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EXHIBIT 13
1998 ANNUAL REPORT TO SHAREHOLDERS
COVER PAGE
COMMUNITY SAVINGS BANKSHARES, INC.
1998 ANNUAL REPORT
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INSIDE FRONT COVER
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This is a map of Florida showing
the branches of Community
Savings, FA and the counties
where they are located
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CORPORATE PROFILE
Community Savings Bankshares, Inc. ("Bankshares") is a Delaware-chartered stock
holding company which was organized in August 1998 and became the holding
company for Community Savings, F. A. ("the Association" or "Community Savings")
on December 15, 1998. Bankshares' primary asset consists of its investment in
its wholly-owned subsidiary, the Association, a stock savings and loan
association headquartered in North Palm Beach, Florida, as well as cash. The
Association's 21 full-service banking offices are well positioned in one of
America's fastest-growing markets, known for its affluent population and its
high quality of life. The mission statement of the Association reflects our
dedication to our shareholders and customers.
COMMUNITY SAVINGS IS A SOUTH FLORIDA BASED, COMMUNITY ORIENTED FINANCIAL
INSTITUTION DEDICATED TO PROVIDING QUALITY RETAIL FINANCIAL PRODUCTS AND
CUSTOMER SERVICE AT COMPETITIVE PRICES TO INDIVIDUALS AND BUSINESSES IN
OUR PRIMARY MARKET AREA OF PALM BEACH, MARTIN, ST. LUCIE, AND INDIAN RIVER
COUNTIES, WHILE EFFECTIVELY UTILIZING THE RESOURCES OF THE INSTITUTION,
ITS HOLDING COMPANY'S SHAREHOLDERS, AND OPERATING IN A SAFE, SOUND AND
PROFITABLE MANNER.
TABLE OF CONTENTS
Locations Inside front cover
Community Savings Bankshares, Inc. Corporate Directory 2
President's Message 3
Financial Highlights 7
Management's Discussion and Analysis 8
Independent Auditors' Report 20
Consolidated Statements of Financial Condition 21
Consolidated Statements of Income 22
Consolidated Statements of Comprehensive Income 23
Consolidated Statements of Changes in Shareholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
Corporate Information 50
Community Savings, F. A. Corporate Directory Inside back cover
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This is a picture of the Board of Directors
COMMUNITY SAVINGS BANKSHARES, INC.
BOARD OF DIRECTORS
Frederick A. Teed Forest C. Beaty, Jr. Robert F. Cromwell
Chairman of the Board Director Director
Karl D. Griffin James B. Pittard, Jr. Harold I. Stevenson, CPA
Director and Assistant Secretary President and Chief Executive Officer Director
CORPORATE OFFICERS
James B. Pittard, Jr.
President and Chief Executive Officer
Larry J. Baker ,CPA Cecil F. Howard, Jr.
Senior Vice President and Treasurer Senior Vice President
Feriel G. Hughes Mary L. Kaminske Michael E. Reinhardt
Senior Vice President Senior Vice President Senior Vice President
Joe L. Knorr Deborah M. Rousseau Donna L. Sheppard, CPA
Vice President Vice President Vice President
Secretary
Trina L. Miles
Assistant Secretary
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This is a picture of James B. Pittard, Jr.
President of Community Savings Bankshares, Inc.
James B. Pittard, Jr.
President of Community Savings Bankshares, Inc.
PRESIDENT'S MESSAGE TO SHAREHOLDERS
"1998 WAS A CHALLENGING YET REWARDING YEAR FOR OUR COMPANY."
1998 saw a major change in our corporate structure. In December 1998,
the Association completed its reorganization and conversion from the two-tier
mutual holding company structure to the stock holding structure. Our
reorganization was accompanied by a stock offering by our new holding company,
Community Savings Bankshares, Inc. As a result of the reorganization , Community
Savings Bankshares, Inc., a newly-formed Delaware company, became the parent
holding company for the Association. The proceeds from the offering are
primarily being used to support the Association's lending and investment
activities to meet its strategic goals for 1999, enhancing the Association's
ability to serve the borrowing and other financial needs of its community. The
reorganization also increased the liquidity of our stock from 2.4 million shares
to over 10 million shares in the market.
In connection with the reorganization, 5,470,651 shares of common stock
were sold at $10 per share, resulting in net proceeds of approximately $53
million. In addition, 5,078,233 exchange shares were issued to the existing
minority shareholders at the exchange ratio of 2.0445 shares for each share of
mid-tier holding company common stock. The total number of shares of common
stock outstanding after the reorganization is 10,548,884. The new shares began
trading on The Nasdaq Stock Market on December 16, 1998. The symbol remains
"CMSV".
"WE MET OUR FINANCIAL GOALS FOR 1998."
Net income totaled $5.0 million and total assets increased 17 % to
$844.0 million at year end as we continued implementation of our strategic plan
to increase the size of the company. Our primary strategy was to invest
extensively in new loans secured by property within our market area, emphasizing
one- to four- family residential loans, consumer loans, and commercial real
estate loans. We exceeded our goal by originating and purchasing a total of
$234.6 million of new loans. The new loans were funded by a $62.3 million
reduction in the securities portfolio to $147.8 million at December 31, 1998, as
well as an increase in retail deposits of $43.7 million, resulting in total
deposits of $594.4 million at December 31, 1998. We also funded specific
investment and loan transactions with a $34.6 million net increase in Federal
Home Loan Bank advances.
Our continued efforts to reduce expenses and enhance non-interest
income identified opportunities totaling $1.1 million.
"WE MET OUR COMMITMENT TO IMPROVE OUR TECHNOLOGY TO BETTER SERVE OUR CUSTOMERS'
NEEDS."
During 1998, we completed the installation of our wide-area computer
network and new customer information system in all of our branches and support
departments. This system assists customer service representatives and tellers
with opening accounts, servicing customers, and selling additional products and
services. In addition, it supports our upgraded loan tracking system which
allows us to process new loans more quickly and efficiently. The implementation
of two substantial systems upgrades resulted in a noticeable improvement in
customer service.
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"WE RELOCATED BRANCHES TO NEW LOCATIONS TO BETTER MEET THE NEEDS OF OUR
CUSTOMERS."
During 1998, we relocated two branch offices from leased spaces in
small strip shopping centers to larger free standing buildings in more
convenient locations for our customers. These branches had reached their
potential in the limited space they occupied and need to be moved in order to
continue growing.
The new Maplewood office, located on Indiantown Road in Jupiter,
Florida, replaces our Chasewood office. This office provides drive-in lanes as
well as a drive-up ATM which were not possible in the old location.
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This is a picture of the Maplewood office in Jupiter, Florida
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We also opened the Community Savings Professional Center, located on
Pt. St. Lucie Boulevard, in Port St. Lucie, Florida and relocated our Pt. St.
Lucie office as the primary tenant. We have additional space available in the
building for other tenants that will complement our branch business.
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This is a picture of the Pt. St. Lucie Boulevard
office in Pt. St. Lucie, Florida
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"THE YEAR 2000 CONTINUES TO BE A MAJOR FOCUS FOR US."
Our preparations for Year 2000 continued throughout 1998. We met our
target dates for testing our mission critical systems and have experienced a
high level of compliance with our existing and newly installed systems. We will
continue to make every effort to prepare for this event. We believe our mission
critical systems are Year 2000 compliant.
"WE EXPECT 1999 TO BE A YEAR OF CONTINUED GROWTH AND PROFITABILITY."
1999 will see us continuing to pursue our strategic objective of
emphasizing residential, consumer, and commercial real estate loan originations.
We will be targeting new loan markets and adding additional lending staff to
achieve this objective.
We will continue to look for new deposit markets in the upcoming year.
As part of this goal, we plan to open a new office in May 1999 near the Ibis
Country Club golf course community, located in suburban West Palm Beach. The
office will be located on land we purchased in a shopping center located at the
entrance to Ibis.
We plan to fully utilize our new Marketing Call Center, which opened in
December 1998, to create additional new business opportunities. The sales team
will assist new residents of the area and handle Internet referrals as well as
make follow-up calls on our direct mail promotions, CD renewals, and new
mortgage customers.
We are committed to exploring avenues that will improve our efficiency
by competitively pricing our products and services and by reducing our costs.
"WE ARE EXCITED BY OUR POSSIBILITIES AS A FULLY PUBLIC COMPANY."
On behalf of all of our employees, officers and directors, I want to
thank you for your loyal support during this past year. 1998 was an exciting
year for us and we look forward to the challenges and opportunities of 1999. We
look forward to earning your continued support in the future, as well.
James B. Pittard, Jr.
President and Chief Executive Officer
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FINANCIAL HIGHLIGHTS
Community Savings Bankshares, Inc. common stock trades on The Nasdaq Stock
Market under the symbol "CMSV".
12/31/98 12/31/97 12/31/96 9/30/96 9/30/95 9/30/94
FOR THE YEAR ENDED (In Thousands)
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Interest income $54,489 $50,316 $45,580 $43,889 $37,720 $34,130
Interest expense 30,159 27,390 23,888 22,859 18,634 15,525
Net interest income 24,330 22,926 21,692 21,030 19,086 18,605
Net income 4,994 5,356 4,024 3,915 4,574 3,737
AVERAGE FOR THE YEAR ENDED (In Thousands)
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Total assets $772,248 $693,175 $631,038 $612,004 $544,555 $528,286
Loans receivable, net 510,491 411,098 359,414 346,880 321,849 321,721
Cash and cash equivalents 44,819 42,029 47,532 48,367 53,736 40,946
Mortgage-backed securities - held to maturity 85,688 99,884 106,387 99,959 53,349 28,843
Investments - held to maturity and securities
available for sale 81,669 110,986 89,378 87,280 130,094 106,031
Deposits 578,574 537,965 494,034 478,955 429,893 452,070
Borrowed funds 90,928 61,551 46,076 42,416 29,086 23,657
Shareholders' equity 86,980 78,822 75,323 74,638 69,263 36,376
AT YEAR END (In Thousands)
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Total assets $844,041 $720,133 $655,209 $650,332 $567,006 $560,268
Loans receivable, net 538,204 451,709 389,040 376,219 329,442 317,117
Cash and cash equivalents 117,015 25,954 42,442 44,780 42,497 89,843
Mortgage-backed securities - held to maturity 32,395 46,413 53,405 54,945 77,499 41,281
Investments - held to maturity 20,224 21,388 22,139 22,293 59,679 52,204
Securities available for sale 95,151 142,269 123,152 124,287 27,028 26,729
Real estate owned 522 592 1,455 1,384 1,910 3,686
Deposits 594,400 550,708 513,709 498,929 437,376 459,979
Borrowed funds 107,350 75,098 53,908 55,867 39,101 19,233
Shareholders' equity 133,286 81,259 76,119 75,056 72,848 38,110
KEY FINANCIAL DATA
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PERFORMANCE RATIOS:
Return on average assets 0.65% 0.77% 0.64% 0.64% 0.84% 0.71%
Return on average equity 5.74 6.80 5.34 5.25 6.60 10.27
Net interest rate spread 3.04 3.13 3.24 3.24 3.40 3.69
Non-interest income to average assets 0.53 0.64 0.58 0.55 0.62 0.63
Non-interest expense to average assets 2.68 2.72 3.18 3.20 2.74 2.82
Dividend payout ratio 53.5 38.69 39.57 42.89 28.22 --
ASSET QUALITY RATIOS:
Non-performing loans to net loans receivable 0.31 0.31 0.42 0.22 0.20 0.93
Non-performing assets to total assets 0.26 0.27 0.47 0.40 0.45 1.25
Allowance for loan losses to non-performing loans 189.45 193.04 155.86 274.58 527.49 114.72
Allowance for loan losses to net loans receivable 0.59 0.59 0.65 0.61 1.06 1.07
CAPITAL RATIOS:
Shareholders' equity to total assets 15.79 11.28 11.62 11.54 12.85 6.80
Average equity to average assets 11.26 11.37 11.65 12.20 12.72 6.89
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MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
In the following discussion, references to "Bankshares" relate to Community
Savings Bankshares, Inc. together with its subsidiary, Community Savings, F. A.
(the "Association"). During January 1997, the Board of Directors approved the
change in the fiscal year end for all related entities from September 30th to
December 31st, effective with the year and the three months ended December 31,
1996.
COMMUNITY SAVINGS BANKSHARES, INC.
Bankshares is a Delaware-chartered stock holding company organized in August
1998. Bankshares' significant assets include cash and its investment in its
wholly-owned subsidiary, the Association. On December 15, 1998, Bankshares
completed its reorganization and stock offering in connection with the
conversion and reorganization of ComFed, M. H. C. ("ComFed") and its mid-tier
holding company (the "Mid-Tier"). Bankshares sold 5,470,65l shares of common
stock at $10.00 per share in a subscription and community offering (the
"Offering") resulting in net proceeds of approximately $53.0 million. Bankshares
also issued 5,078,233 exchange shares to existing minority shareholders (the
"Exchange") at an exchange ratio of 2.0445 shares for each share of Mid-Tier
Holding Company common stock. The conversion and reorganization was accounted
for at historical cost in a manner similar to a pooling of interests. At
December 31, 1998, there were 10,548,884 shares of common stock outstanding.
COMMUNITY SAVINGS, F. A.
The Association, founded in 1955, is a federally chartered stock savings and
loan association headquartered in North Palm Beach, Florida. The Association's
deposits are federally insured by the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF"). The
Association has been a member of the Federal Home Loan Bank of Atlanta ("FHLB")
since 1955. The Association is regulated by the Office of Thrift Supervision
("OTS"). On October 24, 1994, the Association completed a reorganization into a
federally chartered mutual holding company, ComFed. As part of the 1994
reorganization, the Association organized a new federally chartered stock
savings association and transferred substantially all of its assets and
liabilities to the stock savings association in exchange for a majority of the
common stock of the stock savings association. On December 15, 1998, in
connection with the conversion and reorganization, ComFed and the Mid-Tier were
merged with and into the Association and the Association became the wholly-owned
subsidiary of Bankshares.
The Association is a community-oriented financial institution engaged primarily
in the business of attracting deposits from the general public and using such
funds, together with other borrowings, to invest in various consumer-based real
estate loans, mortgage-backed securities ("MBS"), and investment securities. The
Association's plan is to operate as a well-capitalized, profitable and
independent institution. The Association currently exceeds all regulatory
capital requirements. The Association's profitability is highly dependent on its
net interest income. The components that determine net interest income are the
amount of interest-earning assets and interest-bearing liabilities, together
with the rates earned or paid on such interest rate-sensitive instruments. The
Association is sensitive to managing interest rate risk exposure by better
matching maturities and rates of its assets and liabilities. This is
accomplished while considering the credit risk of its assets. The Association
maintains asset quality by utilizing comprehensive loan underwriting standards
and collection efforts as well as by primarily originating or purchasing secured
or guaranteed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Association adjusts its liquidity levels in order to meet funding needs of
deposit outflows, payment of real estate taxes on mortgage loans, repayment of
borrowings and loan commitments. The Association also adjusts liquidity as
appropriate to meet its asset and liability management objectives. A major
portion of the Association's liquidity consists of cash and cash equivalents,
which are a product of its operating, investing and financing activities. The
Association is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required ratio currently is 4.0%. The
Association's liquidity ratio averaged 17.8% during the month of December 31,
1998 and 12.0% for fiscal 1998.
