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
- --------------------------------------------------------------------------------