Exhibit 99.1
COMMUNITY SAVINGS BANKSHARES, INC.
North Palm Beach, Florida
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
CONTENTS
REPORT OF INDEPENDENT AUDITORS............................................. 1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION........................ 2
CONSOLIDATED STATEMENTS OF INCOME..................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY............ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS................................. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................ 7
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Community Savings Bankshares, Inc.
North Palm Beach, Florida
We have audited the accompanying consolidated statements of financial condition
of Community Savings Bankshares, Inc. ("Bankshares") as of December 31, 2001 and
2000, 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, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with auditing principles generally accepted in the United States of America.
Crowe, Chizek and Company LLP
Ft. Lauderdale, Florida
February 7, 2002
1
COMMUNITY SAVINGS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2001 and 2000
(in thousands)
2001 2000
--------- ---------
ASSETS
Cash and amounts due from depository institutions $ 18,816 $ 17,844
Interest-earning deposits 85,271 27,274
--------- ---------
Cash and cash equivalents 104,087 45,118
Securities available for sale 89,164 131,418
Securities held to maturity (approximate fair value -
2001 - $31,701; 2000 - $36,736) 28,931 34,025
Loans receivable, net of allowance for loan losses
(2001 - $9,243; 2000 - $3,875) 663,419 691,294
Accrued interest receivable 3,565 4,363
Federal Home Loan Bank stock - at cost 8,063 8,063
Premises and equipment, net 28,712 25,323
Real estate held for investment 2,493 2,193
Investment in and advances to real estate venture 20,607 14,612
Real estate owned, net 194 170
Other assets 6,292 6,126
--------- ---------
Total assets $ 955,527 $ 962,705
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits $ 52,249 $ 44,662
NOW deposits 85,654 79,110
Savings deposits 41,744 34,506
Money market deposits 146,884 91,214
Certificates of deposit 359,747 431,577
--------- ---------
Total deposits 686,278 681,069
Mortgage-backed bond, net 12,645 13,582
Advances from Federal Home Loan Bank 134,143 146,714
Advances by borrowers for taxes and insurance 712 1,153
Other liabilities 6,664 7,724
--------- ---------
Total liabilities 840,442 850,242
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: 2001 - 8,660,254; 2000 - 8,542,363
shares issued and outstanding 10,571 10,571
Additional paid-in capital 94,464 94,043
Retained income - substantially restricted 38,214 39,832
Common stock purchased by Employee Stock Ownership Plan (3,502) (4,038)
Common stock issued to Recognition and Retention Plans (1,182) (1,907)
Accumulated other comprehensive income 224 (855)
Treasury stock, at cost: 2001 - 1,910,886; 2000 - 2,028,777 shares (23,704) (25,183)
--------- ---------
Total shareholders' equity 115,085 112,463
--------- ---------
Total liabilities and shareholders' equity $ 955,527 $ 962,705
========= =========
See accompanying notes to consolidated financial statements.
2
COMMUNITY SAVINGS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
------------ ------------ ------------
Interest income
Loans $ 53,154 $ 50,565 $ 44,515
Securities 9,435 12,576 11,258
Other interest and dividend income 2,323 2,519 2,691
------------ ------------ ------------
64,912 65,660 58,464
Interest expense
Deposits 27,764 27,279 21,987
Advances from Federal Home Loan Bank
and other borrowings 9,128 10,223 7,548
------------ ------------ ------------
36,892 37,502 29,535
------------ ------------ ------------
NET INTEREST INCOME 28,020 28,158 28,929
Provision for loan losses 5,138 376 905
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 22,882 27,782 28,024
Other income
Servicing income and other fees 224 237 387
NOW account and other customer fees 3,928 3,519 3,446
Net (loss) gain on sale and early maturities of securities (8) 75 --
Loss on impairment of securities -- (138) (138)
Net (loss) gain on real estate owned 28 (18) (89)
Equity in net income (loss) of real estate venture 438 (95) (38)
Net gain on termination of defined benefit plan -- 289 --
Miscellaneous 395 395 270
------------ ------------ ------------
5,005 4,264 3,838
Operating expense
Employee compensation and benefits 13,548 12,473 11,853
Occupancy and equipment 5,885 5,871 6,017
Advertising and promotion 635 670 866
Federal deposit insurance premium 125 125 342
Miscellaneous 4,969 3,394 3,907
------------ ------------ ------------
25,162 22,533 22,985
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,725 9,513 8,877
Provision (benefit) for income taxes
Current 1,116 2,637 2,668
Deferred (552) 464 (325)
------------ ------------ ------------
564 3,101 2,343
------------ ------------ ------------
NET INCOME $ 2,161 $ 6,412 $ 6,534
============ ============ ============
Basic earnings per share $ 0.27 $ 0.76 $ 0.67
============ ============ ============
Diluted earnings per share $ 0.26 $ 0.74 $ 0.65
============ ============ ============
Weighted average common shares outstanding - basic 8,117,497 8,432,346 9,748,916
============ ============ ============
Weighted average common shares outstanding - diluted 8,405,497 8,669,726 10,123,717
============ ============ ============
See accompanying notes to consolidated financial statements.
