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 September 30, 1997.
OR
( ) TRANSIT REPORT PURSUANT TO SECTION 35 OR 15 (d) OF THE SECURITIES ACT
OF 1934.
For the transition period from ____________ to _____________.
Commission File Number: 0-24316
COMMUNITY FINANCIAL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 52-1712224
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
222 HADDON AVENUE 08108
WESTMONT NJ (Zip Code)
(Address of Principal
Executive Offices)
(609) 869-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
NUMBER OF SHARES
CLASS OUTSTANDING AS OF NOVEMBER 9, 1997
----- ----------------------------------
Common Stock, $5.00 par value 978,774
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INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996
Consolidated Income Statements - Three Months ended
September 30, 1997 and 1996; Nine months ended September 30,
1997 and 1996.
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements -
September 30, 1997
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
None
Signatures
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COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30 DECEMBER 31
------ ------------ -----------
1997 1996
---- ----
Cash and Due from Banks $ 9,316,764 $ 8,282,683
Federal Funds Sold 3,252,094 8,050,000
Securities Available for Sale
(Amortized Cost of $14,969,688 at
September 30, 1997 and $14,603,603
at December 30, 1996) 14,955,048 14,590,571
Investment Securities (Market Value
of $21,656,587 September 30, 1997 and
$18,213,864 at December 31, 1996) 21,543,085 18,137,427
Loans Held for Sale 967,185 1,304,840
Loans 83,124,729 72,387,490
Less: Allowance for Loan Losses (840,907) (738,353)
---------- ----------
Net Loans 82,283,822 71,649,137
Bank Premises and Equipment, Net 4,833,252 3,120,643
Accrued Interest Receivable 982,134 902,084
Deferred Tax Assets 71,973 88,320
Other Assets 876,283 401,614
----------- -----------
Total Assets $139,081,640 $126,527,319
============ ============
LIABILITIES
-----------
Demand Deposits $ 85,068,861 $ 70,910,844
Savings Deposits 18,272,176 17,266,946
Time Deposits 22,494,644 23,270,538
----------- -----------
Total Deposits 125,835,681 111,448,328
Accrued Interest Payable 546,807 584,769
Securities Sold Under Repurchase
Agreements 931,596 3,280,586
Other Liabilities 275,911 267,881
----------- -----------
Total Liabilities 127,589,995 115,581,564
----------- -----------
SHAREHOLDERS' EQUITY
--------------------
Common Stock $5 Par Value
Authorized 3,200,000 Shares
Issued 988,974 Shares 1997 and 1996 4,944,870 4,944,870
Additional Paid In Capital 4,899,873 4,899,873
Retained Earnings 1,775,408 1,228,457
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Loss on Securities
Available for Sale (9,662) (8,601)
---------- -----------
Total Shareholders' Equity 11,491,645 10,945,755
----------- -----------
Total Liabilities &
Shareholders' Equity $139,081,640 $126,527,319
============ ============
The accompanying notes are an integral part of these statements.
