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 March 31, 1996.
OR
/ / TRANSIT REPORT PURSUANT TO SECTION 35 OR 15 (d) OF THE SECURITIES
ACT OF 1934.
For the transition period from ____________ to _____________.
Commission File Number: 0-24316
COMMUNITY FINANCIAL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2762462
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
222 HADDON AVENUE 08108
WESTMONT NJ (Zip Code)
(Address of Principal
Executive Offices)
(609) 869-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
NUMBER OF SHARES
CLASS OUTSTANDING AS OF APRIL 30, 1996
----- --------------------------------
Common Stock, $5.00 par value 928,869
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INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION NO.
---
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995 3
Consolidated Income Statements - Three Months
ended March 31, 1996 and 1995. 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements -
March 31, 1996 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 5 Other Information 15
Signatures 16
3
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31 DECEMBER 31
------ -------- -----------
1996 1995
---- ----
Cash and Due from Banks $5,964,789 $5,473,753
Federal Funds Sold 6,777,094 1,550,000
Securities Available for Sale 21,286,263 23,375,476
Investment Securities (Market Value
of $13,796,491 at March 31, 1996 and
$15,888,289 at December 31, 1995) 13,687,552 15,684,985
Loans 62,091,302 63,137,885
Less: Allowance for Loan Losses (626,460) (595,593)
--------- ---------
Net Loans 61,464,842 62,542,292
Bank Premises and Equipment, Net 1,893,520 1,934,602
Accrued Interest Receivable 960,293 978,455
Deferred Tax Assets 69,652 45,085
Other Assets 1,946,386 1,260,465
--------- ---------
Total Assets $114,050,391 $112,845,113
============ ============
LIABILITIES
-----------
Demand Deposits $62,314,839 $60,762,250
Savings Deposits 16,372,010 15,752,883
Time Deposits 21,703,537 22,989,356
---------- ----------
Total Deposits 100,390,386 99,504,489
Accrued Interest Payable 583,588 471,805
Securities Sold Under Repurchase
Agreements 2,743,103 2,777,677
Other Liabilities 177,753 129,866
------- -------
Total Liabilities 103,894,830 102,883,837
----------- -----------
SHAREHOLDERS' EQUITY
--------------------
Common Stock $5 Par Value
Authorized 1,600,000 Shares
Issued 928,869 Shares 1996 and
884,637 Shares 1995 4,695,345 4,695,345
Additional Paid In Capital 4,327,162 4,327,162
Retained Earnings 1,257,056 1,015,080
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Gain/(Loss) on Securities
Available for Sale (5,158) 42,533
------- ------
Total Shareholders' Equity 10,155,561 9,961,276
---------- ---------
Total Liabilities &
Shareholders' Equity $114,050,391 $112,845,113
============ ============
The accompanying notes are an integral part of these statements.
4
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
1996 1995
---- ----
Interest Income:
Interest and Fees on Loans $1,458,330 $1,266,198
Interest on Federal Funds Sold 40,407 59,909
Interest and Dividends on Investments 541,638 387,053
------- -------
Total Interest Income 2,040,375 1,713,160
--------- ---------
Interest Expense:
Interest on Demand Deposits 309,654 277,604
Interest on Savings Deposits 100,939 94,485
Interest on Time Deposits 296,286 200,974
------- -------
Total Interest Expense 706,879 573,063
------- -------
Net Interest Income 1,333,496 1,140,097
Provision for Loan Losses 55,000 75,000
------ ------
Net Int Income After Provision
for Loan Losses 1,278,496 1,065,097
--------- ---------
Other Income:
Service Charges on Deposit Accounts 115,890 118,446
Other Income, Service Charges and Fees 69,244 19,749
------ ------
Total Other Income 185,134 138,195
------- -------
Other Expenses:
Salaries, Wages and Employee Benefits 576,741 494,776
Occupancy and Equipment Expenses 191,408 170,939
FDIC Insurance Expense 250 44,250
Data Processing Expense 88,847 76,322
Other Operating Expenses 267,408 227,224
------- -------
Total Other Expenses 1,124,654 1,013,511
--------- ---------
Income Before Income Taxes 338,976 189,781
Income Tax Expense 97,000 62,000
------ ------
Net Income 241,976 127,781
======= =======
The accompanying notes are a integral part of these statements.