3
COMMUNITY SAVINGS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2001, 2000 and 1999
(in thousands)
Accumu-
Employee lated
Addi- Retained Stock Recognition Other
tional Income- Owner- and Compre-
Common Paid-In Substantially ship Retention hensive Treasury
Stock Capital Restricted Plan Plans Income Stock Total
--------- --------- ------------- --------- ----------- --------- --------- ---------
BALANCE - DECEMBER 31, 1998 $ 10,549 $ 93,268 $ 35,545 $ (5,407) $ (237) $ (432) $ -- $ 133,286
Net income -- -- 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 -- -- 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)
--------- --------- --------- --------- --------- --------- --------- ---------
(Continued)
4
COMMUNITY SAVINGS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2001, 2000 and 1999
(in thousands)
Accumu-
Employee lated
Addi- Retained Stock Recognition Other
tional Income- Owner- and Compre-
Common Paid-In Substantially ship Retention hensive Treasury
Stock Capital Restricted Plan Plans Income Stock Total
--------- --------- ------------- --------- ----------- --------- --------- ---------
BALANCE - DECEMBER 31, 2000 $ 10,571 $ 94,043 $ 39,832 $ (4,038) $ (1,907) $ (855) $ (25,183) $ 112,463
Net income -- -- 2,161 -- -- -- -- 2,161
Other comprehensive income
Unrealized increase in market
value of securities available
for sale (net of income taxes) -- -- -- -- -- 1,079 -- 1,079
---------
Comprehensive income -- -- -- -- -- -- -- 3,240
Stock options exercised -- -- (526) -- -- -- 1,479 953
Shares committed to be released -
Employee Stock Ownership Plan and
Recognition and Retention Plans -- 421 -- 536 725 -- -- 1,682
Stock benefit plan tax adjustment -- -- 317 -- -- -- -- 317
Dividends declared -- -- (3,570) -- -- -- -- (3,570)
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCE - DECEMBER 31, 2001 $ 10,571 $ 94,464 $ 38,214 $ (3,502) $ (1,182) $ 224 $ (23,704) $ 115,085
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
5
COMMUNITY SAVINGS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,161 $ 6,412 $ 6,534
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 2,258 2,209 2,297
ESOP and Recognition and Retention Plans
compensation expense 1,999 1,821 1,595
Accretion of discounts, amortization of premiums
and other deferred yield items (2,065) (1,782) (1,572)
Provision for loan losses 5,138 376 905
Loss (gain) on sale of securities available for sale 8 (75) --
Impairment loss on securities -- 138 138
(Increase) decrease in other assets 297 (388) 1,469
Increase (decrease) in other liabilities (2,041) (1,016) (369)
--------- --------- ---------
Net cash from operating activities 7,755 7,695 10,997
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans 27,192 (45,563) (65,004)
Principal payments, calls and maturities received
on securities and FHLB stock 53,463 11,237 35,091
Purchases of
Loans and participations (4,144) (37,738) (6,066)
Securities available for sale and FHLB stock (2,750) (3,688) (76,167)
Office property and equipment, net (5,083) (2,454) (2,628)
Proceeds from payoff of: Securities available for sale 246 15,075 --
Investment in real estate venture and real estate
held for investment (6,409) (2,979) (11,633)
--------- --------- ---------
Net cash from investing activities 62,515 (66,110) (126,407)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,209 67,126 19,543
Advances from FHLB -- 70,000 65,000
Repayment of advances and calls from FHLB (12,571) (63,472) (16,734)
Sale of common stock-net of issuance costs -- -- (54)
Purchase of common stock by Recognition
and Retention Plans -- -- (2,923)
Purchase of treasury stock -- (11,106) (15,905)
Proceeds from exercise of stock options 953 754 209
Payments made on mortgage-backed bond (1,387) (1,386) (1,387)
Dividends paid (3,505) (3,622) (4,115)
--------- --------- ---------
Net cash from financing activities (11,301) 58,294 43,634
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 58,969 (121) (71,776)
Cash and cash equivalents, beginning of period 45,118 45,239 117,015
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 104,087 $ 45,118 $ 45,239
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 3,149 $ 3,534 $ 1,829
Cash paid for interest on deposits and other borrowings 36,597 37,118 28,841
Supplemental disclosure of non-cash investing activities
Real estate acquired in settlement of loans $ 311 $ 614 $ 656
Transfer of securities from held to maturity to available for sale -- -- 413
See accompanying notes to consolidated financial statements.
6
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 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 as an internal reorganization 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.
On September 9, 2001, a merger agreement was signed between Bankshares and
BankAtlantic Bancorp, Inc. ("BankAtlantic"). Upon completion of the merger, each
outstanding share of Bankshares' common stock will be exchanged for $19.00 in
cash. The aggregate amount of the cash payment which represents the merger
consideration is expected to be approximately $170.4 million. Bankshares'
shareholders ratified the agreement at a shareholders' meeting on December
17,2001. The agreement is subject to approval by the OTS. The merger is expected
to be completed in the first quarter of 2002.
(Continued)
7
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America 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,
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, 2001 and 2000, the Association's assets
that earned interest at adjustable interest rates comprised 53.3% and 48.0%,
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
Bankshares' 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.
