OFFICE OF THRIFT SUPERVISION
WASHINGTON, DC 20552
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transaction period from
______________________to _______________________
OTS Docket Number: 05939
COMMUNITY SAVINGS, F. A.
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(Exact Name of Registrant as Specified in its Charter)
UNITED STATES 65-0525685
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(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
660 US HIGHWAY ONE, NORTH PALM BEACH, FL 33408
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(Address of Principal Executive Offices) (Zip Code)
(561) 881-4800
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(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
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Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
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(Title of Class)
Indicate by check mark whether the Registrant (1) his filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
As of December 12, 1996, there were issued and outstanding 5,090,120
shares of the Registrant's Common Stock. The aggregate value of the voting stock
held by non-affiliates (persons other than the Mutual Holding Company, the
employee stock ownership plan, directors and officers) of the Registrant,
computed by reference to the closing price of the Common Stock as of December
12, 1996 ($18.25) was $39,233,339.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Shareholders for the fiscal year ended
September 30, 1996 (Parts II and IV).
2. Proxy Statement for the Annual Meeting of Shareholders (III).
1
PART I
ITEM 1. BUSINESS
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GENERAL
Community Savings, F. A. (the "Association") is a federally chartered
stock savings and loan association headquartered in North Palm Beach, Florida.
The Association's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"). The Association was chartered as a federal savings and
loan association in 1955 and has been a member of the Federal Home Loan Bank
("FHLB") System since 1955. At September 30, 1996, the Association had total
assets of $650.3 million, total loans of $376.2 million, total deposits of
$498.9 million, and total shareholders' equity of $75.1 million.
The Association is primarily engaged in the business of attracting
deposits from the general public in the Association's market area (as described
below), and investing such deposits, together with other sources of funds,
primarily in loans secured by one- to four-family residential real estate. The
Association also originates to a lesser extent commercial real estate loans and
land loans, as well as construction loans and multi-family residential loans.
See "Lending Activities." The Association also invests a portion of its assets
in mortgage-backed securities, United States Government and agency securities,
mutual funds, corporate debt securities, interest-earning deposits in the FHLB
of Atlanta and FHLB of Atlanta stock. See "Mortgage-Backed and Related
Securities" and "Investment Activities." The Association's principal sources of
funds are deposits and principal and interest payments on loans and investments.
Principal sources of income are interest received from loans and securities. The
Association's principal expenses are interest paid on deposits and employee
compensation and benefits. See "Sources of Funds."
On October 24, 1994, Community Savings, F. A. in mutual form (the
"Mutual Association") reorganized from a federally chartered mutual savings and
loan association into ComFed, M. H. C., a federally chartered mutual holding
company (the "Holding Company"), and concurrently formed the Association.
The Association's principal executive office is located at 660 U.S.
Highway One, North Palm Beach, Florida, and its telephone number at that address
is (561) 881-4800.
MARKET AREA AND COMPETITION
The Association is headquartered in North Palm Beach, Florida, and
operates in Palm Beach, Martin, St. Lucie, and Indian River counties in Florida.
The Association has 18 offices in its market area, four of which are located in
Martin County, eleven of which are located in Palm Beach County, three of which
are located in St. Lucie County as well as a loan production office located in
Indian River County. During fiscal year 1996, the Association also operated a
loan production office in Southern Palm Beach County for a brief time which was
closed on September 30, 1996. Palm Beach and Martin counties, located in
southeastern Florida, have experienced considerable growth and development since
the 1960s, and had a total population of approximately one million as of the
1990 census. In recent years, this area has been subjected to significant growth
controls established at the state and local governmental levels. In addition,
economic growth and migration in the Association's market area has moderated.
For these reasons, management believes growth of the local market area will be
moderate in the future and that demand for mortgages may also be moderate.
The economy in the Association's market area is service-oriented and is
significantly dependent upon government, foreign trade, tourism, and its
continued attraction as a retirement area. Cooperative efforts between Palm
Beach County and local municipalities are producing business growth and
expansion in the County. A variety of County supported programs have been
instituted to create new jobs and to encourage relocation or expansion of
companies with an emphasis placed on high-technology and service industries.
Consequently, commercial building vacancies are at a low level. Major employers
in the Association's market area include Pratt & Whitney, IBM, Motorola,
Siemans, St. Mary's Hospital, Florida Power and Light, and Bell South.
2
The Association's market area in Southeast Florida has a large
concentration of financial institutions, many of which are significantly larger
and have greater financial resources than the Association, and all of which are
competitors of the Association to varying degrees. As a result, the Association
encounters strong competition both in attracting deposits and in originating
real estate and other loans. Its most direct competition for deposits has come
historically from commercial banks, securities broker-dealers, other savings
associations, and credit unions in its market area, and the Association expects
continued strong competition from such financial institutions in the foreseeable
future. The Association's market area includes branches of several commercial
banks that are substantially larger than the Association in terms of state-wide
deposits. The Association competes for savings by offering depositors a high
level of personal service and expertise together with a wide range of financial
services. In recent years many financial institutions have been aggressively
expanding through the acquisition of branch locations or entire financial
institutions, thereby increasing competition.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies, and other savings associations.
This competition for loans has increased substantially in recent years as a
result of the large number of institutions competing in the Association's market
area as well as the increased efforts by commercial banks to expand mortgage
loan originations.
The Association competes for loans primarily through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and builders. Factors that affect competition
include general and local economic conditions, current interest rate levels, and
volatility of the mortgage markets.
Based on total assets as of June 30, 1996, the Association was the
third largest savings institution headquartered in Palm Beach County, and the
Association held approximately 2.13% of all bank and savings association
deposits in Palm Beach County.
LENDING ACTIVITIES
GENERAL. Historically, the principal lending activity of the
Association has been the origination of fixed and adjustable-rate mortgage loans
collateralized by one- to four-family residential properties located in its
market area. The Association currently emphasizes the origination of
adjustable-rate mortgage ("ARM") loans and fixed-rate loans with terms of 15
years or less for retention in its portfolio. Generally, it has been the
Association's policy to sell all fixed-rate mortgage loan originations with
terms greater than 15 years on a servicing retained basis. However, based on
management's assessment of the market at a particular time, the Association may
periodically decide to retain such loans in the Association's portfolio.
Included in loans receivable at September 30, 1996 was $207,000 of loans held
for sale. Loans serviced for other institutions totaled $22.5 million. The
Association participates with other financial institutions in programs which
provide residential mortgage loans to low income and middle income borrowers. At
September 30, 1996, the Association's net loan portfolio totaled $376.2 million,
of which $284.5 million or 75.6%, consisted of one- to four-family residential
mortgage loans; $35.7 million, or 9.5%, consisted of construction loans; $16.8
million, or 4.5%, consisted of land loans; $8.2 million, or 2.2%, consisted of
multi-family loans; $38.4 million, or 10.2%, consisted of commercial real estate
loans; $15.6 million, or 4.2%, consisted of consumer loans; and $1.9 million, or
0.5%, consisted of commercial business loans. At September 30, 1996, the
weighted average remaining term to maturity of the Association's loan portfolio
was approximately 16.9 years. At September 30, 1996, $242.9 million, or 64.6% of
the Association's total net loan portfolio consisted of loans with adjustable
interest rates. To supplement local loan originations, the Association also
invests in mortgage-backed and related securities that directly or indirectly
provide funds principally for residential home buyers in the United States. It
is the Association's intention to offer varied products in the residential
mortgage loan area. In this regard, the Association offers a residential
mortgage loan which provides for a fixed-rate of interest during the first five
or seven years and which thereafter converts to an ARM loan which interest rate
adjusts on an annual basis.
3
ANALYSIS OF LOAN PORTFOLIO. Set forth below is selected data relating
to the composition of the Association's loan portfolio by type of loan as of the
dates indicated.
Year Ended September 30,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- ------------------ ------------------- ---------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real estate loans:
Residential 1-4 family (1) $284,474 75.61% $248,769 75.51% $247,866 78.16% $262,480 79.84% $305,793 79.98%
Construction loans 35,720 9.49 27,314 8.29 12,265 3.87 7,965 2.42 6,277 1.64
Land loans 16,846 4.48 15,601 4.74 20,476 6.46 17,072 5.19 18,725 4.90
Multi-family (2) 8,153 2.17 7,351 2.23 6,772 2.14 5,952 1.81 5,385 1.41
Commercial (3) 38,433 10.22 35,402 10.75 32,612 10.28 34,953 10.63 40,714 10.65
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans 383,626 101.97 334,437 101.52 319,922 100.91 328,422 99.90 376,894 98.58
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Non-real estate loans:
Consumer loans (4) 15,606 4.15 12,638 3.84 10,237 3.23 10,844 3.30 12,301 3.22
Commercial business 1,874 0.50 1,958 0.59 1,058 0.33 929 0.28 1,244 0.33
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total non-real estate loans 17,480 4.65 14,596 4.43 11,295 3.56 11,773 3.58 13,545 3.54
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans receivable 401,106 106.62 349,033 105.95 331,287 104.47 340,195 103.48 390,439 102.12
Less:
Undisbursed loan proceeds 22,318 5.93 15,253 4.63 9,872 3.11 6,466 1.97 4,182 1.09
Unearned discount and net
deferred fees 257 0.07 846 0.26 908 0.29 1,234 0.38 1,650 0.43
Allowance for loan losses 2,312 0.61 3,492 1.06 3,390 1.07 3,748 1.14 2,281 0.60
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans receivable, net $376,219 100.00% $329,442 100.00% $317,117 100.00% $328,747 100.00% $382,236 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
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(1) Includes participations of $1.8 million, $2.2 million, $2.6 million, $3.6
million, and $5.0 million at September 30, 1996, 1995, 1994, 1993, and 1992,
respectively.
(2) Includes participations of $360,000,$0, $0, $0, and $0, at September 30,
1996, 1995, 1994, 1993, and 1992, respectively.
(3 Includes participations of $198,000, $4.9 million, $5.0 million, $5.5
million, and $5.8 million, at September 30, 1996, 1995, 1994, 1993, and
1992, respectively.
(4) Includes primarily home equity lines of credit, automobile loans, and loans
secured by savings deposits. At September 30, 1996 the disbursed portion of
home equity lines of credit totaled $9.1 million.
4
LOAN AND MORTGAGE-BACKED AND RELATED SECURITIES MATURITY AND REPRICING
SCHEDULE. The following table sets forth certain information as of September 30,
1996, regarding the dollar amount of loans and mortgage-backed and related
securities maturing in the Association's portfolio based on their contractual
terms to maturity. Demand loans, loans having no stated schedule of repayments
and no stated maturity, and overdrafts are reported as due in one year or less.
Adjustable and floating rate loans are included in the period in which interest
rates are next scheduled to adjust rather than in which they contractually
mature, and fixed-rate loans are included in the period in which the final
contractual repayment is due. Fixed-rate mortgage-backed securities are assumed
to mature in the period in which the final contractual payment is due on the
underlying mortgage.
WITHIN 1 1-3 3-5 5-10 MORE THAN
YEAR YEARS YEARS YEARS 10 YEARS TOTAL
---- ----- ----- ----- -------- -----
(IN THOUSANDS)
Real estate loans:
One- to four-family residential $213,724 $ 30,576 $ 24,795 $ 29,115 $ 15,081 $313,291
Commercial, multi-family and land 50,603 15,441 1,963 1,347 981 70,335
Consumer loans (excluding lines of credit) 2,955 2,767 674 146 - 6,542
Equity line of credit loans (1) 9,064 - - - - 9,064
Commercial business loans 1,716 143 15 - - 1,874
-------- -------- -------- -------- -------- --------
Total loans receivable (gross) $278,062 $ 48,927 $ 27,447 $ 30,608 $ 16,062 $401,106
======== ======== ======== ======== ======== ========
Mortgage-backed and related securities $ 22,091 $ 22,012 $ 27,305 $ 34,167 $ 2,688 $108,263
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------
(1) Variable rate equity lines of credit reprice on a monthly basis.
The following table sets forth at September 30, 1996, the dollar amount of all
fixed-rate and adjustable-rate loans due after September 30, 1997.
FIXED ADJUSTABLE TOTAL
----- ---------- -----
(IN THOUSANDS)
Real estate loans:
One- to four-family residential $ 96,718 $ 2,849 $ 99,567
Commercial, multi-family and land 8,982 10,750 19,732
Consumer and commercial business loans 3,745 - 3,745
-------- -------- --------
Total $109,445 $ 13,599 $123044
======== ======== ========
Mortgage-backed and related securities $ 86,172 $ - $ 86,172
======== ======== ========
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Association's
primary lending activity consists of the origination of one- to four-family,
owner-occupied, residential mortgage loans secured by properties located in the
Association's market area. One- to four-family residential owner-occupied
mortgage loans are generally underwritten in conformity with the criteria
established by the Federal National Mortgage Association ("FNMA"), with the
exception of loans exceeding applicable agency dollar limits and loans purchased
through the Association's affiliation with a consortium of financial
institutions which provides loans to low and moderate income borrowers
(discussed below). The Association generally does not originate one- to
four-family residential loans secured by properties outside of its market area.
At September 30, 1996, $284.5 million, or 75.6%, of the Association's total loan
portfolio consisted of one- to four-family residential mortgage loans. The
weighted average contractual maturity of one-to four-family residential mortgage
loans at the time they are originated is 22.5 years. However, it has been the
Association's experience that the average length of time which such loans remain
outstanding is 7.4 years.
The Association currently offers one- to four-family residential
mortgage loans with terms typically ranging from 15 to 30 years, and with
adjustable or fixed interest rates. Originations of fixed-rate mortgage loans
and ARM loans are monitored on an ongoing basis and are affected significantly
by the level of market interest rates, customer preference, the Association's
interest rate sensitivity gap position, and loan products offered by the
Association's competitors. In a
5
relatively low interest rate environment, which currently exists, borrowers
typically prefer fixed-rate loans to ARM loans. The Association has in the past
emphasized its ARM loan products. ARM loan originations totaled $50.6 million,
or 50.9%, of all one- to four-family loan originations during the year ended
September 30, 1996. In connection with the Association's effort to increase
mortgage lending, the Association offers residential mortgage loans which
provide for a fixed-rate of interest during the first five or seven years and
which thereafter convert to ARM loans on which the interest rate adjusts on an
annual basis. This loan product allows the Association to offer a loan with a
relatively short period during which the interest rate remains fixed but which
typically provides for an initial interest rate which is greater than could be
obtained from ARM loans. This loan may be offered for terms of up to 30 years.
The Association's fixed-rate loans generally are originated and
underwritten according to standards that permit sale in the secondary mortgage
market. Whether the Association can or will sell fixed-rate loans into the
secondary market, however, depends on a number of factors including the yield
and the term of the loan, market conditions, and the Association's current
interest rate sensitivity gap position. The Association's current policy is to
retain in its portfolio fixed-rate mortgage loan originated with terms of 15
years or less, and to sell fixed-rate mortgage loans originated (servicing
retained) with terms of more than 15 years. Periodically, management and its
board may decide to retain all loans originated, including loans with terms
greater that 15 years based on conditions in effect at that time. The
Association's fixed-rate mortgage loans are amortized on a monthly basis with
principal and interest due each month. One- to four-family residential real
estate loans often remain outstanding for significantly shorter periods than
their contractual terms because borrowers may refinance or prepay loans at their
option.
The Association participates with other financial institutions in local
consortiums which are committed to provide financing of one- to four-family
mortgage loans for low and moderate income borrowers. The consortiums underwrite
and package the loans which are generally sold to participating financial
institutions on a whole loan basis. These loans are originated to borrowers
within the Association's market area and provide for either fixed or
adjustable-rates of interest. The Association determines which loans it will
purchase after conducting its own due diligence review of the loan package
offered. For the fiscal year ended September 30, 1996, the Association did not
purchase any loans originated by the consortiums. It is the Association's
intent, subject to market conditions, to continue to participate in consortiums
of this nature.