5
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $241,976 $127,781
Adjustments To Reconcile Net Income to Net Cash By
Operating Activities:
Depreciation and Amortization 58,615 51,811
Provision For Loan Losses 55,000 75,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net (14,079) 10,403
Loss On Sale of Other Real Estate 9,180 0
Decrease In Accrued Interest Receivable 18,162 103,190
Decrease (Increase) In Deferred Tax Assets (24,567) 61,875
Decrease (Increase) In Other Assets 695,101 10,928
Increase In Accrued Int. Payable 111,783 99,448
Increase In Other Liabilities 47,887 17,775
-------- ---------
Total Adjustments (433,120) 430,430
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (191,144) 558,211
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity Of Securities
Available For Sale (AFS) 5,000,000 2,000,000
Proceeds From Maturities and Prepayments
Of Investment Securities 2,045,694 488,915
Purchases Of Securities AFS (2,946,966) 0
Purchases Of Investment Securities (45,694) (370,994)
Repayments From (Loans Made To)
Customers, Net (1,022,450) (3,463,955)
Premises And Equipment Expenditures (17,533) (164,842)
-------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 5,057,951 (1,510,876)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 885,897 3,016,934
Net Decrease In Short
Term Borrowings (34,574) (52,833)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 851,323 2,964,101
------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 5,718,130 2,011,436
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,023,753 7,527,626
--------- ---------
CASH AND CASH EQUIVALENTS AS OF MARCH 31 $12,741,883 $9,539,062
=========== ==========
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $475,184 $393,384
Income Taxes 120,659 39,000
Non-Cash Items:
Net Unrealized Loss From
Securities AFS (7,815) (150,032)
Tax Effect Of Unrealized Loss
From Securities AFS (2,657) (51,011)
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
March 31, 1996 and 1995 and the results of their operations for the three
months ended March 31, 1996 and 1995. The accounting policies and reporting
practices of the Corporation are in accordance with generally accepted
accounting principals and have been followed on a consistent basis.
The accompanying consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q and accordingly do not include
all of the detailed schedules, information and notes necessary for a fair
presentation of financial condition, results of operations and cash flows in
accordance with generally accepted accounting principals. This quarterly
report should be read in conjunction with Form 10-K dated December 31, 1995,
which contains audited consolidated financial statements of the Corporation.
The results of operations for the three months ended March 31, 1996
and 1995 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. EARNINGS PER SHARE
Earnings per share was calculated based on the weighted average number
of shares of common stock outstanding for the respective periods. The
computation of the March 31, 1996 and 1995 weighted average number of common
shares gives retroactive recognition to a 5% stock dividend declared on
November 13, 1995 payable to shareholders of record on December 1, 1995. The
weighted average numbers of shares used in the computation for the three months
ended March 31, 1996 and 1995 was 944,520.
NOTE 3. SECURITIES
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, (FAS 115) "Accounting for Certain Investments in
Debt and Equity Securities", which requires, among other things, that debt and
equity securities classified as available for sale be reported at fair value
with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of income taxes. The net
effect of unrealized gains or losses, caused by marking an available for sale
portfolio to market, causes fluctuations in the level of shareholders' equity
and related financial ratios as market interest rates cause the fair value of
fixed rate securities to fluctuate.
The unrealized loss on securities available for sale was $5,158 at
March 31, 1996 as compared to a gain of $42,533 at December 31, 1995. This
decrease is primarily due to the current interest rate environment and the
short term nature of portfolio maturities.
7
NOTE 4. LOANS
In May 1993, FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan" and in October 1994, FASB issued SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," an
amendment of SFAS 114. Under SFAS 114 and 118, "impaired" loans must be
measured based on the present value of expected future cash flows discounted at
the loans' effective interest rate or, as a practical expedient, at the loans'
observable market price or the fair value of the collateral if the loan is
collateral dependent. Based on management's analysis, the adoption of SFAS 114
and 118, which is effective beginning in 1995, has not had and is not expected
to have a material effect on the Corporation's consolidated financial
statements.