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COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30
1997 1996 1997 1996
---- ---- ---- ----
Interest Income:
Interest and Fees on Loans $5,051,718 $4,525,153 $1,760,311 $1,586,520
Interest on Federal Funds Sold 132,847 244,435 61,956 137,318
Interest and Dividends on Investments 1,604,653 1,537,520 527,404 479,527
--------- --------- --------- ---------
Total Interest Income 6,789,218 6,307,108 2,349,671 2,203,365
--------- --------- --------- ---------
Interest Expense:
Interest on Demand Deposits 885,264 828,342 330,779 290,183
Interest on Savings Deposits 327,993 302,554 112,184 100,786
Interest on Time Deposits 901,134 855,648 298,441 279,958
Interest on Short Term Borrowings 42,236 111,458 15,280 48,328
--------- --------- ------- -------
Total Interest Expense 2,156,627 2,098,002 756,684 719,255
--------- --------- ------- -------
Net Interest Income 4,632,591 4,209,106 1,592,987 1,484,110
Provision for Loan Losses 255,000 265,000 90,000 120,000
--------- --------- --------- ---------
Net Interest Income After Provision
for Loan Losses 4,377,591 3,944,106 1,502,987 1,364,110
--------- --------- --------- ---------
Other Income:
Service Charges on Deposit Accounts 449,440 368,450 170,388 129,433
Other Income, Service Charges and Fees 426,602 299,563 178,435 101,677
------- ------- ------- -------
Total Other Income 876,042 668,013 348,823 231,110
------- ------- ------- -------
Other Expenses:
Salaries, Wages and Employee Benefits 2,353,887 1,789,822 848,874 620,544
Occupancy and Equipment Expenses 784,352 565,316 278,770 189,928
Advertising Expense 129,206 114,000 39,206 36,000
Data Processing Expense 323,219 266,309 110,642 91,367
Other Operating Expenses 979,255 830,842 354,802 310,218
--------- --------- --------- ---------
Total Other Expenses 4,569,919 3,566,289 1,632,294 1,248,057
--------- --------- --------- ---------
Income Before Income Taxes 683,714 1,045,830 219,516 347,163
Income Tax Expense 136,763 331,764 21,000 122,000
--------- --------- ------- -------
Net Income 546,951 714,066 198,516 225,163
========= ========= ======= =======
Net Income Per Share $0.52 $0.69 $0.19 $0.22
The accompanying notes are a integral part of these statements.
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COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $546,951 $714,066
Adjustments To Reconcile Net Income to Net Cash By
Operating Activities:
Depreciation and Amortization 262,633 172,535
Provision For Loan Losses 255,000 265,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net 6,058 (33,111)
Loss On Sale of Securities Available For Sale 0 5,127
Loss On Sale of Other Real Estate 0 14,893
Decrease (Increase) In Accrued Interest Receivable (80,050) 156,000
Decrease (Increase) In Deferred Tax Assets 16,347 (44,136)
Increase In Other Assets (474,669) (640,910)
Increase (Decrease) In Accrued Interest Payable (37,962) 75,856
Increase In Other Liabilities 8,030 71,971
---------- ----------
Total Adjustments (44,613) 43,225
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 502,338 757,291
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity and Sales Of Securities
Available For Sale (AFS) 3,500,000 12,511,687
Proceeds From Maturities and Prepayments
Of Investment Securities 3,503,283 5,262,973
Purchases Of Securities AFS (3,805,038) (7,371,444)
Purchases Of Investment Securities (6,975,499) (4,076,182)
Loans Made To Customers, Net (10,552,030) (7,897,324)
Premises And Equipment Expenditures (1,975,242) (1,199,309)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (16,304,526) (2,769,599)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 14,387,353 11,417,352
Net Increase (Decrease) In Short Term Borrowings (2,348,990) 2,120,766
Proceeds From Issuance of Common Stock Under Director
and Officer Stock Option Plan 0 29,900
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,038,363 13,568,018
----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,763,825) 11,555,710
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 16,332,683 7,023,753
----------- -----------
CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30 $12,568,858 $18,579,463
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $2,194,589 $1,878,547
Income Taxes 289,912 315,582
Non-Cash Items:
Net Change In Unrealized Loss From
Securities AFS (1,608) 65,371
Tax Effect Of Unrealized Loss
From Securities AFS (4,978) 22,226
Acquisition of Real Estate in Settlement of Loans 108,000 0
The accompanying notes are an integral part of these statements.
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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
September 30, 1997 and 1996 and the results of their operations for the three
and nine months ended September 30, 1997 and 1996. The accounting policies and
reporting practices of the Corporation are in accordance with generally
accepted accounting principals and have been followed on a consistent basis.
The accompanying consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q and accordingly do not include
all of the detailed schedules, information and notes necessary for a fair
presentation of financial condition, results of operations and cash flows in
accordance with generally accepted accounting principals. This quarterly
report should be read in conjunction with Form 10-K dated December 31, 1996,
which contains audited consolidated financial statements of the Corporation.