The Association also purchases loans from other sources, such as
mortgage origination companies, or brokers, under the same guidelines as
described above. In addition, such loan purchases include a contract between the
mortgage origination company and Community Savings which contains an
indemnification clause protecting the Association from loss resulting from
misrepresentations in the loan applications or other information provided to the
Association. The Association purchased $16.8 million of such loans during fiscal
year 1996. It is the Association's intent, subject to market conditions, to
continue purchasing such loans.
The Association currently offers ARM loans with an initial interest
rate adjustment period of one year based on changes in a designated market
index. Each ARM loan currently adjusts annually with an annual interest rate
adjustment limitation of 200 basis points and a maximum lifetime adjustment of
600 basis points above the initial rate. Interest rates on the Association's ARM
loans currently adjust to either the changes in the weekly average yield on
United States Treasury Securities adjusted to a constant maturity of one year
plus a margin, or to the National Monthly Median Cost of Funds plus a margin.
The Association originates ARM loans with initially discounted rates, which vary
depending upon market conditions and which provide for an adjustment period of
one year. The Association determines whether a borrower qualifies for an ARM
loan based on the fully indexed rate of the ARM loan at the time the loan is
originated. The Association does not allow negative amortization of its ARM
loans. One- to four-family residential ARM loans totaled $181.5 million at
September 30, 1996.
The primary purpose of offering ARM loans is to make the Association's
loan portfolio more interest rate sensitive. However, as the interest income
earned on ARM loans varies with prevailing interest rates, such loans do not
offer the Association as consistently predictable interest income as long-term,
fixed-rate loans. ARM loans carry increased credit risk associated with
potentially higher monthly payments by borrowers as general market interest
rates increase. It is possible, therefore, that during periods of rising
interest rates, the risk of default on ARM loans may increase due to the upward
adjustment of interest costs to the borrower.
The Association's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving the
Association the right to declare a loan immediately due and payable in the
event, among
6
other things, that the borrower sells or otherwise disposes of the underlying
real property serving as security for the loan. Due-on-sale clauses are an
important means of adjusting the rates on the Association's fixed-rate mortgage
loan portfolio (and to a lesser extent ARM loans), and the Association has
generally exercised its rights under these clauses.
Regulations limit the amount that a savings association may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Appraisals are
generally performed by an independent outside appraiser. Such regulations permit
a maximum loan-to-value ratio of 95% for residential property and 80% for all
other real estate loans. The Association's lending policies generally limit the
maximum loan-to-value ratio on both fixed-rate and ARM loans without private
mortgage insurance to 80% of the lesser of the appraised value or the purchase
price of the property to serve as collateral for the loan. For one- to
four-family real estate loans with loan-to-value ratios of between 80% and 95%,
the Association generally requires the borrower to obtain private mortgage
insurance. The Association may charge an origination fee of between 1 % and 2%
of the total loan amount on all one- to four-family loans depending on the
market. The Association requires fire and casualty insurance (and flood
insurance if the property is within a designated flood plain), as well as a
title guaranty regarding good title, on all properties securing real estate
loans made by the Association.
In recent years, the Association has not entered into any loan
participations secured by one- to four-family residences. At September 30, 1996,
the Association's loan portfolio included $1.8 million of loan participations
secured by one- to four-family residences.
CONSTRUCTION AND LAND LOANS. The Association currently offers
fixed-rate and adjustable-rate residential construction loans primarily for the
construction of owner-occupied single-family residences in the Association's
market area to builders who have a contract for sale of the property or owners
who have a contract for construction. Such terms would remain the same during
the life of the permanent loan at the end of the construction period. Advances
are made as construction is completed. In addition, the Association also makes
construction loans to builders for single-family homes held for sale. Such loans
totaled $2.3 million at September 30, 1996. Construction loans for
owner-occupied single-family residences are generally structured to become
permanent loans upon completion of construction, and are originated with terms
of up to 30 years with an allowance of up to six months for construction during
which period the borrower is obliged to make interest-only payments.
Construction loans to builders for homes held for sale are generally originated
for a term of up to one year and provide for interest-only payments.
Disbursements are made as affidavits of progress are presented to the
Association.
At September 30, 1996, the Association's largest construction loan had
an aggregate principal outstanding balance of $1.5 million, which balance is
within the Association's loans-to-one-borrower limit. This loan is secured by a
construction loan to build a storage unit which is located in the Association's
market area, and is currently performing in accordance with its terms.
In addition, the Association originates loans within its market area
which are secured by individual unimproved or improved lots which are zoned
primarily to become single-family residences, as well as commercial and
agricultural properties. Land loans are currently offered with either one-year
adjustable-rates or fixed-rates for terms of up to 15 years. The maximum
loan-to-value ratio for the Association's land loans is 75%.
Construction lending generally involves a greater degree of credit risk
than one- to four-family residential mortgage lending. Risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's value at completion of construction or development and the
estimated cost (including interest) of construction. During the construction
phase, a number of factors could result in delays and cost overruns. If the
estimate of value proves to be inaccurate, the Association may be confronted, at
or prior to the maturity of the loan, with a project, when completed, having a
value which is insufficient to assure full repayment. Loans on lots may run the
risk of adverse zoning changes, environmental, or other restrictions on future
use.
Adjustable-rate single-family construction and land loans are currently
offered at the weekly average yield on United States Treasury Securities
adjusted to a constant maturity of one year plus a margin. Adjustable-rate
construction loans and land loans have an annual interest rate cap of 200 basis
points and a lifetime interest rate cap of 600 basis points over the initial
interest rate. Initial interest rates may be below the fully indexed rate but
the loan is underwritten at the fully indexed rate. At September 30, 1996, $35.7
million, or 9.5%, and $16.8 million, or 4.5%, of the Association's total net
loan portfolio consisted of construction loans and land loans, respectively.
7
MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. Loans secured by
multi-family real estate constituted approximately $8.2 million, or 2.2%, of the
Association's total net loan portfolio at September 30, 1996. At September 30,
1996, the Association had a total of 35 loans secured by multi-family
properties. The Association's multi-family real estate loans are secured by
multi-family residences, such as rental properties with between five and thirty
six units. At September 30, 1996, substantially all of the Association's
multi-family loans were secured by properties located within the Association's
market area. At September 30, 1996, the Association's multi-family real estate
loans had an average principal balance of approximately $233,000 and the largest
multi-family real estate loan had a principal balance of $1.4 million, and was
performing in accordance with its terms. Multi-family real estate loans are
currently offered with adjustable interest rates, although in the past the
Association originated fixed-rate multi-family real estate loans. Multi-family
loans typically have adjustable interest rates tied to a market index with a 600
basis point lifetime interest rate cap and a 200 basis point cap on annual
adjustments, and amortize over 20 to 25 years. An origination fee of between
1.5% to 2.0% is usually charged on multi-family loans. The Association generally
makes multi-family mortgage loans up to 75% of the appraised value of the
property securing the loan. The initial interest rate on multi-family real
estate loans is currently priced at the weekly average yield on United States
Treasury Securities adjusted to a constant maturity of one year plus a margin,
depending on the nature and size of the project. The Association's originations
of multi-family loans have been limited in recent years due to the limited
demand for such projects in the Association's market area.
In underwriting multi-family real estate loans, the Association reviews
the expected net operating income generated by the real estate to support the
debt service, the age and condition of the collateral, the financial resources
and income level of the borrower and the borrower's experience in owning or
managing similar properties and any financial reserves the borrower may have.
The Association generally requires a debt service coverage ratio of at least
125% of the monthly loan payment. The Association generally obtains personal
guarantees from all the principals of the multi-family real estate borrowers.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one- to four-family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family
property is typically dependent upon the successful operation of the related
real estate property. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired.
COMMERCIAL REAL ESTATE LOANS. Loans secured by commercial real estate
constituted approximately $38.4 million, or 10.2%, of the Association's total
net loan portfolio at September 30, 1996. The Association's commercial real
estate loans are secured by improved property such as offices, hotels, small
business facilities, strip shopping centers, warehouses, commercial land and
other non-residential buildings. At September 30, 1996, substantially all of the
Association's commercial real estate loans were secured by properties located
within the Association's market area. At September 30, 1996, the Association had
a total of 160 loans secured by commercial real estate with an average principal
balance of approximately $240,000. Commercial real estate loans are currently
only offered with adjustable-rates, although in the past the Association has
originated fixed-rate commercial real estate loans. The terms of each commercial
real estate loan are negotiated on a case-by-case basis, although such loans
typically have adjustable interest rates tied to a market index. An origination
fee of up to 2% of the principal balance of the loan is typically charged on
commercial real estate loans. Commercial real estate loans originated by the
Association generally amortize over 15 to 20 years and have a maximum
loan-to-value ratio of 75%.
During fiscal year 1996, the Association decided that a need existed in
the local market for commercial real estate and business loans. In order to
better serve its customers and to increase its share of the commercial loan
market, the Association began an expansion of both its commercial real estate
and business lending activities in late fiscal 1996 with the addition of an
experienced commercial loan officer and a credit analyst to the lending
department staff. The Association intends to pursue such loans aggressively in
the future.
At September 30, 1996, the Association's largest commercial real estate
borrower had an aggregate principal outstanding balance of $4.1 million, which
balance is within the Association's loans-to-one-borrower limit. The loan is
secured by a hotel which is located in the Association's market area, and is
currently performing in accordance with its terms.
8
In underwriting commercial real estate loans the Association employs
the same underwriting standards and procedures as are employed in underwriting
multi-family real estate loans. Loans secured by commercial real estate
generally involve a higher degree of risk than one- to four-family residential
mortgage loans and carry larger loan balances. This increased credit risk is a
result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties, and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
commercial real estate is typically dependent upon the successful operation of
the related real estate project. If the cash flow from the project is reduced,
the borrower's ability to repay the loan may be impaired.
CONSUMER LOANS. As of September 30, 1996, consumer loans totaled $15.6
million, or 4.2%, of the Association's total net loan portfolio. The principal
types of consumer loans offered by the Association are home equity lines of
credit, fixed-rate second mortgage loans, automobile loans, unsecured personal
loans, and loans secured by deposit accounts. Consumer loans are offered
primarily on a fixed-rate basis with maturities generally of five years or less.
The Association's home equity lines of credit are secured by the borrower's
principal residence with a maximum loan-to-value ratio, including the principal
balances of both the first and second mortgage loans, of 80% or less. Such loans
are offered on a monthly adjustable-rate basis with terms of up to ten years. At
September 30, 1996, the disbursed portion of home equity lines of credit totaled
$9.1 million, or 58.3%, of consumer loans. The Association anticipates it will
modestly expand its home equity product line.
The underwriting standards employed by the Association for consumer
loans include a determination of the applicant's credit history and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Creditworthiness of the applicant is of primary consideration; however,
the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount, and in the case of home
equity lines of credit, the Association engages an independent company to
conduct a title search.
Consumer loans generally have shorter terms and higher interest rates
than traditional mortgage loans, but generally entail greater credit risk than
do residential mortgage loans, particularly in the case of consumer loans that
are unsecured or secured by assets that depreciate rapidly, such as automobiles,
mobile homes, boats, and recreational vehicles. In such cases, repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
particular, amounts realizable on the sale of repossessed automobiles may be
significantly reduced based upon the condition of the automobiles and the uneven
demand for used automobiles.
COMMERCIAL BUSINESS LOANS. The Association currently offers commercial
business loans to finance small businesses in its market area. Historically, the
Association offered commercial business loans as a customer service to business
account holders. During the last quarter of fiscal 1996, the Association began
expanding its activities in the commercial business lending market and intends
to pursue such loans more aggressively in the future. At September 30, 1996, the
Association had 78 commercial business loans outstanding with an aggregate
balance of $1.9 million and an average loan balance of approximately $24,000.
Commercial business loans are offered with both fixed-and adjustable-interest
rates. Adjustable-rates on commercial business loans are priced against the
Citibank or WALL STREET JOURNAL prime rate, plus a margin. The loans are offered
with prevailing terms of up to five years.
Underwriting standards employed by the Association for commercial
business loans include a determination of the applicant's ability to meet
existing obligations and payments on the proposed loan from normal cash flows
generated by the applicant's business. The financial strength of each applicant
also is assessed through a review of financial statements provided by the
applicant as well as conducting a credit review.
Commercial business loans generally bear higher interest rates than
residential loans, but they also may involve a higher risk of default since
their repayment is generally dependent on the successful operation of the
borrower's business. The Association generally obtains personal guarantees from
the borrower or a third party as a condition to originating its commercial
business loans.
LOAN ORIGINATIONS, SOLICITATION, PROCESSING, COMMITMENTS, AND
PURCHASES. Loan originations are derived from a number of sources such as real
estate broker referrals, existing customers, developers and walk-in customers.
Upon receiving a loan application, the Association obtains a credit report and
income verification to verify specific
9
information relating to the applicant's employment, income, and credit standing.
In the case of a real estate loan, an independent appraiser approved by the
Association appraises the real estate intended to secure the proposed loan. A
loan processor in the Association's loan department checks the loan application
file for accuracy and completeness, and verifies the information provided. All
loans of up to $200,000 may be approved by any one of the Association's
designated vice presidents in the lending division; loans between $200,000 and
$500,000 must be approved by at least two of the designated vice presidents in
the lending division; loans between $500,000 and $750,000 must be approved by
both the President and the Senior Vice President of the Lending Division; loans
between $750,000 and $1 million must be approved by three persons, who must
include at least one Director, either the President or the Senior Vice President
of the Lending Division, and one of two designated vice presidents of the
Lending Division. Loans in excess of $1 million must be approved by the same
persons who may approve loans in excess of $750,000 but only after notifying the
entire Board of Directors that such loan application will be considered and only
if the Board of Directors does not disapprove of such loan. The Loan Committee
meets as needed to review and verify that management's loan approvals are made
within the scope of management's authority. After the loan is approved, a loan
commitment letter is promptly issued to the borrower. At September 30, 1996, the
Association had commitments to originate $16.6 million of loans.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral, and required
insurance coverage. Fire and casualty insurance is required at the time the loan
is made and throughout the term of the loan, and upon request of the
Association, flood insurance may be required. Title insurance is required on all
loans secured by real property.
In addition to originations, the Association also purchases loans
secured by one- to four-family residences from consortiums, mortgage origination
companies, or brokers, as previously discussed in "One- to Four-Family
Residential Real Estate Loans." In addition the Association may purchase
participation loans when there is low demand for loans in the local market, or
to facilitate funding of large projects. Such participation loans, which totaled
$2.4 million at September 30, 1996, are secured by one- to four-family,
multi-family, or commercial real estate loans.
LOAN SERVICING. While the Association primarily originates loans for
its own portfolio, it also has sold fixed-rate loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") and to the FNMA. At September 30, 1996, the
unpaid balances of loans sold totaled approximately $22.5 million. The
Association retains servicing of such loans and receives a fee of between
one-fourth to three-eights of a percent per loan. The Association does not
purchase loan servicing from other sources.
10
ORIGINATION, PURCHASE AND SALE OF LOANS. The table below shows the
Association's loan origination, purchase and sales activity for the periods
indicated.