NOTE 5. OTHER ASSETS
In June 1995, the Bank foreclosed on a commercial property. The fair
value of the property is recorded as $440,000 and is currently being marketed
for sale. The loan was written down to its fair value with an offset to the
reserve for possible loan losses. The loan secured by the property was
previously classified by management and as such was included in managements'
analysis of the adequacy of the reserve for possible loan losses.
8
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Corporation reported net income for the first three months of 1996
of $242,000, an increase of $114,000, or 89.4% when compared to the first three
months of 1995. The increase in earnings was due primarily to an increase in
net interest income and non-interest income along with a reduction in the
provision for loan losses. The increase in earnings was partially offset by
increases in non-interest expense.
Net interest income for the first three months of 1996 was $1.3
million, an increase of $193,000 or 17.0% over the first three months of 1995.
Non-interest income for the first three months of 1996 was $185,000, an
increase of $47,000 or 34.0% over the first three months of 1995. The
provision for loan losses for the first three months of 1996 was $55,000, a
decrease of $20,000 or 26.7% from the provision for the first three months of
1995. The reduction in the provision for loan losses is the result of
managements analysis of the risk inherent in the loan portfolio. Non-interest
expenses for the first three months of 1996 were $1.1 million, an increase of
$111,000 or 11.0% as compared to the first three months of 1995.
Expressed on a per share basis (after giving retroactive effect to the
payment of a 5% stock dividend in 1995), net income for the first three months
of 1996 was $0.26 per share compared to $0.14 per share for the first three
months of 1995, an increase of 85.7%. Book value per share as of March 31,
1996 was $10.93 an increase of 10.9% from book value per share of $9.86 at
March 31, 1995.
The Corporations' assets totalled $114.0 million at March 31, 1996, an
increase of $1.2 million or 1.1% over total assets of $112.8 million at
December 31, 1995. The increase was due primarily to growth in deposits which
increased $886,000 from December 31, 1995 primarily from increased market share
in the Corporations' primary service area. Total loans were $62.1 million at
March 31, 1996 compared to $63.1 million at December 31, 1995, a decrease of
$1.0 million or 1.7%. Cash and cash equivalents, including federal funds sold,
increased $5.7 million or 81.4% to $12.7 million at March 31, 1996 from $7.0
million at December 30, 1995. This increase reflects management's decision to
temporarily invest the deposit increase and maturing securities in short term
federal funds. The investment portfolio was $ 35.0 million at March 31, 1996,
a decrease of $4.1 million or 10.5% from $39.1 million at December 31, 1995.
The unrealized loss on securities available for sale at March 31, 1996, net of
taxes, was $5,000. The change from a gain of $42,000 at December 31, 1995 is
due primarily to the short term maturities of the available for sale portfolio
and the current nature of the interest rate environment. Maturities have
primarily been used to fund loans and short term investments. Other Assets
increased $686,000 or 54.4% to $1.9 million at March 31, 1996 from $1.3 million
at December 31, 1995 primarily due to an increase mortgage loan receivables.
The mortgage loans were originated by the Corporations' residential mortgage
department. These mortgages were sold and awaiting funding.
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 $1.3 million for the three months ended March 31, 1996. This
represents a 17.0% increase when compared to net interest income of $1.1
million for the same period in 1995.
9
Average interest-earning assets for the first three months of 1996
were $103.7 million, an increase of $14.6 million or 16.3% as compared to the
first three months of 1995. The most significant increase in average earning
assets occurred in the loan and investment portfolios. The loan portfolio
average balance for the first three months of 1996 was $62.9 million, an
increase of $8.2 million or 14.9% as compared to the first three months of
1995. The investment portfolio average balance for the first three months of
1996 was $37.8 million, an increase of $7.4 million or 24.4% over the average
balance for the first three months of 1995. These increases were funded
primarily from an increase in deposits.
The positive impact on net interest income from increased
interest-earning assets was partially offset by an increase in interest-bearing
deposits. Average interest-bearing deposits for the first three months of 1996
were $78.8 million, an increase of $10.9 million or 16.1% as compared to the
first three months of 1995. The most significant increase in interest-bearing
deposits occurred in interest-bearing demand deposits and certificates of
deposit. The interest-bearing demand deposit average balance for the first
three months of 1996 was $37.6 million, an increase of $5.1 million or 15.6%
over the first three months of 1995. The certificate of deposit average balance
for the first three months of 1996 was $22.6 million, an increase of $4.7
million or 26.0% as compared to the first three months of 1995.
