORTGAGE-BACKED BOND $13,582 ======= 11. INCOME TAXES In accordance with SFAS No. 109, deferred income tax assets and liabilities are computed annually for differences between financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change during the period in deferred tax assets and liabilities. The income tax provision consists of the following components for the years ended December 31, 2000, 1999, and 1998. ----------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 ----------------------------------------------------------------------- (In Thousands) Current - federal $ 2,224 $ 2,250 $ 2,640 Current - state 413 418 232 ------- ------- ------- Total current 2,637 2,668 2,872 Deferred - federal and state 464 (325) (765) ------- ------- ------- Total provision for income taxes $ 3,101 $ 2,343 $ 2,107 ======= ======= ======= 34 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Bankshares' provision for income taxes differs from the amounts determined by applying the statutory federal income tax rate to income before income taxes for the following reasons:
------------------------------------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 Amount % Amount % Amount % ------------------------------------------------------------------------------------------------- (Dollars in Thousands) Tax at federal tax rate $ 3,330 35.0% $ 3,107 35.0% $ 2,485 35.0% State income taxes, net of federal income tax benefits 343 3.6 257 2.9 123 1.7 Low income housing credits (305) (3.2) (600) (6.8) (320) (4.5) Other (172) (1.8) (333) (3.8) (110) (1.5) Benefit of graduated tax rate (95) (1.0) (88) (0.9) (71) (1.0) ------- ------ ------- ------ ------- ------ Total provision for income taxes $ 3,101 32.6% $ 2,343 26.4% $ 2,107 29.7% ======= ====== ======= ====== ======= ======
The tax effect of temporary differences that gave rise to deferred tax assets and deferred tax liabilities are presented below:
-------------------------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 -------------------------------------------------------------------------------------- (In Thousands) Deferred tax liabilities: Depreciation $ 1,074 $ 995 $ 631 Loan fee income 23 23 22 FHLB stock dividends 423 424 458 Deferred loan costs 1,114 881 711 Unamortized discount on mortgage-backed bond 1,517 1,690 1,865 Book over tax on investments in partnerships -- -- 55 Other 70 61 13 ------- ------- ------- Gross deferred tax liabilities 4,221 4,074 3,755 ------- ------- ------- Deferred tax assets: Excess of book bad debt reserve over tax reserve 1,335 1,337 978 Retirement plans 340 479 360 Unrealized loss on decrease in fair value of securities available for sale 72 1,329 126 Deferred loss on loans held for sale 35 36 39 Deferred compensation 24 129 140 Investment in partnerships 203 137 -- Other -- 136 93 ------- ------- ------- Gross deferred tax assets 2,009 3,583 1,736 ------- ------- ------- Valuation allowance on unrealized loss on decrease in fair value of securities available for sale (283) (428) (222) ------- ------- ------- Gross deferred tax assets - net of valuation allowance 1,726 3,155 1,514 ------- ------- ------- Net deferred tax liability $ 2,495 $ 919 $ 2,241 ======= ======= =======
Under the Internal Revenue Code, the Association may, for tax purposes, deduct a provision for bad debts in excess of such provisions recorded in the financial statements. Retained earnings at December 31, 2000 included approximately $11,388,000, consisting of bad debt deductions accumulated prior to 1988, on which no provision for federal income taxes has been made. The related amount of unrecognized deferred tax liability was approximately $4,285,000. 35 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. COMMITMENTS AND CONTINGENCIES LOAN COMMITMENTS - In the normal course of business, the Association makes commitments to extend credit. 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. The interest rates on both fixed- and variable-rate loans are based on the market rates in effect on the date of closing. Commitments generally have fixed expiration dates of 30 to 60 days and other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Association upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies, but may include single-family homes, marketable securities and income-producing residential and commercial properties. Credit losses may occur when one of the parties fails to perform in accordance with the terms of the contract. The Association's exposure to credit risk is represented by the contractual amount of the commitments to extend credit. Commitments to extend credit for real estate loans, excluding undisbursed portions of loans in process, were approximately $6,894,000 and $5,053,000 at December 31, 2000 and 1999, respectively. Commitments to originate non-mortgage loans were approximately $0 and $250,000 at December 31, 2000 and 1999, respectively. Undisbursed portions