The results of operations for the three and nine months ended
September 30, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. EARNINGS PER SHARE
Earnings per share was calculated based on the weighted average number
of shares of common stock outstanding for the respective periods. The
computation of the September 30, 1997 and 1996 weighted average number of
common shares gives retroactive recognition to a 5% stock dividend declared on
November 7, 1996 payable to shareholders of record on December 1, 1996. The
weighted average numbers of shares used in the computation for the three and
nine months ended September 30, 1997 and 1996 was 1,057,871 and 1,028,695,
respectively.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per
Share" ("EPS"). This statement, which supersedes APB Opinion No. 15,
simplifies the standards for computing EPS and makes them comparable to
international standards. SFAS No. 128 replaces the current "primary" and
"fully diluted" earnings per share with "basic" and "diluted" earnings per
share. Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock, or resulted in the issuance of common stock that then shared
in the earnings of the company. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for the periods ending December 31, 1997. Early
application is not permitted and prior period restatement is required.
Management does not believe application of this standard will have a material
impact on the Corporations reported EPS.
NOTE 3. SECURITIES
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, (FAS 115) "Accounting for Certain Investments in
Debt and Equity Securities", which requires, among other things, that debt and
equity securities classified as available for sale be reported at fair value
with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of income taxes. The net
effect of
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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 $10,000 at
September 30, 1997 as compared to a loss of $9,000 at December 31, 1996. This
increase is primarily due to the current interest rate environment and the
short term nature of portfolio maturities.
NOTE 4. LOANS HELD FOR SALE
The Bank originates residential real estate loans and sells primarily
fixed rate loans to various investors such as mortgage companies and agencies.
The Bank has purchase committments at par value for all loans held for sale.
The interest income earned from the loan closing date to the date of the sale
is recorded as Interest And Fees On Loans.
NOTE 5. LOANS
In May 1993, FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan" and in October 1994, FASB issued SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," an
amendment of SFAS 114. Under SFAS 114 and 118, "impaired" loans must be
measured based on the present value of expected future cash flows discounted at
the loans' effective interest rate or, as a practical expedient, at the loans'
observable market price or the fair value of the collateral if the loan is
collateral dependent. Based on management's analysis, the adoption of SFAS 114
and 118, which is effective beginning in 1995, has not had and is not expected
to have a material effect on the Corporation's consolidated financial
statements.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Corporation reported net income for the first nine months of 1997
of $547,000, a decrease of $167,000 or 23.4% when compared to the first nine
months of 1996. The decrease in earnings was due primarily to an increase in
operating expenses associated with four branch locations which were acquired in
1996. The Corporation opened branches in September 1996, February 1997, May
1997 and September 1997. The increase in operating expenses was partially
offset by increases in net interest income and fees and service charges.
The Corporation also reported net income of $199,000 for the three
months ended September 30, 1997, a decrease of $27,000 or 11.8% when compared
to the three months ended September 30, 1996. The decrease in earnings was due
primarily to an increase in operating expenses due primarily to additional
branch locations. The increase in operating expenses was partially offset by
increases in net interest income and fees and service charges.
Net interest income for the nine months ended September 30, 1997 was
$4.6 million, an increase of $423,000 or 9.1% over the first nine months of
1996. Non-interest income for the first nine months of 1997 was $876,000, an
increase of $208,000 or 31.1% over the first nine months of 1996. Non-interest
expense was $4.6 million for the first nine months of 1997, an increase of $1.0
million or 28.1% over the first nine months of 1996.
Net interest income for the three months ended September 30, 1997 was
$1.6 million, an increase of $109,000 or 7.3% over the three months ended
September 30, 1996. The provision for loan losses was $90,000 for the three
months ended September 30, 1997, a decrease of $30,000 or 25.0% from the
provision of $120,000 for the three months ended September 30, 1996.
Non-interest income for the three months ended September 30, 1997 was $349,000,
an increase of $118,000 or 50.9% over the three months ended September 30,
1996. Non-interest expenses for the three months ended September 30, 1997 were
$1.6 million, an increase of $384,000 or 30.8% as compared to the three months
ended September 30, 1996.