(Continued)
8
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
(Continued)
9
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 net 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 lower of cost or 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.
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, 2001 and 2000 was
$3.2 million and $3.6 million, respectively, and is included in other assets.
Amortization for the years ended December 31, 2001, 2000, and 1999 was $455,000,
$261,000, and $496,000, respectively, and is included in miscellaneous expense.
In addition to the tax benefit related to the amortization, tax credits of
$552,000, $305,000, and $600,000, were recognized for the years ended December
31, 2001, 2000 and 1999, respectively, as a reduction of the provision for
income taxes.
(Continued)
10
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
The agreement with BankAtlantic provides for participants to become fully vested
upon the merger. In addition, all account balances are to be distributed to
participants and beneficiaries after the merger takes place.
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.
According to the Plan Documents, shares held by a Recipient are deemed to be
earned as of the effective date of a change in control. As a result, all
unvested RRP shares become vested upon the merger of BankAtlantic and
Bankshares.
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.
According to the Plan Documents, shares held by a Recipient are deemed to be
earned as of the effective date of a change in control. As a result, all
unvested Stock Options become vested upon the merger of BankAtlantic and
Bankshares.
(Continued)
11
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 do 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. The real estate development
joint venture is immaterial to the overall financial statements. Accordingly,
all of Bankshares' operations are considered by management to be aggregated in
one reportable operating segment, banking.
IMPACT OF NEW ACCOUNTING ISSUES: A new accounting standard requires all business
combinations to be recorded using the purchase method of accounting for any
transaction initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost over fair value of net assets acquired is recorded as goodwill.
Identifiable intangible assets must be separated from goodwill. Identifiable
intangible assets with finite useful lives will be amortized under the new
standard, whereas goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized starting in 2002. Annual impairment
testing will be required for goodwill with impairment being recorded if the
carrying amount of goodwill exceeds its implied fair value. Adoption of this
standard on January 1, 2002 did not have a material effect on Bankshares'
financial statements.
RECLASSIFICATIONS: Certain items in the 2000 and 1999 financial statements and
the notes thereto have been reclassified to conform with the 2001 presentation.
(Continued)
12
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 2001 and 2000 are summarized as
follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
DECEMBER 31, 2001
Equity securities $ 2,782 $ 93 $ -- $ 2,875
Mutual funds 36,000 -- (534) 35,466
Corporate debt issues
Preferred term securities 1,974 39 -- 2,013
Bear Stearns Corporate Bond 4,940 -- (44) 4,896
--------- --------- --------- ---------
6,914 39 (44) 6,909
Mortgage-backed and related securities
United States agency pass-through
certificates 32,243 732 -- 32,975
Collateralized mortgage obligations 10,598 341 -- 10,939
--------- --------- --------- ---------
42,841 1,073 -- 43,914
--------- --------- --------- ---------
$ 88,537 $ 1,205 $ (578) $ 89,164
========= ========= ========= =========
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
--------- --------- --------- ---------
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
--------- --------- --------- ---------
54,749 485 (213) 55,021
--------- --------- --------- ---------
$ 132,345 $ 530 $ (1,457) $ 131,418
========= ========= ========= =========
(Continued)
13
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
The table below sets forth the contractual maturity distribution of securities
available for sale at December 31, 2001 (in thousands).
Amortized Fair
Cost Value
--------- -------
Due in one year or less $ -- $ --
Due after one year through five years -- --
Due after five years through ten years -- --
Due after ten years 6,914 6,909
Mortgage-backed and related securities 42,841 43,914
Equity securities 38,782 38,341
------- -------
$88,537 $89,164
======= =======
Proceeds from the sale of securities available for sale were $0, $15,075,000,
and $0, during the years ended December 31, 2001, 2000, and 1999, respectively.
Proceeds from the payoff of securities available for sale and the loss
recognized on the payoff were $246,000 and $8,000, respectively for the year
ended December 31, 2001. There was a $75,000 and $0 gross realized gain during
the years ended December 31, 2000 and 1999, respectively.
Securities, with carrying values of approximately $13,752,000 and $7,638,000 at
December 31, 2001 and 2000, 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. The
bonds were paid off during the year ending December 31, 2001 resulting in the
above-mentioned loss of $8,000.
(Continued)
14
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 3 - SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 2001 and 2000 are summarized as
follows (in thousands)
Gross Gross
Amortized Unrecognized Unrecognized Fair
Cost Gains Losses Value
--------- -------- -------- --------
DECEMBER 31, 2001
United States Government and
agency obligations $ 18,037 $ 2,430 $ -- $ 20,467
Mortgage-backed and related securities
United States agency pass through
certificates 885 45 (4) 926
Agency for International Development
pass through certificates 51 -- -- 51
Collateralized mortgage obligations 4,977 132 (3) 5,106
CMO residual interest bonds 1 -- -- 1
-------- -------- -------- --------
5,914 177 (7) 6,084
Corporate debt issues
Chase Federal mortgage-backed bond 4,980 170 -- 5,150
-------- -------- -------- --------
$ 28,931 $ 2,777 $ (7) $ 31,701
======== ======== ======== ========
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
-------- -------- -------- --------
12,355 62 (124) 12,293
Corporate debt issues
Chase Federal mortgage-backed bond 5,463 204 -- 5,667
-------- -------- -------- --------
$ 34,025 $ 2,835 $ (124) $ 36,736
======== ======== ======== ========
(Continued)
15
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 3 - SECURITIES HELD TO MATURITY (Continued)
The table below sets forth the contractual maturity distribution of the
securities held to maturity at December 31, 2001 (in thousands).
