UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20552
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-29460
COMMUNITY SAVINGS BANKSHARES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0870004
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
660 US Highway One
North Palm Beach, FL 33408
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 881-2212
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Indicate by check whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 25, 2000, there were 9,282,308 shares of the Registrant's
common stock outstanding.
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2000 (Unaudited) and December 31, 1999 2
Consolidated Statements of Operations (Unaudited) for
the three months ended March 31, 2000 and 1999 3
Consolidated Statements of Changes in Shareholders'
Equity for the three months ended March 31, 2000
(Unaudited) and for the year ended December 31, 1999 4
Consolidated Statements of Cash Flows (Unaudited) for
the three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Default Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
1
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
March 31, December 31,
2000 1999
--------- ---------
(Unaudited)
ASSETS (In thousands)
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 18,976 $ 22,057
Interest-bearing deposits 41,394 23,182
--------- ---------
Total cash and cash equivalents 60,370 45,239
Securities available for sale 144,444 144,840
Securities held to maturity 37,787 38,802
Loans receivable, net of allowance for loan losses 606,198 608,369
Accrued interest receivable 3,346 3,788
Premises and equipment, net 24,740 24,939
Real estate held for investment 1,872 1,872
Investment in and advances to real estate venture 12,943 11,633
Real estate owned, net 557 494
Federal Home Loan Bank stock - at cost 7,009 7,009
Other assets 6,513 5,989
--------- ---------
Total assets $ 905,779 $ 892,974
========= =========
LIABILITIES
Deposits:
Demand deposits $ 43,058 $ 39,429
NOW and statement savings 85,490 76,073
Savings deposits 35,847 34,466
Money market deposits 94,990 100,299
Certificates of deposit 377,019 363,676
--------- ---------
Total deposits 636,404 613,943
Mortgage-backed bond - net 14,277 14,508
Advances from Federal Home Loan Bank 128,750 140,186
Advances by borrowers for taxes and insurance 3,486 1,403
Other liabilities 7,173 7,233
--------- ---------
Total liabilities 790,090 777,273
--------- ---------
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; 9,289,808 and 9,319,873
shares outstanding at March 31, 2000 and December 31, 1999, respectively 10,571 10,571
Additional paid-in capital 93,816 93,744
Retained income - substantially restricted 38,695 37,869
Common stock purchased by Employee Stock Ownership Plan (4,551) (4,722)
Common stock issued to Recognition and Retention Plans (2,442) (2,586)
Accumulated other comprehensive income (3,432) (3,358)
Treasury stock, at cost: 1,281,332 and 1,251,267 shares at March 31, 2000 and
December 31, 1999, respectively (16,968) (15,817)
--------- ---------
Total shareholders' equity 115,689 115,701
--------- ---------
Total liabilities and shareholders' equity $ 905,779 $ 892,974
========= =========
See notes to consolidated financial statements.
2
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
For the three months
ended March 31,
2000 1999
------------ ------------
(Unaudited)
(Dollars in thousands
except per share data)
Interest income:
Loans $ 11,667 $ 10,424
Securities 3,187 2,483
Other interest and dividend income 684 1,095
------------ ------------
Total interest income 15,538 14,002
------------ ------------
Interest expense:
Deposits 6,054 5,525
Advances from Federal Home Loan Bank and other borrowings 2,343 1,621
------------ ------------
Total interest expense 8,397 7,146
------------ ------------
Net interest income 7,141 6,856
Provision for loan losses 150 322
------------ ------------
Net interest income after provision for loan losses 6,991 6,534
------------ ------------
Other income:
Servicing income and other fees 89 80
NOW account and other customer fees 812 851
Net gain (loss) on real estate owned 4 (12)
Equity in net loss of real estate venture (75) --
Miscellaneous 101 59
------------ ------------
Total other income 931 978
------------ ------------
Operating expense:
Employee compensation and benefits 3,136 2,860
Occupancy and equipment 1,471 1,534
Advertising and promotion 235 288
Federal deposit insurance premium 31 88
Miscellaneous 947 831
------------ ------------
Total operating expense 5,820 5,601
------------ ------------
Income before provision for income taxes 2,102 1,911
Provision for income taxes 495 526
------------ ------------
Net income $ 1,607 $ 1,385
============ ============
Earnings per share - basic $ 0.19 $ 0.14
============ ============
Earnings per share - diluted $ 0.18 $ 0.14
============ ============
Weighted average common shares outstanding - basic 8,627,615 9,920,292
============ ============
Weighted average common shares outstanding - diluted 8,893,535 10,177,050
============ ============
See notes to consolidated financial statements.