of loans in process totaled $60,874,000 and $56,948,000 at December 31, 2000 and 1999, respectively. At December 31, 2000, the $6,894,000 of real estate loan commitments were comprised of approximately $1,754,000 of fixed-rate commitments and $5,140,000 of variable-rate commitments. These commitments are at prevailing market rates and terms. Interest rates on fixed-rate loan commitments ranged from 7.00% to 8.88%. No value is placed on the commitments as the borrower is required to close at the market rates in effect on the date of closing. No fees are received in connection with such commitments. Unused consumer lines of credit totaled $9,909,000 and $7,788,000 at December 31, 2000 and 1999, respectively. Commercial lines and letters of credit and other loan commitments totaled $10,534,000 and $6,381,000 at December 31, 2000 and 1999, respectively. Commitments to sell or purchase loans at December 31, 2000 were $0 and $4,269,000, respectively. There were no commitments to sell or purchase loans at December 31, 1999. There were no commitments to purchase or sell securities at December 31, 2000. LEASE COMMITMENTS - The Association leases various properties for original periods ranging from 2 to 25 years. Rent expense for the years ended December 31, 2000, 1999 and 1998 was approximately $462,000, $498,000, and $633,000, respectively. At December 31, 2000, future minimum lease payments under these operating leases were as follows: ---------------------------------------------------------------- Years Ending December 31, Amount ---------------------------------------------------------------- (In Thousands) 2001 $379 2002 230 2003 188 2004 75 ---- TOTAL $872 ==== LINE OF CREDIT - The Association has a $1,800,000 available line of credit with the Federal Reserve Bank of Atlanta which is secured by United States Government and agency obligations (see Note 5). At December 31, 2000 and 1999, the Association had no outstanding advances. CASH RESTRICTIONS - At both December 31, 2000 and 1999, the Association maintained a $625,000 required two-week average balance in a clearing account at the Federal Reserve Bank of Atlanta. 36 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. BENEFIT PLANS SUPPLEMENTAL RETIREMENT INCOME PLAN ("SERP") - During 1989, the Association's Board of Directors established a supplemental nonqualified unfunded defined benefit plan for certain officers. For the years ended December 31, 2000, 1999 and 1998, the net periodic expense for the officers' plan totaled $186,000, $114,000, and $76,000, respectively. The SERP allows for immediate vesting upon retirement of the participants. Information about the SERP was as follows: ------------------------------------------------------------------- December 31, 2000 1999 ------------------------------------------------------------------- (In Thousands) Change in benefit obligation: Beginning benefit obligation $ 734 $ 683 Accrued benefits 186 67 Benefits paid (16) (16) ----- ----- Ending benefit obligation $ 904 $ 734 ===== ===== PENSION PLAN - The Board of Directors approved the termination of the Association's defined benefit pension plan in March 2000. Benefit accruals for plan participants were frozen as of May 1, 2000. As a result of the plan's termination, vested plan benefits were paid to plan participants in the fourth quarter of 2000. A $289,000 net gain was recognized on the plan termination, net of $263,000 in actuary fees and other expenses associated with the plan termination. Information about the pension plan was as follows: --------------------------------------------------------------------- December 31, 2000 1999 --------------------------------------------------------------------- (In Thousands) Change in benefit obligation: Beginning benefit obligation $ 10,097 $ 8,889 Service cost 205 725 Interest cost 703 598 Actuarial gain 2,137 165 Plan curtailment (946) -- Benefits paid (12,196) (280) -------- -------- Ending benefit obligation -- 10,097 -------- -------- Change in plan assets, at fair value: Beginning plan assets 11,278 10,791 Actual return 778 588 Employer contribution 140 179 Benefits paid (12,196) (280) -------- -------- Ending plan assets -- 11,278 -------- -------- Funded status -- 1,181 Unrecognized net actuarial gain -- (1,741) Unrecognized prior service cost -- 21 -------- -------- Accrued benefit cost $ -- $ (539) ======== ======== 37 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of pension expense and related actuarial assumptions were as follows: ---------------------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 ---------------------------------------------------------------------------------- (Dollars In Thousands) Service cost $ 205 $ 725 $ 609 Interest cost 703 598 494 Expected return on plan assets (855) (807) (818) Amortization of prior service cost (71) (69) (68) Recognized net actuarial gain (23) (52) (132) Expense due to plan amendment 2,705 -- -- Income due to plan curtailment (3,651) -- -- Expense due to plan settlement 589 -- -- ------- ------- ------- Net $ (398) $ 395 $ 85 ======= ======= ======= Discount rate on benefit obligation 7.25% 6.75% 7.00% Long-term expected rate of return on plan assets 7.50% 7.50% 8.50% Rate of compensation increase 5.00% 5.00% 5.00%