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Loans receivable, beginning of period $ 329,442 $ 317,117 $ 328,747
Originations:
Real estate:
One- to four-family residential(1) 82,596 35,909 49,718
Land loans 6,848 18,163 6,418
Multi-family 1,263 - 696
Commercial 16,102 8,197 2,813
--------- --------- ---------
Total real estate loans 106,809 62,269 59,645
Non-real estate loans:
Consumer 5,698 4,154 2,425
Commercial business 796 646 718
--------- --------- ---------
Total originations 113,303 67,069 62,788
Transfer of mortgage loans to foreclosed real estate (400) (1,394) (5,528)
Loan purchases 16,775 2,728 2,395
Repayments (72,114) (50,452) (63,471)
Loan sales (5,429) (105) (5,115)
Decrease (increase) in allowance for loan losses 1,180 (102) 358
Decrease in amortization of unearned discount
and net deferred fees 589 62 326
Increase in loans in process (7,065) (5,381) (3,406)
Change in other (62) (100) 23
--------- --------- ---------
Net loan activity 46,777 12,325 (11,630)
--------- --------- ---------
Total loans receivable at end of period $ 376,219 $ 329,442 $ 317,117
========= ========= =========
- ----------------------------------------------------------------
(1) Includes loans to finance the construction of one- to four-family
residential properties, and loans originated for sale in the secondary
market.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned
on loans, the Association may receive loan origination fees. To the extent that
loans are originated or acquired for the Association's portfolio, Statement of
Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases" ("SFAS No. 91") requires that the Association defer loan origination
fees and costs and amortize such amounts as an adjustment of yield over the life
of the loan by use of the level yield method. ARM loans originated below the
fully-indexed interest rate will have a substantial portion of the deferred
amount recognized as income in the initial adjustment period. Fees deferred
under SFAS No. 91 are recognized into income immediately upon prepayment or the
sale of the related loan. At September 30, 1996, the Association had $257,000 of
unearned discounts and deferred loan origination fees. Loan origination fees
vary with the volume and type of loans and commitments made and purchased,
principal repayments, and competitive conditions in the mortgage markets which,
in turn, respond to the demand and availability of money.
In addition to loan origination fees, the Association also receives
other fees, service charges, and other income that consist primarily of deposit
transaction account service charges, late charges and income from REO
operations. The Association recognized fees and service charges of $3.3 million,
$3.4 million and $3.3 million for the fiscal years ended September 30, 1996,
1995, and 1994, respectively.
LOANS-TO-ONE BORROWER. Savings and loan associations are subject to the
same loans-to-one borrower limits as those applicable to national banks which,
under current regulations, restrict loans to one borrower to an amount equal to
15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of
11
unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments and bullion, but not
real estate). The 15% limitation resulted in a dollar limitation of
approximately $11.3 million at September 30, 1996. At September 30, 1996, the
Association's largest lending relationship totaled $5.4 million, of which $3.2
million had been disbursed, and consisted of construction loans to build
single-family homes, residential acquisition and development loans, and a line
of credit secured by commercial property. The Association's second largest
lending relationship totaled $4.9 million, of which $4.8 million had been
disbursed, and consisted of construction loans to build two single-family homes.
The Association's third largest lending relationship totaled $4.1 million and
was secured by a hotel. The Association's fourth largest lending relationship
totaled $4.0 million, of which $490,000 had been disbursed, and consisted of a
loan for the construction of single-family residences. The Association's fifth
largest lending relationship totaled $3.5 million, of which $3.4 million had
been disbursed, and was comprised of construction loans on four single-family
homes. At September 30, 1996 all of the aforementioned loans were performing in
accordance with their terms.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENCIES. The Association's collection procedures provide that
when a loan is 15 days past due, a computer-generated late charge notice is sent
to the borrower requesting payment. If delinquency continues, at 30 days a
delinquent notice is sent and personal contact efforts are attempted, either in
person or by telephone, to strengthen the collection process and obtain reasons
for the delinquency. Also, plans to arrange a repayment plan are made. If a loan
becomes 60 days past due, and no progress has been made in resolving the
delinquency, the Association will send a 10-day demand letter and attempt
personal contact. The loan also becomes subject to possible legal action if
suitable arrangements to repay have not been made. In addition, the borrower is
advised that they may obtain access to consumer counseling services, to the
extent required by regulations of the Department of Housing and Urban
Development ("HUD"). When a loan continues in a delinquent status for 90 days or
more, and a repayment schedule has not been made or kept by the borrower,
generally a notice of intent to foreclose is sent to the borrower, giving the
borrower 10 days to repay all outstanding interest and principal. If the
delinquency is not cured, foreclosure proceedings are initiated.
DELINQUENT LOANS. Loans are reviewed on a regular basis and are placed
on a non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. In addition, loans are placed on non-accrual
status when either principal or interest is 90 days or more past due, or less
than 90 days, in the event the loan has been referred to the Association's legal
counsel for foreclosure. Interest accrued and unpaid at the time a loan is
placed on a non-accrual status is charged against interest income.
NON-PERFORMING ASSETS. At September 30, 1996, the Association had
non-performing assets (non-performing loans and real estate owned ("REO")) of
$2.6 million, and a ratio of non-performing assets to total assets of 0.4%.
REAL ESTATE OWNED. Real estate acquired by the Association as a result
of foreclosure or by deed in lieu of foreclosure is classified as REO until such
time as it is sold. REO is recorded at cost which is the estimated fair value of
the property at the time the loan is foreclosed. Subsequent to foreclosure,
these properties are carried at lower of cost or fair value less estimated costs
to sell. REO totaled $1.4 million, $1.9 million, and $3.7 million at September
30, 1996, 1995, and 1994. respectively.
12
DELINQUENT LOANS AND NON-PERFORMING ASSETS
The following table sets forth information regarding the Association's
non-accrual loans delinquent 90 days or more, and real estate acquired or deemed
acquired by foreclosure at the dates indicated. When a loan is delinquent 90
days or more, the Association fully reserves all accrued interest thereon and
ceases to accrue interest thereafter. For all the dates indicated, the
Association did not have any material restructured loans within the meaning of
SFAS 15.
AT SEPTEMBER 30,
--------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Delinquent loans:
One- to four-family residential $ 832 $ 605 $1,571 $2,374 $2,287
Commercial and multi-family
real estate - - 1,282 4,316 1,528
Consumer and commercial
business loans 10 39 20 36 92
Land - 18 82 9 45
------ ------ ------ ------ ------
Total delinquent loans 842 662 2,955 6,735 3,952
REO 1,384 1,910 3,686 1,324 4,455
Other non-performing assets 400 - - - -
------ ------ ------ ------ ------
Total non-performing assets (1) $2,626 $2,572 $6,641 $8,059 $8,407
====== ====== ====== ====== ======
Total loans delinquent 90 days or more
to net loans receivable 0.22% 0.20% 0.93% 2.05% 1.03%
Total loans delinquent 90 days or more
to total assets 0.13% 0.12% 0.53% 1.29% 0.73%
Total non-performing loans and REO to
total assets 0.40% 0.45% 1.19% 1.54% 1.55%
- ------------------------------------------
(1) Net of specific valuation allowances.
The Association's largest non-performing asset had a balance of
$914,000 at September 30, 1996. In December 1985, the Association made a land
loan in the amount of $1.4 million for the purchase of 37 acres of vacant
commercial property located in Fort Pierce, Florida. In August 1988, the
Association refinanced the loan and increased the principal amount of the loan
to $1.5 million. This loan had a balloon feature which was due in September
1993. Upon maturity, the borrower was unable to satisfy the balloon payment. The
Association subsequently commenced foreclosure proceedings and a foreclosure
sale occurred in April 1994 at which time the property was classified as REO.
During fiscal year 1996, the Association recovered $200,000, reducing the
balance at September 30, 1996 to $914,000. The property was appraised at $1.2
million as of August 1996.
OTHER NON-PERFORMING ASSETS. In connection with its mutual holding
company reorganization and stock offering, the Association's employee stock
ownership plan and trust ("the ESOP") borrowed funds from Nationar, a New York
trust company which was owned by savings banks in the state of New York, and
used the funds to purchase eight percent of the shares of the Association's
common stock in the open market. All of such shares were pledges as collateral
to support the ESOP loan. On February 6, 1995, Nationar was seized by the New
York Banking Department because of liquidity problems and continuing losses. In
connection with the ESOP loan, the Association placed $1.2 million in a
non-insured interest-earning deposit account with Nationar as collateral to
secure the ESOP loan. During the year ended September 30, 1995, the Association
was uncertain as to the recoverability of the collateral securing the ESOP loan.
During fiscal year 1995, the Superintendent transferred $200,000 of the
Association's collateral to a new interest-earning deposit account with
Northwest Savings Bank, leaving $1.0 million in the Nationar account. During the
year ended September 30, 1996, the Association received $400,000 as a partial
settlement from the New York Banking Department. Management believes, based on
correspondence with the New York Banking Department, that the full settlement of
$600,000 will be received in December 1996.
During the year ended September 30, 1996, gross interest income of
$97,000 would have been recorded on non-performing assets accounted for on a
non-accrual basis if the loans and assets had been current throughout the
period. No interest income on non-accrual loans and assets was included in
income during the such periods.
13
The following table sets forth information with respect to loans past
due 60 to 89 days in the Association's portfolio at the dates indicated.
AT SEPTEMBER 30,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
Loans past due 60-89 days:
One- to four-family residential $ 209 $ 493 $ 193 $ 202 $1,627
Commercial and multi-family real estate - - - - 153
Consumer and commercial
business loans 3 24 - -
Land loans - - 95 - 134
------ ------ ------ ------ ------
Total past due 60-89 days $ 212 $ 517 $ 288 $ 202 $1,914
====== ====== ====== ====== ======
The following table sets forth information regarding the Association's
delinquent loans, REO and loans to facilitate the sale of REO at September 30,
1996.
AT SEPTEMBER 30, 1996
---------------------
BALANCE NUMBER
------- ------
(DOLLARS IN THOUSANDS)
Residential real estate:
Loans 60 to 89 days delinquent $ 209 3
Loans more than 89 days delinquent 832 17
Commercial and multi-family real estate:
Loans 60 to 89 days delinquent - -
Loans more than 89 days delinquent - -
Consumer and commercial business loans:
Loans 60 to 89 days delinquent 3 2
Loans more than 89 days delinquent 10 1
Land - -
REO 1,384 5
Restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15 (not included
in other non-performing categories above) - -
Loans to facilitate sale of REO 226 4
------ ------
Total $2,664 32
====== ======
CLASSIFICATION OF ASSETS. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the Office of Thrift Supervision ("OTS") to be of lesser quality
as "substandard," "doubtful," or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full, " on the basis
of currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets that do not
expose the savings institution to risk sufficient to warrant classification in
one of the aforementioned categories, but which possess some weaknesses, are
required to be designated "special mention" by management.
When a savings institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for loan
losses in an amount deemed prudent by management. General allowances represent
loss allowances that have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When a savings institution
classifies problem
14
assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified, or
to charge off such amount. A savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which can order the establishment of additional
general or specific loss allowances. The Association regularly reviews the
problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations.
The following table sets forth the aggregate amount of the
Association's classified assets at the dates indicated.
AT SEPTEMBER 30,
---------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Substandard assets $ 3,745 $ 8,652 $10,166
Doubtful assets - - -
Loss assets 544 1,565 1,520
------- ------- -------
Total classified assets $ 4,289 $10,217 $11,686
======= ======= =======
ALLOWANCE FOR LOAN LOSSES. Management's policy is to provide for
estimated losses on the Association's loan portfolio based on management's
evaluation of the potential losses that may be incurred. Provisions for losses,
which increase the allowances for loan losses, are established by charges to
income. Such allowances represent the amounts which, in management's judgment,
are adequate to absorb charge-offs of existing loans which may become
uncollectible. The adequacy of the allowance is determined by management's
monthly evaluation of the loan portfolio and related collateral, in light of
past loss experience, present economic conditions and other factors considered
relevant by management. Anticipated changes in economic factors which may
influence the level of the allowances are considered in the evaluation by
management when the likelihood of the changes can be reasonably determined.
Management continues to review the entire loan portfolio to determine
the extent, if any, to which further additional loan loss provisions may be
deemed necessary. Management believes that the Association's current allowance
for loan losses is adequate, However, there can be no assurance that the
allowance for loan losses will be adequate to cover losses that may in fact be
realized in the future or that additional provisions for loan losses will not be
required.
15
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.
AT SEPTEMBER 30,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Total loans outstanding $ 376,219 $ 329,442 $ 317,117 $ 328,747 $ 382,326
========= ========= ========= ========= =========
Average loans outstanding for the period $ 346,880 $ 321,849 $ 321,721 $ 352,173 $ 416,139
========= ========= ========= ========= =========
Allowance balance (at beginning of period) 3,492 3,390 3,748 2,281 1,017
Provision for losses:
Real estate loans 84 234 967 2,395 1,632
Consumer and commercial business loans 14 6 22 3 48
Charge-offs:
Real estate loans (1,264)(1) (132) (1,325) (885) (311)
Consumer and commercial business loans (14) (6) (22) (46) (105)
--------- --------- --------- --------- ---------
Allowance balance (at end of period) $ 2,312 $ 3,492 $ 3,390 $ 3,748 $ 2,281
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of net loans receivable at end of period 0.61% 1.06% 1.07% 1.14% 0.60%
Net loans charged off as a percent of average
loans outstanding 0.37% .04% 0.41% 0.26% 0.10%
Ratio of allowance for loan losses to total
non-performing loans at end of period (2) 274.58% 527.49% 114.72% 55.65% 57.72%
Ratio of allowance for loan losses to total
non-performing loans and REO
at end of period (2) 103.86% 135.77% 51.05% 46.51% 27.13%
- -------------------------------------
(1) Charge offs at September 30, 1996 primarily reflected the reversal of a
specific reserve of $1.2 million which was related to a participation
interest in a note which was sold during the year.
(2) Net of specific reserves.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth
the allocation of allowance for loan losses by loan category for the periods
indicated. Management believes that the allowance can be allocated by category
only on an approximate basis. The allocation of the allowance by category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
AT SEPTEMBER 30,
------------------------------------------------------------------------------
1996 1995 1994
---------------------- -------------------------- ------------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS(1) AMOUNT TOTAL LOANS(1) AMOUNT TOTAL LOANS(1)
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
Balance at end of period applicable to:
One- to four-family residential
mortgage $870 79.83% $790 79.10% $700 78.52%
Land loans 630 4.20 630 4.47 630 6.18
Multi-family residential mortgage 300 2.03 300 2.11 300 2.05
Commercial real estate 452 9.58 1,712 10.14 1,700 9.84
Consumer and commercial business 60 4.36 60 4.18 60 3.41
------ ------ ------ ------ ------ ------
Total allowance for loan losses $2,312 100.00% $3,492 100.00% $3,390 100.00%
====== ====== ====== ====== ====== ======
- ----------------------------------------
(1) Percentages do not reflect adjustments for undisbursed loan proceeds,
unearned discount and net deferred fees, and allowance for loan losses.
16
RECOVERIES. During the year ended September 30, 1996, the Association's
largest recoveries of losses from previous years included $470,000 which
represented a final settlement of the Association's claim with the State of
Florida Department of Insurance, as Receiver for International Medical Centers,
Inc., of Miami ("IMC"). In addition, the Association received $400,000 from the
New York Banking Department as a partial settlement for the Nationar deposit
(see "Other Non-Performing Assets"). The Association also received a partial
payment of $200,000 on land classified as REO (see "Delinquent Loans and
Non-Performing Assets").
SECURITIES PORTFOLIO
The Association's primary focus is the origination of loans. However
during past periods when mortgage loan demand was moderate and the Association
had de-emphasized the origination of fixed-rate loans, management of the
Association invested excess liquidity in investment securities, including mutual
funds, and in mortgage-backed and related securities rather than purchasing
whole loans or loan participations. Such securities are subject to
classification based on the intentions of the Association. Securities purchased
for the Association's portfolio are classified as either held to maturity or as
available for sale. The Association has no securities classified as trading.
During December 1995, the Association adopted the provisions of SFAS No. 115
"Questions and Answers Guide ("SFAS No. 115 Q & A") which allowed a one-time
reclassification of securities between held to maturity and available for sale
between November 15, 1995 and December 31, 1995. The Association reclassified
$49.5 million of securities from investments-held to maturity and
mortgage-backed and related securities-held to maturity to securities available
for sale. Such reclassification resulted in a credit of $247,000 to
shareholders' equity. The Association subsequently sold $749,000 of the
securities at no gain or loss.