3
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------
Retained Employee Recognition Accumulated
Additional Income- Stock and Other
Common Paid-In Substantially Ownership Retention Comprehensive Treasury
Stock Capital Restricted Plan Plans Income Stock Total
---------------------------------------------------------------------------------------
(In Thousands)
Balance - December 31, 1998 $10,549 $93,268 $35,545 $(5,407) $ (237) $ (432) $ -- $ 133,286
Net income for the year ended
December 31, 1999 -- -- 6,534 -- -- 6,534
Other comprehensive income:
Unrealized decrease in market value
of assets available for sale
(net of income taxes) -- -- -- -- -- (2,926) -- (2,926)
---------
Comprehensive income 3,608
Stock options exercised 22 99 -- -- -- -- 88 209
Shares committed to be released -
Employee Stock Ownership Plan and
Recognition and Retention Plans -- 371 -- 685 539 -- -- 1,595
Purchase of common stock by 1999 and 1995
Recognition and Retention Plans -- 60 (95) -- (2,888) -- -- (2,923)
Cost of stock issuance -- (54) -- -- -- -- -- (54)
Purchase of treasury stock -- -- -- -- -- -- (15,905) (15,905)
Dividends declared -- -- (4,115) -- -- -- -- (4,115)
---------------------------------------------------------------------------------------
Balance - December 31, 1999 10,571 93,744 37,869 (4,722) (2,586) (3,358) (15,817) 115,701
Net income for the three months ended
March 31, 2000 -- -- 1,607 -- -- -- 1,607
Other comprehensive income:
Unrealized decrease in market value
of assets available for sale
(net of income taxes) -- -- -- -- -- (74) -- (74)
---------
Comprehensive income 1,533
Stock options exercised -- -- -- -- -- -- 675 675
Amortization of deferred compensation -
Employee
Stock Ownership Plan and Recognition
and Retention Plans -- 72 -- 171 144 -- -- 387
Stock benefit plan tax adjustment -- -- 160 -- -- -- -- 160
Purchase of treasury stock -- -- -- -- -- -- (1,826) (1,826)
Dividends declared -- -- (941) -- -- -- -- (941)
---------------------------------------------------------------------------------------
Balance - March 31, 2000 (unaudited) $10,571 $93,816 $38,695 $(4,551) $(2,442) $(3,432) $(16,968) $ 115,689
=======================================================================================
See notes to consolidated financial statements.
4
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
For the three months ended
March 31,
2000 1999
--------- ---------
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,607 $ 1,385
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 553 623
ESOP and Recognition and Retention Plans compensation expense 547 253
Accretion of discounts, amortization of premiums, and other deferred yield items (434) (298)
Provision for loan losses 150 322
(Increase) decrease in other assets (145) 53
Increase in other liabilities 2,084 4,293
--------- ---------
Net cash from operating activities 4,362 6,631
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans 9,521 (23,354)
Principal payments, calls and maturities received on securities and FHLB stock 2,342 16,149
Purchases of:
Loans and participations (7,500) (6,000)
Securities available for sale and FHLB stock (632) (23,367)
Premises and equipment, net (238) (438)
Investment in real estate venture (1,310) --
--------- ---------
Net cash from investing activities 2,183 (37,010)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 22,461 (10,388)
Repayments, calls of advances from Federal Home Loan Bank (11,436) (2,124)
Purchase of treasury stock (1,826) --
Proceeds from exercise of stock options 675 --
Payments made on mortgage-backed bond (347) (346)
Dividends paid (941) (1,155)
--------- ---------
Net cash from financing activities 8,586 (14,013)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 15,131 (44,392)
CASH AND CASH EQUIVALENTS, beginning of period 45,239 117,015
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 60,370 $ 72,623
========= =========
See notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated interim financial statements for Community
Savings Bankshares, Inc. ("Bankshares") and its subsidiary Community
Savings, F. A. (the "Association"), reflect all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management,
are necessary to present fairly Bankshares' consolidated financial
condition and the consolidated results of operations and cash flows for
the interim periods presented herein. The results for interim periods are
not necessarily indicative of trends or results to be expected for the
full fiscal year. All weighted interest rates are presented on an
annualized basis. The unaudited consolidated interim financial statements
and notes should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in Bankshares' Annual
Report to Shareholders for the year ended December 31, 1999.