The Association's primary sources of funds are deposits, amortization and
prepayment of loans and MBS, maturities of investment securities and other
short-term investments, FHLB advances, and earnings and funds provided from
operations. While scheduled principal repayments on loans and MBS, and
maturities of securities are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Association manages the pricing of its
deposits to maintain a desired deposit balance. In addition, the Association
invests funds in excess of its immediate needs in short-term interest-earning
deposits and other assets, which provide liquidity to meet lending requirements.
Short-term interest-bearing
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deposits with the FHLB of Atlanta amounted to $100.3 million at December 31,
1998. Other assets qualifying for liquidity outstanding at December 31, 1998
amounted to $13.9 million. For additional information about cash flows from
operating, financing, and investing activities, see Consolidated Statements of
Cash Flows included in the consolidated financial statements.
Liquidity management is both a daily and long-term function of business
management. If funds are required beyond the ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. FHLB advances totaled $91.9 million at December 31, 1998. At
December 31, 1998, loan commitments totaled $14.9 million and the unfunded
portion of loans in process totaled $33.2 million. There were no commitments
outstanding to purchase loans at that date. Certificates of deposit scheduled to
mature in less than one year totaled $277.2 million at December 31, 1998. Based
on prior experience, management believes that a significant portion of such
deposits will remain with the Association.
The deposits of savings and loan associations, such as the Association, are
presently insured by the SAIF. The SAIF and the Bank Insurance Fund ("BIF") are
the two insurance funds administered by the FDIC. On August 8, 1995, in
recognition of BIF achieving its mandated reserve ratio, the FDIC revised the
premium schedule for BIF members to provide a new range of .04% to .31% of
deposits (as compared to the then existing range of .23% to .31% of deposits for
BIF and SAIF insured institutions). Subsequent revisions in such schedule
resulted in most BIF-insured institutions paying the statutory annual minimum
premium of $2,000. As a result, well capitalized and healthy BIF members paid
significantly lower premiums than SAIF-insured institutions. Without a
substantial increase in premium rates, or the imposition of special assessments
or other significant developments, such as a merger of SAIF and BIF, it was not
anticipated that SAIF would be adequately recapitalized until 2002. As a result
of the disparity in BIF and SAIF premium rates, SAIF members were placed at a
significant competitive disadvantage in relation to BIF members with respect to
pricing of loans and deposits and the ability to lower their operating costs.
On September 30, 1996, Congress passed, and the President signed, the Deposit
Insurance Funds Act of 1996 (the "DIF"), which mandated that all institutions
which had deposits insured by SAIF were required to pay a one-time special
assessment of 65.7 basis points on SAIF-insured deposits (subject to adjustment
for certain types of banks with SAIF deposits) that were held at March 31, 1995
payable by November 27, 1996 to recapitalize the SAIF. The assessment increased
the SAIF's reserve ratio to a level comparable to that of the BIF at 1.25% of
total insured deposits. The FDIC, in connection with the recapitalization, also
lowered SAIF premiums from $0.23 per $100 to $0.065 per $100 of insured deposits
beginning in January 1997. The Association's share of this special assessment
totaled $2.8 million and is reflected in the operating results for the year
ended September 30, 1996.
In August 1996, Congress passed legislation which repealed Bankshares' present
method of accounting for bad debts for federal income tax purposes. As discussed
in Note 9 to the consolidated financial statements, Bankshares previously used
the percentage of taxable income method to determine its bad debt deduction in
the computation of its taxable income. Under the new legislation, Bankshares is
required to use the specific charge-off method, which may result in a different
deduction for bad debts in determining taxable income than as computed under the
previous method. Additionally, Bankshares is required to recapture its post-1987
additions to its bad debt reserves. Since Bankshares had previously provided
deferred taxes for the income tax bad debt reserves established after 1987, no
additional income tax liability related to the recapture occurred. The new
legislation was effective for taxable years beginning after December 31, 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of Bankshares and the notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact is reflected in the increased cost of Bankshares'
operations. Unlike most industrial companies, nearly all of the assets and
liabilities of Bankshares are monetary. As a result, interest rates have a
greater impact on Bankshares' performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
FINANCIAL CONDITION
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
Total assets increased $123.9 million, or 17.2%, to $844.0 million at December
31, 1998 from $720.1 million at December 31, 1997. The increase in total assets
was primarily due to an $86.5 million increase in the loan portfolio as well as
an $88.1 million increase in interest earning deposits. In addition, office
properties and equipment increased $5.8 million primarily related to the
purchase of land intended for two future branch sites totaling $1.8 million, the
relocation of two existing branches totaling $3.6 million, and the exercise of
options to purchase two existing leaseholds and land totaling $2.0 million. FHLB
stock increased by $1.4 million as the required level was increased reflecting
the increase in the deposit portfolio. Other assets increased by $1.8 million
due to an investment in an affordable
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housing tax credit partnership. These increases resulted from the implementation
of the Association's growth strategy for fiscal year 1998. This strategy
emphasized increased loan production funded by retail deposits, combined with
purchases of securities funded by odd-term certificates of deposit or FHLB
advances. To increase the loan portfolio, the Association continued to emphasize
an incentive-based loan origination program which resulted in new loan
originations and purchases of $234.6 million, of which $208.0 million were
one-to four-family residential loans, $11.3 million were commercial real estate
loans, $6.2 million were commercial business loans, $4.0 million were land loans
and $5.1 million were other loans. These originations and purchases were offset
in part by repayments totaling $139.6 million and other adjustments totaling
$8.5 million.
The securities portfolio, which includes securities both held to maturity and
available for sale, had a net decrease for the year of $62.3 million. Investment
securities held to maturity decreased $15.2 million to $52.6 million at December
31, 1998 from $67.8 million at December 31, 1997. Securities available for sale
also decreased by $47.1 million to $95.2 million at December 31, 1998 from
$142.3 million at December 31, 1997. These decreases were due primarily to calls
totaling $41.7 million, maturities totaling $3.4 million and normal amortization
totaling $44.0 million. During 1998, $25.0 million of new securities were
purchased. Such purchases included $5.0 million in U. S. Government and agency
securities and $20.0 in mortgage-backed and related securities. All such
purchases of securities were classified as available for sale.
Office properties and equipment increased by $5.8 million for the year primarily
as a result of the relocation of two branch offices, the exercise of options to
purchase two existing leaseholds as well as the purchase of new computer
hardware and software in connection with the implementation of the Association's
wide-area computer network. Other assets increased $1.8 million to $7.0 million
at December 31, 1998 from $5.2 million at December 31, 1997, due to the
investment in an affordable housing tax credit partnership. The Association's
approximately 4% limited partnership interest results in tax benefits in the
form of tax deductions from partnership operating losses and tax credits. The
investment in the partnership is being amortized over the estimated 15-year life
of the partnership.
The increase in total assets was funded primarily by a $43.7 million increase in
deposits to $594.4 million at December 31, 1998 as compared to $550.7 million at
December 31, 1997. The deposit growth reflected increased retail deposits
resulting from special promotions of odd-term certificates combined with
competitive pricing intended to maintain existing deposit customers as well as
to attract new customers in the Association's market area. The increase in
assets also reflected the purchase of securities in leveraged transactions
intended to enhance net interest income as well as loan originations and
purchases which were funded by a $34.6 million net increase in advances from the
FHLB to $91.9 million at December 31, 1998 from $57.3 million at December 31,
1997.
Shareholders' equity increased to $133.3 million or $13.43 per share at December
31, 1998 from $81.3 million or $8.02 per share at December 31, 1997, reflecting
increases of $53.0 million of net proceeds raised in the Offering and net income
for the year of $5.0 million offset primarily by dividends totaling $2.7 million
declared during the year on the common stock held by minority shareholders and
the purchase of 437,652 shares of common stock by the Employee Stock Ownership
Plan (the "ESOP") in the Offering, which was funded by a loan from Bankshares.
As a result of the exercise of stock options granted pursuant to the stock
option plan, 9,040 shares of common stock were issued from authorized but
unissued shares during the year ended December 31, 1998, resulting, in
combination with the Offering and the Exchange , in 10,548,884 outstanding
shares as of December 31, 1998.
RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
GENERAL
Net income for the year ended December 31, 1998 decreased 6.8% to $5.0 million,
or $0.49 per share, compared to $5.4 million, or $0.53 per share for the same
period in 1997. Results for the year ended December 31, 1997 included a one-time
$384,000 after tax gain on the sale of the stock of the Association's data
service bureau which did not reoccur during 1998. However, during fiscal 1998,
net interest income increased $1.4 million to $24.3 million from $22.9 million
for fiscal 1997. Other income and the provision for income taxes decreased
$379,000 and $823,000, respectively, during fiscal 1998 while operating expense
increased $1.9 million during this time period.
INTEREST INCOME
Interest income for the year ended December 31, 1998 totaled $54.5 million, an
increase of $4.2 million, or 8.3%, from $50.3 million for 1997 reflecting, in
part, the implementation of the Association's growth strategy to increase the
loan portfolio and securities available for sale. The increase was due primarily
to a $68.8 million increase in average interest-earning assets of to $722.7
million for the year ended December 31, 1998 from $653.8 million for 1997,
partially offset by a decrease in the average yield on average interest-earning
assets to 7.54% for the year ended December 31, 1998 from 7.70% for fiscal 1997.
Interest income on loans increased $6.7 million, or 20.0%, to $40.2 million for
the year ended December 31, 1998 compared to $33.5 million for 1997. Interest
income on real estate loans increased by $6.5 million, or 20.4%, to $38.3
million for the year ended December 31, 1998 from $31.8 million for 1997,
primarily because of a
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$97.1 million increase in the average balance of real estate loans, or 24.7% to
$489.9 million for the year ended December 31, 1998 from $392.8 million for
1997, partially offset by a decrease in the average yield on real estate loans
to 7.83% from 8.11%. Interest income from securities held to maturity and
securities available for sale decreased by $3.2 million, or 21.5%, to $11.6
million for the year ended December 31, 1998 from $14.9 million for 1997. The
decrease in income from securities held to maturity and securities available for
sale was primarily caused by a $43.5 million decrease in the average balance to
$167.4 million for the year ended December 31, 1998 from $210.9 million for 1997
as well as a decrease in the average yield to 6.95% for the year ended December
31, 1998 from 7.05% for 1997. Other interest and dividend income which includes
interest-earning deposits and FHLB stock, increased $676,000, or 34.6%, to $2.6
million for the year ended December 31, 1998 from $2.0 million for 1997. The
increase in other interest and dividend income is primarily attributable to a
$13.0 million, or 40.7% increase in the average balance of other investments to
$44.8 million during 1998 from $31.8 million during 1997, partially offset by a
decrease in the average yield on other investments to 5.87% for the year ended
December 31, 1998 from 6.14% for 1997.
INTEREST EXPENSE
Interest expense increased $2.8 million, or 10.2%, to $30.2 million for the year
ended December 31, 1998 from $27.4 million for 1997. Interest on deposits
increased $1.4 million, or 6.2%, to $24.1 million for the year ended December
31, 1998 from $22.6 million for 1997. The increase was due primarily to the
increase in the average balance of deposits of $40.6 million, or 7.5%, to $578.6
million during 1998 from $538.0 million during 1997 partially offset by a small
decrease in the average cost of deposits to 4.17% from 4.21%. In order to
increase its market share of total deposits during 1998 as well as to maintain
its existing deposit customers, the Association has continued to place an
increased emphasis on competitively pricing its deposit products, including
odd-term certificate of deposit products, as well as existing certificate of
deposit products, as part of its asset liability policy. Certificates of deposit
typically have a higher interest rate cost to the Association than transaction
accounts. Certificates of deposits and transaction accounts increased $10.1
million and $33.6 million, respectively, at December 31, 1998 as compared to
December 31, 1997. Interest expense attributable to borrowed funds increased
$1.3 million, or 27.7%, to $6.1 million for the year ended December 31, 1998
from $4.7 million for 1997, primarily due to an increase in the average balance
of borrowed funds to $90.9 million during 1998 from $61.6 million during the
1997 period, partially offset by a decrease in the average cost of borrowed
funds to 6.65% for the year ended December 31, 1998 from 7.70% for the 1997
period. During 1998, additional advances from the FHLB were used primarily to
fund the purchase of securities with higher interest yields than the interest
cost of the FHLB advances.
PROVISION FOR LOAN LOSSES
The Association maintains an allowance for loan losses based upon a periodic
evaluation of known and inherent risks in the loan portfolio, its past loan loss
experience, adverse situations that may affect borrowers' ability to repay
loans, the estimated value of the underlying loan collateral, the nature and
volume of its loan activities, and current as well as expected future economic
conditions. Loan loss provisions are based upon management's estimate of the
fair value of the collateral and the actual loss experience, as well as
guidelines applied by the OTS and the FDIC. The provision for loan losses was
$622,000 for the year ended December 31, 1998 as compared to $264,000 for 1997.
The increase in the provision for loan losses for 1998 was primarily
attributable to management's assessment that the allowance for loan losses
needed to be increased to protect against the inherent risk in the loan
portfolio due to the $86.5 million increase in the loan portfolio during this
period. Management reviews the adequacy of its allowances for loan losses
monthly through asset classification review. The allowance for loan losses as a
percentage of net loans receivable at December 31, 1998 and 1997 was 0.59% and
0.59%, respectively.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale or early maturity of securities available for sale, loans,
and other assets. Other income decreased $379,000 or 8.4%, to $4.1 million for
the year ended December 31, 1998 from $4.5 million for 1997. Net gain on sale of
other assets of $617,000 in the year ended December 31, 1997 represented the
one-time gain on the sale of stock of the Association's data service bureau. Fee
income (which includes servicing income and other loan fees, and NOW account and
other customer fees) was $3.6 million for both the 1998 and the 1997 periods.
OPERATING EXPENSE
Total operating expense increased $1.9 million to $20.7 million for the year
ended December 31, 1998 from $18.8 million for 1997. Employee compensation and
benefits increased by $1.4 million to $10.4 million during the year ended
December 31, 1998 from $9.0 million during 1997 primarily as a result of
increased staffing and compensation levels and increased cost of the stock
benefit programs reflecting changes in the market value of Bankshares' common
stock during 1998. Occupancy and equipment expense increased $437,000 to $5.5
million for the year ended December 31, 1998, from $5.1 million for the 1997
period primarily as a result of the relocation of two branch offices, the
exercise of options to purchase two existing leaseholds, and increased
depreciation expense. These events involved construction costs as well as
increased depreciation expense related to new hardware and software purchased
for the Association's computer network.