For the years ended December 31, 1999 and 1998, pension expense amounts were based upon actuarial computations. The Board of Directors established a 401(k) savings and retirement plan (the "401(k) plan") for the benefit of the officers and employees of the Association during 2000. The plan allows employee contributions up to 15% of their compensation, to a maximum of $10,500, which are matched equal to 50% of the first 6% of the compensation contributed. Expense of matched contributions by the Association totaled $113,000 for 2000. EMPLOYEE STOCK OWNERSHIP PLAN - As of December 31, 2000, the ESOP had outstanding loan balances of $244,000 (Loan I) and $3,793,000 (Loan II) related to the purchases of 389,248 shares and 437,652 shares of common stock, respectively, in the open market. Collateral for the loans is the common stock purchased by the ESOP. Payment of the loans is principally from the Association's contributions to the ESOP over a period of up to seven years and 15 years, respectively. Interest on ESOP Loan I is a fixed interest rate of 8.50% for the term of loan. Interest on ESOP Loan II is a fixed rate of 7.75% for the term of the loan. Contributions of principal and interest for the years ended December 31, 2000, 1999 and 1998 totaled $1,035,000, $1,092,000, and $510,000, respectively. Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plan" ("SOP 93-6") requires that the Association reflect shares allocated to employees under the ESOP as compensation expense at their fair value, rather than cost. The difference between the cost of such shares and their fair value is treated, net of tax, as an adjustment of additional paid-in capital. Contributions to the ESOP will be in an amount proportional to the repayment of the ESOP loans, and will be allocated among participants on the basis of compensation in the year of allocation, up to an annual adjusted maximum level of compensation. In accordance with generally accepted accounting principles, the unallocated shares held by the ESOP are shown as a deduction from shareholders' equity. Information related to the ESOP was as follows: ------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------- Number of shares allocated 84,784 84,784 55,610 Average fair value per share $ 11.60 $ 12.45 $ 15.08 ---------- ---------- ---------- Compensation expense $ 983,000 $1,056,000 $ 839,000 ========== ========== ========== Number of shares distributed 17,283 14,386 11,216 ========== ========== ========== 38 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shares held by the ESOP were as follows: ---------------------------------------------------------------------- December 31, 2000 1999 ---------------------------------------------------------------------- Allocated to participants 364,904 297,403 Unallocated 413,765 498,549 ---------- ---------- Total ESOP shares 778,669 795,952 ========== ========== Fair value of unallocated shares $5,302,000 $6,262,000 ========== ========== RECOGNITION AND RETENTION PLANS - Bankshares has two RRPs for the benefit of the Association's directors, officers, and other key employees. Under these plans, the fair value of the shares on the date of award is being recognized as compensation expense over the vesting period. The vesting period for both plans is five years. 1995 RRP - In January 1995, the shareholders of the Association approved the 1995 RRP for certain officers and non-employee directors of the Association. Concurrent with such approval, such officers and directors were awarded 181,756 shares of common stock, which vested over a five year period beginning in January 1996. To fund the 1995 RRP, 181,756 shares were issued from authorized but unissued shares of common stock in July 1995. Certain of these shares were forfeited. 2,044 of the forfeited shares were granted to an officer in January 1996. These shares began the five-year vesting period in January 1997. In May 1999, the remaining 8,525 forfeited shares as well as 12,868 shares purchased in the open market were awarded to certain officers, key employees and non-employee directors of the Association. These shares will also vest over a five year period which began in May 2000. 