Carrying Fair
Value Value
------- -------
Due in one year or less $ -- $ --
Due after one year through five years 18,037 20,467
Due after five years through ten years 4,980 5,150
Mortgage-backed and related securities 5,914 6,084
------- -------
$28,931 $31,701
======= =======
There were no sales of securities held to maturity during the years ended
December 31, 2001, 2000, and 1999. 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, 2001, the
Association had $4,978,000 in such mortgage-related securities, which were held
for investment and had a fair value of $5,107,000. The fixed-rate CMOs have
coupon rates ranging from 6.15% to 10.0%.
FEDERAL HOME LOAN BANK ("FHLB") STOCK: At December 31, 2001 and 2000, the
Association held $8,063,000 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.
(Continued)
16
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 4 - LOANS RECEIVABLE
Loans receivable consisted of the following (in thousands):
2001 2000
--------- ---------
Real estate loans
Residential 1-4 family $ 519,402 $ 511,324
Residential 1-4 family construction 68,712 113,179
Multi-family 7,048 10,501
Multi-family construction 20,969 33,960
Commercial 35,535 37,255
Non-residential construction 15,965 8,170
Land 22,362 20,216
--------- ---------
689,993 734,605
Non-real estate loans
Consumer 15,269 14,029
Commercial business 8,210 5,454
--------- ---------
23,479 19,483
--------- ---------
713,472 754,088
Less:
Undisbursed loan proceeds 42,706 60,874
Unearned discount and premium and
net deferred loan fees and costs (1,896) (1,955)
Allowance for loan losses 9,243 3,875
--------- ---------
$ 663,419 $ 691,294
========= =========
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, 2001, 2000 and 1999 were $6,295,000, $9,173,000 and
$11,277,000, respectively. Custodial escrow balances maintained in connection
with the foregoing loan servicing were $14,000, $34,000 and $54,000,
respectively.
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, 2001 and 2000.
(Continued)
17
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 4 - LOANS RECEIVABLE (Continued)
ALLOWANCE FOR LOAN LOSSES: An analysis of the changes in the allowance for loan
losses for the years ended December 31, 2001, 2000 and 1999, is as follows (in
thousands):
2001 2000 1999
------- ------- -------
Balance, beginning of period $ 3,875 $ 3,923 $ 3,160
Provision charged to income 5,138 376 905
Losses charged to allowance (14) (424) (146)
Recoveries 244 -- 4
------- ------- -------
Balance, end of year $ 9,243 $ 3,875 $ 3,923
======= ======= =======
IMPAIRED LOANS: An analysis of the recorded investment in impaired loans is as
follows (in thousands):
2001 2000 1999
------- ------- -------
Impaired loan balance $11,592 $ 2,667 $ 5
Related allowance 3,611 -- --
Average impaired loan balance 4,233 2,180 71
Interest income recognized 218 243 --
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.
2001 2000 1999
------ ------ ------
(Dollars In Thousands)
Non-performing loans
One- to four-family residential $2,502 $2,888 $1,015
Commercial and multi-family real estate -- -- 5
Consumer and commercial business loans 2 8 12
Land 6 420 7
------ ------ ------
2,510 3,316 1,039
REO 194 170 494
Other repossessed assets -- -- --
------ ------ ------
Total non-performing assets $2,704 $3,486 $1,533
====== ====== ======
Total non-performing loans to net loans receivable 0.38% 0.48% 0.17%
Total non-performing loans to total assets 0.26 0.34 0.12
Total non-performing assets to total assets 0.28 0.36 0.17
(Continued)
18
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 4 - LOANS RECEIVABLE (Continued)
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, 2001. At December 31, 2001 and 2000, the total amount of loans to
directors, executive officers, and associates of such persons was $719,000 and
$784,000, respectively. During 2001, principal advances and repayments on loans
to officers and directors totaled $124,000 and $94,000, respectively. In
addition, the 2000 balance included loans to a director and an officer who
retired in 2001. Such loans aggregated $95,000.
NOTE 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, 2001 and 2000, which were pledged
as collateral (in thousands).
2001 2000
-------- --------
Real estate loans (unpaid principal balance) $126,080 $138,494
FHLB stock and accrued dividends 8,063 8,220
-------- --------
$134,143 $146,714
======== ========
Other pledged assets
Deposits of public funds - State of Florida
Mortgage-backed and related securities $ 11,652 $ 5,538
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 23,777 27,074
-------- --------
$ 37,529 $ 34,712
======== ========
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.