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PROVISION FOR INCOME TAXES
The provision for income taxes decreased $823,000 million to $2.1 million for
the year ended December 31, 1998 from $2.9 million for the 1997 period due in
part to lower taxable income during the year ended December 31, 1998. The
decrease also reflected the increased benefit from tax credits totaling $320,000
resulting from the Association's investment in the affordable housing
partnership during the year ended December 31, 1998 as compared to $197,000 for
1997.
RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 1996
GENERAL
The comparison periods vary due to the change in the fiscal year of Bankshares
and the Association from September 30th to December 31st. Net income for the
year ended December 31, 1997 increased 38.5 % to $5.4 million, or $0.53 per
share, compared to $3.9 million, or $0.39 per share for the year ended September
30, 1996. This increase in net income was primarily due to the special one-time
SAIF pretax assessment of $2.8 million which was recorded during September 1996
and which did not re-occur during the year ended December 31, 1997. Net interest
income increased $1.9 million to $22.9 million for the year ended December 31,
1997 from $21.0 million for the year ended September 30, 1996. Other income and
the provision for income taxes increased $641,000 and $2.2 million,
respectively, for the year ended December 31, 1997, while operating expense
decreased $1.2 million during these time periods due to the absence of any
special assessment.
INTEREST INCOME
Interest income for the year ended December 31, 1997 totaled $50.3 million, an
increase of $6.4 million, or 14.6%, from $43.9 million for the year ended
September 30, 1996 reflecting, in part, the implementation of the Association's
growth strategy to increase the net loan portfolio and securities held for sale.
The increase was due primarily to an increase in average interest-earning assets
of $77.9 million to $653.8 million for the year ended December 31, 1997 from
$575.9 million for the year ended September 30, 1996, enhanced by an increase in
the average yield on average interest-earning assets to 7.70% for the year ended
December 31, 1997 from 7.62% for the year ended September 30, 1996. Interest
income on loans increased $5.2 million, or 18.5%, to $33.5 million for the year
ended December 31, 1997 compared to $28.3 million for the year ended September
30, 1996. Interest income on real estate loans increased by $5.0 million, or
19.0%, to $31.8 million for the year ended December 31, 1997 from $26.8 million
for the year ended September 30, 1996, primarily because of an increase in the
average balance of real estate loans of $61.6 million, or 18.6%, and an increase
in the average yield on real estate loans to 8.11% from 8.09%. Interest income
from investment securities and securities available for sale increased by $1.8
million, or 13.7%, to $14.9 million for the year ended December 31, 1997 from
$13.1 million for the year ended September 30, 1996. The increase in income from
investment securities and securities available for sale was primarily caused by
an increase in the average balance of $23.7 million to $210.9 million for the
year ended December 31, 1997 from $187.2 million for the year ended September
30, 1996, as well as an increase in the average yield to 7.05% for the year
ended December 31, 1997 from 7.01% for the year ended September 30, 1996.
Interest income from other investments, which includes interest-earning deposits
and FHLB stock, decreased $537,000, or 21.5%, to $2.0 million for the year ended
December 31, 1997 from $2.5 million for the year ended September 30, 1996. The
decrease in interest from other investments is primarily attributable to a $9.9
million, or 23.7%, decrease in the average balance of other investments to $31.9
million during 1997 from $41.8 million during 1996, partially offset by an
increase in the average yield on other investments to 6.14% for the year ended
December 31, 1997 from 5.96% for the year ended September 30, 1996.
INTEREST EXPENSE
Interest expense increased $4.5 million, or 19.8%, to $27.4 million for the year
ended December 31, 1997 from $22.9 million for the year ended September 30,
1996. Interest on deposits increased $3.4 million, or 17.7%, to $22.6 million
for the year ended December 31, 1997 from $19.2 million for the year ended
September 30, 1996. The increase was due primarily to the increase in average
cost of deposits to 4.21% from 4.02%, as well as an increase in the average
balance of deposits of $59.0 million, or 12.3%, to $538.0 million during 1997
from $479.0 million during 1996. In order to increase its market share of total
deposits during 1997 as well as to maintain its existing deposit customers, the
Association placed an increased emphasis on competitively pricing its deposit
products, including odd-term certificate of deposit products, as well as
existing certificate of deposit products, as part of its asset liability policy.
Certificates of deposit typically have a higher interest rate cost to the
Association than transaction accounts. Certificates of deposits and transaction
accounts increased $19.4 million and $17.6 million, respectively, at December
31, 1997 as compared to September 30, 1996. Interest expense attributable to
borrowed funds increased $1.1 million, or 31.2%, to $4.7 million for the year
ended December 31, 1997 from $3.6 million for the year ended September 30, 1996.
The increase in interest expense attributable to borrowed funds is due to an
increase in the average balance of borrowed funds to $61.6 million during 1997
from $42.4 million during the 1996 period, partially offset by a decrease in the
average cost of borrowed funds to 7.70% for the year ended December 31, 1997
from 8.52% for the 1996 period. During 1997, additional advances from the FHLB
were used primarily to fund the purchase of securities with higher interest
yields than the interest cost of the FHLB advances.
10
13
PROVISION FOR LOAN LOSSES
The provision for loan losses was $264,000 for the year ended December 31, 1997
as compared to $98,000 for the year ended September 30, 1996. The increase in
the provision for loan losses for 1997 reflected management's assessment that
the allowance for loan losses needed to be increased to absorb the risk inherent
in the loan portfolio due not only to the growth in the loan portfolio (which
was increased by $62.7 million during this period) but also due to increased
investment in commercial and multi-family real estate lending which is deemed to
have greater risk than single-family residential lending. The allowance for loan
losses as a percentage of net loans receivable at December 31, 1997 and
September 30, 1996 was 0.59% and 0.61%, respectively.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale or early maturity of securities available for sale, loans,
and other assets as well as income or loss from a real estate venture in which a
subsidiary of the Association was involved. Other income increased $657,000, or
17.3%, to $4.4 million for the year ended December 31, 1997 from $3.8 million
for the year ended September 30, 1996. Net gain on sale of other assets of
$617,000 in the year ended December 31, 1997 represented the sale of stock of
the Association's data service bureau which did not occur during 1996. In
addition, the year ended December 31, 1997 reflected a $3,000 net gain on the
sale of loans as compared to a $225,000 net loss for the 1996 period. Fee income
(which includes servicing income and other loan fees, and NOW account and other
customer fees) increased $310,000 to $3.6 million for the 1997 year from $3.3
million for the 1996 period as a result of fee structure changes put in place
during 1997.
OPERATING EXPENSE
Total operating expense decreased $1.2 million to $18.8 million for the year
ended December 31, 1997 from $20.0 million for the year ended September 30,
1996. Operating expense was higher in the 1996 period primarily due to the
one-time $2.8 million special assessment for recapitalization of the SAIF. This
special assessment was levied against institutions having SAIF-insured deposits
as of March 31, 1995, as mandated by the DIF. Due to new reduced deposit
insurance premium levels during 1997, the 1997 regular premium was $270,000 as
compared to $l.1 million for the 1996 period. Employee compensation and benefits
increased by $1.2 million to $9.0 million during the year ended December 31,
1997 from $7.8 million during the year ended September 30, 1996 and occupancy
and equipment expense increased $478,000 to $5.1 million for the year ended
December 31, 1997, from $4.6 million for the 1996 period. These increases were
primarily the result of the opening of three new branch offices, the
implementation of a new company wide computer network, and additional costs
related to the incentive-based loan originators. These events involved
construction costs, increases in staffing, and depreciation expense increases
related to new hardware and software for the network.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $2.2 million to $2.9 million for the year
ended December 31, 1997 from $761,000 for the 1996 period. This increase was the
result of higher taxable income during the year ended December 31, 1997. In
addition, the 1996 period included the reversal of a $1.1 million prior accrued
liability which in management's opinion was no longer required and which was
reversed with a credit to the 1996 income tax provision.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net income for the three months ended December 31, 1996 increased 10.5% to $1.2
million, or $0.12 per share, compared to $1.1 million, or $0.11 per share, for
the three months ended December 31, 1995. The increase in net income was due to
increases in net interest income of $662,000 and in other income of $145,000
partially offset by increases of $213,000 in the provision for loan losses,
$455,000 in operating expense, and $29,000 in the provision for income taxes.
NET INTEREST INCOME
Net interest income increased to $5.5 million for the quarter ended December 31,
1996 from $4.9 million for the three months ended December 31, 1995 primarily as
a result of a $78.0 million increase in average interest-earning assets to
$616.6 million for the three months ended December 31, 1996 from $538.6 million
for the same period in 1995. This increase was offset in large part by a $74.8
million increase in average interest-bearing liabilities to $559.8 million for
the three months ended December 31, 1996 from $485.0 million for the same period
in 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $243,000 for the three months ended December
31, 1996 as compared to $30,000 for the same period in 1995. The increase in the
provision of $213,000 included a $200,000 transfer to the general loan valuation
allowance from a specific reserve which had been maintained with respect to an
interest-earning deposit which was pledged as collateral for the loan made to
the
11
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ESOP and which was recovered during the three months ended December 31, 1996.
The allowance for loan losses as a percentage of net loans receivable was 0.65%
and 1.04% at December 31, 1996 and 1995, respectively.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale of securities available for sale and income or loss from the
Association's subsidiary's real estate venture. Other income increased $145,000
to $1.2 million for the three months ended December 31, 1996 from $1.1 million
for the same period in 1995, due to the reversal of a specific reserve of
$200,000 referenced above which had been maintained with respect to an
interest-earning deposit which was pledged as collateral for the ESOP loan and
which was recovered during the 1996 period.
OPERATING EXPENSE
Operating expense increased $455,000, or 10.9%, to $4.6 million for the three
month period ended December 31, 1996, from $4.2 million from the same period in
1995, primarily due to increases of $135,000 in advertising and promotion due to
increased advertising designed to increase the Association's market share, and
$122,000 in employee compensation and benefits as a result of increased staffing
due to both a branch office opening and the expanded loan production program as
previously discussed.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $29,000 to $696,000 for the three months
ended December 31, 1996 as compared to $667,000 for the same period in 1995 due
to the increase in net income.
IMPACT OF NEW ACCOUNTING STANDARDS
Beginning January 1, 2000, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges generally will be 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. This is not expected to have a material effect
but the effect will depend on derivative holdings when this standard applies.
Mortgage loans originated in mortgage banking are converted into securities on
occasion. A new accounting standard for 1999 will allow these securities to be
classified as available for sale, held to maturity, or trading , instead of the
current requirement to classify as trading. This is not expected to have a
material effect but the effect will vary depending on the level and designation
of securitizations as well as on market price movements.
YEAR 2000 CONSIDERATIONS
In order to be ready for the year 2000 (the "Year 2000 Issue"), the Association
has developed a Year 2000 Action Plan (the "Action Plan") which was presented to
the audit committee of the Board of Directors during July 1997. The Action Plan
was developed using the guidelines outlined in the Federal Financial
Institutions Examination's Council's "The Effect of 2000 on Computer Systems".
The Association's Strategic Planning Committee assigned responsibility for the
Action Plan to the Year 2000 Committee which reports to the Strategic Planning
Committee and the Board of Directors on a monthly basis. The Action Plan
recognizes that the Association's operating, processing and accounting
operations are computer reliant and could be affected by the Year 2000 Issue.
The Association is primarily reliant on third party vendors for its computer
output and processing, as well as other significant functions and services (i.e.
securities safekeeping services, securities pricing information, et cetera). The
Year 2000 Committee is currently working with these third party vendors to
assess their Year 2000 readiness. Based upon the initial assessment, management
presently believes that with planned modifications to existing software and
hardware and planned conversions to new software and hardware, the Association's
third party vendors are taking the appropriate steps to ensure that critical
systems will continue to function properly.
The Association has identified 64 mission critical applications (without which
the Association cannot operate) and critical applications (necessary
applications but the Association can function for a moderate amount of time
without such applications being Year 2000 compliant) operated by third party
vendors. Of such mission critical and critical applications, the Association has
been informed that a majority are already Year 2000 compliant and approximately
30% are in the process of revising and testing their systems for Year 2000
compliance. Of such 64 mission critical and critical applications, approximately
25% are provided by the Association's data service processor which had informed
the Association that it had substantially completed testing of its updated
systems (in which testing the Association was involved) by December 31, 1998.
The initial phase of testing of the data service processor's updated system was
completed in October 1998 with substantially all such systems evidencing Year
2000 compliance. Substantially all of the Association's vendors of its mission
critical and critical applications have provided written assurances that their
products and services will be Year 2000 compliant. The majority of such
modifications and conversions and related testing of such systems was
successfully completed by December 31, 1998 with the remaining ones anticipated
being completed by March 31, 1999. While the Association has received
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15
assurances from such vendors as to compliance, such assurances are not
guarantees and may not be enforceable. The Association's existing older
contracts with such vendors do not include Year 2000 certification or
warranties. Thus, in the event such vendors' products and/or services are not
Year 2000 compliant, the Association's recourse in the event of such failure may
be limited. If the required modifications and conversions are not made, or are
not completed on a timely basis, then the Year 2000 Issue could have a material
impact on the operations of the Association. There can be no assurance that
potential systems interruptions or unanticipated additional expense incurred to
obtain Year 2000 compliance would not have a material adverse effect on the
Association's business, financial condition, results of operations and business
prospects. Nevertheless, the Association does not believe that the cost of
addressing the Year 2000 issues will be a material event or uncertainty that
would cause reported financial information not to be necessarily indicative of
future operating results or financial conditions, nor does it believe that the
costs or the consequences of incomplete or untimely resolution of its Year 2000
issues represent a known material event or uncertainty that is reasonably likely
to affect its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition.
The Year 2000 issues also affect certain of the Association's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of June 30, 1998, the Association had contacted all of
its commercial credit customers (69 borrowers with outstanding loans aggregating
$60.l million) regarding such customers' awareness of the Year 2000 Issue. While
no assurance can be given that its customers will be Year 2000 compliant,
management believes, based on representations of such customers and reviews of
their operations (including assessments of the borrowers' level of
sophistication and data and record keeping requirements), that the customers are
either addressing the appropriate issues to insure compliance or that they are
not faced with material Year 2000 issues. None of such borrowers use networked
computer systems or data centers to conduct their operations. In addition, in
substantially all cases the credit extended to such borrowers is collateralized
by real estate which inherently minimizes the Association's exposure in the
event that such borrowers do experience problems or delays becoming Year 2000
compliant. Since June 30, 1998, the Association has established an ongoing
policy to perform a Year 2000 assessment of all new commercial credit customers'
Year 2000 awareness and the anticipated impact on their business.