1999 RRP - In June 1999, the shareholders of Bankshares approved the 1999 RRP for certain officers, key employees and non-employee directors of the Association. Concurrent with such approval, such officers, key employees and directors were awarded 218,826 shares of common stock, which vest over a five year period beginning in June 2000. To fund the 1999 RRP, 218,826 shares of Bankshares' common stock were purchased in the open market. Unamortized deferred compensation of $1,907,000 at December 31, 2000 is reflected as a reduction of shareholders' equity for the RRPs. Compensation expense related to the RRPs was $679,000, $539,000, and $186,000 for the years ended December 31, 2000, 1999 and 1998, respectively. STOCK OPTION PLANS - Bankshares has two stock option plans for the benefit of the Association's directors, officers, and other key employees. Under these plans, the option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. 1995 SOP - The number of shares of Bankshares' common stock reserved for issuance under the 1995 SOP was equal to 486,561 shares or 10% of the total number of common shares issued to persons other than the Mid-Tier Holding Company, pursuant to the Association's conversion to the stock form of ownership in 1994. All stock options issued under this plan vest over five years from the date of grant. Stock options totaling 485,467 were granted to certain directors, officers, and employees in 1995, and the first installment became exercisable on January 18, 1996. The first installment of a 1997 grant of 15,333 shares to an officer of the Association became exercisable on January 18, 1998. An additional grant of 35,513 options was made to certain directors, officers and employees on May 19, 1999, and the first installment under this grant vested and was exercisable on May 19, 2000. Additional grants of 408 and 94 options were made to two new directors in April and September 2000, respectively. The first installments of these grants will vest and be exercisable on April 26, 2001 and September 1, 2001, respectively. 1999 SOP - The number of shares of Bankshares' common stock reserved for issuance under the 1999 SOP was equal to 547,065 shares which was equal to 10% of the shares of common stock sold by Bankshares in the Reorganization. The stock options granted to the directors, officers, and employees vest in five equal annual installments. The first installment vested and became exercisable on June 18, 2000. 39 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Below is a summary of options transactions: ------------------------------------------------------------------- Option Price ------------------------- Average Number of Exercise Aggregate Options Price Per Exercise Outstanding Share Price ------------------------------------------------------------------- Options Outstanding: Balance - January 1, 1998 438,228 $2,444,000 Granted -- -- -- Exercised (18,482) $ 5.44 (101,000) Canceled -- -- -- ---------- ---------- Balance - December 31, 1998 419,746 2,343,000 Granted 582,578 12.20 7,107,000 Exercised (38,433) 5.44 (209,000) Canceled (10,631) 12.19 (130,000) ---------- ---------- BALANCE - DECEMBER 31, 1999 953,260 9,111,000 GRANTED 502 10.85 5,000 EXERCISED (138,618) 5.44 (754,000) CANCELED (920) 12.37 (11,000) ---------- ---------- BALANCE - DECEMBER 31, 2000 814,224 $ 10.26 $8,351,000 ========== ========== Options exercisable at December 31, 2000, 1999 and 1998, totaled 372,673, 288,330, and 234,396, respectively. Bankshares adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock-based Compensation" as of January 1, 1997. The fair value of options granted under the stock option plans during the years ended December 31, 2000, 1999 and 1997 was estimated using the Binary Option Pricing Model with the following assumptions used:
--------------------------------------------------------------------------------------------------- Number of Exercise Fair Value Risk Free Expected Expected Dividend Grant date Options Price of Options Interest Rate Life (Years) Volatility Yield --------------------------------------------------------------------------------------------------- 05/19/99 35,513 $ 12.37 $ 2.20 5.66% 5 18.10% 3.57% 06/18/99 547,065 12.18 2.03 5.76 5 16.46 3.57 04/26/00 408 10.50 2.04 5.76 5 19.08 3.56 09/01/00 94 12.37 2.25 5.98 5 18.61 3.56
If compensation cost for the stock options had been determined based on the fair value at the grant date for awards under those plans consistent with the provisions of SFAS No. 123, Bankshares' net income and earnings per shares for the years ended December 31, 2000 and 1999 would have been reduced to the pro forma amounts indicated below: -------------------------------------------------------------------- For the Years Ended December 31, 2000 1999 1998 --------------------------------------------------------------------- Net income As reported $ 6,412,000 $ 6,534,000 $ 4,994,000 Pro forma 6,259,000 6,381,000 4,989,000 Earnings per share As reported - basic 0.76 0.67 0.49 Pro forma - basic 0.74 0.65 0.49 As reported - diluted 0.74 0.65 0.48 Pro forma - diluted 0.72 0.63 0.48 40 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. REGULATORY RESTRICTIONS ON RETAINED INCOME AND REGULATORY CAPITAL REQUIREMENT The Association is subject to various regulatory capital requirements administered by the OTS. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on Bankshares' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Association's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk-weighting and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of tangible capital of not less that 1.5% of adjusted total assets, total capital to risk-weighted assets of not less that 8.0%, Tier I capital equal to adjusted total assets of 3.0%, and Tier I capital to risk-weighted assets of 4.0% (as defined in the regulations). Management believes, as of December 31, 2000, that the Association meets all capital adequacy requirements to which it is subject. As of December 31, 2000, the most recent notification from the OTS categorized the Association as "Well Capitalized" under the framework for prompt corrective action. To be considered well capitalized under Prompt Corrective Action Provisions, the Association must maintain total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events which have occurred since that notification that management believes have changed the Association's categorization. The Association is required to report capital ratios unconsolidated with Bankshares. The Association's actual capital amounts and ratios are presented in the following tables:
--------------------------------------------------------------------------------------------------------------- To be Considered Well Capitalized For for Prompt Capital Adequacy Corrective Actual Purposes Action Provisions ------------------------------------------------------- Ratio Amount Ratio Amount Ratio Amount -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) AS OF DECEMBER 31, 2000: TOTAL RISK-BASED CAPITAL ( TO RISK-WEIGHTED ASSETS) 14.3% $76,228 8.0% $42,672 10.0% $53,340 CORE (TIER 1) CAPITAL (TO ADJUSTED TANGIBLE ASSETS) 7.7 72,419 4.0 37,452 5.0 46,815 CORE (TIER 1) CAPITAL (TO RISK-WEIGHTED ASSETS) 13.6 72,419 4.0 21,336 6.0 32,004 As of December 31, 2000, adjusted tangible assets and risk-weighted assets were $936,291,000 and $533,399,000, respectively. As of December 31, 1999: Total Risk-Based Capital ( to Risk-weighted Assets) 17.8% $84,710 8.0% $37,989 10.0% $47,486 Core (Tier 1) Capital (to Adjusted Tangible Assets) 9.2 80,787 4.0 35,140 5.0 43,925 Core (Tier 1) Capital (to Risk-weighted Assets) 17.0 80,787 4.0 18,994 6.0 28,491 As of December 31, 1999, adjusted tangible assets and risk-weighted assets were $878,501,000 and $474,857,000, respectively.
LIQUIDATION ACCOUNT - At the close of the conversion and reorganization of the Association in December 1998, a liquidation account in the amount of $50,800,000 was established. The liquidation account will be maintained for the benefit of eligible depositors who continue to maintain their accounts at the Association after December 15, 1998. The liquidation account is to be reduced annually to the extent that eligible depositors have reduced their qualifying deposits. The balance of the liquidation account was $19,686,000 at December 31, 2000. Subsequent increases of such deposits will not restore an eligible depositor's interest in the liquidation account. In the event of a complete liquidation, each eligible depositor will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The Association may not pay dividends that would reduce shareholder's equity below the required liquidation account balance. REPURCHASES OF COMMON STOCK - During the year ended December 31, 2000, Bankshares repurchased 916,128 shares of its common stock at a total cost of $11,106,000, or $12.12 per share as compared to 1,267,444 shares, at a total cost of $15,905,000, or $12.55 per share for 1999. As of December 31, 2000, a total of 2,183,572 shares of common stock had been repurchased at a total cost of $27,011,000, or $12.37 per share. 41 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each major classification of financial instruments at December 31, 2000 and 1999: CASH AND CASH EQUIVALENTS - The carrying amounts reported in the Statement of Financial Condition for cash and cash equivalents approximates their fair value. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE - Fair value is determined by reference to quoted market prices or by use of broker price estimates. LOANS RECEIVABLE, NET - The fair value of loans was estimated by using a method which approximates the effect of discounting the estimated future cash flows over the expected repayment periods using rates which consider credit risk and other relevant factors. FHLB STOCK - The carrying amount of FHLB stock is a reasonable estimate of fair market value. ACCRUED INTEREST RECEIVABLE - The carrying amount of accrued interest receivable is a reasonable estimate of fair market value. DEPOSITS - Current carrying amounts approximate estimated fair value of deposits with no stated maturity, including demand deposits, interest bearing NOW accounts, passbooks