The Association maintains an Investment Committee which meets on a
monthly basis to review the Association's securities portfolio and make
recommendations to be carried out by management. All investments must be rated
BBB or higher by a recognized rating service. The Investment Committee consists
of the Association's Chairman of the Board, Frederick A. Teed, President and
Chief Executive Officer, James B. Pittard, Jr., Director, Harold I. Stevenson,
and Senior Vice President, Chief Financial Officer and Treasurer, Larry J.
Baker.
MORTGAGE-BACKED AND RELATED SECURITIES. At September 30, 1996, net
mortgage-backed and related securities totaled $108.3 million, or 16.7%, of
total assets. Of this amount, $55.0 million was classified as held to maturity
and $53.3 million was available for sale. At September 30, 1996, the market
value of the Association's net mortgage-backed securities portfolio totaled
approximately $108.3 million. The Association primarily invests in fixed-rate
mortgage-backed securities with weighted average lives of five to seven years.
Management believes that investing in short-term mortgage-backed and related
securities limits the Association's exposure to higher interest rates. During
fiscal year 1996, $43.7 million of mortgage-backed securities were purchased.
These purchases were funded with public fund deposits, odd-term certificates of
deposit and FHLB advances, instead of excess liquidity as in previous years.
Also included in the Association's mortgage-backed securities portfolio at
September 30, 1996, was $91.9 million of collateralized mortgage obligations
("CMOs"), $10.0 million of pass-through securities issued by the FHLMC, $4.1
million of pass-through securities issued by the FNMA and $2.2 million of
pass-through securities issued by the Government National Mortgage Association
("GNMA"). The FHLMC and FNMA pass-through securities are primarily comprised of
five-year and seven-year balloon mortgage loans. The GNMA pass-through
securities were purchased in the early 1980s and the loans underlying the GNMAs
are well seasoned. The Association has a limited amount of mortgage-backed
securities issued by the Agency for International Development ("AID"). The AID
mortgage-backed securities are fixed-rate instruments and are securitized with
loans to Korea, Venezuela, and Israel. At September 30, 1996, the Association
had $335,000 in AID mortgage-backed securities. Such mortgage-backed securities
are guaranteed by governmental agencies or quasi-governmental agencies of the
United States Government. By investing in mortgage-backed securities, the
Association has reduced significantly the credit risk of its asset base in
exchange for lower yields than would typically be available on internally
generated loans.
CMOs are typically issued by a special-purpose entity (in the
Association's case, private issuers), which may be organized in a variety of
legal forms, such as a trust, a corporation, or a partnership. The entity
aggregates pools of pass-through securities, which are used to collateralize the
CMO. Once combined, the cash flows are divided into "tranches" or "classes" of
individual bonds, thereby creating more predictable average durations for each
bond than the underlying pass-through pools. Accordingly, under the CMO
structure all principal paydowns from the various mortgage pools are allocated
to a CMO's first class until it has been paid off, then to a second class until
such class has been paid off, and then to the next classes. Substantially all of
the CMOs held in the Association's mortgage-backed securities portfolio
17
consist of senior sequential tranches, primarily investments in one of the first
three tranches of the CMO. By purchasing senior sequential tranches, the
Association is attempting to ensure the cash flow associated with such an
investment. Generally, 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
September 30, 1996, the Association's fixed-rate CMOs had coupon rates ranging
from 6.0% to 12.0% with a weighted average yield of 7.54%. The Association's
adjustable-rate CMOs are indexed to the London InterBank Offered Rate ("LIBOR")
or to the Ten Year Treasury Index. The Association's policy is to purchase
tranches in CMOs which are deemed to be investment grade by the Federal
Financial Institutions Examination Council. In the past, the Association
purchased CMO residuals in which the repayment of principal is only made after
the senior tranches of the CMO are repaid in full as to principal. Consequently,
investments in CMO residuals are riskier than investments in senior sequential
tranches because of their relatively junior position to more senior tranches and
the interest rate risk associated with such securities, in that they could
result in a loss of a substantial portion of the original investment. Cash flows
from residual interests are very sensitive to prepayments and, therefore,
contain a high degree of interest rate risk. Residual interests represent an
ownership interest in the underlying collateral, subject to the first lien of
the CMO investors. At September 30, 1996, the carrying value of the
Association's CMO residuals was $20,000. The Association no longer invests in
CMO residuals.
The OTS regulations require the classification of CMOs as high-risk if
they fail the FFIEC test. The Association does not purchase any CMOs which fail
the FFIEC test at the time of purchase. The FFIEC test is reperformed annually
during the life of the securities. During fiscal year 1996, two CMO issues
totaling $9.0 million failed the FFIEC test and are currently classified as
high-risk for OTS reporting purposes.
18
The following tables set forth the carrying value of, and activity in,
the Association's mortgage-backed and related securities portfolio at the dates
indicated.
AT SEPTEMBER 30,
--------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Mortgage-backed and related securities:
Held to maturity:
CMO residuals $ 20 $ 118 $ 155
Collateralized mortgage obligations 38,308 57,586 21,010
FHLMCs 9,973 11,943 13,460
GNMAs 2,233 2,774 1,075
FNMAs 4,076 4,691 5,079
Conventional pass-through certificates -- -- 68
AID loans 335 387 434
-------- -------- --------
Total mortgage-backed and related securities 54,945 77,499 41,281
-------- -------- --------
Available for sale: (shown at market value)
Collateralized mortgage obligations 53,318 -- --
-------- -------- --------
Total mortgage-backed and related securities
available for sale 53,318 -- --
-------- -------- --------
Total mortgage-backed and related securities $108,263 $ 77,499 $ 41,281
======== ======== ========
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Mortgage-backed and related securities at:
Beginning of period $ 77,499 $ 41,281 $ 14,290
Purchases 43,703 41,549 32,460
Calls (311) - -
Sales (749) - -
Repayments (11,454) (5,286) (5,628)
Discount (premium) amortization 189 (45) 159
Gain on call 254 - -
(Increase) decrease in market value available for sale (net) (868) - -
--------- --------- ---------
Mortgage-backed and related securities at
end of period $ 108,263 $ 77,499 $ 41,281
========= ========= =========
19
The following table sets forth the allocation of fixed- and
adjustable-rate mortgage-backed and related securities for the periods
indicated.
AT SEPTEMBER 30,
-------------------------------------------------------------------------
1996 1995 1994
------------------------- ---------------------- ---------------------
$ % $ % $ %
------------------------- ---------------------- ---------------------
(DOLLARS IN THOUSANDS)
Mortgage-backed and related securities, net:
Held to maturity:
Adjustable-rate CMOs $3,030 2.80% $3,980 5.14% $1,763 4.27%
-------- ------ ------- ------ ------- ------
Fixed-rate:
FHLMCs 9,973 9.21 11,943 15.41 13,460 32.62
FNMAs 4,076 3.76 4,691 6.05 5,079 12.30
GNMAs 2,233 2.06 2,774 3.58 1,075 2.60
CMOs 35,298 32.60 53,724 69.32 19,402 47.00
Conventional pass-through certificates - - - - 68 0.16
AID loans 335 0.32 387 .50 434 1.05
-------- ------ ------- ------ ------- ------
Total fixed-rate 51,915 47.95 73,519 94.86 39,518 95.73
-------- ------ ------- ------ ------- ------
Total mortgage-backed and related
securities-held to maturity, net 54,945 50.75 77,499 100.00 41,281 100.00
-------- ------ ------- ------ ------- ------
Available for sale: (at market value)
Adjustable-rate CMOs 3,670 3.39% - - - -
Fixed-rate CMOs 49,648 45.85% - - - -
-------- ------ ------- ------ ------- ------
Total mortgage-backed and related
securities available for sale, net 53,318 49.24% - - - -
-------- ------ ------- ------ ------- ------
Total mortgage-backed and related securities, net $108,263 100.00% $77,499 100.00% $41,281 100.00%
======== ====== ======= ====== ======= ======
INVESTMENTS. The Association purchases investments which are comprised
primarily of United States Government and agency obligations, mutual funds that
invest in mortgage-backed securities and government and agency obligations,
corporate debt securities and FHLB stock, as well as interest-earning deposits
at the FHLB. The carrying value of the Association's interest-earning deposits,
investments and securities available for sale totaled $128.0 million or 19.7% of
total assets.
The Association is required under federal regulations to maintain a
minimum amount of liquid assets that may be invested in specified short-term
securities and certain other investments. The Association generally has
maintained a portfolio of liquid assets that exceeds regulatory requirements.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future, as well
as management's projections as to the short term demand for funds to be used in
the Association's loan origination and other activities. For further information
regarding the Association's investments see Notes 1, 2 and 3 to the Notes to
Consolidated Financial Statements contained in the Association's Annual Report
to Shareholders for the Year Ended September 30, 1996 (the "Annual Report")
attached hereto as Exhibit 13.
INTEREST-EARNING DEPOSITS. The Association primarily invests excess
funds on a daily basis in an interest-earning overnight account at the FHLB of
Atlanta. The balance of this account was $28.6 million at September 30, 1996.
Such funds are available to provide liquidity to meet lending requirements and
daily operations.
INVESTMENT SECURITIES. At September 30, 1996, investment securities
included United States Government and agency obligations totaling $11.7 million,
corporate debt issues totaling $10.6 million, and FHLB stock totaling $5.4
million.
Included in corporate debt issues are asset-backed securities which
include two debt securities secured by automobile loan receivables totaling $3.3
million at September 30, 1996 purchased during fiscal year 1994 by the
Association, the repayment of which is secured by automobile receivables. These
securities are rated BBB or above by Standard & Poors and provide the
Association with an effective yield of 6.33%. While these securities have a
stated maturity of six years, it is expected that the receivables underlying the
securities have a weighted average life of 2.2 years. Debt instruments which
depend on the repayment of automobile loans involve a certain degree of risk
since in the event
20
that borrowers of the automobile loan default, the issuer of the security may
have insufficient funds to repay the principal or interest of the security in
accordance with its terms.
The FHLB requires its members to own a required level of FHLB stock.
During 1996, the FHLB decided to begin redeeming all stock held by members in
excess of the required levels. During September 1996, the Association received
$2.0 million leaving a FHLB stock balance of $5.4 million. A further reduction
of $2.5 million will occur during the first quarter of fiscal year 1997.
SECURITIES AVAILABLE FOR SALE. Securities available for sale are
carried on the Association books at fair value as required by FASB No. 115 and
totaled $71.0 million at September 30, 1996. Included in securities available
for sale are equity securities totaling $115,000, mutual funds totaling $42.9
million, and United States and Government and agency obligations totaling $27.9
million.
The Association's mutual fund investments include mutual funds that
invest primarily in mortgage-backed securities and government and agency
securities, and are classified as available for sale for accounting purposes.
The mutual funds which invest in mortgage-backed securities have characteristics
similar to the mortgage-backed securities in which they invest. The
Association's mutual fund investments include approximately $40.5 million in
funds which invest in adjustable-rate mortgage-backed securities issued by FNMA,
FHLMC and GNMA, as well as CMOs and real estate mortgage investment conduits and
other securities collateralized by or representing interests in real estate
mortgages, and approximately $2.4 million in funds which invest in government
and agency obligations. Since the Association's mutual fund investments are
available for sale, they are carried at fair value as required by FASB No. 115.
INVESTMENT PORTFOLIO. The following tables set forth the carrying value
of the Association's investments and investment securities available for sale at
the dates indicated. At September 30, 1996, the market value of the
Association's investments was approximately $131.6 million. The market value of
investments and securities available for sale includes interest-earning deposits
and FHLB stock at book value, which approximates market value.
AT SEPTEMBER 30,
---------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Interest-earning deposits:
FHLB-Atlanta $ 28,580 $ 28,171 $ 54,699
Other deposits 600 1,200 -
-------- -------- --------
Total 29,180 29,371 54,699
-------- -------- --------
Investment securities:
United States Government and agency obligations 11,691 38,987 35,921
Corporate debt issues 10,602 13,692 16,283
Certificates of deposit - 7,000 -
FHLB stock 5,384 7,384 7,384
-------- -------- --------
Total 27,677 67,063 59,588
-------- -------- --------
Securities available for sale: (shown at fair value)
Equity securities (1) 115 96 65
Mutual funds 42,912 26,932 26,664
United States Government and agency obligations 27,942 - -
-------- -------- --------
Total 70,969 27,028 26,729
-------- -------- --------
Total securities portfolio $127,826 $123,462 $141,016
======== ======== ========
- -------------------------------------------------------------------------
(1) Consists of $14,000 in FNMA stock which was purchased in order for thE
Association to qualify as a FNMA servicer and $101,000 in securities
issued by the Financial Institutions Insurance Group Limited.
21
SECURITIES PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, carrying values, market values and average yields for the
Association's investment securities and securities available for sale at
September 30, 1996.
At September 30, 1996
-----------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years
---------------- ----------------- ----------------- -------------------
Annualized Annualized Annualized Annualized Total Annualized
Weighted Weighted Weighted Weighted --------------- Average Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Life in Average
Value Yield Value Yield Value Yield Value Yield Value Value Years(1) Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------------
Interest-earning deposits:
FHLB of Atlanta $28,580 5.80% $ -- --% $ -- --% $ -- --% $28,580 $28,580 -- 5.80%
Other deposits 600 1.92 -- -- -- -- -- -- 600 600 -- 1.92
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
Total Interest-earning 29,180 5.72 -- -- -- -- -- -- 29,180 29,180 -- 5.72
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
deposits
Investment securities:
United States Government and
agency obligations 300 7.50 1,097 11.33 9,842 10.79 452 8.96 11,691 15,125 6.54 10.68
Corporate debt issues -- -- 3,282 6.33 -- -- 7,321 6.66 10,602 10,967 10.14 6.56
FHLB stock 2,521 7.25 -- -- -- 2,863 7.25 5,384 5,384 -- 7.25
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
Total investment 2,821 7.28 4,379 7.58 9,842 10.79 10,636 6.92 27,677 31,426 8.25 8.43
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
securities
Securities available for sale:
Equity securities 115 1.91 -- -- -- -- -- -- 115 115 -- 1.91
Mutual funds:
Mortgage-backed 40,486 6.01 -- -- -- -- -- -- 40,486 10,486 -- 6.01
Government and agency 2,426 5.15 -- -- -- -- -- -- 2,426 2,426 -- 5.15
backed
United States Government and
agency obligations 2,992 4.80 18,968 6.16 5,982 6.93 -- -- 27,942 27,942 3.96 6.18
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
Total securities available
for sale 46,019 5.88 18,968 6.16 5,982 6.93 -- -- 70,969 70,969 3.96 6.04
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
Total investment
securities and securities 48,840 5.96 23,347 6.43 15,824 9.33 10,636 6.92 98,646 102,445 5.28 6.71
------ ---- ------ ---- ------ ---- ------ ---- ------ ------- ---- ----
available for sale
Total securities $78,020 5.87% $23,347 6.43% $15,824 9.33% $10,636 6.92% $127,826 $131,625 5.28% 6.47%
======= ==== ======= ==== ======= ==== ======= ==== ======== ======== ==== ====
portfolio
- --------------------------------
(1) Total weighted average life in years calculated only on United States
Government and agency obligations.
22
SOURCES OF FUNDS
GENERAL. Deposits are the major source of the Association's funds for
lending and other investment purposes. In addition to deposits, the Association
derives funds from the amortization and prepayment of loans and mortgage-backed
and related securities, the maturity of investment securities, operations and,
if needed, advances from the FHLB. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a longer term
basis for general business purposes.