(Continued)
19
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 6 - PREMISES AND EQUIPMENT AND REAL ESTATE HELD FOR INVESTMENT
Premises and equipment and real estate held for investment at December 31, 2001
and 2000 are summarized as follows (in thousands):
2001 2000
-------- --------
Premises and equipment
Land $ 8,849 $ 8,488
Buildings and improvements 22,715 20,069
Furniture and equipment 16,049 15,418
-------- --------
47,613 43,975
Less accumulated depreciation (18,901) (18,652)
-------- --------
$ 28,712 $ 25,323
======== ========
Real estate held for investment
Land $ 604 $ 604
Buildings and improvements 2,119 1,706
-------- --------
2,723 2,310
Less accumulated depreciation (230) (117)
-------- --------
$ 2,493 $ 2,193
======== ========
NOTE 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 LLC ("River
Club").
Under the terms of the Agreement, Palm River funded the costs of acquiring the
land, using advances from the Association, and receives interest on any
outstanding funding. In addition, an interest-earning loan from Bankshares to
River Club is secured by the vertical construction and land. 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 allocated to Palm River and Bankshares 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.
(Continued)
20
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 7 - INVESTMENT IN AND ADVANCES TO REAL ESTATE VENTURE (Continued)
The condensed financial information for the River Club is as follows (in
thousands):
BALANCE SHEETS
2001 2000
-------- --------
ASSETS
Cash $ 252 $ 65
Land 11,264 11,499
Construction in progress 357 1,606
Improvements and equipment 6,700 --
Receivables from partners 148 61
-------- --------
$ 18,721 $ 13,231
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Advances and interest due to Palm River $ 23,322 $ 16,383
Other liabilities 826 88
Partners' capital
Palm River (2,716) (1,625)
CRC (2,711) (1,615)
-------- --------
$ 18,721 $ 13,231
======== ========
SUMMARY OF OPERATIONS
Years ended December 31,
<Table>
<Caption>
2001 2000
-------- --------
Income
Sales $ 994 $ --
Interest income 8 6
-------- --------
1,002 6
Expenses
Cost of sales 479 1
General and administrative 930 859
Sales and marketing 398 357
Interest expense 1,382 1,411
-------- --------
3,189 2,628
-------- --------
NET LOSS $ (2,187) $ (2,622)
======== ========
(Continued)
21
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 7 - INVESTMENT IN AND ADVANCES TO REAL ESTATE VENTURE (Continued)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Palm River CRC
---------- -------
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)
Net loss for the year ended December 31, 2001 (1,091) (1,096)
------- -------
BALANCE - DECEMBER 31, 2001 $(2,716) $(2,711)
======= =======
NOTE 8 - DEPOSITS
Individual deposits greater than $100,000 at December 31, 2001 and 2000
aggregated approximately $165,597,000 and $119,409,000, 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 $3,164,000 and $3,958,000 at December 31, 2001
and 2000, respectively.
Scheduled maturities of certificate accounts at December 31, 2001 and 2000 were
as follows (in thousands):
2001 2000
-------- --------
Less than 1 year $301,499 $273,990
1 year - 2 years 17,132 118,210
2 years - 3 years 10,103 9,441
3 years - 4 years 24,418 6,235
4 years - 5 years 6,595 23,701
-------- --------
$359,747 $431,577
======== ========
(Continued)
22
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK
At December 31, 2001 and 2000, outstanding advances from the FHLB totaled
$134,143,000 and $146,714,000, respectively.
Scheduled maturities of FHLB advances at December 31, 2001 were as follows (in
thousands):
Years ending Average Interest Amount
December 31, Rate Maturing
------------ ---------------- --------
2002 6.09% $ 11,071
2003 5.43 19,072
2004 5.76 35,000
2008 5.51 27,000
2009 5.06 10,000
2010 5.63 32,000
--------
5.61% $134,143
==== ========
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, 2001, 2000, and 1999.
NOTE 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 less 73 basis points. The Bond's interest rate on
December 31, 2001 and 2000 was 4.38% and 5.08%, respectively. The unamortized
discount at December 31, 2001 and 2000 was $3,581,000 and $4,030,000,
respectively. Principal and interest payments are due quarterly. During the
years ended December 31, 2001, 2000 and 1999, approximately $449,000, $460,000
and $464,000, respectively, of the discount was accreted.
(Continued)
23
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 10 - MORTGAGE-BACKED BOND (Continued)
At December 31, 2001 and 2000, the Association held $18,037,000 and $16,207,000
(net of discounts of $3,763,000 and $5,593,000), 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, 2001, the Bond was repayable as follows (in thousands):
Years ending
December 31, Amount
------------ -----------
2002 $ 1,387
2003 1,387
2004 1,387
2005 1,387
2006 1,387
2007 and thereafter 9,291
-----------
16,226
Less unamortized discount 3,581
-----------
$ 12,645
===========
NOTE 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.
(Continued)
24
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 11 - INCOME TAXES (Continued)
The income tax provision consists of the following components for the years
ended December 31, 2001, 2000 and 1999 (in thousands).