Expressed on a per share basis (after giving retroactive effect to the
payment of a 5% stock dividend in 1996), net income for the first nine months
of 1997 was $0.52 per share compared to $0.69 per share for the first nine
months of 1996, a decrease of 24.6%. Net income for the three months ended
September 30, 1997 was $0.19 per share compared to $0.22 per share for the
three months ended September 30, 1996, a decrease of 13.6%. Book value per
share as of September 30, 1997 was $10.86 an increase of 5.23% from book value
per share of $10.32 at September 30, 1996, on a fully diluted per share basis.
The Corporations' assets totalled $139.1 million at September 30,
1997, an increase of $12.5 million or 9.9% over total assets of $126.5 million
at December 31, 1996. The increase was due primarily to growth in deposits
which increased $14.4 million or 12.9% from December 31, 1996 primarily from
increased market share in the Corporations' primary service area. The increase
in deposits was partially offset by securities sold under repurchase agreements
which decreased $2.3 million or 71.6% from December 31, 1996. The increase in
deposits occurred primarily in demand deposits which increased $14.2 million or
20.0% from $70.9 million at December 31, 1996 to $85.1 million at September 30,
1997.
Loans were $83.1 million at September 30, 1997 compared to $72.4
million at December 31, 1996, an increase of $10.7 million or 14.8%. Cash and
cash equivalents, including federal funds sold, decreased $3.8 million or 23.0%
to $12.6 million at September 30, 1997 from $16.3 million at December 31, 1996.
The investment portfolio was $36.5 million at September 30, 1997, an increase
of $3.8 million or 11.5% from $32.7 million at December 31, 1996. The
unrealized loss on securities available for sale at September 30, 1997, net of
taxes, was $10,000
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as compared to the loss of $9,000 at December 31, 1996. The increase in the
amount of loss on securities available for sale is due primarily to the short
term maturities of the available for sale portfolio and the current nature of
the interest rate environment.
Loans held for sale were $967,000 at September 30, 1997, a decrease of
$338,000 or 25.9% as compared to $1.3 million at December 31, 1996. Loans held
for sale are residential mortgage loans originated by the Corporations'
subsidary bank for which commitments for sale at par have been obtained. Bank
premises and equipment at September 30, 1997 were $4.8 million, an increase of
$1.7 million or 54.9% from $3.1 million at December 31, 1996. The increase in
bank premises and equipment is primarily related to improvements and
renovations at the branches that were purchased in 1996. Other assets
increased $475,000 or 118.2% from $402,000 at December 31, 1996 to $876,000 at
September 30, 1997. The increase in other assets occurred primarily as a
result of the Banks' purchase of mortgage servicing rights on March 1, 1997.
Mortgage servicing rights increased $247,000 from $61,000 at December 31, 1996
to $308,000 at September 30, 1997.
NET INTEREST INCOME
The principal source of revenue for the Corporation is net interest
income. Net interest income is the difference between interest income earned
on loans and other interest-earning assets and interest expense paid on
deposits and borrowings. 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 $4.6 million for the nine months ended September 30, 1997.
This represents a 10.1% increase when compared to net interest income of $4.2
million for the same period in 1996. Net interest income for the three months
ended September 30, 1997 was $1.6 million. This represents an 7.3% increase
when compared to net interest income of $1.5 million for the same period in
1996.
Average interest-earning assets for the first nine months of 1997 were
$115.0 million, an increase of $8.4 million or 7.9% as compared to the first
nine months of 1996. The most significant increase in average earning assets
occurred in the loan portfolio. The loan portfolio average balance for the
first nine months of 1997 was $76.0 million, an increase of $10.7 million or
16.4% as compared to the first nine months of 1996. This increase occurred
primarily in residential mortgage loans and was funded primarily from an
increase in deposits.
Average interest-earning assets for the three months ended September
30, 1997 were $119.8 million, an increase of $9.2 million or 8.3% as compared
to the three months ended September 30, 1996. The most significant increase in
average earning assets occurred in the loan portfolio. The loan portfolio
average balance for the three months ended September 30, 1997 was $79.6
million, an increase of $11.3 million or 16.6% as compared to the three months
ended September 30, 1996. This increase also occurred primarily in residential
mortgage loans and was funded primarily from an increase in deposits.