RECLASSIFICATIONS - Certain items in the 1999 financial statements and the
notes thereto have been reclassified to conform with the 2000
presentation.
2. LOANS RECEIVABLE
Loans receivable consists of the following:
March 31, December 31,
2000 1999
--------- ---------
(In thousands)
Real estate loans:
Residential 1-4 family $ 443,179 $ 420,845
Residential 1-4 family construction 107,579 105,282
Multi-family 6,858 11,135
Multi-family construction 23,782 17,251
Land 21,147 50,885
Commercial 29,295 28,626
Commercial construction 9,307 9,633
--------- ---------
Total real estate loans 641,147 643,657
--------- ---------
Non-real estate loans:
Consumer 13,652 12,685
Commercial business 10,655 11,409
--------- ---------
Total non-real estate loans 24,307 24,094
--------- ---------
Total loans receivable 665,454 667,751
Undisbursed loan proceeds (56,813) (56,948)
Unearned discount and premium and
net deferred loan fees and costs 1,577 1,489
Allowance for loan losses (4,020) (3,923)
--------- ---------
Total loans receivable, net $ 606,198 $ 608,369
========= =========
6
An analysis of the changes in the allowance for loan losses is as follows:
For the three months
ended March 31,
2000 1999
------- -------
(In thousands)
Balance, beginning of period $ 3,923 $ 3,160
Provision charged to income 150 322
Losses charged to allowance (53) (44)
Recoveries -- --
------- -------
Balance, end of period $ 4,020 $ 3,438
======= =======
The Association accounts for impaired loans in accordance with SFAS No.
114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
No. 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". At March 31, 2000 and December 31, 1999,
impaired loans totaled $521,000 and $5,000, respectively.
3. REAL ESTATE OWNED
Real estate owned consists of the following:
March 31, December 31,
2000 1999
----- -----
(In thousands)
Real estate owned $ 563 $ 500
Less allowance for loss 6 6
----- -----
Total real estate owned $ 557 $ 494
===== =====
Changes in allowance for loss on real estate owned are as follows:
For the three months
ended March 31,
2000 1999
---- ----
(In thousands)
Balance, beginning of period $ 6 $ 36
Provision charged to income -- 5
Losses charged to allowance -- (9)
---- ----
Balance, end of period $ 6 $ 32
==== ====
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In the following discussion, references to "Bankshares" relate to Community
Savings Bankshares, Inc. together with its subsidiary, Community Savings, F. A.
(the "Association").
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 holding company reorganization was accounted for at
historical cost in a manner similar to a pooling of interests. Therefore, all
financial information has been presented as if Bankshares had been in existence
for all periods presented in this report. The common stock of Bankshares trades
on The Nasdaq Stock Market under the symbol "CMSV".
COMMUNITY SAVINGS, F. A.
The Association, founded in 1955, is a federally chartered 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").
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 residential and
commercial real estate loans, consumer and commercial business 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, non-interest-bearing
liabilities and capital, together with the yields earned or rates paid on such
interest rate-sensitive instruments. The Association manages interest rate risk
exposure by matching, in part, asset and liability maturities and rates. This is
accomplished while considering the credit risk of certain 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.
The Association has two wholly-owned subsidiaries. ComFed, Inc. ("ComFed"),
formed in 1971, does business as Community Insurance Agency, selling mortgage
life insurance and receiving income and incurring related expenses from the sale
of third party mutual funds and annuities. Palm River Development Co., Inc.
("Palm River"), incorporated in 1999, is engaged in a real estate development
joint venture in Indian River County.