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 decreased slightly
from 5.30% to 5.28% for the three months ended March 31, 1995 and 1996,
respectively. This decrease is primarily resultant from the increase in average
interest-bearing deposits and the interest rates for those deposits. The cost
of average interest bearing deposits increased 19 basis points to 3.61% for the
first three months of 1996 as compared to 3.42% for the first three months of
1995. The most significant increase in interest rates was in the rate paid for
certificates of deposit balances which increased 73 basis points from 4.55% to
5.28% for the three months ended March 31, 1995 and 1996, respectively. This
increase was offset partially by a decrease in the rate paid for
interest-bearing demand deposits. This rate decreased 9 basis points from 3.03%
for the first three months of 1995 to 2.94% for the first three months of 1996.
The decrease in net interest margin caused by the interest-bearing
deposit portfolio was partially offset by an increase in average earning assets
and the interest yield from those assets which increased from 7.91% to 8.02%
for the three months ended March 31, 1995 and 1996, respectively. The most
significant increase in interest yield occurred in the investment portfolio
which increased from 5.50% to 6.06% for the three months ended March 31, 1995
and 1996, respectively.
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The table below illustrates the changes in interest rate margin and
interest rate spread based on average amounts outstanding for the three months
ended March 31, 1996 and 1995.
THREE MONTHS ENDED
------------------
MARCH 31
------------
1996 1995
---- ----
ASSETS
Securities 6.06% 5.50%
Fed Funds 5.37% 6.04%
Loans 9.33% 9.38%
----- -----
Total Earning Assets 8.02% 7.91%
===== =====
LIABILITIES
Demand Deposits 2.94% 3.03%
Savings Deposits 2.61% 2.62%
Time Deposits 5.28% 4.55%
Repurchase Agreements 4.49% 4.87%
----- -----
Total Int Bearing Liabilities 3.61% 3.42%
===== =====
Net Interest Rate Spread 5.23% 5.25%
Net Interest Rate Margin 5.28% 5.30%
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 three months
ending March 31, 1996 were 55.5% of average assets as compared to 56.4% of
average assets for the three months ending March 31, 1995. The average balance
for certificates of deposit and repurchase agreements, which are the highest
yielding liabilities, for the three months ending March 31, 1996 were 22.7% of
average assets as compared to 22.0% for the three months ending March 31, 1995.
Average non-interest bearing deposits for the three months ending March 31,
1996 were 20.4% of average assets as compared to 20.1% for the three months
ended March 31, 1995. The average balance for non-interest bearing deposits
was $23.1 million for the three months ended March 31, 1996 as compared to
$19.5 million for the three months ended March 31, 1995, an increase of $3.6
million or 18.6%.
NON-INTEREST INCOME
Non-interest income was $185,000 an increase of 34.0% or $47,000 for
the first three months of 1996 compared to $138,000 for the first three months
of 1995. A primary component of non-interest income is fee income generated by
the Corporations' residential mortgage department. This fee income was $52,000
for the first three months of 1996, compared to $7,000 for the first three
months of 1995. Service charges on depositor accounts was $116,000 for the
first three months of 1996 a decrease of 2% from $118,000 from the first three
months of 1995. In February 1996, the Corporation announced that monthly
charges for demand deposit accounts would be discontinued. Management expects
the discontinuance of monthly charges to reduce non-interest income. Management
also believes the "free-checking accounts" will enable greater access to new
and existing markets. Management also believes that non-interest bearing
deposits will increase resulting in lower average costs of funds.
NON-INTEREST EXPENSES
Non-interest expense increased $111,000 or 11.0% in the first three
months of 1996 compared to the first three months of 1995. Expenditures
related to salaries and occupancy and equipment are the primary components of
non-interest expense and represent the largest portion of the increase.
Salaries and benefits increased 16.6% or $82,000 in the first three months of
1996 compared to the first three months of 1995. These increases were due
primarily to staff additions for the residential mortgage department as well as
merit increases in salaries.