The positive impact on net interest income from increased
interest-earning assets for the first nine months of 1997 as compared to the
first nine months of 1996 was also enhanced by a decrease in interest-bearing
liabilities. Average interest-bearing liabilities for the first nine months of
1997 were $79.0 million, a decrease of $3.9 million or 4.7% as compared to the
first nine months of 1996. The most significant decrease in interest-bearing
liabilities occurred in time deposits and securities sold under repurchase
agreements. The time deposits average balance for the first nine months of
1997 was $37.0 million, a decrease of $1.1 million or 2.8% from the first nine
months of 1996. The average balance for securities sold under repurchase
agreements for the first nine months of 1997 was $1.1 million, a decrease of
$2.1 million or 64.8% as compared to the first nine months of 1996.
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The positive impact on net interest income from increased
interest-earning assets for the three months ended September 30, 1997 as
compared to the three months ended September 30, 1996 was partially offset by
an increase in interest-bearing liabilities. Average interest-bearing
liabilities for the three months ended September 30, 1997 were $87.0 million,
an increase of $4.1 million or 5.0% as compared to the three months ended
September 30, 1996. The most significant increase in interest-bearing
liabilities occurred in interest-bearing demand deposit accounts. The average
balance for interest-bearing demand deposit accounts for the three months ended
September 30, 1997 was $45.0 million, an increase of $3.8 million or 9.3% as
compared to the three months ended September 30, 1996.
Net interest margin is calculated as the tax-equivalent net interest
income divided by the average earning assets and represents the Corporations'
net yield on its earning assets. The net interest margin increased from 5.38%
to 5.55% for the nine months ended September 30, 1996 and 1997, respectively.
This increase is primarily resultant from the interest yield of
interest-earning assets which increased 7 basis points from 8.01% to 8.08% for
the nine months ended September 30, 1996 and 1997, respectively. The most
significant increase in yield occurred in the investment portfolio. The yield
from the investment portfolio increased 37 basis points from 6.17% to 6.54%.
In addition, the yield from federal funds sold increased 20 basis points from
5.30% for the first nine months of 1996 to 5.50% for the first nine months of
1997. These increases in interest yields were partially offset by a decrease
in the yield from loans which declined 37 basis points from 9.25% to 8.88% for
the nine months ended September 30, 1996 and 1997, respectively. Average
interest earning assets for the first nine months of 1997 increased $8.4
million or 8.4% from $106.5 million for the first nine months of 1996 also
partially offsetting increases in interest yields.
The increase yield from interest earning assets was also partially
offset by the cost of average interest bearing deposits which increased 16
basis points to 3.65% for the first nine months of 1997 as compared to 3.49%
for the first nine months of 1996. The most significant increase in interest
rates was in the rate paid for time deposit (savings and certificates of
deposit) balances which increased 39 basis points from 4.05% to 4.44% for the
nine months ended September 30, 1996 and 1997, respectively.
The net interest margin for the three months ended September 30, 1997
was 5.52%, an increase of 7 basis points from 5.45% for the three months ended
September 30, 1996. This increase is primarily resultant from an increase in
the interest yield from interest earning assets of 3 basis points from 8.04% to
8.07% for the three months ended September 30, 1996 and 1997, respectively.
The most significant increase in interest yield was in the securities portfolio
which increased 18 basis points from 6.36% to 6.54% for the three months ended
September 30, 1996 and 1997, respectively. The interest yield from federal
funds sold also increased 28 basis points from 5.27% to 5.55% for the three
months ended September 30, 1996 and 1997, respectively. Partially offsetting
the increase in yield from the securities portfolio and federal funds sold was
the loan portfolio for which the yield decreased 37 basis points from 9.24% to
8.87% for the three months ended September 30, 1996 and 1997, respectively.
Average interest-earning assets for the three months ended September 30, 1997
increased $9.2 million or 8.3% from $110.6 for the three months ended September
30, 1996 also partially offsetting increases in interest yields.