Management believes the success of the Association as a community-oriented
financial institution depends on building long-term relationships with its
customers while meeting their current financial needs. Goals for 2000 include
aggressively pursuing new loan opportunities in its market area of Palm Beach,
Martin, St. Lucie and Indian River counties, funding the resulting increase in
the asset base primarily with deposit growth. While management will still look
for suitable locations for new branch offices, they will also evaluate the
effectiveness of our existing branch network. In addition, management will
continue to focus on improving the efficiency ratio, through cost reduction and
enhanced fee income strategies. As part of the continued implementation of this
strategy, the Board of Directors of the Association has taken steps to terminate
the Association's defined benefit plan and replace it with a 401(k) defined
contribution plan. As a result of the termination of the defined benefit plan,
the Association expects to recognize a one-time gain in the second quarter
estimated to be approximately $1.0 million. However, in connection with the
final settlement of the plan, which will not occur until receipt of a favorable
termination letter from the Internal Revenue Service, the Association expects to
incur in the fourth quarter a settlement expense currently estimated to amount
to $500,000.
8
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 14.1% during the three months ended March
31, 2000 while liquidity ratios averaged 14.7% for the year ended December 31,
1999.
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, as well as earnings and funds provided
from operations. While scheduled principal repayments on loans and MBS, and
maturities of securities are a relatively predictable source 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 deposits with the FHLB of Atlanta totaled $40.0
million at March 31, 2000. Other assets qualifying for liquidity outstanding at
March 31, 2000 amounted to $47.7 million. For additional information about cash
flows from operating, financing, and investing activities, see the unaudited
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 $128.8 million at March 31, 2000.
At March 31, 2000, commitments to originate and purchase loans totaled $11.3
million and $21.1 million, respectively. The unfunded portion of consumer lines
of credit totaled $13.4 million and available commercial lines and letters of
credit totaled $9.6 million. Certificates of deposit scheduled to mature in less
than one year totaled $279.2 million at March 31, 2000. Based on prior
experience, management believes that a significant portion of such deposits will
remain with the Association.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
GENERAL
Net income for the quarter ended March 31, 2000 was $1.6 million, or $0.18
diluted earnings per share, a $222,000 increase from $1.4 million, or $0.14
diluted earnings per share, for the quarter ended March 31, 1999. The increase
in net income was primarily the result of a $285,000 increase in net interest
income combined with a $172,000 decrease in the provision for loan losses,
offset in part by a $219,000 increase in operating expense.
NET INTEREST INCOME
Net interest income increased to $7.1 million for the quarter ended March 31,
2000 from $6.9 million for the same period in 1999 primarily as a result of a
$39.9 million increase in average interest-earning assets to $827.6 million for
the three months ended March 31, 2000 from $787.7 million for the same period in
the prior year, reflecting the increase in the average balances of the loan and
investment portfolios. In addition, the average yield on interest-earning assets
increased by 40 basis points to 7.51% for the three months ended March 31, 2000
from 7.11% for the 1999 period due to the rising interest rate environment since
early 1999. The increase in net interest income was partially offset by an
increase in the average cost of interest-bearing liabilities to 4.35% for the
three months ended March 31, 2000 from 4.11% for the 1999 period, primarily as a
result of the increased weighted average cost of deposits to 3.88% for the
quarter ended March 31, 2000 from 3.75% for the same period in 1999. The
Association used higher costing odd-term certificates of deposit during the
first quarter of 2000 to maintain existing customers as well as to attract new
9
deposits, resulting in an increased cost of deposits reflecting the change in
the composition of the deposit portfolio. The dollar balance of total
certificates of deposit, which have a higher cost to the Association, increased
by 3.7%, while the dollar balance of lower costing core deposits (consisting of
checking, NOW, statement, passbook, and money market deposit accounts) increased
by 3.6%. The Association will continue to emphasize lower costing core deposit
products to its customers to establish a complete deposit relationship. In
addition, average interest-bearing liabilities increased $76.1 million to $772.4
million for the three months ended March 31, 2000 from $696.3 million for the
same period in 1999. The increase in average interest-bearing liabilities
reflected $33.4 million and $42.7 million higher average balances for the
Association's deposit portfolio and borrowed funds, respectively, for the
quarter ended March 31, 2000 as the Association used such funds to support its
expanding lending program.