The Association has completed its own company-wide Year 2000 contingency plan.
Individual contingency plans concerning specific software and hardware issues
and operational plans for continuing operations were completed for its mission
critical hardware and software applications by the end of January 1999. The Year
2000 Committee is reviewing substantially all mission critical test plans and
contingency plans to ensure the reasonableness of the plans. Testing of the
majority of the mission critical systems was successfully completed by December
1998 with the remainder expected to be completed by March 31, 1999. The
Association has developed contingency plans which address operational policies
and procedures in connection with data processing, electric power supply and/or
telephone service failures associated with the Year 2000 issue. Such contingency
plans provide documented actions to allow the Association to maintain and/or
resume normal operations in the event of the failure of mission critical and
critical applications. Such plans identify participants, processes and equipment
that will be necessary to permit the Association to continue operations. Such
plans may include providing off-line system processing, back-up electrical and
telephone systems and other methods to ensure the Association's ability to
continue to operate.
The cost of modifications to the existing software is being primarily absorbed
by the third party vendors. However the Association recognized a need to
purchase new hardware and software. The Association identified approximately
$1.8 million in total costs, including hardware, software, and other issues, for
completing the Year 2000 project. Of that amount, approximately $500,000, $1.2
million and $39,000 was purchased during the twelve months ended December 31,
1998, 1997 and 1996, respectively.
FORWARD-LOOKING STATEMENTS
Certain information in this annual report may constitute forward-looking
information that involves risks and uncertainties that could cause actual
results to differ materially from those estimated. Persons are cautioned that
such forward-looking statements are not guarantees of future performance and are
subject to various factors which could cause actual results to differ materially
from those estimated. These factors include, but are not limited to, changes in
general economic and market conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, demand for loan and
deposit products and the development of an interest rate environment that
adversely affects the interest rate spread or other income from Bankshares'
investments and operations.
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AVERAGE BALANCE SHEET
The following tables set forth certain information relating to Bankshares'
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. The use of monthly average balances (except as noted otherwise)
instead of daily average balances has not caused any material difference in the
information presented.
- - --------------------------------------------------------------------------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
-------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- - --------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
-------------------------------------------------------------------------------
Interest-earning assets:
Real estate loans $489,915 $38,342 7.83% $392,782 $31,846 8.11%
Consumer and other loans 20,576 1,886 9.17 18,316 1,644 8.98
Mortgage-backed and related securities 85,688 6,074 7.09 99,884 7,330 7.34
Investment securities 81,669 5,555 6.80 110,986 7,540 6.79
Other investments(1) 44,819 2,632 5.87 31,851 1,956 6.14
----------- ----------- ------------ ------------
Total interest-earning assets 722,667 54,489 7.54 653,819 50,316 7.70
----------- ------------
Non-interest-earning assets 49,581 39,356
----------- ------------
Total assets $772,248 $693,175
=========== ============
Interest-bearing liabilities:
Deposits $578,574 $24,111 4.17% $537,965 $22,648 4.21%
Borrowed funds 90,928 6,048 6.65 61,551 4,742 7.70
----------- ----------- ------------ ------------
Total interest-bearing liabilities 669,502 30,159 4.50 599,516 27,390 4.57
----------- ------------
Non-interest-bearing liabilities 15,766 14,837
----------- ------------
Total liabilities 685,268 614,353
Shareholders' equity 86,980 78,822
----------- ------------
Total liabilities and shareholders' equity $772,248 $693,175
=========== ============
Net interest income $24,330 $22,926
=========== =======
Net interest rate spread(2) 3.04% 3.13%
========== ==========
Net yield on interest-earning assets(3) 3.37% 3.51%
========== ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.94% 109.06%
========== ==========
- - --------------------------------------------------------------------------------------------------------------------------
(1) Includes interest-earning deposits and FHLB stock.
(2) Net interest-rate spread represents the difference between the average
yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
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- - --------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended For the Year Ended
December 31, 1996 September 30,1996
-------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- - --------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
-------------------------------------------------------------------------------
Interest-earning assets:
Real estate loans $365,269 $ 7,427 8.13% $331,134 $26,765 8.09%
Consumer and other loans 17,989 408 9.07 15,746 1,508 9.48
Mortgage-backed and related securities 107,190 1,992 7.43 99,959 7,423 7.43
Investment securities 93,399 1,578 6.76 87,280 5,700 6.53
Other investments(1) 32,764 491 5.99 41,817 2,493 5.96
----------- ----------- ----------- --------
Total interest-earning assets 616,611 11,896 7.72 575,936 43,889 7.62
----------- --------
Non-interest-earning assets 35,425 36,068
----------- -----------
Total assets $652,036 $612,004
======== ========
Interest-bearing liabilities:
Deposits $504,738 $ 5,251 4.16% $478,955 $19,247 4.02%
Borrowed funds 55,063 1,127 8.19 42,416 3,612 8.52
----------- ----------- ----------- ---------
Total interest-bearing liabilities 559,801 6,378 4.56 521,371 22,859 4.38
----------- ---------
Non-interest-bearing liabilities 16,294 15,995
----------- -----------
Total liabilities 576,095 537,366
Shareholders' equity 75,941 74,638
----------- -----------
Total liabilities and shareholders' equity $652,036 $612,004
=========== ===========
Net interest income $ 5,518 $21,030
======= =========
Net interest rate spread(2) 3.16% 3.24%
========== ========
Net yield on interest-earning assets(3) 3.58% 3.65%
========== ========
Ratio of average interest- earning
assets to average interest-bearing
liabilities 110.15% 110.47%
====== =======
- - --------------------------------------------------------------------------------------------------------------------------
(1) Includes interest-earning deposits and FHLB stock.
(2) Net interest-rate spread represents the difference between the average
yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
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RATE VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing the volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected the interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in average volume (change in average volume multiplied
by prior rate); (ii) changes attributable to changes in rate (changes in rate
multiplied by prior average volume); (iii) changes in rate-volume (changes in
rate multiplied by changes in average volume); and (iv) the net change.
- - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Year Ended December 31, 1997 Three Months Ended December 31,
1998 vs. 1997 vs. Year Ended September 30, 1996 1996 vs. 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
Due to Due to Due to
---------------------- Total --------------------- Total ----------------------- Total
Rate/ Increase Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
-------------------------------------------------------------------------------------------------------
INTEREST INCOME:
First mortgage loans $7,877 $(1,100)$ (281) $6,496 $4,981 $ 99 $ 1 $5,081 $ 947 $175 $27 $1,149
Consumer and other
loans 203 35 4 242 246 (94) (16) 136 74 (9) (2) 63
Mortgage-backed and
related securities (1,042) (250) 36 (1,256) (6) (90) 3 (93) 523 (72) (23) 428
Investment securities (1,991) 11 (5) (1,985) 1,548 227 65 1,840 171 42 4 217
Other investments (1) 796 (86) (34) 676 (594) 75 (18) (537) (157) (12) 3 (166)
----- ----- ---- ------ ------ ----- --- ----- ----- --- --- ------
Total interest-earning
assets 5,843 (1,390) (280) 4,173 6,175 217 35 6,427 1,558 124 9 1,691
----- ----- ---- ------ ------ ----- --- ----- ----- --- --- ------
INTEREST EXPENSE
Deposits 1,710 (215) (32) 1,463 2,372 910 119 3,401 588 145 19 752
Borrowed funds 2,262 (646) (310) 1,306 1,630 (348) (152) 1,130 363 (60) (26) 277
----- ----- ---- ------ ------ ----- --- ----- ----- --- --- ------
Total interest-bearing
liabilities 3,972 (861) (342) 2,769 4,002 562 (33) 4,531 951 85 (7) 1,029
----- ----- ---- ------ ------ ----- --- ----- ----- --- --- ------
Net change in net
interest income $1,871 $(529) $62 $1,404 $2,173 $(345) $68 $1,896 $ 607 $ 39 $16 $662
===== ===== ==== ====== ====== ===== === ===== ===== === === ======
- - ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes interest-earning deposits and FHLB stock.
ASSET/LIABILITY MANAGEMENT
Since substantially all of Bankshares' interest-earning assets and
interest-bearing liabilities are held by the Association, Bankshares' interest
rate risk exposure primarily lies at the Association level. As a result, all
significant interest rate risk management procedures are performed by management
of the Association. The Association's balance sheet consists of investments in
interest-earning assets (primarily loans and investment securities) which are
primarily funded by interest-bearing liabilities (deposits and borrowings.) Such
financial instruments have varying levels of sensitivity to changes in market
interest rates resulting in market risk. All financial instruments are either
classified as held to maturity or available for sale. As of December 31, 1998,
the Association did not own any trading assets, nor did it have any hedging
transactions in place such as interest rate swaps and caps. No assets are held
for trading purposes. Based upon the nature of the Association's operations, the
Association is not subject to foreign currency exchange or commodity price risk.
The Association's loan portfolio is secured by assets located primarily in Palm
Beach, Martin, St. Lucie, and Indian River counties in Florida and therefore is
subject to risks associated with those local economies.
Bankshares is subject to interest rate risk to the extent that its
interest-bearing liabilities with short and intermediate-term maturities reprice
more rapidly, or on a different basis, than its interest-earning assets.
Significant effort has been made to reduce the duration and average life of the
interest-earning assets. Bankshares continues to emphasize adjustable-rate loans
and to increase the amount of its consumer and commercial loan portfolios which
are generally shorter term in nature than its mortgage loan portfolio. In
addition, the majority of all long-term, fixed-rate mortgages are underwritten
in accordance with Fannie Mae ("FNMA") guidelines thereby allowing for
flexibility to sell the assets into the secondary market when market conditions
are favorable. With its funding sources, management has attempted to reduce the
impact of interest rate changes by emphasizing longer-term certificates of
deposit and the use of longer-term advances from the FHLB.
Management measures Bankshares' interest rate risk by computing estimated
changes in net interest income and the net portfolio value ("NPV") of its cash
flows from assets and liabilities in the event of a range of assumed changes in
market interest rates. Bankshares' exposure to interest rate risk is reviewed on
a quarterly basis by the Board of Directors and by the Asset/Liability Committee
(the
16
19
"ALCO") which is comprised of senior management. The ALCO establishes
policies to monitor and coordinate the Association's sources, uses, and pricing
of funds. Exposure to interest rate risk is measured with the use of interest
rate sensitivity analysis to determine the change in NPV in the event of
hypothetical changes in interest rates. If estimated changes to NPV and net
interest income are not within the limits established by the Board of Directors,
then the Board may direct management to adjust the Association's asset and
liability mix to bring interest rate risk within Board approved limits.
NPV represents the market value of assets less the market value of liabilities.
This analysis assesses the risk of loss in market risk sensitive instruments in
the event of sudden and sustained 1% to 4% increases and decreases in market
interest rates. The Association's Board of Directors has adopted an interest
rate risk policy which establishes maximum decreases in NPV in the event of such
changes in market interest rates.
The following table presents Bankshares' internal calculations of NPV at
December 31, 1998.
NPV as % of
Change in Interest Rates in Basis Points ESTIMATED NET MARKET VALUE OF PORTFOLIO EQUITY PV OF AVERAGE ASSETS
---------------------------------------------- --------------------
(Rate Shock) Amount $ Change % Change NPV Ratio Change
(Dollars in Thousands) (Basis Points)
400 $118,024 $(36,995) (23.9)% 15.28% (479)
300 126,058 (28,961) (18.7) 16.32 (375)
200 134,834 (20,185) (13.0) 17.46 (261)
100 144,450 (10,569) (6.8) 18.71 (136)
Static 155,019 -- -- 20.07 --
(100) 166,670 11,652 21.58 151
(200) 179,556 24,537 15.8 23.25 167
(300) 193,851 38,832 25.0 25.10 185
(400) 209,761 54,742 35.3 27.16 206
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. This occurs principally because, as rates rise, the market
value of fixed-rate loans declines due to both the rate increase and slowing
prepayments. When rates decline, Bankshares does not experience a significant
rise in market value for these loans because borrowers prepay at a relatively
high rate. The value of the Association's deposits and borrowings changes in
approximately the same proportion in rising or falling rate scenarios.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. The interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other types may lag behind changes in market rates. Additionally,
certain assets, such as adjustable-rate mortgage loans have features which
restrict changes in interest rates on a short term basis and over the life of
the asset. In the event of a change in interest rates, expected rates of
prepayments on loans, decay rates of deposits and early withdrawals from
certificates could likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of a significant interest rate increase.
In addition, the above table may not properly reflect the impact of general
interest rate movements on Bankshares' net interest income because the repricing
of certain categories of assets and liabilities are subject to competitive and
other pressures beyond Bankshares' control.
For information regarding the contractual maturities of the loan, securities and
deposit portfolios, see Notes to Consolidated Financial Statements.
17
20
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, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
changes in shareholders' equity and cash flows for the years ended December 31,
1998 and 1997, for the three months ended December 31, 1996 and for the year
ended September 30, 1996. 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, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, for the three months ended
December 31, 1996 and for the year ended September 30, 1996, in conformity with
generally accepted accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 11, 1999
18
21
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - --------------------------------------------------------------------------------------------------------------------------
December 31,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------------
(In Thousands)
ASSETS
Cash and amounts due from depository institutions $ 15,305 $12,333
Interest-earning deposits 101,710 13,621
-------- -------
Cash and cash equivalents 117,015 25,954
Securities available for sale 95,151 142,269
Securities held to maturity (Approximate fair value - 1998, $57,303; 1997, $72,523) 52,619 67,801
Loans receivable, net of allowance for loan losses 538,204 451,709
Accrued interest receivable 2,782 3,162
Federal Home Loan Bank stock - at cost 4,722 3,264
Premises and equipment, net 26,016 20,206
Real estate owned, net 522 592
Other assets 7,010 5,176
-------- -------
Total assets $844,041 $720,133
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand deposits $31,769 $24,715
NOW and funds transfer deposits 82,628 69,862
Savings deposits 32,919 30,221
Money market deposits 89,895 78,832
Time deposits 357,189 347,078
-------- -------
Total deposits 594,400 550,708
Mortgage-backed bond, net 15,430 16,333
Advances from Federal Home Loan Bank 91,920 57,341
Employee Stock Ownership Plan borrowings -- 1,424
Advances by borrowers for taxes and insurance 1,208 931
Other liabilities 7,797 12,137
-------- -------
Total liabilities 710,755 638,874
-------- -------
SHAREHOLDERS' EQUITY
Preferred stock ($1 par value), 10,000,000 authorized shares, no shares issued -- --
Common stock ($1 par value), 60,000,000 authorized shares: 1998, 10,548,884; 1997, 5,094,920
shares issued and outstanding 10,549 5,095
Additional paid-in capital 93,268 30,278
Retained income - substantially restricted 35,545 47,887
Common stock purchased by Employee Stock Ownership Plan (5,407) (1,424)
Common stock issued to Recognition and Retention Plan (237) (423)
Unrealized decrease in market value of securities available for sale, net of income taxes (432) (154)
-------- --------
Total shareholders' equity 133,286 81,259
======== ========
Total liabilities and shareholders' equity $844,041 $720,133
======== ========
See notes to consolidated financial statements.