The net increased yield from interest earning assets was also
partially offset by a slight increase in the rate paid for interest bearing
deposits which increased 4 basis points from 3.45% for the three months ended
September 30, 1996 to 3.49% for the three months ended September 30 1997. This
increase was primarily resultant from the rate paid for interest bearing demand
deposits which increased 14 basis points from 2.81% for the three months ended
September 30, 1996 to 2.95% for the three months ended September 30, 1997.
11
The table below illustrates the changes in interest rate margin and
interest rate spread based on average amounts outstanding for the nine and
three months ended September 30, 1997 and 1996.
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
ASSETS
Securities 6.54% 6.17% 6.54% 6.36%
Fed Funds 5.50% 5.30% 5.55% 5.27%
Loans 8.88% 9.25% 8.87% 9.24%
----- ----- ----- -----
Total Earning Assets 8.08% 8.01% 8.07% 8.04%
===== ===== ===== =====
LIABILITIES
Demand Deposits 2.90% 2.84% 2.95% 2.81%
Savings Deposits 3.20% 2.49% 2.49% 2.45%
Time Deposits 5.16% 5.22% 5.25% 5.15%
Short Term Borrowings 5.06% 4.70% 5.10% 5.11%
----- ----- ----- -----
Total Int Bearing Liabilities 3.65% 3.49% 3.49% 3.45%
===== ===== ===== =====
Net Interest Rate Spread 4.43% 4.52% 4.58% 4.59%
Net Interest Rate Margin 5.55% 5.38% 5.52% 5.45%
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 nine months
ending September 30, 1997 were 59.5% of average assets as compared to 56.1% of
average assets for the nine months ending September 30, 1996. The average
balance for certificates of deposit and repurchase agreements, which are the
highest yielding liabilities, for the nine months ending September 30, 1997
were 19.1% of average assets as compared to 21.5% for the nine months ending
September 30, 1996. Average non-interest bearing deposits for the nine months
ending September 30, 1997 were 29.0% of average assets as compared to 21.7% for
the nine months ended September 30, 1996. The average balance for non-interest
bearing deposits was $37.0 million for the nine months ended September 30, 1997
as compared to $25.3 million for the nine months ended September 30, 1996, an
increase of $11.7 million or 46.5%.
Average loans for the three months ended September 30, 1997 were 59.4%
of average assets as compared to 56.4% of average assets for the three months
ended September 30, 1996. The average balance for certificates of deposit and
repurchase agreements for the three months ended September 30, 1997 was 17.9%
of average assets as compared to 21.0% for the three months ended September 30,
1996. Average non-interest demand deposit balances for the three months ended
September 30, 1997 were 26.1% of average assets as compared to 22.4% for the
three months ended September 30, 1996. The average balance for non-interest
demand deposits was $35.1 million for the three months ended September 30, 1997
as compared to $27.1 million for the three months ended September 30, 1996, an
increase of $8.0 million or 29.5%.
NON-INTEREST INCOME
Non-interest income was $876,000, an increase of 31.1% or $208,000 for
the first nine months of 1997 compared to $668,000 for the first nine months of
1996. A significant component of non-interest income is fee income generated by
the Corporations' Residential Mortgage Department. This fee income was
$361,000 for the first nine months of 1997, compared to $187,000 for the first
nine months of 1996. Service charges on depositor accounts was $449,000 for
the first nine months of 1997 an increase of 22.0% from $368,000 for the first
nine months of 1996.
Non-interest income was $349,000, an increase of 22.0% or $81,000 for
the three months ended September 30, 1997 compared to $231,000 for the three
months ended September 30, 1996. Fee income from the Residential Mortgage
Department was $166,000 for the three months ended September 30, 1997 as
compared to $75,000
12
for the three months ended September 30, 1996. Service charges on depositor
accounts was $170,000 for the three months ended September 30, 1997 an increase
of $41,000 or 31.6% from $129,000 for the three months ended September 30,
1996.
The Corporation had approximately 11,400 demand deposit accounts at
September 30, 1997, an increase of 3,500 accounts or 45.2% from September 30,
1996.