2001 2000 1999
------- ------- -------
Current $ 3,974 $ 2,637 $ 2,668
Deferred (3,410) 464 (325)
------- ------- -------
$ 564 $ 3,101 $ 2,343
======= ======= =======
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 (in thousands):
2001 2000 1999
--------------------- --------------------- ---------------------
Amount % Amount % Amount %
------- ------ ------- ----- ------- -----
Tax at federal tax rate $ 927 34.0% $ 3,330 35.0% $ 3,107 35.0%
State income taxes, net of
federal income tax benefits 104 3.8 343 3.6 257 2.9
Low income housing credits (552) (20.2) (305) (3.2) (600) (6.8)
Other 85 3.1 (172) (1.8) (333) (3.8)
Benefit of graduated tax rate -- -- (95) (1.0) (88) (0.9)
------- ------ ------- ------ ------- ------
$ 564 20.7% $ 3,101 32.6% $ 2,343 26.4%
======= ====== ======= ====== ======= ======
(Continued)
25
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 11 - INCOME TAXES (Continued)
The tax effect of temporary differences that gave rise to deferred tax assets
and deferred tax liabilities are presented below (in thousands):
2001 2000 1999
------- ------- -------
Deferred tax liabilities
Depreciation $ 1,304 $ 1,074 $ 995
Unrealized gain on increase in fair value of
securities available for sale 403 -- --
FHLB stock dividends 423 423 424
Deferred loan costs 672 1,137 904
Unamortized discount on mortgage-backed bond 1,348 1,517 1,690
Other 70 61
------- ------- -------
4,150 4,221 4,074
Deferred tax assets
Excess of book bad debt reserve over tax reserve 3,407 1,335 1,337
Retirement plans 495 340 479
Unrealized loss on decrease in fair value
of securities available for sale -- 72 1,329
Deferred loss on loans held for sale 33 35 36
Deferred compensation 8 24 129
Investment in partnerships 785 203 137
Other 145 -- 136
------- ------- -------
4,873 2,009 3,583
Valuation allowance on unrealized loss on decrease in
fair value of securities available for sale (166) (283) (428)
------- ------- -------
4,707 1,726 3,155
------- ------- -------
$ (557) $ 2,495 $ 919
======= ======= =======
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, 2001 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.
(Continued)
26
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 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 $14,278,000 and
$6,894,000 at December 31, 2001 and 2000, respectively. There were no
commitments to originate non-mortgage loans at December 31, 2001 and 2000.
Undisbursed portions of loans in process totaled $42,706,000 and $60,874,000 at
December 31, 2001 and 2000, respectively.
At December 31, 2001, the $14,278,000 of real estate loan commitments were
comprised of approximately $6,342,000 of fixed-rate commitments and $7,936,000
of variable-rate commitments. These commitments are at prevailing market rates
and terms. Interest rates on fixed-rate loan commitments ranged from 6.13% to
7.50%. 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 $10,023,000 and $9,909,000 at December
31, 2001 and 2000, respectively. Commercial lines and letters of credit and
other loan commitments totaled $11,700,000 and $10,534,000 at December 31, 2001
and 2000, respectively. There were no commitments to sell loans at December 31,
2001 or 2000. Commitments to purchase loans at December 31, 2001 and 2000 were
$0 and $4,269,000, respectively. There were no commitments to purchase or sell
securities at December 31, 2001 or 2000.
(Continued)
27
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
LEASE COMMITMENTS: The Association leases various properties for original
periods ranging from 2 to 25 years. Rent expense for the years ended December
31, 2001, 2000 and 1999 was approximately $392,000, $462,000 and $498,000,
respectively. At December 31, 2001, future minimum lease payments under these
operating leases were as follows (in thousands):
Years ending
December 31, Amount
------------ ------
2002 $ 180
2003 156
2004 78
-----------
$ 414
===========
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, 2001 and 2000, the
Association had no outstanding advances.
CASH RESTRICTIONS: At December 31, 2001 and 2000 respectively, the Association
maintained a $575,000 and $625,000 required two-week average balance in a
clearing account at the Federal Reserve Bank of Atlanta.
NOTE 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, 2001, 2000
and 1999, the net periodic expense for the officers' plan totaled $425,000,
$186,000 and $114,000, respectively. The SERP allows for immediate vesting upon
retirement of the participants.
Information about the SERP was as follows (in thousands):
2001 2000
-------- ---------
Change in benefit obligation:
Beginning benefit obligation $ 904 $ 734
Accrued benefits 425 186
Benefits paid (16) (16)
-------- --------
$ 1,313 $ 904
======== ========
(Continued)
28
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
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 (in thousands):
2000
-----------
Change in benefit obligation:
Beginning benefit obligation $ 10,097
Service cost 205
Interest cost 703
Actuarial gain 2,137
Plan curtailment (946)
Benefits paid (12,196)
-----------
Change in plan assets, at fair value:
Beginning plan assets 11,278
Actual return 778
Employer contribution 140
Benefits paid (12,196)
-----------
Funded status --
Unrecognized net actuarial gain --
Unrecognized prior service cost --
-----------
Accrued benefit cost $ --
===========
(Continued)
29
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
The components of pension expense and related actuarial assumptions were as
follows (in thousands):
2000 1999
------- -------
Service cost $ 205 $ 725
Interest cost 703 598
Expected return on plan assets (855) (807)
Amortization of prior service cost (71) (69)
Recognized net actuarial gain (23) (52)
Expense due to plan amendment 2,705 --
Income due to plan curtailment (3,651) --
Expense due to plan settlement 589 --
------- -------
$ (398) $ 395
======= =======
Discount rate on benefit obligation 7.25% 6.75%
Long-term expected rate of return on plan assets 7.50% 7.50%
Rate of compensation increase 5.00% 5.00%
For the year ended December 31, 1999, 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 $204,000 and $113,000 for 2001 and 2000, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN: As of December 31, 2001, the ESOP had outstanding
loan balances of $0 (Loan I) and $3,501,000 (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 was 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, 2001, 2000 and 1999
totaled $830,000, $1,035,000 and $1,092,000, respectively.