DEPOSITS. Consumer and commercial deposits are attracted principally
from within the Association's market area through the offering of a broad
selection of deposit instruments including non-interest-bearing demand accounts,
NOW accounts, passbook savings, money market deposit accounts, term certificate
accounts and individual retirement accounts. While the Association accepts
deposits of $100,000 or more, it does not currently offer premium rates for such
deposits. Deposit account terms vary according to the minimum balance required,
the period of time during which the funds must remain on deposit, and the
interest rate, among other factors. The Association has a committee which meets
weekly to evaluate the Association's internal cost of funds, survey rates
offered by competing institutions, review the Association's cash flow
requirements for lending and liquidity and the amount of certificates of deposit
maturing in the upcoming weeks. This committee executes rate changes when deemed
appropriate. The Association does not obtain funds through brokers, nor does it
solicit funds outside its market area.
The following table sets forth information regarding interest rates,
terms, minimum amounts and balances of the Association's savings and other
deposits in the Association as of September 30, 1996:
WEIGHTED PERCENTAGE
AVERAGE MINIMUM MINIMUM OF TOTAL
INTEREST RATE TERM CHECKING AND SAVINGS DEPOSITS (1) AMOUNT BALANCES DEPOSITS
------------- ---- ------------------------------ ------ -------- --------
(IN THOUSANDS)
0.00% None Non-interest-bearing account None $ 19,532 3.91%
1.24 None NOW accounts $10 63,098 12.65
1.73 None Passbook accounts 100 30,875 6.19
3.15 None Money market deposit accounts 1,000 69,421 13.91
-------- ------
Total checking and savings deposits 182,926 36.66
-------- ------
CERTIFICATES OF DEPOSIT (1)
---------------------------
4.73 1 - 5 months Fixed term, fixed-rate 1,000 13,690 2.75%
5.04 6-11 months Fixed term, fixed-rate 1,000 55,930 11.21
5.28 12-17 months Fixed term, fixed-rate 1,000 137,812 27.62
5.55 24-30 months Fixed term, fixed-rate 1,000 37,636 7.54
5.70 36-47 months Fixed term, fixed-rate 1,000 11,927 2.39
5.36 48-59 months Fixed term, fixed-rate 1,000 2,664 0.53
6.12 Over 60 months Fixed term, fixed-rate 1,000 51,333 10.29
1.74 Various Fixed term, fixed-rate 1,000 1,600 0.32
4.96 Various Negotiated Jumbo 100,000 3,411 0.69
-------- ------
Total certificates of deposit 316,003 63.34
-------- ------
Total deposits $498,929 100.00%
======== ======
- ---------------------------------------------------------------------------
(1) IRA and KEOGH accounts are generally offered throughout all terms stated
above with balances of $40.5 million and $1.4 million, respectively.
23
The following tables sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Association
between the dates indicated:
Balance Percent Balance Percent Balance Percent
at of Incr. at of Incr. at of Incr.
9/30/96 Deposits (Decr.) 9/30/95 Deposits (Decr.) 9/30/94 Deposits (Decr.)
---------- ----------------------- ---------- --------------------- ----------- -----------------
(Dollars in Thousands)
Non-interest-bearing demand
accounts $19,532 3.91% $4,688 $14,844 3.39% $3,490 $11,354 2.47% $2,017
NOW accounts 63,098 12.65 (763) 63,861 14.60 (6,141) 70,002 15.22 803
Passbooks 30,875 6.19 1,174 29,701 6.79 (9,981) 39,682 8.63 6,674
Deposits held pending close
of reorganization (1) - - - - - (30,332) 30,332 6.59 30,332
Money market deposit
accounts 69,421 13.91 (6,299) 75,720 17.32 (21,507) 97,227 21.14 354
Time deposits which mature:
Within 12 months 240,240 48.15 46,740 193,500 44.24 30,582 162,918 35.41 (30,781)
Within 12-36 months 42,714 8.56 10,290 32,424 7.41 4,745 27,679 6.02 4,845
Beyond 36 months 33,049 6.63 5,723 27,326 6.25 6,541 20,785 4.52 (4,621)
-------- ------ ------- -------- ------ -------- -------- ------ ------
Total $498,929 100.00% $61,553 $437,376 100.00% $(22,603) $459,979 100.00% $9,623
- ----------------------------- ======== ====== ======= ======== ====== ========= ======== ====== ======
(1) Deposits submitted in connection with the Association's reorganization to
purchase shares of common stock.
24
The following table sets forth the certificates of deposit in the
Association classified by rates as of the dates indicated:
AT SEPTEMBER 30,
-------------------------------------------------
1996 1995 1994
---- ---- ----
Rate (IN THOUSANDS)
3.00% or less $ 1,600 $ 930 $ 920
3.01 - 3.99% 903 5,257 119,411
4.00 - 4.99% 80,831 55,583 51,618
5.00 - 5.99% 193,281 108,608 24,936
6.00 - 6.99% 29,571 70,456 9,076
7.00 - 7.99% 9,817 12,416 5,421
-------- -------- --------
$316,003 $253,250 $211,382
======== ======== ========
The following table sets forth the amount and maturities of
certificates of deposit at September 30, 1996.
AMOUNT DUE
----------------------------------------------------------------------------------------------------
LESS THAN 1-2 2-3 3-4 4-5 AFTER 5
ONE YEAR YEARS YEARS YEARS YEARS YEARS TOTAL
-------- ----- ----- ----- ----- ----- -----
RATE (IN THOUSANDS)
3.00% or less $176 $ - $ 38 $ 2 $ 30 $1,354 $ 1,600
3.01 - 3.99% 892 - - 11 - - 903
4.00 - 4.99% 77,045 1,346 2,440 - - - 80,831
5.00 - 5.99% 152,176 26,463 5,755 2,314 6,572 1 193,281
6.00 - 6.99% 8,781 4,445 2,227 9,979 4,136 3 29,571
7.00% and above 1,170 - - 8,647 - - 9,817
-------- ------- ------- ------- ------- ------ --------
$240,240 $32,254 $10,460 $20,953 $10,738 $1,358 $316,003
======== ======= ======= ======= ======= ====== ========
The following table indicates the amount of the Association's
negotiable certificates of deposit of $100,000 or more by time remaining until
maturity as of September 30, 1996.
CERTIFICATES
OF DEPOSIT
OF $100,000
REMAINING MATURITY OR MORE
------------------
(IN THOUSANDS)
Three months or less $28,965
Three through six months 11,010
Six through twelve months 3,263
Over twelve months 9,476
-------
Total $52,714
=======
The Association uses deposits to fund loan originations and the
purchase of securities. The deposit growth in fiscal year 1996 of $61.4 million
reflected the introduction of a 13-month certificate of deposit product, an
increase in the use of public fund deposits, as well as increased retail
deposits.
25
The following table sets forth the net changes in the deposit
activities of the Association for the periods indicated:
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Deposits $ 2,158,898 $ 1,952,009 $ 1,987,409
Withdrawals 2,114,903 1,988,577 1,989,071
----------- ----------- -----------
Net increase (decrease) before interest credited 43,995 (36,568) (1,662)
Interest credited 17,558 13,965 11,285
----------- ----------- -----------
Net increase (decrease) in deposits $ 61,553 $ (22,603) $ 9,623
=========== =========== ===========
BORROWINGS. Savings deposits are the primary source of funds of the
Association's lending and investment activities and for its general business
purposes. If the need arises, the Association may rely upon advances from the
FHLB to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. Advances from the FHLB typically are collateralized by the
Association's stock in the FHLB and a blanket floating lien on the Association's
one- to four-family first mortgage loans. At September 30, 1996, the Association
had $36.4 million of FHLB advances outstanding with a weighted average interest
rate of 6.36%.
The FHLB functions as a central reserve bank providing credit for the
Association and other member savings institutions and financial institutions. As
a member, the Association is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally, securities that are
obligations of, or guaranteed by, the United States) provided certain standards
related to creditworthiness have been met. Advances are made pursuant to several
different programs. Each credit program has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of a member institution's net worth or on the
FHLB's assessment of the institution's creditworthiness. Although advances may
be used on a short-term basis for cash management needs, FHLB advances have not
been, nor are they expected to be, a significant long-term funding source for
the Association, although the Association periodically utilizes its ability to
access advances in order to take advantage of investment opportunities which may
arise.
On September 30, 1983, the Association sold two of its branches to
another financial institution. Under terms of the sale, the Association issued a
10.94%, 30-year term mortgage-backed bond (the "Bond") for approximately $41.6
million. 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 of accounting over the life of
the Bond. The Bond bears an interest rate that is adjustable semi-annually on
each April 1 and October 1 to reflect changes in the average of the United
States 10-year and 30-year long-term bond rates. At September 30, 1996, the
outstanding balance of the Bond was $17.5 million with a rate of 10.52%. For
further information, see Note 16 to the Notes to the Consolidated Financial
Statements in the Annual Report attached hereto in Exhibit 13.
On October 24, 1994, in connection with the Association's Plan of
Reorganization into a Mutual Holding Company, the Association established an
Employee Stock Ownership Plan ("ESOP") for all eligible employees. As of
September 30, 1995, the ESOP had borrowed $2.8 million from Nationar and
purchased 190,388 shares of common stock in the open market. Collateral for the
loan, which was subsequently transferred to Northwest Savings Bank
("Northwest"), is the common stock purchased by the ESOP, as well as
Association's funds on deposit with Northwest. The loan will be repaid
principally from the Association's contributions to the ESOP over a period of up
to seven years and had an outstanding balance of $2.1 million at September 30,
1996. The loan bears interest at a monthly average of the Federal Funds high and
low rate plus 2.35%, which was 7.77% at September 30, 1996. For further
information, see Notes 14 and 15 to the Notes to the Consolidated Financial
Statements in the Annual Report, attached hereto in Exhibit 13. See also
"Contingencies".
26
The following table sets forth the source, balance, and rate of
borrowings for the years ended September 30, 1996, 1995, and 1994.
DURING THE YEAR ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
---------- --------- ---------
(DOLLARS IN THOUSANDS)
FHLB advances:
Maximum month-end balance $36,350 $18,679 $25,000
Balance at end of period 36,350 18,200 -
Average balance (1) 22,110 3,846 3,846
Weighted average interest rate during the period 6.36% 10.80% -
Weighted average interest rate at end of period 6.70% 6.86% 4.78%
Mortgage-backed bond:
Maximum month-end balance $18,660 $19,618 $20,198
Balance at end of period 17,454 18,344 19,233
Average balance (1) 18,033 19,030 19,811
Weighted average interest rate during the period 10.41% 11.72% 10.02%
Weighted average interest rate at end of period 10.52% 11.65% 9.39%
ESOP loan:
Maximum month-end balance $ 2,409 $ 2,776 -
Balance at end of period 2,114 2,557 -
Average balance (1) 2,273 2,257 -
Weighted average interest during the period 7.98% 8.83% -%
Weighted average interest rate at end of period 7.77% 8.20% -%
- -------------------------------------------------------
(1) Computed on the basis of month-end balances.
SUBSIDIARY ACTIVITIES
The Association has two active subsidiaries. A description of the
business activities of such subsidiaries is set forth below.
ComFed Development Co. ("ComFed") is a wholly owned subsidiary of the
Association which is engaged in real estate development activities under joint
venture arrangements with local developers. The principal business activity of
ComFed is its 50% interest in a joint venture to develop and construct a
202-unit single-family residential project located in Palm Beach Gardens,
Florida. As of September 30, 1996, 201 units had been sold. At September 30,
1996, the Association had an equity investment in ComFed of $218,000, all of
which is excluded from the Association's capital for purposes of satisfying the
Association's regulatory capital requirements. The joint venture records the
income from the sale of each unit when the related real estate transaction
closes. Consequently, the income of the joint venture and ComFed fluctuate from
period to period based primarily on the number of units closed. Prior to fiscal
year 1995, the Association had two other wholly-owned subsidiaries, Select
Florida Properties, Inc. and Select Florida Properties 11, Inc., which were
formed to acquire and sell foreclosed assets, as well as hold delinquent loans.
These subsidiaries were dissolved into ComFed during September 1995, and all
remaining properties were transferred to the Association. ComFed had a net loss
of $11,000 for the year ended September 30, 1996. For additional information
regarding the Association's investment in ComFed and its business activities,
see Note 8 to the Notes to the Consolidated Financial Statements in the Annual
Report attached herewith as Exhibit 13.
ComFed, Inc. was formed in February 1971 for the purpose of owning and
operating an insurance agency, Community Insurance Agency, which sells property
and casualty insurance. ComFed, Inc. also receives income and incurs related
expenses from the sale of third party mutual funds and annuities. Such third
party mutual funds and annuities include products widely marketed to the
investing public and have investment advisors that are not affiliated with
ComFed, Inc.. For the year ended September 30, 1996, ComFed, Inc. reported net
income of $64,000. At September 30, 1996, the Association had an equity
investment in ComFed, Inc. of $463,000.
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Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), Savings Association Insurance Fund ("SAIF") insured
institutions are required to provide 30 days advance notice to the OTS and FDIC
before establishing or acquiring a subsidiary or conducting a new activity in a
subsidiary. The insured institution must also provide the FDIC and the OTS such
information as may be required by applicable regulations and must conduct the
activity in accordance with the rules and orders of the OTS. In addition to
other enforcement and supervision powers, the OTS may determine after notice and
opportunity for a hearing that the continuation of an institution's ownership of
or relation to a subsidiary (i) constitutes a serious risk to the safety,
soundness or stability of the institution; or (ii) is inconsistent with the
purposes of FIRREA. Upon the making of such a determination, the OTS may order
the institution to divest the subsidiary or take other actions.
CONTINGENCIES.
In connection with its mutual holding company reorganization and stock
offering, the Association's employee stock ownership plan and trust (the "ESOP")
borrowed funds from Nationar, a New York trust company which was owned by
savings banks in the state of New York, and used the funds to purchase eight
percent of the shares of the Association's common stock in the open market. All
of such shares were pledged as collateral to support the ESOP loan. In
connection with the ESOP loan, the Association placed $1.2 million in a
non-insured interest-earning deposit account with Nationar as collateral to
secure the ESOP loan. On February 6, 1995, Nationar was seized by the New York
Banking Department because of liquidity problems and continuing losses. During
the year ended September 30, 1995, the Association was uncertain as to the
recoverability of the collateral securing the ESOP loan. During fiscal year
1995, the Superintendent transferred $200,000 of the Association's collateral to
a new interest-earning deposit account with Northwest, leaving $1.0 million in
the Nationar account. During the year ended September 30, 1996, the Association
received $400,000 as a partial settlement from the New York Banking Department.
Management believes, based on correspondence with the New York Banking
Department, that the full settlement of $600,000 will be received in December
1996.
In addition, the Association is investigating a possible employee
defalcation which may have been occurring for several years. The Association
maintains insurance to cover possible defalcation losses with a claim deductible
of $200,000. The Association has established a liability for the amount of the
deductible in the accompanying financial statements. Management currently
estimates that the loss in excess of the deductible will not involve material
amounts and will be covered by insurance. Although the Association has notified
its insurance company of the potential claim and the insurance company has
acknowledged coverage, the insurance company has not begun its investigation of
the claim.
REGULATION
As a federally chartered SAIF-insured savings and loan association, the
Association is subject to examination, supervision and extensive regulation by
the OTS and the FDIC. The Association is a member of and owns stock in the FHLB
of Atlanta, which is one of the twelve regional banks in the Federal Home Loan
Bank System. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors.
The Association also is subject to regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") governing reserves
to be maintained against deposits and certain other matters. The Holding Company
is also subject to supervision and regulation by the OTS.
The OTS regularly examines the Association and prepares reports for the
consideration of the Association's Board of Directors on any deficiencies that
they may find in the Association's operations. The FDIC also examines the
Association in its role as the administrator of the SAIF. The Association's
relationship with its depositors and borrowers also is regulated to a great
extent by both federal and state laws especially in such matters as the
ownership of savings accounts and the form and content of the Association's
mortgage documents. Any change in such regulation, whether by the FDIC, OTS, or
Congress, could have a material adverse impact on the Holding Company and the
Association and their operations.