NON-INTEREST EXPENSES
Non-interest expense increased $1.0 million or 28.1% in the first nine
months of 1997 compared to the first nine months of 1996. Non-interest expense
increased $384,000 or 30.8% for the three months ended September 30, 1997 as
compared to the three months ended September 30, 1996. Expenditures related to
salaries and occupancy and equipment are the primary components of non-interest
expense and represent the largest portion of the increase. Salaries and
benefits increased 31.5% or $564,000 in the first nine months of 1997 compared
to the first nine months of 1996. Salaries and benefits increased 36.8% or
$228,000 for the three months ended September 30, 1997 as compared to the three
months ended September 30, 1996. These increases were due primarily to staff
additions for the residential mortgage department, the addition of four branch
locations as well as merit increases in salaries.
Occupancy and equipment expenses increased $219,000 or 38.7% in the
first nine months of 1997 compared to the first nine months of 1996. Occupancy
and equipment expenses increased $89,000 or 46.8% for the three months ended
September 30, 1997 as compared to the three months ended September 30, 1996.
These increases were primarily due to the branch expansion.
Data Processing expense increased $57,000 or 21.4% for the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996. Data processing expense increased $19,000 or 21.1% for the three months
ended September 30, 1997 as compared to the three months ended September 30,
1996. These increases were primarily the result of increased transaction
processing costs associated with growth of the depositor base.
Advertising expenses increased $15,000 or 13.3% to $129,000 for the
nine months ending September 30, 1997 as compared to $114,000 for the nine
months ending September 30, 1996. Advertising expenses also increased $3,000
or 8.3% to $39,000 for the three months ending September 30, 1997 as compared
to $36,000 for the three months ending September 30, 1996. These increases are
due primarily to increased promotional activities associated with the branch
expansion.
A primary component in the $148,000 or 17.9% increase in other
operating expenses for the first nine months of 1997 as compared to the first
nine months of 1996 is loan processing expenses which for the first nine months
of 1997 increased $80,000 from the first nine months of 1996 due to increased
loan activity, amortization of purchased mortgage servicing rights and mortgage
servicing expense. Audit expenses also increased $17,000 with implementation
of an internal audit function during 1996. Expenses for supplies increased
$38,000, insurance expense increased $15,000, telephone expense increased
$19,000 and postage expense increased $15,000 for the nine months ending
September 30, 1997 as compared to the nine months ending September 30, 1996
primarily as a result of additional branch locations and growth of the Bank.
These increases were partially offset by a reduction in other real estate
expense and losses of $64,000 for the first nine months of 1997 as compared to
the first nine months of 1996.
INCOME TAXES
Income taxes decreased $195,000 or 58.8% to $137,000 from $332,000 in the
13
first nine months of 1997 and 1996, respectively and decreased $101,000 from
$122,000 for the three months ending September 30, 1996 to $21,000 for the
three months ending September 30, 1997. The decrease resulted primarily from a
lower level of pre-tax income along with a higher level of non-taxable income.
Non-taxable income, primarily from local municipal Bond Anticipation Notes, was
$281,000 for the first nine months of 1997, an increase of $117,000 from
$165,000 for the first nine months of 1996. The effective tax rates for the
first nine months of 1997 and 1996 were 20.0% and 31.7% respectively.
PROVISIONS FOR POSSIBLE LOAN LOSSES
The Corporation determines the provision for possible loan losses
through a quarterly analysis of the adequacy of the loan loss reserve. Factors
such as economic conditions and trends, the volume of non-performing loans,
concentrations of credit risk, adverse situations that may affect a borrower's
ability to pay, and prior loss experience within the various categories of the
portfolio are considered when reviewing the risks in the portfolio. While
management believes the allowance for loan losses is currently adequate,
further additions to the allowance will be predicated upon general economic
conditions and/or the condition of specific borrowers and overall growth of the
loan portfolio. Provisions for possible loan losses were $255,000 for the
first nine months of 1997 as compared to a provision of $265,000 for the first
nine months of 1996. The allowance for possible loan losses was $841,000 at
September 30, 1997 and $837,000 at September 30, 1996. The Bank had net
charge-offs of $153,000 and $23,000 for the nine months ended September 30,
1997 and 1996, respectively.