(Continued)
30
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
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:
2001 2000 1999
---------- ---------- ----------
Number of shares allocated 63,641 84,784 84,784
Average fair value per share $ 15.01 $ 11.60 $ 12.45
---------- ---------- ----------
Compensation expense $ 955,000 $ 983,000 $1,056,000
========== ========== ==========
Number of shares distributed 15,559 17,283 14,386
========== ========== ==========
Shares held by the ESOP were as follows:
2001 2000
---------- ----------
Allocated to participants 412,964 364,904
Unallocated 350,146 413,765
---------- ----------
763,110 778,669
========== ==========
Fair value of unallocated shares $6,649,000 $5,352,000
========== ==========
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.
(Continued)
31
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
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 $1,182,000 at December 31, 2001 is
reflected as a reduction of shareholders' equity for the RRPs. Compensation
expense related to the RRPs was $726,000, $679,000, and $539,000, for the years
ended December 31, 2001, 2000, and 1999, 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 vested and were exercisable on April 26, 2001 and
September 15, 2001, respectively.
(Continued)
32
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
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.
Below is a summary of options transactions:
------Option Price------
Average
Number of Exercise Aggregate
Options Price Per Exercise
Outstanding Share Price
-------- -------- -----------
Options Outstanding:
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
Granted -- -- --
Exercised (117,891) 8.08 (953,000)
Canceled -- -- --
-------- -------- -----------
Balance - December 31, 2001 696,333 $ 10.62 $ 7,398,000
======== ======== ===========
(Continued)
33
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 13 - BENEFIT PLANS (Continued)
Options exercisable at December 31, 2001, 2000, and 1999, totaled 424,007,
372,673, and 288,330, 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, 2001, 2000, and 1999 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 $12.375 $2.20 5.66% 5 18.10% 3.57%
06/18/99 547,065 12.188 2.03 5.76 5 16.46 3.57
04/26/00 408 10.500 2.04 5.76 5 19.08 3.56
09/15/00 94 12.375 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, 2001, 2000 and 1999 would have been reduced to the
pro forma amounts indicated below:
2001 2000 1999
----------- ----------- -----------
Net income
As reported $5,436,000 $6,412,000 $6,534,000
Pro forma 5,283,000 6,259,000 6,381,000
Earnings per share
As reported - basic 0.67 0.76 0.67
Pro forma - basic 0.65 0.74 0.65
As reported - diluted 0.65 0.74 0.65
Pro forma - diluted 0.63 0.72 0.63
NOTE 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.
(Continued)
34
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 14 - REGULATORY RESTRICTIONS ON RETAINED INCOME AND
REGULATORY CAPITAL REQUIREMENT (Continued)
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, 2001, that
the Association meets all capital adequacy requirements to which it is subject.
As of December 31, 2001, 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 (in thousands):
To be Considered
For Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
------------------ ------------------ ----------------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
As of December 31, 2001
Total Risk-Based Capital (to
risk-weighted assets) 13.9% $76,916 8.0% $44,356 10.0% $55,445
Core (Tier 1) Capital (to adjusted
tangible assets) 7.8 72,450 4.0 37,370 5.0 46,713
Core (Tier 1) Capital (to
risk-weighted assets) 13.1 72,450 4.0 22,178 6.0 33,267
As of December 31, 2001, adjusted tangible assets and risk-weighted assets were
$934,262,000 and $554,448,000, respectively.
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.
(Continued)
35
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 14 - REGULATORY RESTRICTIONS ON RETAINED INCOME AND
REGULATORY CAPITAL REQUIREMENT (Continued)
LIQUIDATION ACCOUNT: At the close of the conversion and reorganization of the
Association in December 1998, a $50,800,000 liquidation account 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 $15,534,000 at December 31, 2001.
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 shareholders' 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. There were no stock repurchases for the year
ended December 31, 2001.
NOTE 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, 2001 and
2000:
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.
(Continued)
36
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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, 2001 and 2000, 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 (in
thousands):
2001 2000
-------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents $104,087 $104,087 $ 45,118 $ 45,118
Securities available for sale 89,164 89,164 131,418 131,418
Securities held to maturity 28,931 31,701 34,025 36,736
Loans receivable, net 663,419 662,508 691,294 693,542
FHLB stock 8,063 8,063 8,063 8,063
Accrued interest receivable 3,565 3,565 4,363 4,363
Financial liabilities:
Deposits $686,278 $669,664 $681,069 $647,841
Advances from FHLB 134,143 140,118 146,714 144,979
Mortgage-backed bond 12,645 11,396 13,582 10,567
Accrued interest payable 443 443 510 510
(Continued)
37
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 16 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following are condensed statements of financial condition as of December 31,
2001 and 2000, and condensed statements of operations and cash flows for the
years ended December 31, 2001, 2000 and 1999. 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
(in thousands).