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. The provision for loan losses was $150,000 for
the quarter ended March 31, 2000, as compared to $322,000 for the quarter ended
March 31, 1999 primarily due to management's assessment that the allowance for
loan losses needed to be increased to a greater extent in the 1999 period. The
allowance for loan losses as a percentage of net loans receivable was 0.66% and
0.60% at March 31, 2000 and 1999, respectively.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gains
or losses on the sales of securities available for sale and other assets. Other
income decreased $47,000 to $931,000 for the quarter ended March 31, 2000, from
$978,000 for the same period in 1999, primarily due to a $75,000 net loss in the
Palm River real estate joint venture for the three months ended March 31, 2000.
The joint venture began operations in July 1999 and is expected to begin sales
of developed lots during the third quarter of 2000. For further information on
this project, see "Investments in and Advances to Real Estate Venture" in the
Notes to Consolidated Financial Statements in Bankshares' 1999 Annual Report.
OPERATING EXPENSE
Operating expense increased $219,000 to $5.8 million for the three month period
ended March 31, 2000 from $5.6 million for the same period in 1999. Employee
compensation and benefits increased $276,000 during the quarter ended March 31,
2000 as compared to the same period in 1999. The increase primarily reflected
increased compensation resulting from merit increases implemented in connection
with the Association's annual review of its compensation structure for all
employees and officers. As a result of such review, it was determined to
increase salaries at a greater level than prior periods in order to improve the
Association's ability to compete for, and retain high quality employees.
In addition, pension costs increased by $68,000 for the 2000 period as compared
to the 1999 period due to higher actuarial accruals for 2000. In April 2000, as
part of the 2000 strategic plan, the Board of Directors of the Association took
steps to terminate the Association's defined benefit plan and replace it with a
401(k) defined contribution plan. As a result of the termination of the defined
benefit plan, Bankshares expects to recognize a one-time gain in the second
quarter of 2000 estimated to be approximately $1.0 million. However, in
connection with the final settlement of the plan, which will not occur until
receipt of a favorable termination letter from the Internal Revenue Service,
Bankshares expects to incur in the fourth quarter a settlement expense currently
estimated to amount to $500,000.
Occupancy and equipment costs decreased $63,000 for the three months ended March
31, 2000 as compared to the same period in 1999. In addition, advertising and
marketing expense decreased $53,000 during the quarter ended March 31, 2000 as
compared to the same quarter in 1999. Miscellaneous expense increased $116,000
for the quarter ended March 31, 2000. The 1999 period reflected a reversal of a
$127,000 loss reserve previously recorded which was recovered from an insurance
company as a result of the settlement of an employee defalcation claim.
10
PROVISION FOR INCOME TAXES
The provision for income taxes was $495,000 for the three months ended March 31,
2000 as compared to $526,000 for the same period in 1999 reflecting primarily
the increased benefit from tax credits totaling $134,000 resulting from the
Association's investment in an affordable housing partnership during the quarter
ended March 31, 2000 as compared to $124,000 for the same period in 1999.
FINANCIAL CONDITION
MARCH 31, 2000 COMPARED TO DECEMBER 31, 1999
The following table summarizes certain information relating to Bankshares'
financial condition at the dates indicated.
March 31, December 31, Increase
2000 1999 (Decrease)
-------- -------- --------
(Unaudited)
(In thousands)
Assets:
Total assets $905,779 $892,974 $ 12,805
Cash and cash equivalents 60,370 45,239 15,131
Securities portfolio:
Securities available for sale 144,444 144,840 (396)
Securities held to maturity 37,787 38,802 (1,015)
-------- -------- --------
Total securities portfolio 182,231 183,642 (1,411)
Loans receivable, net 606,198 608,369 (2,171)
Investments in and advances to real estate venture 12,943 11,633 1,310
Real estate owned, net 557 494 63
Liabilities and Shareholders' Equity:
Total liabilities 790,090 777,273 12,817
Deposits 636,404 613,943 22,461
Federal Home Loan Bank advances 128,750 140,186 (11,436)
Advances by borrowers for taxes and insurance 3,486 1,403 2,083
Shareholders' equity 115,689 115,701 (12)
Total assets increased $12.8 million to $905.8 million at March 31, 2000, as
compared to $893.0 million at December 31, 1999 primarily due to a $15.1 million
increase in cash and cash equivalents to $60.4 million at March 31, 2000 from
$45.2 million at December 31, 1999, partially offset by a $1.4 million net
decrease in the securities portfolio (which includes securities available for
sale and held to maturity) to $182.2 million at March 31, 2000 from $183.6
million at December 31, 1999, and a $2.2 million decrease in loans receivable to
$606.2 million at March 31, 2000 from $608.4 million at December 31, 1999. The
increase in cash and cash equivalents was funded in part by a $22.5 million net
increase in deposits to $636.4 million at March 31, 2000 from $613.9 million at
December 31, 1999. In addition, FHLB advances decreased $11.4 million, totaling
$128.8 million and $140.2 million at March 31, 2000 and December 31, 1999,
respectively.