INDUSTRY RECAPITALIZATION OF SAIF
The deposits of savings and loans, such as the Association, are
presently insured by the SAIF. SAIF and the Bank Insurance Fund ("BIF") are the
two insurance funds administered by the FDIC. On August 8, 1995, in recognition
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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 range of .23% to .31% of deposits for SAIF insured
institutions). In 1996, the FDIC further reduced such range to 0% to .27% of
deposits. As a result, well capitalized and healthy BIF members pay
significantly lower premiums. 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 could be 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 which mandated that all thrifts and savings
banks that are insured by SAIF are 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 will bring the SAIF's
reserve ratios to a comparable level of the BIF at 1.25% of total insured
deposits. The Association's share of this special assessment totaled $2.8
million and is reflected in the 1996 operating results. 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 in order to fund
the Financing Corporation bonds while BIF member institutions will pay
approximately $.013 per $100 of insured deposits.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law. FDICIA primarily addresses the
recapitalization of the FDIC, which insures the deposits of commercial banks and
savings and loan associations. In addition, FDICIA established a number of new
mandatory supervisory measures for savings associations and banks.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires the federal bank
regulatory agencies to prescribe regulatory standards for all insured depository
institutions and depository institution holding companies relating to: (i)
internal controls, information systems and audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation
standards would prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other compensatory
arrangements that provide excessive compensation, fees or benefits which could
lead to material financial loss. In addition, the federal banking regulatory
agencies are required to prescribe by regulation standards specifying: (i)
maximum classified assets to capital ratios; (ii) minimum earnings sufficient to
absorb losses without impairing capital; and (iii) to the extent feasible, a
minimum ratio of market value to book value for publicly traded shares of
depository institutions and depository institution holding companies. In July
1995, the federal banking agencies, including the OTS and the FDIC, adopted
final rules regarding implementation of these standards.
FINANCIAL MANAGEMENT REQUIREMENTS. Pursuant to FDICIA, in May 1993, the
FDIC adopted rules establishing annual independent audits and financial
reporting requirements for all depository institutions with assets of more than
$500 million. The rules also establish new requirements for the composition,
duties, and authority of such institutions' audit committees and boards of
directors, effective in fiscal years beginning after September 30, 1993. Among
other things, all depository institutions with assets in excess of $500 million
are required to prepare and make available to the public annual reports on their
financial condition and management, including statements of management's
responsibility under regulations relating to safety and soundness, and an
assessment of the institution's compliance with internal controls, laws and
regulations. The institution's independent auditors are required to attest to
these management assessments. Each such institution also is required to have an
audit committee composed of independent directors. Audit committees of large
institutions (institutions with assets exceeding $3.0 billion) must: (i) include
members with banking or related financial management experience; (ii) have the
ability to engage their own independent legal counsel; and (iii) must not
include as members any large customers (as defined) of the institution.
PROMPT CORRECTIVE ACTION REGULATION. FDICIA establishes a system of
prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective on December 19, 1992,
the OTS and the other banking regulators established five capital categories
("well-capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") and to take
certain mandatory supervisory actions (and are authorized to take other
discretionary actions) with respect to institutions in the three
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undercapitalized categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, FDICIA requires the
requisite banking regulator to appoint a receiver or conservator for an
institution that is critically undercapitalized.
Under the OTS rule implementing the prompt corrective action
provisions, a savings institution that: (i) has a total risk-based capital ratio
of 10.0% or greater, a Tier I (core) risk-based capital ratio of 6.0% or greater
and a leverage ratio of 5.0% or greater; and (ii) is not subject to any written
agreement, order, capital directive or prompt corrective action directive issued
by the OTS, is deemed to be well-capitalized. An institution with a total
risk-based capital ratio of 8.0% or greater, a Tier I risk-based capital ratio
of 4.0% or greater and a leverage ratio of 4.0% or greater, is considered to be
adequately capitalized. A savings institution that has a total risk-based
capital ratio of less than 8.0%, a Tier I risk-based capital ratio of less than
4.0%, or a leverage ratio that is less than 4.0 % is considered to be
undercapitalized. A savings institution that has a total risk-based capital
ratio of less than 6.0%, a Tier I risk-based capital ratio of less than 3.0% or
a leverage ratio that is less than 3.0%, is considered to be significantly
undercapitalized. A savings institution that has a tangible equity capital to
assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier I capital for purposes of the
risk-based capital standards plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets except
certain purchased mortgage servicing rights and qualifying supervisory goodwill.
At September 30, 1996, the Association was in the "well capitalized" category.
FDICIA authorizes the appropriate federal banking agency, after notice
and an opportunity for a hearing, to treat a well-capitalized, adequately
capitalized or undercapitalized insured depository institution as if it had a
lower capital classification if it is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions (provided that a capital restoration plan cannot be required of the
institution) described below and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions.
OTHER DEPOSIT INSURANCE REFORMS. FDICIA amended the FDI Act to prohibit
insured depository institutions that are not well-capitalized from accepting
brokered deposits unless a waiver has been obtained from the FDIC. Deposit
brokers are required to register with the FDIC.
The FDIC is required to establish a risk-based assessment system for
deposit insurance to become effective no later than January 1, 1993. The FDIC
established a transactional risk-based insurance assessment system which is
effective for the semi-annual assessment period beginning January 1, 1993.
Furthermore, the FDIC has proposed a risk-based system to replace the
transitional system and is in the process of adopting final regulations with
respect to this matter. FDICIA also authorizes the FDIC to privately reinsure up
to 10% of its risk loss with respect to an institution and base its assessment
on the cost of such reinsurance.
FEDERAL REGULATIONS
REGULATORY CAPITAL. The OTS capital requirements consist of a "tangible
capital requirement," a "leverage capital requirement" and a "risk-based capital
requirement."
Under the tangible capital requirement, a savings association must
maintain tangible capital in an amount equal to at least 1.5% of adjusted total
assets. Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus a specified amount of purchased mortgage
servicing rights.
Under the leverage capital requirement adopted by the OTS, associations
maintain "capital" in an amount equal to at least 3% of adjusted total assets.
Core capital is defined as common stockholders' equity (including retained
earnings), non-cumulative perpetual preferred stock, and minority interests in
the equity accounts of consolidated subsidiaries, plus purchased mortgage
servicing rights valued at the lower of 90% of fair market value, 90% of
original cost or the current amortized book value as determined under generally
accepted accounting principles ("GAAP"), and "qualifying supervisory goodwill,"
less non-qualifying intangible assets. At September 30, 1996, the Association's
ratio of core capital to total adjusted assets was 11.30%.
Under the risk-based capital requirement, a savings association must
maintain total capital (which is defined as core capital plus supplementary
capital) equal to at least 8.0% of risk-weighted assets. A savings association
must
30
calculate its risk-weighted assets by multiplying each asset and off-balance
sheet item by various risk factors, which range from 0% for cash and securities
issued by the United States Government or its agencies to 100% for repossessed
assets or loans more than 90 days past due. Qualifying one- to four-family
residential real estate loans and qualifying multi-family residential real
estate loans (not more than 90 days delinquent and having an 80% or lower
loan-to-value ratio), which at September 30, 1996, represented 76.9% of the
Association's total loans receivable, are weighted at a 50% risk factor.
Supplementary capital may include, among other items, cumulative perpetual
preferred stock, perpetual subordinated debt, mandatory convertible subordinated
debt, intermediate-term preferred stock, and general allowances for loan losses.
The allowance for loan losses includable in supplementary capital is limited to
1.25% of risk-weighted assets. Supplementary capital is limited to 100% of core
capital.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital, in addition to the adjustments
required for calculating core capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
non-residential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. However, in calculating
regulatory capital, institutions can add back unrealized losses and deduct
unrealized gains net of taxes, on debt securities reported as a separate
component of GAAP capital.
The OTS regulations establish special capitalization requirements for
savings associations that own service corporations and other subsidiaries,
including subsidiary savings associations. According to these regulations,
certain subsidiaries are consolidated for capital purposes and others are
excluded from assets and capital. In determining compliance with the capital
requirements, all subsidiaries engaged solely in activities permissible for
national banks, engaged solely in mortgage-banking activities, or engaged in
certain other activities solely as agent for its customers are "includable"
subsidiaries that are consolidated for capital purposes in proportion to the
association's level of ownership, including the assets of includable
subsidiaries in which the association has a minority interest that is not
consolidated for GAAP purposes. For excludable subsidiaries, the debt and equity
investments in such subsidiaries are deducted from assets and capital, with a
five-year transition period beginning on July 1, 1990, for investments made
before April 12, 1989. During the transition period, the assets of the
subsidiary are consolidated for capital purposes in inverse proportion to the
level of investment that is excluded. At September 30, 1996 the Association had
$2.7 million of investments (comprised solely of the Association's investment in
ComFed Development Co.) subject to a deduction from tangible capital.
The OTS amended its risk-based capital requirements that would require
institutions with an "above normal" level of interest rate risk to maintain
additional capital. A savings association is considered to have a " normal "
level of interest rate risk if the decline in the market value of its portfolio
equity after an immediate 200 basis point increase or decrease in market
interest rates (whichever leads to the greater decline) is less than two percent
of the current estimated market value of its assets. The market value of
portfolio equity is defined as the net present value of expected cash inflows
and outflows from an association's assets, liabilities and off-balance sheet
items. The amount of additional capital that an institution with an above normal
interest rate risk is required to maintain (the "interest rate risk component")
equals one-half of the dollar amount by which its measured interest rate risk
exceeds the normal level of interest rate risk. The interest rate risk component
is in addition to the capital otherwise required to satisfy the risk-based
capital requirement. Implementation of this component has been postponed by the
OTS. The final rule was to be effective as of January 1, 1994, subject however
to a three quarter lag time in implementation. However, the OTS has recently
indicated that no savings association will be required to deduct capital for
interest rate risk until further notice.
The OTS and the FDIC generally are authorized to take enforcement
action against a savings association that fails to meet its capital
requirements, which action may include restrictions on operations and banking
activities, the imposition of a capital directive, a cease-and-desist order,
civil money penalties or harsher measures such as the appointment of a receiver
or conservator or a forced merger into another institution. In addition, under
current regulatory policy, an association that fails to meet its capital
requirements is prohibited from paying any dividends.
FEDERAL HOME LOAN BANK SYSTEM. The Association is a member of the
Federal Home Loan Bank ("FHLB") of Atlanta, which is one of the 12 regional
FHLBs. As a member of the FHLB, the Association is required to purchase and
maintain stock in the FHLB of Atlanta in an amount equal to the greater of 1% of
its aggregate unpaid residential mortgage loans, home purchase contracts or
similar obligations at the beginning of each year, or 1/20 (or such greater
fraction as established by the FHLB) of outstanding FHLB advances. During 1996,
the FHLB required all stock owners
31
with stock in excess of the required amount to redeem the excess stock at par.
The Association's excess was $4.5 million of which $2.0 million was redeemed
during fiscal year 1996, leaving a balance of $5.4 million at September 30,
1996. The remaining $2.5 million will be redeemed by the FHLB during fiscal year
1997. In past years, the Association has received dividends on its FHLB stock.
Such dividends were 7.25% for the fiscal years ended September 30, 1996 and
1995. Certain provisions of FIRREA require all 12 FHLBs to provide financial
assistance for the resolution of troubled savings associations and to contribute
to affordable housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions could cause rates on the FHLB advances to increase
and could affect adversely the level of FHLB dividends paid and the value of
FHLB stock in the future.
Each FHLB serves as a reserve or central bank for its members within
its assigned region. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB. These policies and procedures are subject to the
regulation and oversight of the Federal Housing Finance Board (the "FHFB").
QUALIFIED THRIFT LENDER TEST. The Qualified Thrift Lender ("QTL") test,
requires that a savings association maintain either at least 65 % of its total
tangible assets in "qualified thrift investments" on an average basis in nine
out of every twelve months in accordance with the Homeowners Loan Act ("HOLA"),
or meet the requirements to qualify as a domestic building and loan association
as defined in the Internal Revenue Code of 1986, as amended ("Code").
For purposes of the test under HOLA, portfolio assets are defined as
the total assets of the savings association minus: goodwill and other intangible
assets; the value of property used by the savings association to conduct its
business; and liquid assets not to exceed 20% of the savings association's total
assets.
Under the QTL statutory and regulatory provisions, all forms of home
mortgages, home improvement loans, home equity loans, and loans on the security
of other residential real estate and mobile homes as well as consumer loans and
small business loans are "qualified thrift investments," as are shares of stock
of an FHLB, investments or deposits in other insured institutions, securities
issued by the FNMA, FHLMC, GNMA, or the RTC Financing Corporation and other
mortgage-related securities. Investments in nonsubsidiary corporations or
partnerships whose activities include servicing mortgages or real estate
development are also considered qualified thrift investments in proportion to
the amount of primary revenue such entities derive from housing-related
activities. Also included in qualified thrift investments are mortgage servicing
rights, whether such rights are purchased by the insured institution or created
when the institution sells loans and retains the right to service such loans.
A savings institution that fails to become or maintain its status as a
qualified thrift lender must either become a bank (other than a savings and loan
association) or be subject to certain restrictions. A savings institution that
fails to meet the QTL test and does not convert to a bank will be: (1)
prohibited from making any investment or engaging in activities that would not
be permissible for national banks; (2) prohibited from establishing any new
branch office where a national bank located in the savings institution's home
state would not be able to establish a branch office; (3) ineligible to obtain
new advances from any FHLB; and (4) subject to limitations on the payment of
dividends comparable to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings institution ceases to be a qualified thrift lender, the
savings institution would be prohibited from retaining any investment or
engaging in any activity not permissible for a national bank and would be
required to repay any outstanding advances to any FHLB. A savings institution
may requalify as a qualified thrift lender if it thereafter complies with the
QTL test.
As of September 30, 1996, the Association was in compliance with the
QTL requirement with approximately 79.1% of the Association's assets being
"qualified thrift investments."
LIQUIDITY REQUIREMENTS. Federally insured savings associations are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of average daily balances of net withdrawable
deposit accounts and borrowings payable in one year or less. The liquidity
requirement may vary from time to time (between 4.0% and 10.0%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the required liquid asset ratio is 5.0%.
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For purposes of this ratio, liquid assets include specified short-term
assets (such as cash, certain time deposits, certain bankers' acceptances and
short-term United States Treasury obligations), and long-term assets such as
United States Treasury obligations of more than one and less than five years and
federal agency obligations with a minimum term of 18 months. Short-term liquid
assets currently must constitute at least 1% of an association's average daily
balance of net withdrawable deposit accounts and current borrowings. Penalties
may be imposed upon associations for violations of the liquidity requirements.
The monthly average liquidity ratio of the Association for September 1996 was
11.4% and exceeded the then applicable requirement of 5.0%.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC. The Association's
deposits are insured up to $100,000 per insured member (as defined by law and
regulation) by the FDIC. This insurance is backed by the full faith and credit
of the United States Government. As insurer, the FDIC is authorized to conduct
examinations of and to require reporting by insured associations. It also may
prohibit any insured association from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the insurance
fund. The FDIC also has the authority to initiate enforcement actions against
savings associations, after first giving the OTS an opportunity to take such
action.