STATEMENTS OF FINANCIAL CONDITION
December 31,
2001 2000
-------- --------
ASSETS:
Cash and cash equivalents $ 76 $ 108
Investment in the Association 81,949 80,791
Loans to the Association 17,538 8,830
Loans to the ESOP 3,501 4,037
Loans to River Club 12,699 6,000
Real estate loans -- 12,500
Other assets 271 1,127
-------- --------
$116,034 $113,393
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities $ 949 $ 930
Shareholders' equity 115,085 112,463
-------- --------
$116,034 $113,393
======== ========
STATEMENTS OF OPERATIONS
Years ended December 31,
2001 2000 1999
------- ------- -------
Income $ 2,141 $ 2,068 $ 1,630
Expenses 1,369 448 519
------- ------- -------
Income before income taxes and equity in
earnings of the Association 772 1,620 1,111
Provision for income taxes 289 610 418
------- ------- -------
Income before equity in earnings of the Association 483 1,010 693
Equity in earnings of the Association 1,678 5,402 5,841
------- ------- -------
Net income 2,161 6,412 6,534
Other comprehensive income, net of tax:
Change in unrealized gain (loss) in market value
of securities available for sale 1,079 2,503 (2,926)
------- ------- -------
Comprehensive income, net of income taxes $ 3,240 $ 8,915 $ 3,608
======= ======= =======
(Continued)
38
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 16 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(Continued)
STATEMENTS OF CASH FLOWS
Years ended December 31,
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,161 $ 6,412 $ 6,534
Adjustments to reconcile net income to net
cash used for operating activities:
Equity in undistributed earnings of the Association 841 (914) (2,541)
Other 1,954 2,382 (243)
-------- -------- --------
Net cash from operating activities 4,956 7,880 3,750
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to subsidiaries (14,871) 1,495 6,045
Real estate loans 12,500 (6,500) (6,000)
Dividends received from the Association -- 11,106 15,905
-------- -------- --------
Net cash from investing activities (2,371) 6,101 15,950
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,570) (3,622) (4,115)
Purchase of treasury stock -- (11,106) (15,905)
Proceeds from exercise of stock options 953 754 209
-------- -------- --------
Net cash from financing activities (2,617) (13,974) (19,811)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (32) 7 (111)
Cash and cash equivalents, beginning of period 108 101 212
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 76 $ 108 $ 101
======== ======== ========
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.
(Continued)
39
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 17 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted
earnings per share for the years ended December 31, 2001, 2000 and 1999, was as
follows (in thousands except per share data):
2001 2000 1999
----------- ----------- -----------
Basic earnings per share
Net income available to common shareholders $ 2,161 $ 6,412 $ 6,534
Weighted average common shares outstanding 8,117,497 8,432,346 9,748,916
----------- ----------- -----------
Basic earnings per share $ 0.27 $ 0.76 $ 0.67
=========== =========== ===========
Diluted earnings per share
Net income available to common shareholders $ 2,161 $ 6,412 $ 6,534
----------- ----------- -----------
Weighted average common shares outstanding 8,117,497 8,432,346 9,748,916
Add: dilutive effects of assumed exercise of
stock options and unvested RRP shares
Stock options 222,385 123,772 216,482
RRP shares 65,615 113,608 158,319
----------- ----------- -----------
Weighted average common and dilutive
potential common shares outstanding 8,405,497 8,669,726 10,123,717
----------- ----------- -----------
Diluted earnings per share $ 0.26 $ 0.74 $ 0.65
=========== =========== ===========
</Table>
Other comprehensive income components and related taxes were as follows (in
thousands):
2001 2000 1999
----------- ----------- -----------
Unrealized holding gains and losses on
available-for-sale securities $ 1,562 $ 3,685 $ (4,351)
Less reclassification adjustments for gains
and losses later recognized in income (8) 75 --
----------- ----------- -----------
Net unrealized gains and losses 1,554 3,760 (4,351)
Tax effect (475) (1,257) 1,425
----------- ---------- -----------
$ 1,079 $ 2,503 $ (2,926)
=========== ========== ===========
(Continued)
40
COMMUNITY SAVINGS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
Quarters ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(Dollars in Thousands)
Year ended December 31, 2001:
Interest income $ 17,080 $ 16,613 $ 16,063 $ 15,156
Interest expense 10,174 9,550 9,003 8,165
-------- -------- -------- --------
Net interest income 6,906 7,063 7,060 6,991
Provision for loan losses 90 90 90 4,868
Other income 1,239 1,187 1,092 1,487
Operating expense 6,180 5,983 6,172 6,827
Provision (benefit) for income taxes 641 622 612 (1,311)
-------- -------- -------- --------
Net income $ 1,234 $ 1,555 $ 1,278 $ (1,906)
======== ======== ======== ========
Basic earnings per share $ 0.15 $ 0.19 $ 0.16 $ (0.23)
======== ======== ======== ========
Diluted earnings per share $ 0.15 $ 0.19 $ 0.15 $ (0.23)
======== ======== ======== ========
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
======== ======== ======== ========
</Table>
41