11
Occupancy and equipment expenses increased $20,000 or 12.0% in the
first three months of 1996 compared to the first three months of 1995. This
increase was primarily due to repair and maintenance expenses, the most
significant of which was snow removal expense.
There was minimal expense for FDIC insurance for the three months
ended March 30, 1996 as compared to $44,000 for the three months ended March
31, 1995. This decrease was the result of recently enacted federal legislation
which lowered the premium for the Corporation.
A primary component in the $40,000 or 17.7% increase in other
operating expenses for the first three months of 1996 as compared to the first
three months of 1995 is a loss of $9,000 on the sale of other real estate owned
(OREO) property. This was a residential property taken in foreclosure and sold
in January. In addition, OREO property expense increased $15,000 and expenses
for supplies increased $7,000 for the three months ending March 31, 1996 as
compared to the three months ending March 31, 1995.
INCOME TAXES
Income taxes increased to $97,000 from $62,000 or 56.5% in the first
three months of 1996 and 1995, respectively. The increase resulted primarily
from the higher level of pre-tax income. The effective tax rates for the first
three months of 1996 and 1995 were 28.6% and 32.7% respectively. The decrease
in the effective tax rate was due primarily to the establishment of the
Community Investment Company to take advantage of passive income provisions of
the New Jersey state income tax code.
12
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 $55,000 for the first
three months of 1996 as compared to a provision of $75,000 for the first three
months of 1995. The lower provision for the first three months of 1996 was due
to overall improvement in credit quality. The allowance for possible loan
losses was $626,000 at March 31, 1996 and $652,000 at March 31, 1995. The Bank
had net charge-offs of $29,000 and $30,000 for the three months ended March 31,
1996 and 1995, respectively.
The following is a summary of the activity in the allowances for loan
losses for the three months ended March 31, 1996 and 1995.
1996 1995
---- ----
Balance at the beginning of period $595,593 $604,054
Provision for loan losses 55,000 75,000
Recoveries 5,223 3,453
Losses charged against the allowance (29,356) (30,191)
-------- ---------
Balance at March 31, 1996 $626,460 $652,316
======== =========
The reduction in the provision for loan losses in the first three
month period of 1996 reflects the improvement in total loan quality at March
31, 1996. One OREO property in the amount of $440,000 accounts primarily for
the non-performing assets. This loan secured by the property was previously
classified by the Bank and as such has been included in managements' analysis
of the adequacy of the loan loss reserve. Management has, through its most
recent analysis of the adequacy of the allowance for loan losses completed as
of March 31, 1996, determined the allowance to be adequate. Future additions
to the allowance for possible loan losses through provisions charged to
operations will be determined as a result of managements' continuing analysis
of the adequacy for the allowance of possible loan losses.
The following is a summary of the Company's non-performing assets as
of March 31, 1996 and December 31, 1995.
MARCH 31 DEC 31
(DOLLARS IN THOUSANDS) 1996 1995
---------------------- ---- ----
Past due 90 days or more and
still accruing $303 $ 10
Non-Accrual loans 316 320
--- ---
Total non-performing loans 619 330
Other Real Estate owned 536 638
--- ---
Total Non-Performing Assets $1155 $968
===== ====
Non-performing loans as a
percentage of loans 1.00% 0.52%
Non-performing loans as a
percentage of loan and OREO 0.99% 1.52%
Non-performing assets as a
percentage of assets 1.01% 0.86%
13
As discussed above, one OREO property in the amount of $440,000
accounts primarily for the non-performing assets. Also, as indicated above,
this loan was previously classified by the Bank and included in management's
analysis of the adequacy of the loan loss reserve. The other real estate owned
at March 31, 1996 is one commercial property valued at $440,000 taken in
foreclosure and one residential property valued at $96,000 also taken in
foreclosure. Both properties are currently for sale. The ratio of
non-performing loans as a percentage of loans and OREO decreased from 1.52% to
.99% from December 31, 1995 to March 31, 1996. This decrease was primarily due
to the sale of OREO and decrease of total loans. While the amount of loans
past due more than ninety days and still accruing has increased, the increase
is the result of several unrelated loans. These loans were previously
classified by Management and considered in the reserve for loan loss analysis.