The securities portfolio net decrease of $1.4 million primarily reflects
$632,000 in purchases of new securities available for sale offset by scheduled
principal reductions and amortization of premiums and discounts amounting to
$2.0 million.
As a result of continued emphasis on expanded lending activities, loan
originations totaled $46.7 million and included loans secured by residential
one- to four-family properties totaling $40.4 million, commercial real estate
properties totaling $1.5 million, consumer loans totaling $1.6 million and
commercial business loans totaling $2.7 million. The originations and purchases
of $7,5 million were offset by sales and repayments of $7.5 million and $48.0
million, respectively. Repayments included the payoff of a $21.0 million loan
secured by land.
11
Real estate owned increased $63,000 to $557,000 at March 31, 2000, from $494,000
at December 31, 1999, primarily due to a residential foreclosed property offset
by the sale of a non-residential property.
Total liabilities increased $12.8 million to $790.1 million at March 31, 2000,
from $777.3 million at December 31, 1999. Total deposits increased by $22.5
million to $636.4 million at March 31, 2000 from $613.9 million at December 31,
1999. The increase in deposits reflected increases of $9.1 million and $13.4
million in core deposits (which include demand, NOW, savings, and money market
deposit accounts) and certificates of deposits, respectively. The weighted
average yield paid on deposits increased to 4.02% at March 31, 2000 as compared
to 3.95% at December 31, 1999 in the rising-interest rate environment
experienced during 2000. Federal Home Loan Bank advances decreased $11.4 million
to $128.8 million at March 31, 2000 from $140.2 million at December 31, 1999.
The decreases included the call and payoff of $10.0 million and $400,000
advances, respectively, as well as $1.0 million of normal amortization. There
were no new advances during the first quarter of 2000 due to the adequacy of
deposit inflows and loan repayments to fund loan originations.
Total equity, which totaled $115.7 million at March 31, 2000, decreased $12,000
from December 31, 1999, reflecting the purchase of treasury stock totaling $1.8
million, the declaration of dividends totaling $941,000 and a net decrease in
the market value of assets available for sale of $74,000, offset in part by net
income for the three months of $1.6 million, stock options exercised totaling
$675,000, and the amortization of deferred compensation represented by stock
benefit plans totaling $387,000. For further information, see the unaudited
consolidated statements of changes in shareholders' equity in the accompanying
consolidated financial statements.
The Association is required to report regulatory capital ratios unconsolidated
with Bankshares. The Association's actual capital amounts and ratios at March
31, 2000 are as follows:
To be Considered
Well
For Capitalized
Capital for Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------ ------------------ -------------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
(Dollars in thousands)
As of March 31, 2000:
Total Risk-Based Capital
(to Risk-weighted Assets) 17.5% $ 82,471 8.0% $ 37,787 10.0% $ 47,234
Core (Tier 1) Capital
(to Adjusted Tangible Assets) 8.8 78,589 4.0 35,549 5.0 44,436
Core (Tier 1) Capital
(to Risk-weighted Assets) 16.6 78.589 4.0 18,894 6.0 28,341
As of March 31, 2000, adjusted tangible assets and risk-weighted assets were
$888.7 million and $472.3 million, respectively.
ASSET QUALITY
Loans 90 days past due are generally placed on non-accrual status. The
Association ceases to accrue interest on a loan once it is placed on non-accrual
status and interest accrued but unpaid at such time is charged against interest
income. Additionally, any loan where it appears evident prior to being past due
90 days that the collection of interest is in doubt is also placed on
non-accrual status. Real estate owned is carried at the lower of cost or fair
value, less cost to dispose. Management regularly reviews assets to determine
proper valuation. There were no restructured loans within the meaning of SFAS
No. 15 at March 31, 2000 or December 31, 1999.