The following is a summary of the activity in the allowances for loan
losses for the nine months ended September 30, 1997 and 1996.
1997 1996
---- ----
Balance at the beginning of period $ 738,353 $595,593
Provision for loan losses 255,000 265,000
Recoveries 43,465 42,889
Losses charged against the allowance (195,911) (66,070)
--------- --------
Balance at September 30 $ 840,907 $837,412
========= ========
Management has, through its most recent analysis of the adequacy of
the allowance for loan losses completed as of September 30, 1997, determined
the allowance to be adequate. Future additions to the allowance for possible
loan losses through provisions charged to operations will be determined as a
result of managements' continuing analysis of the adequacy for the allowance of
possible loan losses.
The following is a summary of the Company's non-performing assets as
of September 30, 1997 and December 31, 1996.
SEPTEMBER 30 DEC 31
(DOLLARS IN THOUSANDS) 1997 1996
---------------------- ---- ----
Past due 90 days or more and
still accruing $ 141 $ 14
Non-Accrual loans 1,020 528
------ ----
Total non-performing loans 1,161 542
Other Real Estate Owned 108 0
------ ----
Total Non-Performing Assets $1,269 $542
====== ====
Non-performing loans as a
percentage of loans 1.40% 0.75%
Non-performing loans as a
percentage of loans and OREO 1.39% 0.75%
Non-performing assets as a
percentage of assets 0.91% 0.43%
14
The amount of non-performing loans has increased as a percentage of
loans and as a percentage of assets. The increase is the result of several
unrelated loans previously classified by Management and considered in the
reserve for loan loss analysis. The increase in non-accrual loans will
potentially result in increased loan loss provisions in the remainder of 1997.
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.
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 September 30, 1997, cash, securities classified as available for
sale, and federal funds sold were 19.8% of total assets compared to 24.4% of
total assets at December 31, 1996. Asset liquidity is also provided by
managing loan and securities investment maturities. At September 30, 1997,
approximately $18.8 million or 22.4% of loans would mature within a one year
period. Also, at September 30, 1997 approximately $10.7 million or 29.4% of
securities would mature within a one year period. To the extent possible,
loans are funded with deposits or other funding with coinciding maturity or
repricing dates.
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, changing competitive
conditions, economic forces and growth and expansion activities. The
Corporation seeks to maintain a capital base to support its growth and
expansion activities, to provide stability to current operations and to promote
public confidence.
The Corporations' capital position continues to exceed regulatory
minimums. The primary indicators relied on by the Federal Reserve Board and
other bank regulators in measuring strength of capital position are the Tier 1
Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratio.
Tier 1 Capital consists of common and qualifying preferred stockholders equity
less goodwill. Total Capital consists of Tier 1 Capital, and a portion of the
allowance for possible loan losses. Risk-based capital ratios are calculated
with reference to risk weighted assets which consists of both on and off
balance sheet risks (such as letters of credit and unused lines of credit).
15
The Corporations' Tier 1 Risk Based Capital Ratio was 12.8% at
September 30, 1997 compared to 13.9% at December 31, 1996. The Corporations'
Total Risk Based Capital Ratio was 13.7% at September 30, 1997 compared to
16.7% at December 31, 1996. These ratios are in excess of the mandated minimum
requirements of 4.0% and 8.0% respectively. The Leverage Ratio consists of Tier
1 capital divided by quarterly average assets. At September 30, 1997, the
Corporations' Leverage Ratio was 8.6% which exceeded the required minimum
leverage ratio of 4.0%.
16
PART II - OTHER INFORMATION
None
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: November 12, 1997 By: Gerard M. Banmiller
-------------------
Gerard M. Banmiller
President & Chief Executive Officer
Date: November 12, 1997 By: Kevin L. Kutcher
----------------
Kevin L. Kutcher
Executive Vice President/Chief Financial Officer