19
22
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - ---------------------------------------------------------------------------------------------------------------------
For the For the For the Three For the
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
- - ---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands Except Per Share Data)
Interest income:
Loans $ 40,228 $ 33,490 $ 7,835 $ 28,273
Securities 11,629 14,870 3,570 13,123
Other interest and dividend income 2,632 1,956 491 2,493
----------- ---------- ---------- ----------
Total interest income 54,489 50,316 11,896 43,889
----------- ---------- ---------- ----------
Interest expense:
Deposits 24,082 22,648 5,251 19,247
Advances from Federal Home Loan Bank
and other borrowings 6,077 4,742 1,127 3,612
----------- ---------- ---------- ----------
Total interest expense 30,159 27,390 6,378 22,859
----------- ---------- ---------- ----------
Net interest income 24,330 22,926 5,518 21,030
Provision for loan losses 622 264 243 98
----------- ---------- ---------- ----------
Net interest income after provision for loan losses 23,708 22,662 5,275 20,932
----------- ---------- ---------- ----------
Other income:
Servicing income and other fees 198 269 33 148
NOW account and other customer fees 3,441 3,339 820 3,150
Net gain (loss) on sale and early maturities of
securities 175 (8) 51 254
Net gain (loss) on real estate owned 18 112 (37) 243
Gain on sale of other assets -- 617 -- -
Net gain (loss) on sale of loans receivable -- 3 3 (225)
Miscellaneous 233 112 318 217
----------- ---------- ---------- ----------
Total other income 4,065 4,444 1,188 3,787
----------- ---------- ---------- ----------
Operating expense:
Employee compensation and benefits 10,397 8,989 2,125 7,785
Occupancy and equipment 5,496 5,059 1,201 4,581
Advertising and promotion 915 734 240 616
Federal deposit insurance premium 342 270 288 3,883
Miscellaneous 3,522 3,768 753 3,178
----------- ---------- ---------- ----------
Total operating expense 20,672 18,820 4,607 20,043
----------- ---------- ---------- ----------
Income before provision for income taxes 7,101 8,286 1,856 4,676
----------- ---------- ---------- ----------
Provision (benefit) for income taxes:
Current 2,872 3,042 65 1,817
Deferred (765) (112) 631 (1,056)
----------- ---------- ---------- ----------
Total provision for income taxes 2,107 2,930 696 761
----------- ---------- ---------- ----------
Net income $ 4,994 $ 5,356 $ 1,160 $ 3,915
=========== ========== ========== ==========
Earnings per share - basic $ 0.49 $ 0.53 $ 0.12 $ 0.39
=========== ========== ========== ==========
Earnings per share - diluted $ 0.48 $ 0.52 $ 0.11 $ 0.39
=========== ========== ========== ==========
Weighted average common shares outstanding - basic 10,175,899 10,079,363 10,023,118 9,955,157
=========== ========== ========== ==========
Weighted average common shares outstanding - diluted 10,448,327 10,334,647 10,123,996 10,093,212
=========== ========== ========== ==========
See notes to consolidated financial statements.
20
23
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- - --------------------------------------------------------------------------------------------------------------------------
For the For the For the Three For the
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
- - --------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Net income $4,994 $5,356 $1,160 $3,915
Other comprehensive income, net of tax:
Unrealized gain in market value of
securities transferred from held to maturity to
available for sale -- -- -- 247
Change in unrealized gain (loss) in market
value of securities available for sale (278) 914 130 (974)
------ ------ ------ ------
Comprehensive income, net of income taxes $4,716 $6,270 $1,290 $3,188
====== ====== ====== ======
See notes to consolidated financial statements.
21
24
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
THREE MONTHS ENDED DECEMBER 31, 1996 AND THE YEAR ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------------------------
Unrealized
Increase
(Decrease)
in
Value
of
Retained Employee Recognition Securities
Additional Income- Stock and Available
Common Paid-In Substantially Ownership Retention for
Stock Capital Restricted Plan Plan Sale Total
---------------------------------------------------------------------------------
(In Thousands)
Balance - September 30, 1995 $5,089 $30,182 $41,666 $(2,456) $(1,162) $(471) $ 72,848
Net income for the year ended September 30, 1996 -- -- 3,915 -- -- -- 3,915
Stock options exercised 1 12 -- -- -- -- 13
Transfer from securities held to maturity
to securities available for sale (net of
income taxes) -- -- -- -- -- 247 247
Unrealized decrease in market value of assets
available for sale (net of income taxes) (974) (974)
Adjustment to deferred compensation--
Recognition and Retention Plan -- (378) -- -- 378 -- --
Shares committed to be released -- Employee Stock
Ownership Plan and Recognition and Retention
Plan -- 65 -- 491 130 -- 686
Dividends declared -- -- (1,679) -- -- -- (1,679)
------ ------- ------- ------- -------- ------- --------
Balance - September 30, 1996 5,090 29,881 43,902 (1,965) (654) (1,198) 75,056
Net income for three months ended December 31, 1996 -- -- 1,160 -- -- -- 1,160
Stock options exercised -- 4 -- -- -- -- 4
Unrealized increase in market value of assets
available for sale (net of income taxes) -- -- -- -- -- 130 130
Shares committed to be released - Employee Stock
Ownership Plan and Recognition and Retention
Plan -- 35 -- 147 46 -- 228
Dividends declared -- -- (459) -- -- -- (459)
------ ------- ------- ------- -------- ------- --------
Balance - December 31, 1996 5,090 29,920 44,603 (1,818) (608) (1,068) 76,119
Net income for the year ended December 31, 1997 -- -- 5,356 -- -- -- 5,356
Stock options exercised 5 45 -- -- -- -- 50
Unrealized increase in market value of assets
available for sale (net of income taxes) -- -- -- -- -- 914 914
Shares committed to be released -Employee Stock
Ownership Plan and Recognition and Retention
Plan -- 313 -- 394 185 -- 892
Dividends declared -- -- (2,072) -- -- -- (2,072)
------ ------- ------- ------- -------- ------- --------
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
Stock options exercised 9 92 -- -- -- -- 101
Unrealized decrease in market value of assets
available for sale (net of income taxes) -- -- -- -- -- (278) (278)
Shares committed to be released - Employee Stock
Ownership Plan and Recognition and Retention
Plan -- 445 -- 394 186 -- 1,025
Dividends declared -- -- (2,674) -- -- -- (2,674)
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)
------ ------- ------- ------- -------- ------- --------
Balance - December 31, 1998 $10,549 $93,268 $35,545 $(5,407) $(237) $(432) $133,286
====== ======= ======= ======= ========= ======= ========
See notes to consolidated financial statements.
22
25
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------------------------------------------------
For the For the For the Three For the
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $4,994 $5,356 $1,160 $3,915
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,523 1,993 452 1,800
Employee Stock Ownership Plan and Recognition and
Retention Plan compensation expense 1,025 892 228 686
Deferred income tax provision (765) (112) 631 (1,056)
Accretion of discounts, amortization of premiums, and
other deferred yield items (1,731) (1,915) (396) (1,494)
Provision for loan losses 622 264 243 98
Net (gain) loss on sale and early maturities of:
Securities available for sale -- 8 (51) (254)
Loans and other assets -- (620) (3) 225
Securities held to maturity (175) -- -- --
(Increase) decrease in accrued interest receivable 380 (808) (146) (65)
(Increase) decrease in other assets (1,912) (2,582) 320 (426)
Increase (decrease) in other liabilities (4,371) 1,347 (3,851) 4,424
------- ------ ------ ------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (410) 3,823 (1,413) 7,853
------- ------ ------ ------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans -- net (48,980) (38,624) (11,120) (34,073)
Principal payments received on securities 44,022 16,247 3,315 14,125
Purchases of:
Loans and participations (38,354) (24,455) (1,998) (16,775)
Federal Home Loan Bank stock (1,458) (400) -- --
Securities available for sale (25,086) (46,311) -- (73,654)
Office property and equipment (7,404) (5,300) (344) (1,481)
Proceeds from sales of:
Securities available for sale -- 2,435 100 749
Federal Home Loan Bank stock -- -- 2,520 2,000
Office property and equipment 168 128 178 443
Real estate acquired in settlement of loans, net 840 1,378 -- 700
Loans purchased -- -- -- 3,452
Proceeds from calls or maturities of securities 45,136 19,300 -- 22,012
Investment in real estate venture -- -- 156 1,305
Other investing 6 (351) (184) (455)
------- ------ ------ ------
NET CASH USED FOR INVESTING ACTIVITIES (31,110) (75,953) (7,377) (81,652)
------- ------ ------ ------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Net increase (decrease) in:
NOW accounts, demand deposits, and
savings accounts 33,581 17,591 3,112 (1,200)
Certificates of deposit 10,111 19,408 11,668 62,753
Advances from Federal Home Loan Bank 42,000 30,000 -- 22,500
Repayment of advances from Federal Home Loan Bank (7,421) (7,425) (1,587) (4,350)
Net increase (decrease) in advances by borrowers for taxes
and insurance 277 (128) (5,802) (136)
Repayment of Employee Stock Ownership Plan loan (1,424) (491) (149) (493)
Sale of common stock-net of issuance costs 53,236 -- -- 13
Purchase of ESOP shares (4,377) -- -- --
Proceeds from exercise of stock options 101 50 4 --
Payments made on mortgage-backed bond (1,387) (1,387) (346) (1,387)
Dividends paid (2,116) (1,976) (448) (1,618)
------- ------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 122,581 55,642 6,452 76,082
------- ------ ------ ------
Net increase (decrease) in cash and cash equivalents 91,061 (16,488) (2,338) 2,283
Cash and cash equivalents, beginning of period 25,954 42,442 44,780 42,497
------- ------ ------ ------
Cash and cash equivalents, end of period $117,015 $ 25,954 $42,442 $ 44,780
======= ====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 2,943 $ 2,836 $ 1,877 $ 1,877
Cash paid for interest on deposits and other borrowings $29,749 $ 27,959 $22,146 $22,146
Real estate acquired in settlement of loans $ 713 $ 558 $ 400 $ 400
Transfer of securities from held to maturity to
available for sale $ -- $ -- $ -- $49,500
See notes to consolidated financial statements.
23
26
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
THE THREE MONTHS ENDED DECEMBER 31, 1996, AND THE YEAR ENDED
SEPTEMBER 30, 1996.
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. ("ComFed") 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' only significant asset is the
common stock of the Association. Consequently, the majority of its net
income is derived from the Association.
On September 30, 1997, the Association completed its reorganization into
the two-tier form of mutual holding company ownership. Pursuant to the
reorganization, the Association became the wholly owned subsidiary of the
newly-formed, federally chartered mid-tier stock holding company, the
Mid-Tier Holding Company. The Mid-Tier Holding Company was the majority
owned subsidiary of ComFed. The reorganization was accounted for in a
manner similar to a pooling of interests and did not result in any
significant accounting adjustments.
The accounting and reporting policies of Bankshares, the Association, and
the Association's wholly-owned subsidiary, ComFed, Inc. 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 and ComFed, Inc.
ComFed, Inc. was formed for the purpose of owning and operating an
insurance agency, Community Insurance Agency. Prior to December 31, 1996,
the Association had three other wholly-owned subsidiaries, ComFed
Development Co., which was engaged in real estate development activities
under joint venture arrangements with local developers, Select Florida
Properties, Inc. and Select Florida Properties II, Inc., which were formed
to acquire and sell foreclosed assets as well as hold delinquent loans.
These subsidiaries were dissolved into ComFed, Inc. All significant
intercompany balances and transactions have been eliminated.
CHANGE IN YEAR END - During January 1997, the Board of Directors voted to
change the fiscal year end for all related entities from September 30th to
December 31st, effective with the year and three months ending December
31, 1996.
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, 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 and the fair values of
securities and other financial instruments are particularly susceptible to
material change in the near term.
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, advance
payments by borrowers for taxes and insurance, and interest-earning time
deposits in other financial institutions.
SECURITIES - Bankshares classifies securities into held-to-maturity,
available-for-sale and trading 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. Trading securities are bought principally for sale in the
near term, and are reported at fair value with unrealized gains and losses
included in earnings. Securities are written down to fair value when a
decline in fair value is not temporary.
24
27
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
INTEREST RATE RISK - The Association is engaged principally in providing
first mortgage loans (adjustable-rate, fixed-rate and hybrid-rate) to
individuals and commercial enterprises. At December 31, 1998 and 1997, the
Association's assets consisted primarily of assets that earned interest at
adjustable interest rates. Those assets were funded primarily with
short-term liabilities that have interest rates that vary with market
rates over time.
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 currently anticipated.
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, adverse situations that may affect the borrower's
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. 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. Loans are evaluated for impairment when
payments are delayed, typically 90 days or more, or when it is probable
that all principal and interest amounts will not be collected according to
the original terms of the loan. 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. Cash receipts
for impaired loans are used first to satisfy any outstanding interest due,
and any amounts remaining are applied to the outstanding principal
balance.
UNCOLLECTED INTEREST - The Association reverses accrued interest on
mortgage loans which are more than ninety days past due or if management
determines at an earlier date that the loan is not performing and ceases
accruing interest on such loans thereafter. Any 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 - Office properties and equipment 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.
25
28
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the lower of cost or 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 operates qualified affordable
housing projects. The Association receives tax benefits from the
partnerships in the form of tax deductions 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 life of the partnerships (15 years). The amortized cost of the
investments at December 31, 1998 and 1997 is $4.4 million and $3.0
million, respectively, and is included in other assets. Amortization for
the year ended December 31, 1998 and 1997 was $246,000 and $147,000,
respectively, and is included in miscellaneous expense. In addition to the
tax benefit related to the amortization, tax credits of $320,000 and
$197,000 were recognized during the year ended December 31, 1998 and 1997,
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. Bankshares
records income tax expense 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") - Bankshares accounts for its ESOP
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 PLAN ("RRP") - The RRP is a stock award plan 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 such plan. Compensation
expense for the RRP 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 PLAN ("SOP") - Expense for employee compensation under the
SOP would be recognized only if options are granted below the market price
at the grant date which the existing SOP does 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 make loans which are
not reflected in the financial statements. A summary of these commitments
is disclosed in Note 10.
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 are calculated using the treasury stock method.