and statement accounts, and money market accounts. Fair value for fixed maturity certificate of deposit accounts was estimated by discounting the contractual cash flow using a rate which reflects the Association's cost of funds and other relevant factors. ADVANCES FROM FEDERAL HOME LOAN BANK - The fair value of advances from FHLB is estimated using the Association's cost of funds and other relevant factors. MORTGAGE-BACKED BOND - The fair value of the Bond is estimated using the Association's cost of funds and other relevant factors. ACCRUED INTEREST PAYABLE - The carrying amount of accrued interest payable is a reasonable estimate of fair market value. COMMITMENTS TO EXTEND CREDIT - At December 31, 2000 and 1999, the fair value of commitments to extend credit was considered insignificant due to the short-term nature of the commitments. The estimated fair values of the financial instruments were as follows: ------------------------------------------------------------------------- December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Value Value Value Value ------------------------------------------------------------------------- (In Thousands) Financial assets: Cash and cash equivalents $ 45,118 $ 45,118 $ 45,239 $ 45,239 Securities held to maturity 34,025 36,736 38,802 41,271 Securities available for sale 131,418 131,418 144,840 144,840 Loans receivable, net 691,294 693,542 608,369 600,315 FHLB stock 8,063 8,063 7,009 7,009 Accrued interest receivable 4,363 4,363 3,788 3,788 Financial liabilities: Deposits $681,069 $647,841 $613,943 $617,889 Advances from FHLB 146,714 144,979 140,186 136,653 Mortgage-backed bond 13,582 10,567 14,508 14,661 Accrued interest payable 510 510 612 612 42 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following are condensed statements of financial condition as of December 31, 2000 and 1999, and condensed statements of operations and cash flows for the years ended December 31, 2000, 1999 and 1998. Since the reorganization of Bankshares and the Association was accounted for in a manner similar to a pooling of interests, these statements have been presented as if Bankshares was in existence for all periods covered by the consolidated financial statements. ---------------------------------------------------------------------- December 31, Statements of Financial Condition 2000 1999 ---------------------------------------------------------------------- (In Thousands) ASSETS: Cash and cash equivalents $ 108 $ 101 Investment in the Association 80,791 89,162 Loans to the Association 8,830 15,640 Loans to the ESOP 4,037 4,722 Loans to Palm River 6,000 -- Real estate loans 12,500 6,000 Other assets 1,127 1,101 -------- -------- Total assets $113,393 $116,726 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities $ 930 $ 1,025 Shareholders' equity 112,463 115,701 -------- -------- Total liabilities and shareholders' equity $113,393 $116,726 ======== ========
----------------------------------------------------------------------------------- For the Years Ended December 31, Statements of Operations 2000 1999 1998 ----------------------------------------------------------------------------------- (In Thousands) Income $ 2,068 $ 1,630 $ 90 Expenses 448 519 5 ------- ------- ------- Income before income taxes and equity in earnings of the Association 1,620 1,111 85 Provision for income taxes 610 418 32 ------- ------- ------- Income before equity in earnings of the Association 1,010 693 53 Equity in earnings of the Association 5,402 5,841 4,941 ------- ------- ------- Net income 6,412 6,534 4,994 ------- ------- ------- Other comprehensive income, net of tax: Change in unrealized gain (loss) in market value of securities available for sale 2,503 (2,926) (278) ------- ------- ------- Comprehensive income, net of income taxes $ 8,915 $ 3,608 $ 4,716 ======= ======= =======
43 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------ For the Years Ended December 31, Statements of Cash Flows 2000 1999 1998 ------------------------------------------------------------------------------------------------ (In Thousands) Cash flows from operating activities: Net income $ 6,412 $ 6,534 $ 4,994 Adjustments to reconcile net income to net cash used for operating activities: Equity in undistributed earnings of the Association (914) (2,541) (4,941) Other 2,382 (243) 819 -------- -------- -------- Net cash from operating activities 7,880 3,750 872 -------- -------- -------- Cash flows from investing activities: Loans to subsidiaries 1,495 6,045 (26,407) Real estate loans (6,500) (6,000) -- Dividends received from the Association 11,106 15,905 -- Investment in Association through proceeds from stock sale -- -- (32,340) -------- -------- -------- Net cash from investing activities 6,101 15,950 (58,747) -------- -------- -------- Cash flows from financing activities: Proceeds from sale of stock, net of issuance costs -- -- 53,236 Dividends paid (3,622) (4,115) (2,116) Purchase of treasury stock (11,106) (15,905) -- Purchase of ESOP shares -- -- (4,377) Proceeds from exercise of stock options 754 209 101 -------- -------- -------- Net cash from financing activities (13,974) (19,811) 46,844 -------- -------- -------- Increase (decrease) in cash and cash equivalents 7 (111) (11,031) Cash and cash equivalents, beginning of period 101 212 11,243 -------- -------- -------- Cash and cash equivalents, end of period $ 108 $ 101 $ 212 ======== ======== ========