Pursuant to the FDICIA, the FDIC has issued a new regulation that
imposes, on a transitional basis, a risk-based deposit insurance premium based
on the condition of the insured institution, and that increases the average
assessment rate paid by insured institutions. The risk-based system, which
applies to insured members, establishes nine assessment risk classifications; an
institution assigned to the highest risk classification will pay deposit
insurance premiums at a rate of 0.31 % while an institution assigned to the
lowest risk classification will pay a premium of 0.23 %. However, the FDIC has
recently adopted final rules which adjust such premium levels between 0% and
.27%.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines, after a hearing, that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
order, or any condition imposed by an agreement with the FDIC. The FDIC also may
suspend deposit insurance temporarily for any savings association during the
hearing process for the permanent termination of insurance, if the association
has no tangible capital. If insurance of accounts is terminated, the insured
accounts at the institution at the time of the termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC.
OTS REGULATORY ASSESSMENTS. As a result of FIRREA, the OTS will not
receive funds from contributions of the FHLBs and the insurance funds in order
to fund its operations. The OTS has adopted a regulation to assess fees to fund
its operations and expenses. These fees include: ( i) semi-annual assessments
based on the consolidated assets of a savings association; (ii) fees of $485 per
day, per examiner, to cover the costs of examinations of savings associations,
holding companies, subsidiaries, and their affiliates; (iii) application fees
which apply to nearly all regulatory and securities applications and filings;
and (iv) fees to recover the costs of OTS seminars and publications. Based on
its assets at September 30, 1996, the Association is required to pay a
semi-annual assessment of approximately $71,000.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose
limitations on all capital distributions by savings institutions. Capital
distributions include cash dividends, payments to repurchase or otherwise
acquire the savings association's shares, payments to stockholders of another
institution in a cash-out merger, and other distributions charged against
capital. The rule establishes three tiers of institutions. An institution that
exceeds all fully phased-in capital requirements before and after a proposed
capital distribution ("Tier 1 Association") may, after prior notice but without
the approval of the OTS, make capital distributions during a calendar year up to
the greater of (i) 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its surplus capital at the beginning of
the calendar year or (ii) 75% of its net income over the most recent
four-quarter period. Any additional capital distributions would require prior
regulatory approval. An institution that meets its minimum regulatory capital
requirement before and after its capital distribution ("Tier 2 Association")
may, after prior notice but without the approval of the OTS, make capital
distributions of up to 75% of its net income over the most recent four quarter
period. A savings institution that does not meet its current regulatory capital
requirement before or after payment of a proposed capital distribution or has
been notified that it needs more than normal supervision ("Tier 3 Association")
may not make any capital distributions without the prior approval of the OTS. As
of September 30, 1996, the Association was a Tier 1 Association.
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LOAN-TO-VALUE LIMITATIONS. As required by FDICIA, the banking agencies,
including the OTS, recently adopted regulations that require insured depository
institutions to adopt and maintain a written policy that establishes appropriate
limits and standards for extensions of credit that are secured by liens on or
interests in real estate, or are made for the purpose of constructing buildings
or other improvements. In addition, the regulations establish maximum
loan-to-value limits for certain categories of loans. A loan-to-value limit has
not been established for permanent mortgage or home equity loans on
owner-occupied, one- to four-family residential property. The regulations state
that for my such loan with a loan-to-value ratio that equals or exceeds 90% at
origination, an institution should require appropriate credit enhancement in the
form of either mortgage insurance or readily marketable collateral. The
Association's current internal loan-to-value limits are less than the maximum
established by the regulation.
HOLDING COMPANY REGULATION
Upon completion of the Reorganization, the Holding Company became a
mutual savings and loan holding company within the meaning of Section 10(o) of
the HOLA. As such, the Holding Company is registered with and is subject to OTS
examination and supervision as well as certain reporting requirements. In
addition, the operations of the Holding Company are subject to the Regulations
as well as other regulations promulgated by the OTS from time to time. As an
insured subsidiary of a savings and loan holding company, the Association is
subject to certain restrictions in dealing with the Holding Company and with
other persons affiliated with the Holding Company, and continues to be subject
to examination and supervision by the OTS and the FDIC.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, from: (i) acquiring control (as defined) of another insured
institution (or holding company thereof) without prior OTS approval; (ii)
acquiring more than 5% of the voting shares of another insured institution (or
holding company thereof which is not a subsidiary), subject to certain
exceptions; (iii) acquiring through merger, consolidation or purchase of assets,
another savings association or holding company thereof, or acquiring all or
substantially all of the assets of such institution (or holding company thereof)
without prior OTS approval; or (iv) acquiring control of a savings association
not insured by the SAIF (except through a merger with and into the holding
company's savings association subsidiary that is approved by the OTS). A savings
and loan holding company may acquire up to 15% of the voting shares of an
undercapitalized savings association. A savings and loan holding company may not
acquire as a separate subsidiary an insured institution that has principal
offices outside of the state where the principal offices of its subsidiary
institution is located, except: (i) in the case of certain emergency
acquisitions approved by the FDIC; (ii) if the holding company controlled (as
defined) such insured institution as of March 5, 1987; or (iii) if the laws of
the state in which the insured institution to be acquired is located
specifically authorize a savings association chartered by that state to be
acquired by a savings association chartered by the state where the acquiring
savings association or savings and loan holding company is located, or by a
holding company that controls such a state chartered association. No director or
officer of a savings and loan holding company or person owning or controlling
more than 25% of such holding company's voting shares may, except with the prior
approval of the OTS, acquire control of any SAIF-insured institution that is not
a subsidiary of such holding company. If the OTS approves such an acquisition,
any holding company controlled by such officer, director or person shall be
subject to the activities limitations that apply to multiple savings and loan
holding companies, unless certain supervisory exceptions apply.
34
RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Pursuant to
Section 10(o) of the HOLA and the Regulations, a mutual holding company may
engage in the following activities:
(i) Investing in the stock of a savings association.
(ii) Acquiring a mutual association through the merger of
such association into a savings association subsidiary
of such holding company or an interim savings
association subsidiary of such holding company.
(iii) Merging with or acquiring another holding company, one
of whose subsidiaries is a savings association.
(iv) Investing in a corporation the capital stock of which is
available for purchase by a savings association under
federal law or under the law of any state where the
subsidiary savings association or associations share
their home offices.
(v) Furnishing or performing management services for a
savings association subsidiary of such company.
(vi) Holding, managing, or liquidating assets owned or
acquired from a savings association subsidiary of such
company.
(vii) Holding or managing properties used or occupied by a
savings association subsidiary of such company.
(viii) Acting as trustee under deed of trust.
(ix) Any other activity (A) that the Federal Reserve Board,
by regulation, has determined to be permissible for bank
holding companies under section 4(c) of the Bank Holding
Company Act of 1956, unless the Director, by regulation,
prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings
and loan holding companies were authorized (by
regulation) to directly engage on March 5, 1987.
(x) Purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the
purchase of such stock by such savings and loan holding
company is approved by the Director of the OTS.
If a mutual holding company acquires or merges with another holding
company, the holding company acquired or the holding company resulting from such
merger or acquisition may only invest in assets and engage in activities listed
in (i) through (x) above, and has a period of two years to cease any
non-conforming activities and divest of any nonconforming investments.
TRANSACTIONS WITH AFFILIATES
Section 11 of HOLA provides that transactions between an insured
subsidiary of a holding company and an affiliate thereof will be subject to the
restrictions that apply to transactions between banks that are members of the
Federal Reserve System and their affiliates pursuant to Sections 23A and 23B of
the Federal Reserve Act ("FRA"). Generally, Sections 23A and 23B: (i) limit the
extent to which a financial institution or its subsidiaries may engage in
"covered transactions" with an "affiliate," to an amount equal to 10% of the
institution's capital and surplus, and limit all "covered transactions" in the
aggregate with all affiliates to an amount equal to 20% of such capital and
surplus; and (ii) require that all transactions with an affiliate, whether or
not "covered transactions," be on terms substantially, the same, or at least as
favorable to the institution or subsidiary as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and similar types of transactions. Management believes
that the Association is in compliance with the requirements of Sections 23A and
23B. In addition to the restrictions that apply to financial institutions
generally under Sections 23A and 23B, Section 11 of the HOLA places three other
restrictions on savings associations, including those that are part of a holding
company organization. First,
35
savings associations may not make any loan or extension of credit to an
affiliate unless that affiliate is engaged only in activities permissible for
bank holding companies. Second, savings associations may not purchase or invest
in affiliate securities except for those of a subsidiary. Finally, the Director
is granted authority to impose more stringent restrictions when justifiable for
reasons of safety and soundness.
Extensions of credit by the Association to executive officers,
directors, and principal shareholders and related interests of such persons are
subject to Sections 22 (g) and 22(h) of the FRA and Subpart A of the Federal
Reserve Board's Regulation 0. These rules prohibit loans to any such individual
where the aggregate amount exceeds an amount equal to 15% of an institution's
unimpaired capital and surplus plus an additional 10% of unimpaired capital and
surplus in the case of loans that are fully secured by readily marketable
collateral, and/or when the aggregate amount outstanding to all such individuals
exceeds the institution's unimpaired capital and unimpaired surplus. The rules
identify limited circumstances in which an institution is permitted to extend
credit to executive officers. Management believes that the Association is in
compliance with Sections 22(g) and 22(h) of the FRA and Subpart A of the Federal
Reserve Board's Regulation 0.
THE FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require all depository institutions
to maintain non-interest earning reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
At September 30, 1996, the Association was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS.
Savings associations are authorized to borrow from a Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from a Federal Reserve Bank.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
For federal income tax purposes, the Association files a federal income
tax return on a fiscal year basis. Since the Holding Company owns less than 80%
of the outstanding Common Stock of the Association, the Holding Company is not
permitted to file a consolidated federal income tax return with the Association.
Because the Holding Company has nominal assets other than the stock of the
Association, it has no material federal income tax liability.
The Holding Company and the Association are subject to the rules of
federal income taxation generally applicable to corporations under the Code.
Most corporations are not permitted to make deductible additions to bad debt
reserves under the Code. However, savings and loan associations and savings
associations such as the Association, which meet certain tests prescribed by the
Code may benefit from favorable provisions regarding deductions from taxable
income for annual additions to their bad debt reserve. For purposes of the bad
debt reserve deduction, loans are separated into "qualifying real property
loans," which generally are loans secured by interests in real property, and
non-qualifying loans, which are all other loans. The bad debt reserve deduction
with respect to non-qualifying loans must be based on actual loss experience.
The amount of the bad debt reserve deduction with respect to qualifying real
property loans may be based upon actual loss experience (the "experience
method") or a percentage of taxable income determined without regard to such
deduction (the "percentage of taxable income method").
The Association has elected to use the method that results in the
greatest deduction for federal income tax purposes, which historically has been
the percentage of taxable income method. The amount of the bad debt deduction
that a thrift institution may claim with respect to additions to its reserve for
bad debts is subject to certain limitations. First, the full deduction is
available only if at least 60% of the institution's assets fall within certain
designated categories. Second, under the percentage of taxable income method the
bad debt deduction attributable to "qualifying real property loans" cannot
exceed the greater of (i) the amount deductible under the experience method or
(ii) the amount which, when added to the bad debt deduction for non-qualifying
loans, equals the amount by which 12% of the sum of the total deposits and the
advance payments by borrowers for taxes and insurance at the end of the taxable
years exceeds the sum of the surplus, undivided profits, and reserves at the
beginning of the taxable year. Third, the amount of the bad debt deduction
36
attributable to qualifying real property loans computed using the percentage of
taxable income method is permitted only to the extent that the institution's
reserve for losses on qualifying real property loans at the close of the taxable
year does not exceed 6% of such loans outstanding at such time.
In August 1996, Congress passed legislation which repeals the
Association's present method of accounting for bad debts for federal income tax
purposes. As discussed in Note 13 to the Consolidated Financial Statements in
the Annual Report, the Association currently uses the percentage of taxable
income method to determine its bad debt deduction in the computation of its
taxable income. Under the new legislation, the Association will be required to
use the specific charge-off method, which may result in a different deduction
for bad debts in determining taxable income than as presently computed under its
current method. Additionally, the Association will be required to recapture its
post-1987 additions to its bad debt reserves over a six-taxable year period,
subject to an extension of up to two years if certain residential lending
requirements are met. As the Association had provided deferred taxes for the
income tax bad debt reserves established after 1987, management does not
anticipate any additional income tax liability related to the recapture. The new
legislation is effective for taxable years beginning after December 31, 1995.
Deferred income taxes arise from the recognition of certain items of
income and expense for tax purposes in years different from those in which they
are recognized in the financial statements. In February 1992, the FASB issued
SFAS 109 "Accounting for Income Taxes." SFAS 109 was implemented by the
Association retroactively, effective October 1, 1993. The liability method
accounts for deferred income taxes by applying the enacted statutory rates in
effect at the balance sheet date to differences between the book cost and the
tax cost of assets and liabilities. The resulting deferred tax liabilities and
assets are adjusted to reflect changes in tax laws.
The Association is subject to the corporate alternative minimum tax
which is imposed to the extent it exceeds the Association's regular income tax
for the year. The alternative minimum tax will be imposed at the rate of 20% of
a specially computed tax base. Included in this base will be a number of
preference items, including the following: (i) 100% of the excess of a thrift
institution's bad debt deduction over the amount that would have been allowable
on the basis of actual experience; and (ii) interest on certain tax-exempt bonds
issued after August 7, 1986. In addition. for purposes of the new alternative
minimum tax, the amount of alternative minimum taxable income that may be offset
by net operating losses is limited to 90% of alternative minimum taxable income.
The Association was audited by the Internal Revenue Service ("IRS") for
the tax year 1990 during fiscal year 1994. Based upon the audit the Association
received a "no-change" letter from the IRS. See Notes 1 and 13 to the Notes to
the Consolidated Financial Statements in the Annual Report. The Association has
not been audited by the State of Florida.
STATE TAXATION
Under the laws of the State of Florida, the Association and its
subsidiaries are generally subject to 5.5% tax on net income. The tax may be
reduced by a credit of up to 65% (40% prior to July 1, 1990) of the tax due as a
result of certain intangible taxes. The tax is deductible by the Association in
determining its federal income tax liability.
PERSONNEL
As of September 30, 1996, the Association had 206 full-time and 66
part-time employees. None of the Association's employees is represented by a
collective bargaining group. The Association believes its relationship with its
employees to be good.
37
ITEM 2. PROPERTIES
- -------------------------------
The Association conducts its business through its home office located
in North Palm Beach, Florida, and 17 full service branch offices, and one loan
processing office located in Palm Beach, Martin, St. Lucie and Indian River
Counties. The following table sets forth certain information concerning the home
office, each branch office and the loan processing office of the Association at
September 30, 1996. The aggregate net book value of the Association's premises
and equipment was $16.4 million at September 30, 1996. For additional
information regarding the Association's properties, see Note 9 to the Notes to
the Consolidated Financial Statements in the Annual Report.
LOCATION OPENING DATE OWNED/LEASE
Home Office 02/19/88 Owned
660 U.S. Highway I
North Palm Beach, Florida
BRANCH OFFICES
- --------------
Riviera Beach 08/19/55 Owned
2600 Broadway
Riviera Beach, Florida
Tequesta 07/19/59 Owned
101 N. U.S. Highway 1
Tequesta, Florida
Port Salerno 11/05/74 Owned
5545 SE Federal Highway
Port Salerno, Florida
Palm Beach Gardens 12/19/74 Owned
9600 N. Alternate AlA
Palm Beach Gardens, Florida
Jensen Beach 01/28/75 Owned
1170 NE Jensen Beach Blvd.
Jensen Beach, Florida
Singer Island 04/01/75 Owned
1100 East Blue Heron Blvd.
Riviera Beach, Florida
Gallery Square 01/30/76 Lease(1)
389 Tequesta Drive
Tequesta, Florida
Ft. Pierce 07/23/85 Owned
1050 Virginia Ave.
Ft. Pierce, Florida
Port St. Lucie 07/30/84 Lease(2)
1540 SE Floresta Drive
Port St. Lucie, Florida
38
LOCATION OPENING DATE OWNED/LEASE
- -------- ------------ -----------
Martin Downs 07/24/85 Lease(3)
3102 Martin Downs Blvd.
Palm City, Florida
Chasewood 02/26/86 Lease(4)
6350 Indiantown Rd., Suite 1
Jupiter, Florida
Bluffs 09/18/86 Lease(5)
3950 U.S. Highway I
Jupiter, Florida
Village Commons 06/26/89 Lease(6)
971 Village Boulevard
West Palm Beach, Florida
Hobe Sound 02/05/90 Owned
11400 SE Federal Highway
Hobe Sound, Florida
St. Lucie West 06/06/94 Owned
1549 St. Lucie West Blvd.
Port St. Lucie, Florida
Jupiter 07/10/95 Owned
520 Toney Penna Drive
Jupiter, Florida
PGA 04/22/96 Lease(7)
PGA Shoppes on the Green
7102 Fairway Drive
Palm Beach Gardens, Florida
Vero Loan Processing Office 12/01/95 Lease(8)
Univest Building
Vero Beach, Florida
(1)This lease expires on December 31, 2000 and provides for a renewal option
which runs through December 31, 2015
(2)This lease expires on January 31, 1999and provides for a renewal option which
runs through January 31, 2004.