COMPREHENSIVE INCOME - Under a new accounting standard, comprehensive
income is now reported for all periods. Comprehensive income includes both
net income and the change in unrealized gains and losses on securities
available for sale.
26
29
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
IMPACT OF NEW ACCOUNTING ISSUES- Beginning January 1, 2000, a new
accounting standard will require all derivatives to be recorded at fair
value. Unless designated as hedges, changes in these fair values will be
recorded in the income statement. Fair value changes involving hedges will
generally be 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. This is not expected to have a material effect but the
effect will depend on derivative holdings when this standard applies.
Mortgage loans originated in mortgage banking are converted into
securities on occasion. A new accounting standard for 1999 will allow
these securities to be classified as available for sale, held to maturity
or trading, instead of the current requirement to classify as trading.
This is not expected to have a material effect but the effect will vary
depending on the level and designation of securitizations as well as on
market price movements.
RECLASSIFICATIONS - Certain items in the 1997 and 1996 financial
statements and the notes thereto have been reclassified to conform with
the 1998 presentation and to reflect the second step conversion.
27
30
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1998 and 1997 are
summarized as follows:
--------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
December 31, 1998:
Equity securities $ 7 $23 $ -- $ 30
United States Government and agency obligations 9,976 96 -- 10,072
Mutual funds 41,000 17 (630) 40,387
Mortgage-backed and related securities:
GNMA II pass-through certificates 19,666 124 -- 19,790
Collateralized mortgage obligations 24,837 124 (89) 24,872
---------- ---- ---- --------
Total mortgage-backed and related securities 44,503 248 (89) 44,662
---------- ---- ---- --------
Total securities available for sale $ 95,496 $384 $(719) $ 95,151
========== ==== ===== ========
Weighted average interest rate 6.26%
----
December 31, 1997:
Equity securities $ 7 $16 $ -- $ 23
United States Government and agency obligations 54,937 258 (20) 55,175
Mutual funds 41,000 58 (337) 40,721
Collateralized mortgage obligations 46,413 275 (338) 46,350
---------- ---- ---- --------
Total securities available for sale $142,357 $607 $(695) $142,269
======== ==== ====== ========
Weighted average interest rate 6.52%
----
The table below sets forth the contractual maturity distribution of
securities available for sale at December 31, 1998.
-------------------------------------------------------------------------
December 31, 1998
Amortized Fair
Cost Value
-------------------------------------------------------------------------
Due in one year or less $41,007 $40,417
Due after one year through five years 10,007 10,103
Due after five years through ten years -- --
Due after ten years 44,472 44,631
------- -------
Total $95,486 $95,151
======= =======
Proceeds from the sale of securities available for sale were $0,
$2,435,000, $100,000, and $749,000 during the fiscal years ended December
31, 1998 and 1997, the three months ended December 31, 1996, and the year
ended September 30, 1996, respectively. For the year ended December 31,
1997, sales resulted in gross losses of $8,000. For the three months ended
December 31, 1996, sales resulted in gross gains of $51,000. There were no
gross realized gains or losses during the fiscal years ended December 31,
1998 and September 30, 1996.
Securities, with carrying values of approximately $23,781,000 and
$33,681,000 at December 31, 1998 and 1997, were pledged as collateral for
purposes required or permitted by law.
28
31
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 1998 and 1997 are summarized
as follows:
---------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
DECEMBER 31, 1998:
United States Government and agency obligations $13,088 $4,547 $ -- $17,635
Mortgage-backed and related securities:
United States agency pass through certificates 9,018 118 (12) 9,124
Agency for International Development pass
through certificates 188 -- -- 188
Collateralized mortgage obligations 23,186 56 (300) 22,942
CMO residual interest bonds 4 -- -- 4
------- ------ ----- -------
Total mortgage-backed and related securities 32,396 174 (312) 32,258
------- ------ ----- -------
Corporate debt issues:
Chase Federal mortgage-backed bond 6,420 275 -- 6,695
Auto Bond Receivables Corp. 715 -- 715
------- ------ ----- -------
Total corporate debt issues 7,135 275 -- 7,410
------- ------ ----- -------
Total securities held to maturity $52,619 $4,996 $(312) $57,303
======= ====== ===== =======
DECEMBER 31, 1997:
United States Government and agency obligations $13,039 $3,891 $ -- $16,930
Mortgage-backed and related securities:
United States agency pass through certificates 12,532 136 (95) 12,573
Agency for International Development pass through
certificates 236 -- -- 236
Collateralized mortgage obligations 33,638 617 (133) 34,122
CMO residual interest bonds 7 -- -- 7
------- ------ ----- -------
Total mortgage-backed and related securities 46,413 753 (228) 46,938
------- ------ ----- -------
Corporate debt issues:
Chase Federal mortgage-backed bond 6,856 311 -- 7,167
Auto Bond Receivables Corp. 1,493 -- (5) 1,488
------- ------ ----- -------
Total corporate debt issues 8,349 311 (5) 8,655
------- ------ ----- -------
Total securities held to maturity $67,801 $4,955 $ (233) $72,523
======= ====== ===== =======
The table below sets forth the contractual maturity distribution of the
securities held to maturity at December 31, 1998.
- - -------------------------------------------------------------------------------
December 31, 1998
Carrying Fair
Value Value
- - -------------------------------------------------------------------------------
Due in one year or less $ -- $ --
Due after one year through five years 15,049 18,475
Due after five years through ten years 2,682 3,822
Due after ten years 34,888 35,006
------- ------
Total $52,619 $57,303
======= =======
29
32
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities held to maturity were called during the years ended December
31, 1998 and September 30, 1996 which resulted in gains of $175,000 and
$254,000, respectively. There were no sales of securities held to maturity
during the year ended December 31, 1998 and 1997, the three months ended
December 31, 1996, or the year ended September 30, 1996. 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 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, 1998, the Association had
$32,396,000 in such mortgage-related securities, which were held for
investment and had a fair value of $32,258,000. The fixed-rate CMOs have
coupon rates ranging from 6.0% to 10.0%.
FEDERAL HOME LOAN BANK STOCK - At December 31, 1998 and 1997, the
Association held $4,722,000 and $3,264,000, respectively, of FHLB Stock,
which approximates fair value. FHLB Stock is not readily marketable as it
is not traded on a registered security exchange.
4. LOANS RECEIVABLE
Loans receivable consisted of the following:
-------------------------------------------------------------------------
December 31, December 31,
1998 1997
-------------------------------------------------------------------------
(In Thousands)
Real estate loans:
Residential 1-4 family $421,766 $339,117
Residential construction loans 54,391 32,828
Nonresidential construction loans 6,292 2,022
Land loans 14,624 17,117
Multi-family loans 8,392 8,800
Commercial 46,118 59,220
-------- --------
Total real estate loans 551,583 459,104
-------- --------
Non-real estate loans:
Consumer loans 15,015 15,694
Commercial business 6,635 3,530
-------- --------
Total non-real estate loans 21,650 19,224
-------- --------
Total loans receivable 573,233 478,328
Less:
Undisbursed loan proceeds 33,202 24,163
Unearned discount and premium and
net deferred loan fees and costs (1,333) (206)
Allowance for loan losses 3,160 2,662
-------- --------
Total loans receivable, net $538,204 $451,709
======== ========
LOANS SERVICED FOR OTHERS - Mortgage loans serviced for others are not
included in the accompanying consolidated statements of financial
condition. The unpaid balances of these loans at December 31, 1998, 1997
and 1996 were $14,173,000, $18,967,000 and $21,761,000, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $53,000, $47,000 and $57,000, respectively.
30
33
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
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 are no loans held for sale included
in loans receivable at December 31, 1998 and 1997.
LOANS TO OFFICERS AND DIRECTORS - The Association offers loans to its
employees, including directors and executive officers, at prevailing
market interest rates. For adjustable-rate loans, employees are offered a
50 basis point reduction from the margin. The Association waives the
points charged for employee loans. However, directors and senior
management pay points based on current loan terms. These loans are made in
the ordinary course of business and on substantially the same terms and
collateral requirements as those of comparable transactions prevailing at
the time. The total loans to such persons did not exceed 5% of
shareholders' equity at December 31, 1998. At December 31, 1998 and 1997,
the total amount of loans to directors, executive officers, and associates
of such persons was $867,000 and $433,000, respectively.
An analysis of the changes in the allowance for loan losses for the years
ended December 31, 1998 and 1997, the three months ended December 31, 1996
and the year ended September 30, 1996 was as follows:
-------------------------------------------------------------------------------------------------------------------
For the Year For the Three For the Year Ended
Ended December 31, Months Ended September 30,
1998 1997 December 31, 1996 1996
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
Balance, beginning of period $2,662 $2,542 $2,312 $ 3,492
Provision charged to income 622 264 243 98
Losses charged to allowance (376) (144) (13) (1,278)
Recoveries 252 -- -- --
------- ------ ------ -------
Balance, end of year $3,160 $2,662 $2,542 $ 2,312
======= ====== ====== =======
During the year ended September 30, 1996, the Association sold its
interest in a note with a net carrying value of $3,453,000. Included in
the allowance for loan losses for the year ended September 30, 1995 was a
$1,200,000 specific reserve related to such interest. In connection with
the sale, the Association recorded an additional loss of $217,000.
IMPAIRED LOANS - An analysis of the recorded investment in impaired loans
was as follows:
-------------------------------------------------------------------------------------------------------------------
At or for the At or for the At or for the
Years Ended Three Months Ended Year Ended
December 31, December 31, September 30,
1998 1997 1996 1996
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
Impaired loan balance $25 $1,044 $1,071 $1,081
Related allowance -- 252 252 252
Average impaired loan balance 13 1,057 1,076 4,046
Interest income recognized 1 91 24 94
31
34
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998 and 1997 which were pledged as collateral.
--------------------------------------------------------------------------
December 31, December 31,
1998 1997
--------------------------------------------------------------------------
(In Thousands)
Real estate loans (unpaid
principal balance) $87,109 $54,018
FHLB stock and accrued interest 4,811 3,323
------- -------
Total pledged to the FHLB $91,920 $57,341
------- -------
Other pledged assets:
Deposits of public funds --
State of Florida Mortgage-backed
and related securities $21,681 $31,681
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 300 200
Mortgage-backed bond
Unpaid principal balance
of loans 32,046 31,738
------- -------
Total for other pledged assets $55,827 $65,419
======= =======
FHLB ADVANCES - The Association has a security agreement with the FHLB
which includes a blanket floating lien that requires the Association to
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. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1998 and 1997 are
summarized as follows:
--------------------------------------------------------------------------
December 31, December 31,
1998 1997
--------------------------------------------------------------------------
(In Thousands)
Land $ 8,291 $ 5,571
Buildings and improvements 19,245 16,431
Furniture and equipment 16,951 15,268
------- -------
Total 44,487 37,270
Less accumulated depreciation (18,471) (17,064)
------- -------
Total office properties and
equipment -- net $ 26,016 $ 20,206
======= =======
32
35
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEPOSITS
Individual deposits greater than $100,000 at December 31, 1998 and 1997
aggregated approximately $86,669,000, and $87,257,000, 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 $2,913,000 and $3,704,000 at
December 31, 1998 and 1997, respectively.
Scheduled maturities of certificate accounts at December 31, 1998 were as
follows:
-------------------------------------------------------------------------
December 31,
1998
-------------------------------------------------------------------------
(In Thousands)
Maturity
Less than 1 year $277,254
1 year - 2 years 37,790
2 years - 3 years 15,943
3 years - 4 years 14,790
4 years - 5 years 10,621
Thereafter 791
--------
Total certificates of deposit $357,189
========
8. ADVANCES FROM FEDERAL HOME LOAN BANK
At December 31, 1998 and 1997, outstanding advances from the FHLB totaled
$91,920,000 and $59,341,000, respectively.
Scheduled maturities of FHLB advances at December 31, 1998 were as
follows:
-------------------------------------------------------------------------
Years Ending Average Interest Amount
December 31, Rate Maturing
-------------------------------------------------------------------------
(Dollars in Thousands)
1999 6.83% $ 6,734
2000 6.23 8,471
2001 6.36 7,572
2002 5.82 26,071
2003 6.69 1,072
2008 5.32 42,000
-------
Total FHLB advances 5.75% $91,920
==== =======
9. 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.
33
36
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax provision consists of the following components for the years
ended December 31, 1998 and 1997, the three months ended December 31,
1996, and the year ended September 30, 1996.
-------------------------------------------------------------------------------------------------------------------
For the Years For the Three For the Year
Ended Months Ended Ended
December 31, December 31, September 30,
1998 1997 1996 1996
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
Current - federal $2,640 $2,745 $ 49 $ 1,592
Current - state 232 297 16 225
------ ------ ---- -------
Total current 2,872 3,042 65 1,817
Deferred - federal and state (765) (112) 631 (1,056)
------ ------ ---- -------
Total provision for income taxes $2,107 $2,930 $696 $ 761
====== ====== ==== =======
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 Three
For the Years Ended Months Ended For the Year Ended
December 31, December 31, September 30,
1998 1997 1996 1996
Amount % Amount % Amount % Amount %
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
Tax at federal tax rate $2,485 35.0% $2,900 35.0% $650 35.0% $1,637 35.0%
State income taxes, net of
federal income tax benefits 123 1.7 281 3.3 70 3.8 139 3.0
Low income housing credits (320) (4.5) -- -- -- -- -- --
Reversal of prior year liability -- -- -- -- -- -- (1,140) (24.4)
Other (110) (1.5) (168) (2.0) (6) (0.3) 172 3.7
Benefit of graduated tax rate (71) (1.0) (83) (1.0) (18) (1.0) (47) (1.0)
------ ---- ------ ---- ---- ---- ----- ----
Total provision for income taxes $2,107 29.7% $2,930 35.3% $ 696 37.5% $ 761 16.3%
====== ==== ====== ==== ==== ==== ===== ====
During the year ended September 30, 1996 , management concluded that a
liability accrued in prior years was no longer required and reversed such
liability resulting in a $1,140,000 credit to the 1996 income tax
provision.