OTS regulations place certain restrictions on the amount of dividends an association can pay to its holding company without the prior approval of the OTS. An application detailing the effect of proposed dividends on the Association's capital level must be submitted to the OTS before payment of any such dividends. Approval for up to $4,000,000 has been received from the OTS for 2001. 17. EARNINGS PER SHARE A reconciliation of the numerators and denominators of basic and diluted earnings per share for the years ended December 31, 2000, 1999 and 1998, was as follows:
------------------------------------------------------------------------------------------------ For the Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------ (Dollars In Thousands Except Per Share Data) Basic earnings per share Net income available to common shareholders $ 6,412 $ 6,534 $ 4,994 Weighted average common shares outstanding 8,432,346 9,748,916 10,175,899 ----------- ----------- ----------- Basic earnings per share $ 0.76 $ 0.67 $ 0.49 =========== =========== =========== Diluted earnings per share Net income available to common shareholders $ 6,412 $ 6,534 $ 4,994 ----------- ----------- ----------- Weighted average common shares outstanding 8,432,346 9,748,916 10,175,899 Add: dilutive effects of assumed exercise of stock options and unvested RRP shares Stock options 123,772 216,482 271,205 RRP shares 113,608 158,319 1,223 ----------- ----------- ----------- Weighted average common and dilutive potential common shares outstanding 8,669,726 10,123,717 10,448,327 ----------- ----------- ----------- Diluted earnings per share $ 0.74 $ 0.65 $ 0.48 =========== =========== ===========
44 COMMUNITY SAVINGS BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. OTHER COMPREHENSIVE INCOME Other comprehensive income components and related taxes were as follows:
------------------------------------------------------------------------------------------ For the Years Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------ (In Thousands) Unrealized holding gains and losses on available-for-sale securities $ 3,685 $(4,351) $ (423) Less reclassification adjustments for gains and losses later recognized in income 75 -- 175 ------- ------- ------- Net unrealized gains and losses 3,760 (4,351) (248) Tax effect (1,257) 1,425 (30) ------- ------- ------- Other comprehensive income $ 2,503 $(2,926) $ (278) ======= ======= =======
19. QUARTERLY FINANCIAL DATA (Unaudited)
-------------------------------------------------------------------------------------- Quarter Ended March 31, June 30, September 30, December 31, -------------------------------------------------------------------------------------- (Dollars in Thousands) YEAR ENDED DECEMBER 31, 2000: INTEREST INCOME $ 15,538 $ 16,026 $ 16,840 $ 17,256 INTEREST EXPENSE 8,397 8,889 9,906 10,310 -------- -------- -------- -------- NET INTEREST INCOME 7,141 7,137 6,934 6,946 PROVISION FOR LOAN LOSSES 150 75 75 76 NET GAIN ON TERMINATION OF DEFINED BENEFIT PLAN -- 922 (15) (618) OTHER INCOME 931 784 1,174 1,086 OPERATING EXPENSE 5,820 5,552 5,569 5,592 PROVISION FOR INCOME TAXES 495 1,216 850 540 -------- -------- -------- -------- NET INCOME $ 1,607 $ 2,000 $ 1,599 $ 1,206 ======== ======== ======== ======== BASIC EARNINGS PER SHARE $ 0.19 $ 0.23 $ 0.19 $ 0.15 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE $ 0.18 $ 0.23 $ 0.18 $ 0.15 ======== ======== ======== ========
-------------------------------------------------------------------------------------- Quarter Ended March 31, June 30, September 30, December 31, -------------------------------------------------------------------------------------- (Dollars in Thousands) Year ended December 31, 1999: Interest income $14,002 $14,484 $14,742 $15,236 Interest expense 7,146 7,096 7,311 7,982 ------- ------- ------- ------- Net interest income 6,856 7,388 7,431 7,254 Provision for loan losses 322 195 193 195 Other income 978 994 1,045 821 Operating expense 5,601 5,702 5,926 5,756 Provision for income taxes 526 760 679 378 ------- ------- ------- ------- Net income $ 1,385 $ 1,725 $ 1,678 $ 1,746 ======= ======= ======= ======= Basic earnings per share $ 0.14 $ 0.17 $ 0.17 $ 0.19 ======= ======= ======= ======= Diluted earnings per share $ 0.14 $ 0.17 $ 0.16 $ 0.18 ======= ======= ======= =======
45 --------------------------------------------------------------------------------