12
The following table sets forth information regarding the delinquent loans and
foreclosed real estate at the dates indicated:
March 31, December 31,
2000 1999
------ ------
(In thousands)
Non-performing loans:
Residential real estate:
Loans 60 to 89 days delinquent $ 98 $ 426
Loans more than 89 days delinquent 652 1,015
Commercial and multi-family real estate:
Loans 60 to 89 days delinquent 55 --
Loans more than 89 days delinquent -- 5
Consumer and commercial business:
Loans 60 to 89 days delinquent -- --
Loans more than 89 days delinquent 3 12
Land:
Loans 60 to 89 days delinquent -- --
Loans more than 89 days delinquent 7 7
REO, net of related allowance 557 494
Other repossessed assets -- --
Loans to facilitate sale of REO 233 234
------ ------
Total $1,605 $2,193
====== ======
YEAR 2000 CONSIDERATIONS
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use data for the Year
2000 or later. These potential shortcomings could result in a system failure or
miscalculations causing disruptions of operation, including among other things,
a temporary inability to process transactions, track important customer
information, provide convenient access to this information, or engage in normal
business operations. While lingering concern exists about certain dates during
the Year 2000, the most significant date, January 1, 2000, passed without
material incident. As a result of its diligent efforts, Bankshares is pleased to
report no interruptions of business or financial losses resulting from Year 2000
issues.
Please be advised that this portion of this Quarterly Report is designated as a
year 2000 Readiness Disclosure pursuant to the Year 2000 Information and
Readiness Disclosure Act (Public Law 105-271, October 19, 1998). It is intended
for informational purposes only and is not intended to be a representation or
warranty.
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FORWARD-LOOKING STATEMENTS
Certain information in this Form 10-Q 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of Bankshares' asset and liability management policies as well
as the potential impact of interest rate changes upon the market value of
Bankshares' portfolio equity, see "Management's Discussion and Analysis - Market
Risk Analysis" and -"Market Value of Portfolio Equity" in Bankshares' Annual
Report to Shareholders. There has been no material change in Bankshares' asset
and liability position or the market value of Bankshares' portfolio equity since
December 31, 1999.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits in which Bankshares or the
Association are periodically involved incidental to its business. In
the opinion of management, no material loss is expected from any of
such pending claims or lawsuits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Bankshares held it Annual Meeting of Shareholders on April 26, 2000. Of
the 9,292,508 shares eligible to vote, 8,065,760 shares or 86.8%, were
represented in person or by proxy at the meeting.
The shareholders acted on the following two matters at the Annual
Meeting, approving each of such matters.
1. The election of Karl D. Griffin and Harold I. Stevenson, CPA, to
serve as directors for terms of three years expiring in 2003 and
John Sheldon Clark to serve as director for a one-year term expiring
in 2001.
For Number of Votes Withheld Not Voted
--- ------------------------ ---------
Karl D. Griffin 7,140,914 924,846 1,247,587
Harold I. Stevenson, CPA 7,166,330 899,430 1,247,587
John Sheldon Clark 7,882,723 183,037 1,247,587
2. The ratification of the appointment of Crowe Chizek and Company LLP
as independent auditors for fiscal year 2000.
For Against Abstain Not Voted
--- ------- ------- ---------
Number of Votes 7,939,285 86,998 39,477 1,247,587
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.1 Amended and Restated 1995 Stock Option Plan
10.2 Amended and Restated 1995 Recognition and Retention Plan for
Employees and Outside Directors
10.3 Amended and Restated 1999 Stock Option Plan
10.4 Amended and Restated 1999 Recognition and Retention Plan and
Trust Agreement
10.8 Amended and Restated Supplemental Retirement Income Plan
27 Financial Data Schedule.
(b) CURRENT REPORTS ON FORM 8-K.
None during the reporting period.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY SAVINGS BANKSHARES, INC.
/s/ JAMES B. PITTARD, JR.
------------------------------
Date: May 2, 2000 James B. Pittard, Jr.
President and Chief Executive Officer
Date: May 2, 2000 /s/ LARRY J. BAKER
------------------------------
Larry J. Baker
Senior Vice President and Treasurer
16