34
37
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effect of temporary differences that gave rise to deferred tax
assets and deferred tax liabilities are presented below:
-----------------------------------------------------------------------------------------------------------------------
For the Years For the Three For the Year
Ended Months Ended Ended
December 31, December 31, September 30,
1998 1997 1996 1996
------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Depreciation $ 631 $ 582 $ 627 $ 639
Loan fee income 22 170 167 188
FHLB stock dividends 458 457 454 868
Deferred loan costs 711 467 412 392
Unamortized discount on mortgage-backed bond 1,865 2,112 2,302 2,350
Book over tax on investments in partnerships 55 1,003 1,003 937
Other 13 -- -- --
------ ------ ------ ------
Gross deferred tax liabilities 3,755 4,791 4,965 5,374
------ ------ ------ ------
Deferred tax assets:
Excess of book bad debt reserve over tax reserve 978 1,043 918 907
Retirement plans 360 586 802 686
Unrealized loss on decrease in fair value
of securities available for sale 126 33 561 615
Deferred loss on loans held for sale 39 43 46 48
Deferred compensation 140 130 115 109
SAIF recapitalization -- -- -- 1,088
Other 93 19 -- 83
------ ------ ------ ------
Gross deferred tax assets 1,736 1,854 2,442 3,536
------ ------ ------ ------
Valuation allowance on unrealized loss on decrease
in fair value of securities available for sale (222) (99) (138) (182)
------ ------ ------ ------
Gross deferred tax assets -- net of valuation
allowance 1,514 1,755 2,304 3,354
------ ------ ------ ------
Net deferred tax liability $2,241 $3,036 $2,661 $2,020
====== ====== ====== ======
During 1996, legislation was passed that repealed Section 593 of the
Internal Revenue Code for taxable years beginning after December 31, 1995.
Section 593 allowed thrift institutions, including the Association, to use
the percentage-of-taxable income bad debt accounting method, if it was
more favorable than the specific charge-off method, for federal income tax
purposes. The excess reserves (deduction based on the
percentage-of-taxable income less the deduction based on the specific
charge-off method) accumulated post-1987 are required to be recaptured
ratably over a six year period beginning in 1996. The Association had
excess reserves of approximately $435,000 as of December 31, 1996. The
recapture will have no effect on Bankshares' statement of operations as
taxes were provided for in prior years in accordance with SFAS 109,
"Accounting for Income Taxes." It is not likely the pre-1988 accumulated
bad debt reserves will be required to be recaptured into taxable income.
The unrecorded potential liability related to the pre-1988 bad debt
reserves approximates $4.3 million.
10. 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.
35
38
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 mortgage loans, excluding
undisbursed portions of loans in process, were approximately $14,086,000
and $4,733,000 at December 31, 1998 and December 31, 1997, respectively.
At December 31, 1998, the $14,086,000 of loan commitments were comprised
of approximately $10,049,000 of fixed-rate commitments and $4,037,000 of
variable-rate commitments. These commitments are at prevailing market
rates and terms. Interest rates on fixed-rate loan commitments were from
6.50% to 8.50%. 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 were $6,703,000 and $8,948,000 at
December 31, 1998 and 1997, respectively.
Commercial lines and letters of credit and other loan commitments were
$6,129,000 at December 31, 1998. There were no commitments to sell loans
to FNMA at December 31, 1998 and 1997. There were no commitments to
purchase loans at December 31, 1998 and 1997.
LEASE COMMITMENTS - The Association leases various properties for original
periods ranging from 2 to 25 years. Rent expense for the years ended
December 31, 1998 and 1997, the three months ended December 31, 1996, and
the year ended September 30, 1996, was approximately $633,000, $626,000,
$141,000, and $545,000, respectively. At December 31, 1998, future minimum
lease payments under these operating leases were as follows:
-------------------------------------------------------------------------
Years Ending
December 31, Amount
(In Thousands)
-------------------------------------------------------------------------
1999 $ 486
2000 362
2001 279
2002 145
2003 145
Thereafter 73
------
Total $1,490
======
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, 1998 and
1997, the Association had no outstanding advances.
CASH RESTRICTIONS - The Association maintained a $625,000 required
two-week average balance in the clearing account held at the Federal
Reserve Bank of Atlanta at both December 31, 1998 and 1997.
36
39
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11.BENEFIT PLANS
PENSION PLAN - The Association has a noncontributory, qualified pension
plan covering substantially all employees. The plan calls for benefits to
be paid to eligible employees at retirement based primarily upon years of
service with the Association and compensation rates during those years.
Currently, the Association's policy is to fund the qualified retirement
plan in an amount that is determined in accordance with the minimum
funding standards of the Employee Retirement Income Security Act, but
falls below the tax deductible contribution. Plan assets consist primarily
of corporate and government agency bonds, mutual funds, common stock, and
managed funds.
Information about the pension plan was as follows:
-------------------------------------------------------------------------
December 31, December 31,
1998 1997
-------------------------------------------------------------------------
(In Thousands)
Change in benefit obligation:
Beginning benefit obligation $ 7,077 $ 6,861
Service cost 609 550
Interest cost 494 447
Actuarial gain 864 (413)
Benefits paid (155) (368)
------- -------
Ending benefit obligation 8,889 7,077
------- -------
Change in plan assets, at fair value:
Beginning plan assets 9,644 7,350
Actual return 578 2,038
Employer contribution 724 624
Benefits paid (155) (368)
------- -------
Ending plan assets 10,791 9,644
------- -------
Funded status 1,902 2,567
Unrecognized net actuarial loss (2,251) (3,557)
Unrecognized prior service cost 25 28
------- -------
Accrued benefit cost $ (324) $ (962)
======= =======
The components of pension expense and related actuarial assumptions were
as follows:
-------------------------------------------------------------------------------------------------------------------
For the Year For the Three Months For the Year
Ended December 31, Ended December 31, Ended September 30,
1998 1997 1996 1996
-------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Service cost $ 609 $ 550 $138 $552
Interest cost 494 447 112 452
Expected return on plan assets (818) (626) (156) (533)
Amortization of prior service cost (68) (68) (18) (68)
Recognized net actuarial gain (132) (52) (13) --
----- ----- ---- ----
Net $ 85 $ 251 $ 63 $ 403
===== ===== ==== ====
Discount rate on benefit obligation 7.00% 6.75% 6.75% 6.50%
Long-term expected rate of return on
plan assets 8.50% 8.50% 8.50% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
For the years ended December 31, 1998, and 1997 the three months ended
December 31, 1996, and the year ended September 30, 1996, pension expense
amounts were based upon actuarial computations.
37
40
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL RETIREMENT INCOME PLAN ("SERP") - During 1989, the
Association's Board of Directors established a nonqualified unfunded
defined benefit plan for certain officers. For the years ended December
31, 1998 and 1997, the three months ended December 31, 1996, and the year
ended September 30, 1996, the net periodic expense for the officers' plan
totaled $76,000, $54,000, $13,000, and $60,000, respectively.
Information about the SERP was as follows:
-------------------------------------------------------------------------
December 31, December 31,
1998 1997
-------------------------------------------------------------------------
(In Thousands)
Change in benefit obligation:
Beginning benefit obligation $479 $388
Service cost 51 41
Interest cost 33 25
Actuarial gain 136 41
Benefits paid (16) (16)
---- ----
Ending benefit obligation $683 $479
==== ====
The actuarial assumptions were as follows:
-------------------------------------------------------------------------------------------------------------------
Years Ended Three Months Ended Year Ended
December 31, December 31, September 30,
1998 1997 1996 1996
-------------------------------------------------------------------------------------------------------------------
Discount rate 6.75% 7.00% 6.75% 6.50%
Salary scale 5.00% 5.00% 5.00% 5.00%
Bankshares and the Association do not provide any material postretirement
or postemployment benefits.
EMPLOYEE STOCK OWNERSHIP PLAN - As of December 31, 1998, the Employee
Stock Ownership Plan ("ESOP") has outstanding loan balances of $1,031,000
(Loan I)and $4,377,000 (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%. 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,
1998 and 1997, the three months ended December 31, 1996 and the year ended
September 30, 1996 totaled $510,000, $525,000, 187,000, and $675,000,
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 Year For the Three Months For the Year
Ended December 31, Ended December 31, Ended September 30,
1998 1997 1996 1996
-------------------------------------------------------------------------------------------------------------------
Number of shares allocated 55,610 55,610 20,972 69,666
Average fair value per share $ 15.08 $ 12.71 $ 8.72 $ 7.97
------- ------- ------- -------
Compensation expense $839,000 $707,000 $183,000 $555,000
======== ======== ======== ========
Number of shares distributed 11,216 4,034 1,374 --
======== ======== ======== ========
38
41
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares held by the ESOP were as follows:
-------------------------------------------------------------------------
December 31, December 31,
1998 1997
-------------------------------------------------------------------------
Allocated to participants 227,005 182,611
Unallocated 583,333 201,291
------- -------
Total ESOP shares 810,338 383,902
======= =======
Fair value of unallocated
shares $8,711,000 $7,018,000
========== ==========
RECOGNITION AND RETENTION PLAN - In January 1995, the shareholders of the
Association approved the Recognition and Retention Plan (the "Recognition
Plan") 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 vest in five equal annual
installments, starting January 1996. The fair value of the shares on the
date of award is being recognized as compensation expense over the vesting
period. To fund the Recognition plan, 181,756 shares were issued from
authorized but unissued shares of common stock in July 1995. During the
year ended September 30, 1996, unamortized deferred compensation and
additional paid-in capital were adjusted to correct amounts initially
recorded in connection with the Recognition Plan. Unamortized deferred
compensation of $237,000 at December 31, 1998 is reflected as a reduction
of shareholders' equity. Compensation expense related to the Recognition
Plan was $186,000, $185,000, $46,000 and $130,000 for the years ended
December 31, 1998 and 1997, the three months ended December 31, 1996, and
the year ended September 30, 1996, respectively.
STOCK OPTION PLAN - The Association has a stock option plan for the
benefit of its directors, officers, and other key employees. The number of
shares of Bankshares' common stock reserved for issuance under the stock
option plan was equal to 486,561 shares or 10% of the total number of
common shares issued to persons other than ComFed, pursuant to the
Association's conversion to the stock form of ownership in 1994. 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. The stock options granted to the directors,
officers, and employees vest in five equal annual installments. The first
installment became exercisable on January 18, 1996. Below is a summary of
transactions:
----------------------------------------------------------------------------------------------------
Option Price
---------------------------------------
Average
Number of Exercise Aggregate
Options Price Per Exercise
Outstanding Share Price
----------------------------------------------------------------------------------------------------
Options Outstanding:
Balance - September 30, 1996 432,708 $5.441 $2,354,364
Granted -- -- --
Exercised -- -- --
Canceled -- -- --
------- ----------
Balance - December 31, 1996 432,708 2,354,364
Granted 15,333 $9.301 142,612
Exercised (9,813) $5.441 (53,393)
Canceled -- -- --
------- ----------
Balance - December 31, 1997 438,228 2,443,583
Granted --
Exercised (18,482) $5.441 (100,561)
Canceled -- -- --
------- ----------
Balance - December 31, 1998 419,746 $2,343,022
======= ==========
39
42
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options exercisable at December 31, 1998, 1997 and 1996, and September 30,
1996 totaled 234,353, 165,861, 86,531, and 86,531, 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 plan during the fiscal
year ended December 31, 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
------------- ------------ ------------ --------------- ------------------ -------------- ------------ -------------
01/18/97 15,333 $9.30 $2.57 6.37% 5 15.36% 2.67%
Had compensation cost for the stock options been determined based on the
fair value at the grant date for awards under those plans consistent with
the method of SFAS No. 123, Bankshares' net income and earnings per shares
for the years ended December 31, 1998 and 1997 would have been reduced to
the pro forma amounts indicated below:
--------------------------------------------------------------------------
For the Years Ended December 31,
1998 1997
--------------------------------------------------------------------------
Net income
As reported $4,994,000 $5,356,000
Pro forma $4,989,000 $5,351,000
Earnings per share
As reported - basic $ 0.49 $ 0.53
Pro forma - basic $ 0.49 $ 0.53
As reported - diluted $ 0.48 $ 0.52
Pro forma - diluted $ 0.48 $ 0.52
12. 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"), 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, 1998 and 1997 was 4.28% and 5.62%, respectively. The
unamortized discount at December 31, 1998 and 1997 was $4,955,000 and
$5,439,000, respectively. Principal and interest payments are due
quarterly. During the years ended December 31, 1998 and 1997, the three
months ended December 31, 1996, and the year ended September 30, 1996,
approximately $484,000, $490,000, $123,000, and $496,000, respectively, of
the discount was accreted.
At December 31, 1998 and 1997, the Association held $13,088,000 and
$13,039,000 (net of discounts of $8,712,000 and $10,161,000),
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.
40
43
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bond at December 31, 1998 was repayable as follows:
-------------------------------------------------------------------------
Years Ending Amount
December 31, (In Thousands)
-------------------------------------------------------------------------
1999 $ 1,387
2000 1,387
2001 1,387
2002 1,387
2003 1,387
2004 and after 13,450
-------
Total 20,385
Less unamortized discount 4,955
-------
Total mortgage-backed bond $15,430
=======
13. 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, 1998, that the Association meets all capital adequacy
requirements to which it is subject.
As of December 31, 1998, 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 since that
notification that management believes have changed the Association's
categorization.
41
44
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
For Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
As of December 31, 1998:
Total Risk-Based Capital (to Risk-weighted Assets) 25.0% $111,398 8.0% $35,647 10.0% $44,559
Core (Tier 1) Capital (to Adjusted Tangible Assets) 12.8 108,238 3.0 25,352 5.0 42,253
Tangible Capital (to Tangible Assets) 12.8 108,238 1.5 12,676 N/A N/A
Core (Tier 1) Capital (to Risk-weighted Assets) 24.3 108,238 N/A N/A 6.0 26,736
As of December 31, 1998, tangible assets, adjusted tangible assets, and
risk-weighted assets were $845,054,000, $845,054,000, and and $,
respectively $845,054,000, and $445,592,000 respectively.
As of December 31, 1997:
Total Risk-Based Capital (to Risk-weighted Assets) 18.4% $70,048 8.0% $30,416 10.0% $38,020
Core (Tier 1) Capital (to Adjusted Tangible Assets) 9.8 70,681 3.0 21,609 5.0 36,014
Tangible Capital (to Tangible Assets) 9.8 70,681 1.5 10,804 N/A N/A
Core (Tier 1) Capital (to Risk-weighted Assets) 18.6 70,681 N/A N/A 6.0 22,812
As of December 31, 1997, tangible assets, adjusted tangible assets, and
risk-weighted assets were $720,284,000, $720,284,000, and $380,197,000,
respectively.
At the close of the conversion and reorganization of the Association in
December 1998, a liquidation account in the amount of $51,566,000 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. Subsequent increases of such deposits do not
restore an eligible account holder'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. Bankshares may not pay dividends that would reduce
shareholder's equity below the required liquidation account balance.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, as amended by SFAS No. 119, "Disclosures about Fair Value
of Financial Instruments" ("SFAS No. 107"), requires the estimation of
fair values of financial instruments, as defined in SFAS No. 107.
Estimates of fair value are made at a specific date, based upon, where
available, relevant market prices and information about the financial
instrument. For a substantial portion of the financial instruments, no
quoted market exists. Therefore, estimates of fair value are necessarily
based on a number of significant assumptions (many of which involve events
outside the control of management). Such assumptions include assessments
of current economic conditions, perceived risks associated with these
financial instruments and their counterparties, future expected loss
experience and other factors. Given the uncertainties surrounding these
assumptions, the reported fair values represent estimates only and,
therefore, cannot be compared to the historical accounting model. Use of
different assumptions or methodologies are likely to result in
significantly different fair value estimates.