When loans are placed on non-accrual, accrued income form the current period is
reversed from current earnings. Consumer loans are charged off when principal
or interest is 120 or more days delinquent, or are placed on non-accrual if the
collateral is sufficient to recover the principal. All non-accrual loans are,
in the opinion of management, either adequately collateralized, in process of
collection, or adequately provided for in the Corporations' allowance for
possible loan losses.
The Corporation's commercial loan portfolio is largely loans secured
by owner occupied commercial real estate with an average loan to value ratio
under 75%. There is no significant concentration in the portfolio with any
business or industrial segment. The Corporation's consumer loan portfolio
consists of home equity, automobile, credit cards and personal loans.
Approximately 50% of the consumer portfolio consists of home equity loans. The
average loan to value ratio of these loans is under 75%. The Corporations'
lending activity extends to individuals and small and medium sized businesses
within its primary service area, which is predominantly Camden, Gloucester and
Burlington counties, New Jersey. The Corporation does not attempt to make
significant loans outside its primary service area. The primary service area
is a diverse economic and employment market with no significant dependence on
any one industry or large employer.
LIQUIDITY
Liquidity represents the ability to meet present and future financial
obligations through either the sale or maturity of existing assets or the
acquisition of additional funds through liability management. Liquid assets
include cash, federal funds sold, securities classified as available for sale,
and loans maturing within one year. As a result of the Corporations'
management of liquid assets, and the ability to generate liquidity through
liability funds, management believes that the Corporation maintains overall
liquidity sufficient to satisfy its deposit requirements and meet its
customers' credit needs.
At March 31, 1996, cash, securities classified as available for sale,
and federal funds sold were 29.8% of total assets compared to 26.9% of total
assets at December 31, 1995. Asset liquidity is also provided by managing loan
and securities investment maturities. At March 31, 1996, approximately $20.5
million or 33.1% of loans would mature or reprice within a one year period. To
the extent possible, loans are funded with deposits or other funding with
coinciding maturity or repricing dates.
14
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, changing competitive
conditions, economic forces and growth and expansion activities. The
Corporation seeks to maintain a capital base to support its growth and
expansion activities, to provide stability to current operations and to promote
public confidence. On June 16, 1994 the Corporation completed a sale of 450,000
shares of common stock which improved capitalization of the Bank by
approximately $4.1 million.
The Corporations' capital position continues to exceed regulatory
minimums. The primary indicators relied on by the Federal Reserve Board and
other bank regulators in measuring strength of capital position are the Tier 1
Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratio.
Tier 1 Capital consists of common and qualifying preferred stockholders equity
less goodwill. Total Capital consists of Tier 1 Capital, and a portion of the
allowance for possible loan losses. Risk-based capital ratios are calculated
with reference to risk weighted assets which consists of both on and off
balance sheet risks (such as letters of credit and unused lines of credit).
The Corporations' Tier 1 Risk Based Capital Ratio was 15.4% at March
31, 1996 compared to 15.8% at December 31, 1995. The Corporations' Total Risk
Based Capital Ratio was 16.4% at March 31, 1996 compared to 16.8% at December
31, 1995. These ratios are in excess of the mandated minimum requirements of
4.0% and 8.0% respectively. The Leverage Ratio consists of Tier 1 capital
divided by quarterly average assets. At March 31, 1996, the Corporations'
Leverage Ratio was 9.0% which exceeded the required minimum leverage ratio of
4.0%.
15
PART II - OTHER INFORMATION
ITEM 5
The corporation is actively seeking to expand the branch network of
its bank subsidiary. The corporation is in negotiation with two regional banks
for four branch locations being closed as a result of their respective
consolidations. A letter of intent has been signed for the purchase of three
locations from one organization. The corporation during its due diligence
period which ends May 31, 1996 will assess the condition of each property to
determine its interest in continuing with the purchase of any or all of the
three locations. The fourth location, if consummated, will be the assumption
of a lease.
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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: May 10, 1996 By: /s/ GERARD M. BANMILLER
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Gerard M. Banmiller
President & Chief Executive Officer
Date: May 10, 1996 By: /S/ KEVIN L. KUTCHER
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Kevin L. Kutcher
Executive Vice President/Chief Financial Officer