Although management uses its best judgment in estimating the fair value of
the financial instruments, there are inherent limitations in any
estimation technique. Therefore, the fair value estimates presented herein
are not necessarily indicative of the amounts which could be realized in a
current transaction.
The estimated fair values presented neither include nor give effect to the
values associated with the Association's existing customer relationships,
extensive branch banking network or property, or certain tax implications
related to the realization of unrealized gains or losses. Also under SFAS
No. 107, the fair value of non-interest-bearing checking accounts,
interest-bearing NOW accounts, passbook and statement accounts, and money
market accounts is equal to the carrying amount because these have no
stated maturity. The approach to estimating fair value excludes the
significant benefit that results from the low-cost funding provided by
such deposit liabilities, as compared to alternative sources of funding.
42
45
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1998
and 1997:
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 - 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.
MORTGAGE-BACKED BOND - The fair value of the Bond is estimated using 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.
ESOP LOAN - The aggregate carrying amount of the ESOP loans is a
reasonable estimate of fair market value.
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, 1998 and 1997, 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, 1998 December 31, 1997
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------------------------------------------------------------------------
(In Thousands)
Financial assets:
Cash and cash equivalents $117,015 $117,015 $ 25,954 $ 25,954
Securities held to maturity 52,619 57,303 67,801 72,839
Securities available for sale 95,151 95,151 142,269 142,269
Loans receivable - net 538,204 552,735 451,709 461,650
FHLB stock 4,722 4,722 3,264 3,264
Accrued interest receivable 2,782 2,782 3,162 3,162
Financial liabilities:
Deposits $594,400 $592,085 $550,708 $548,321
Mortgage-backed bond 15,430 15,446 16,333 16,360
Advances from FHLB 91,920 90,157 57,341 57,246
ESOP borrowings -- -- 1,424 1,424
Accrued interest payable 403 403 292 292
43
46
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of December
31, 1998 and 1997, and the condensed statements of operations and
statements of cash flows for the years ended December 31, 1998 and 1997,
the three months ended December 31, 1996, and the year ended September
30, 1996 should be read in conjunction with the consolidated financial
statements and the related notes. 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.
STATEMENTS OF FINANCIAL CONDITION
-------------------------------------------------------------------------
At December 31,
1998 1997
-------------------------------------------------------------------------
(In Thousands)
Assets:
Cash and cash equivalents $ 212 $11,243
Investment in the Association 107,808 70,527
Loans to the Association 26,407 --
Other assets 64 --
-------- --------
Total assets $134,491 $81,770
======== =======
Liabilities $ 1,205 $ 511
Shareholders' equity 133,286 81,259
-------- --------
Total liabilities and
shareholders' equity $134,491 $81,770
======== =======
STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------------------------------------------
For the For the Three For the Year
Year Ended Months Ended Ended
December 31, December 31, September 30,
1998 1997 1996 1996
----------------------------------------------------------------------------------------------------------------------
(In Thousands)
Income $ 90 $ -- $ -- $ --
Expenses 5 41 -- --
------ ----- ----- -----
Income (loss) before income taxes and equity in -- --
earnings of the Association 85 (41) -- --
Income tax expense (provision) benefit (32) 15 -- --
------ ----- ----- -----
Income (loss) before equity in earnings
of the Association 53 (26) -- --
Equity in earnings of the Association 4,941 5,382 1,160 3,915
------ ----- ----- -----
Net income 4,994 5,356 1,160 3,915
------ ----- ----- -----
Other comprehensive income, net of tax:
Unrealized gain in market value of securities
transferred from held to maturity to
available for sale -- -- -- 247
Change in unrealized gain (loss) in market value
of securities available for sale (278) 914 130 (974)
------ ----- ----- -----
Comprehensive income, net of income taxes $4,716 $6,270 $1,290 $3,188
====== ===== ===== ======
44
47
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------
For the For the Three For the Year
Year Ended Months Ended Ended
December 31, December 31, September 30,
1998 1997 1996 1996
----------------------------------------------------------------------------------------------------------------------
(In Thousands)
Cash flows from operating activities:
Net income $4,994 $ 5,356 $ 1,160 $ 3,915
Adjustments to reconcile net income to net cash
used for operating activities:
Equity in earnings of the Association (4,941) (5,382) (1,160) (3,915)
Other (206) (15) -- --
------ ------- ------- ------
Net cash used for operating activities (153) (41) -- --
------ ------- ------- ------
Cash flows from for investing activities:
Loans to subsidiaries (26,407) -- -- --
Dividends received from the Association -- 13,260 448 1,618
Investment in Association through proceeds from
stock sale (32,340) -- -- --
------ ------- ------- ------
Net cash provided by (used for) investing activities (58,747) 13,260 448 1,618
------ ------- ------- ------
Cash flows from financing activities:
Proceeds from sale of stock, net of issuance costs 26,535 -- -- --
Dividends paid -- (1,976) (448) (1,618)
Purchase of ESOP shares (4,377) -- -- --
Proceeds from exercise of stock options 101 -- -- --
Amortization of deferred compensation 1,025 -- -- --
------ ------- ------- ------
Net cash provided by (used for) financing activities 26,535 (1,976) (448) (1,618)
------ ------- ------- ------
(Decrease) increase in cash and cash equivalents (11,031) 11,243 -- --
Cash and cash equivalents, beginning of period 11,243 -- -- --
------ ------- ------- ------
Cash and cash equivalents, end of period $ 212 $11,243 $ -- $ --
====== ======= ======= ======
Payment of dividends to Bankshares by the Association is subject to various
limitations by bank regulatory agencies. Undistributed earnings of the
Association available for distribution as dividends under these limitations were
$24,757,000 and $30,773,000 as of December 31, 1998 and 1997, respectively.
45
48
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted
earnings per share for the years ended December 31, 1998 and 1997, for the three
months ended December 31, 1996 and for the year ended September 30, 1996 was as
follows:
- - -------------------------------------------------------------------------------------------------------------------------
For the For the Three For the
Year Ended Months Ended Year Ended
December 31, December 31, September 30,
1998 1997 1996 1996
- - -------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands except per share data)
Basic earnings per share
Net income available to common shareholders $ 4,994 $ 5,356 $ 1,160 $ 3,915
Weighted average common shares outstanding 10,175,899 10,079,363 10,023,118 9,955,157
----------- ----------- ----------- -----------
Basic earnings per share $ 0.49 $ 0.53 $ 0.12 $ 0.39
=========== =========== =========== ===========
Diluted earnings per share
Net income available to common shareholders $ 4,994 $ 5,356 $ 1,160 $ 3,915
----------- ----------- ----------- -----------
Weighted average common shares outstanding 10,175,899 10,079,363 10,023,118 9,955,157
Add: dilutive effects of assumed exercise of
stock options and unvested RRP shares
Stock options 271,205 255,284 100,878 138,055
RRP shares 1,223 -- -- --
----------- ----------- ----------- -----------
Weighted average common and dilutive potential
common shares outstanding 10,448,327 10,334,647 10,123,996 10,093,212
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.48 $ 0.52 $ 0.11 $ 0.39
=========== =========== =========== ===========
RRP shares were not considered in the computation of diluted earnings per share
for the year ended December 31, 1997, the three months ended December 31, 1996
and the year ended September 30, 1996 as they were antidilutive.
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49
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
----------------------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Year ended December 31, 1998:
Interest income $13,358 $13,469 $13,763 $13,899
Interest expense 7,299 7,356 7,741 7,763
------- ------- ------- -------
Net interest income 6,059 6,113 6,022 6,136
Provision for loan losses 117 96 223 186
Other income 947 928 966 1,224
Operating expense 4,976 4,989 5,126 5,581
Provision for income taxes 681 677 401 348
------- ------- ------- -------
Net income $ 1,232 $ 1,279 $ 1,238 $ 1,245
======= ======= ======= =======
Basic earnings per share $ 0.12 $ 0.13 $ 0.12 $ 0.12
======= ======= ======= =======
Diluted earnings per share $ 0.12 $ 0.12 $ 0.12 $ 0.12
======= ======= ======= =======
Quarter Ended
-----------------------------------------------------------------------------------------------------------------
March 31, June 30, September 30 December 31,
-----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Interest income $12,020 $12,557 $12,894 $12,845
Interest expense 6,448 6,813 7,036 7,093
------- ------- ------- -------
Net interest income 5,572 5,744 5,858 5,752
Provision for loan losses 30 53 138 43
Other income 885 980 1,622 957
Operating expense 4,287 4,521 5,073 4,939
Provision for income taxes 789 767 720 654
------- ------- ------- -------
Net income $ 1,351 $ 1,383 $ 1,549 $ 1,073
======= ======= ======= =======
Basic earnings per share $ 0.13 $ 0.14 $ 0.15 $ 0.11
======= ======= ======= =======
Diluted earnings per share $ 0.13 $ 0.13 $ 0.15 $ 0.11
======= ======= ======= =======
47
50
COMMUNITY SAVINGS BANKSHARES, INC.
CORPORATE INFORMATION
CORPORATE HEADQUARTERS AUDITORS
660 U.S. Highway One Crowe, Chizek and Company LLP
P. O. Box 14547 400 Riverfront Plaza Bldg
North Palm Beach, FL 33408 55 Campau Ave. NW
www.communitysavings.com Grand Rapids, MI 49503
(561) 881-2212
(800) 879-0112 (Florida) SPECIAL COUNSEL
Elias, Matz, Tiernan & Herrick L.L.P.
ANNUAL MEETING 734 15th Street, NW, 12th Floor
June 18, 1999, 1:30 p.m. Washington, DC 20005
Embassy Suites PGA, 4350 PGA Boulevard www.emth.com
Palm Beach Gardens, FL 33410
FORM 10-K
REGISTRAR & TRANSFER AGENT A copy of Bankshares' Annual Report on
ChaseMellon Shareholder Services, L.L.C. Form 10-K, as filed with the Securities and Exchange
Overpeck Centre, 85 Challenger Road Commission, is available without charge.
Ridgefield Park, NJ 07660
(800) 526-0801 www.chasemellon.com STOCK LISTING
The Common Stock of Community Savings Bankshares, Inc.
DIVIDEND SERVICES is traded on The Nasdaq Stock Market
Dividend Reinvestment and Optional under the symbol CMSV.
Cash Investment Plan - provides shareholders
a regular way of investing cash dividends in SHAREHOLDER RELATIONS
additional shares and investing optional cash payments Deborah M. Rousseau, Corporate Secretary
without payment of brokerage commissions. Trina L. Miles, Assistant Corporate Secretary
Susan L. Sabias, Shareholder Relations Secretary
SHAREHOLDER ACCOUNT ASSISTANCE
Shareholders who wish to change the name, address or INVESTOR RELATIONS
ownership of stock or report lost certificates should contact James B. Pittard, Jr., Chief Executive Officer
the Registrar and Transfer Agent at the address Larry J. Baker, CPA, Chief Financial Officer
or phone number above.
On December 15, 1998, the conversion and reorganization of ComFed, M. H. C. was
consummated. Each existing share of Community Savings Bankshares, Inc. except
for those shares held by ComFed, M. H. C., were exchanged for 2.0445 shares of
common stock of Bankshares. The book value, prices, and dividends per share in
the following table have been adjusted to reflect the transaction. As of
December 31, 1998, there were 10,548,884 shares of Common Stock outstanding and
2,792 shareholders of record, not including the number of persons or entities
whose stock is held in nominee or "street" name through various brokerage firms
or banks. The following table sets forth quarter ending book value, high, low,
and closing trade prices, and dividend per share information.
- - -----------------------------------------------------------------------------------------------------------------------------
Stock Prices
Book -------------------- -------------------- ------------------ Dividend
Value High Low Close Per Share
- - ----------------------- -------------------- -------------------- -------------------- ------------------ -------------------
December 31, 1998 $13.43 $12.23 $ 8.50 $10.75 $.11
September 30, 1998 $ 8.27 $18.22 $10.27 $10.64 $.11
June 30, 1998 $ 8.15 $19.08 $15.16 $16.14 $.11
March 31, 1998 $ 8.08 $20.05 $16.45 $18.89 $.11
December 31, 1997 $ 8.02 $19.44 $15.77 $17.30 $.10
September 30, 1997 $ 7.95 $18.22 $10.64 $17.73 $.10
June 30, 1997 $ 7.80 $11.01 $ 9.60 $10.76 $.10
March 31, 1997 $ 7.62 $10.09 $ 9.05 $ 9.60 $.09
48
51
COMMUNITY SAVINGS, F. A.
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Frederick A. Teed Karl D. Griffin
Chairman of the Board Director and Secretary Emeritus of the Board
Forest C. Beaty, Jr. James B. Pittard, Jr.
Director President and Chief Executive Officer
Robert F. Cromwell Harold I. Stevenson, CPA
Director and Chairman Emeritus of the Board Director
ADMINISTRATIVE DIVISION HUMAN RESOURCES, MARKETING
. & TRAINING DIVISION
James B. Pittard, Jr
President and Chief Executive Officer
Judith M. Hogan Feriel G. Hughes
Compliance Officer Division Director
Joe L. Knorr Cynthia J. Cullen
Internal Auditor Training Manager
Deborah M. Rousseau Juanita Swinton
Corporate Secretary Marketing Manager
FINANCE DIVISION Jane H. Ryder
Personnel Manager
Larry J. Baker, CPA
Chief Financial Officer OPERATIONS DIVISION
Division Director
Mary L. Kaminske
Donna L. Sheppard, CPA Division Director
Controller
Theresa J. Brooks
Bruce C. Tissot Regional Branch Manager
Staff Accountant
Douglas S. Clive
LOAN DIVISION Corporate Security Officer
Cecil F. Howard, Jr. Elizabeth A. DeLosh
Division Director Branch Operations Manager
John C. Allen, Jr. Rizwana Khalid
Commercial Loan Officer Deposit Products Manager
Priscilla Clancy Eileen St. Denis
Commercial Loan Officer Regional Branch Manager
Charles J. Gifford Cindy L. Sheppard
New Loan Operations Manager Information Systems Manager
Mildred C. Lodge PROPOERTIES & INSURANCE
Consumer/Residential Loan Officer DIVISION
Johnny L. Morris Michael E. Reinhardt
Lending Sales Manager Division Director
Lisa M. Rhodes Larry F. Koerner
Loan Servicing Manager Facilities Manager
49
52
BACK COVER
Community Savings Bankshares, Inc.
P. O. Box 14547
660 U.S. Highway One
North Palm Beach, Florida 33408
www.communitysavings.com
50