(3)Thislease expires on August 8, 1998 and provides for a renewal option which
runs through August 8, 2004.
(4)This lease expires on January 31, 1998 and provides for a renewal option
which runs through January 31, 2006.
(5)This lease expires on October 31, 2001 and provides for a renewal option
which runs through October31, 2016.
(6)This lease expires on June 25, 2004 and provides for a renewal option which
runs through June 25, 2014.
(7)This lease expires on December 31,2000 and provides for a renewal option
which runs through December 31, 2005.
(8)This lease is on a month-to-month basis with no stated expiration date.
39
ITEM 3. LEGAL PROCEEDINGS
- -----------------------------------
There are various claims and lawsuits in which the Association is
periodically involved incident to the Association's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits. See Note 14 in the Notes to the Consolidated Financial Statements in
the Annual Report, attached hereto as Exhibit 13.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
- --------------------------------------------------------------------------------
The Association had 5,090,120 issued and outstanding shares at
September 30, 1996. For information concerning the market for the Association's
common stock, see the section captioned "Corporate Information" in the
Association's Annual Report which is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- --------------------------------------------------------------------------------
The "Financial Highlights" section of the Association's Annual Report
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Association's Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements identified in Item 14(a)(1) hereof are
incorporated by reference to the Association's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
There were no changes in or disagreements with the accountants in the
Association's accounting and financial disclosure during fiscal 1996.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------------------------
Information concerning Directors and Executive Officers of the
Association is incorporated herein by reference from the Association's
definitive Proxy Statement for the Annual Meeting of Shareholders dated December
19, 1996 (the "Proxy Statement"), specifically the section captioned
"Information with Respect to Nominees for Directors, Directors Whose Term
Continues and Executive Officers".
40
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Information concerning executive compensation is incorporated herein by
reference from the Association's Proxy Statement, specifically the sections
captioned "Management Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Association's Proxy
Statement, specifically the section captioned "Beneficial Ownership of Common
Stock by Certain Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Information concerning relationships and transactions is incorporated
herein by reference from the Association's Proxy Statement, specifically the
section captioned "Indebtedness of Management and Affiliated Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
- --------------------------------------------------------------------------------
The exhibits and financial statement schedules filed as a part of this
Form 10-K are as follows:
(a)(1) FINANCIAL STATEMENTS
--------------------
Independent Auditors' Report
Consolidated Statements of Financial Condition,
September 30, 1996 and 1995
Consolidated Statements of Operations,
Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity,
Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows,
Years Ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements.
(a)(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
No financial statement schedules are filed because the
required information is not applicable or is included in the
consolidated financial statements or related notes.
(a)(3) EXHIBITS
--------
*3.1 Federal Stock Charter of Community Savings, F. A.
(Incorporated by reference to Exhibit 2(C)(1) of
the Association's Form MHC-1, as amended)
*3.2 Bylaws of Community Savings, F. A. (Incorporated by
reference to Exhibit 2(C)(2) of the Association's
Form MHC-1, as amended)
*4 Common Stock Certificate of the Association
(Incorporated by reference to Exhibit 2(B)(1) of
the Association's Form MHC-1, as amended)
*10.1 Employee Stock Ownership Plan (Incorporated by
reference to Exhibit 2(D)(1) of the Association's
Form MHC-1, as amended)
*10.2 1995 Stock Option Plan (Incorporated by reference
to Exhibit 10.2 of the Association's Form 10-K for
the year ended September 30, 1994).
41
*10.3 1995 Recognition and Retention Plan for Employees
and Outside Directors (Incorporated by reference to
Exhibit 10.3 of the Association's Form 10-K for the
year ended September 30, 1994.)
13 1996 Annual Report to Shareholders
21 Subsidiaries of the Registrant - Reference is made
to Item 1 "Business" for the required information
(b) REPORTS ON FORM 8-K:
--------------------
The Association did not file any Current Reports on Form 8-K
in the fourth quarter of fiscal year 1996.
(c) The exhibits listed under (a)(3) above are filed herewith.
(d) Not applicable.
------------------------
*Previously filed.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, F. A.
Date: December 23, 1996 By: /s/ JAMES B. PITTARD, JR.
-------------------------
James B. Pittard, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ James B. Pittard, Jr. By: /s/ Larry J. Baker, CPA
------------------------------------------ ------------------------------------------------
James B. Pittard, Jr., President and Chief Larry J. Baker, CPA, Senior Vice President,
Executive Officer Chief Financial Officer and Treasurer
Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: December 23, 1996 Date: December 23, 1996
By: /s/ FREDERICK A. TEED By: /s/ FOREST C. BEATY, JR.
--------------------------------------- ------------------------------------------------
Frederick A. Teed, Chairman of the Board Forest C. Beaty, Jr., Director
Date: December 23, 1996 Date: December 23, 1996
By: /s/ ROBERT F. CROMWELL By: /s/ KARL D. GRIFFIN
------------------------------------------ ------------------------------------------------
Robert F. Cromwell, Director Karl D. Griffin, Director
Date: December 23, 1996 Date: December 23, 1996
By: /s/ HAROLD I. STEVENSON
-----------------------
Harold I. Stevenson, CPA, Director
Date: December 23, 1996
43
EXHIBIT 13
1996 ANNUAL REPORT TO SHAREHOLDERS
44
[Cover of annual report with graphic logo]
Community Savings, F.A.
Annual Report
1996
TABLE OF CONTENTS
President's Message 2
Financial Highlights 3
Locations 4
Management's Discussion and Analysis 5
Independent Auditors' Report 16
Consolidated Statements of Financial Condition 17
Consolidated Statements of Operations 18
Consolidated Statements of Changes in Shareholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
Corporate Directory 46
Corporate Information 47
1
[PICTURE OF JAMES B. PITTARD, JR. PRESIDENT OF COMMUNITY SAVINGS, F. A.]
Dear Fellow Shareholders:
Fiscal year 1996 represents our second complete year as a public company. This
year was a significant year for us based upon our growth as a company. It was
also significant because some very important legislation was passed by Congress
on September 30, 1996, which affected all Savings Association Insurance Fund
("SAIF") insured financial institutions. This legislation was a portion of the
Deposit Insurance Funds Act of 1996. Under this bill, Community Savings is
required to pay approximately $2.8 million to increase the SAIF fund of the
Federal Deposit Insurance Corporation ("FDIC") to the required 1.25% level of
insured deposits. Beginning in 1997, the SAIF premium expense for Community
Savings will drop from $1.2 million annually to around $325,000 per year. This
will result in an annual expense savings of approximately $875,000.
Net income for our fiscal year ended September 30, 1996, PRIOR to the SAIF
special assessment, was $5.7 million or $1.16 per share, a 23% increase in our
earnings, as compared to our previous year's income of $4.6 million or $0.94 per
share. AFTER the recognition of the SAIF special assessment, Community Savings
earned net income for the year ended September 30, 1996, of $3.9 million or
$0.79 per share.
As indicated earlier, we experienced significant growth during the last twelve
months. Assets increased $83.3 million to $650.3 million at September 30, 1996
from $567.0 million at September 30, 1995. The increase in total assets was
primarily due to a $46.8 million increase in the Association's loan portfolio as
well as a $37.3 million increase in the Association's securities portfolio.
These increases resulted from the Association's decision to expand its balance
sheet, which included the implementation of a new incentive-based loan
origination program as well as the acquisition of specific investment
transactions. The increase in total assets was funded primarily by a $61.6
million increase in deposits to $498.9 million at September 30, 1996 as compared
to $437.4 million at September 30, 1995. The deposit increase resulted from
increases in our retail deposits and public fund deposits. Additionally, some of
the specific investment transactions were funded by an $18.2 million increase in
Federal Home Loan Bank ("FHLB") advances. Shareholders' equity increased to
$75.1 million or $15.33 per share at September 30, 1996 from $72.8 million or
$15.04 per share at September 30, 1995, reflecting the net income for the year
less the dividends paid to our shareholders.
Our Board of Directors is always concerned about shareholder value and
recognizes the importance of the dividends we pay to you, our shareholders. On
June 30, 1996, our dividend was increased to $.20 per share per quarter,
resulting in a current annual payment per share of $.80. Since Community Savings
became a public company, dividends have grown from $.45 per share per year to
$.80 per share per year, which is a 78% increase.
This year, Community Savings opened its 18th office in the Shoppes on the Green
in the PGA National community. During 1996, an enhancement to Community Savings'
electronic banking was established with the implementation of our website on the
Internet. We see great potential convenience for our customers through the use
of electronic banking. Community Savings already offers several electronic
banking services to keep our customers in touch with their accounts through
ATM's, automatic funds transfer, Informline voice response system, and VISA
CheckCard.
Many exciting things are happening at Community Savings and none of them would
be possible without our biggest asset --our customers. We value all of our
customers and want to earn the privilege every day to be their primary financial
institution. On behalf of all our loyal and dedicated employees, our officers,
and our directors, we would like to thank you for your vote of confidence by
owning shares in our company.
We look forward to another successful year in 1997.
/s/ James B. Pittard, Jr.
- -------------------------------------
James B. Pittard, Jr.
President and Chief Executive Officer
2
FINANCIAL HIGHLIGHTS
Community Savings' common stock trades on the Nasdaq National Market under the
symbol "CMSV".
1996 1995 1994 1993 1992
FOR THE YEAR (In Thousands)
- ------------------------------------------------------------------------------------------------------------
Interest income $ 43,889 $ 37,720 $ 34,130 $ 39,747 $ 48,438
Interest expense 22,859 18,634 15,525 17,639 25,299
Net interest income 21,030 19,086 18,605 22,108 23,139
Net income 3,915 4,574 3,737 5,401 7,221
AVERAGE FOR THE YEAR (In Thousands)
- ------------------------------------------------------------------------------------------------------------
Assets $612,004 $544,555 $528,286 $532,222 $553,119
Loans receivable, net 346,880 321,849 321,721 352,173 416,139
Cash and cash equivalents 48,367 53,736 40,946 36,356 25,677
Mortgage-backed securities 99,959 53,349 28,843 15,428 23,674
Investments - held to maturity and securities
available for sale 87,280 130,094 106,031 92,897 47,809
Deposits 478,955 429,893 452,070 455,816 464,188
Borrowed funds 42,416 29,086 23,657 27,040 45,122
Shareholders' equity 74,638 69,263 36,376 31,734 25,707
YEAR END (In Thousands)
- ------------------------------------------------------------------------------------------------------------
Assets $650,332 $567,006 $560,268 $523,248 $540,764
Loans receivable net 376,219 329,442 317,117 328,747 382,326
Cash and cash equivalents 44,780 42,497 89,843 35,188 33,142
Mortgage-backed securities 54,945 77,499 41,281 14,290 17,742
Investments - held to maturity 22,293 59,679 52,204 43,789 29,983
Securities available for sale 124,287 27,028 26,729 69,459 39,128
Real estate owned 1,384 1,910 3,686 1,324 4,455
Deposits 498,929 437,376 459,979 450,356 459,918
Borrowed funds 55,867 39,101 19,233 20,113 31,994
Shareholders' equity 75,056 72,848 38,110 34,846 29,445
SIGNIFICANT PERFORMANCE RATIOS
- ------------------------------------------------------------------------------------------------------------
Return on average assets 0.64% 0.84% 0.71% 1.01% 1.31%
Return on average equity 5.25 6.60 10.27 17.02 28.09
Interest rate spread 3.24 3.40 3.69 4.43 4.55
Equity to assets at period end 11.54 12.85 6.80 6.65 5.45
Non-interest income to average assets 0.55 0.62 0.63 0.96 0.97
Non-interest expense to average assets 3.20 2.74 2.82 2.93 2.77
Non-performing loans to total loans 0.22 0.20 0.93 2.05 1.03
Non-performing assets to total assets 0.40 0.45 1.25 1.54 1.55
Allowance for loan losses to non-performing loans 274.58 527.49 114.72 55.65 57.72
Allowance for loan losses to net loans receivable 0.61 1.06 1.07 1.14 0.60
3
[This page dedicated for the Location Map.]
[GRAPHIC MAP DEPICTING INDIAN RIVER COUNTY, ST. LUCIE COUNTY,
MARTIN COUNTY AND PALM BEACH GARDENS IN RELATION
TO THE ENTIRE STATE OF FLORIDA]
PALM BEACH COUNTY
Bluffs (Jupiter), 3950 U.S. Highway One
Chasewood (Jupiter, 6350 Indiantown Road
Jupiter, 520 Toney Penna Drive
North Palm Beach, 660 U.S. Highway One
Shoppes on the Green (PGA), 7102 Fairway Drive
Palm Beach Gardens, 9600 N. Alternate A1A
Riviera Beach, 2600 Broadway
Singer Island, 1100 E. Blue Herron Boulevard
Tequesta, 101 N. U.S. Highway One
Gallery Square (Tequesta), 389 Tequesta Drive
Village Commons (West Palm Beach), 971 Village Boulevard
MARTIN COUNTY
Hobe Sound, 11400 SE Federal Highway
Jensen Beach, 1170 NE Jensen Beach Boulevard
Martin Downs (Palm City), 3102 Martin Downs Boulevard
Port Salerno, 5545 SE Federal Highway
ST. LUCIE COUNTY
Fort Pierce, 1050 Virginia Avenue
Port St. Lucie, 1540 SE Floresta Drive
St. Lucie West, 1549 St. Lucie West Boulevard
INDIAN RIVER COUNTY
Vero Beach Loan Production Office, 2770 Indian River Boulevard, Suite #319
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Community Savings, F. A. (the "Association" or "Community"), 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 FDIC
through the SAIF. The Association has been a member of the FHLB of Atlanta since
1955. On October 24, 1994, Community Savings successfully completed a stock
offering by issuing 5,000,000 shares of common stock of which 47.6% or 2,379,856
shares were purchased at $15.00 a share by the public and 2,620,144 shares were
issued to the Association's newly formed mutual holding company, ComFed M. H. C.
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 borrowings, to invest in various consumer-based real estate
loans and investment grade securities. Community's plan is to operate as a
well-capitalized, profitable and independent institution. The Association's
profitability is highly dependent on its net interest income which, in turn, is
a function of the relative amounts of interest-earning assets and
interest-bearing liabilities, combined with the rates earned or paid on such
rate-sensitive instruments. The Association manages interest rate risk exposure
by better matching 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 originating or purchasing mainly
secured or guaranteed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Association is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision ("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 5.0%. The Association's liquidity ratio averaged
11.4% during the month of September 1996 and 14.8% for fiscal 1996. 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.
The Association's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, 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 mortgage-backed 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 excess funds in short-term interest-earning and other
assets, which provide liquidity to meet lending requirements. Short-term
interest-bearing deposits with the FHLB of Atlanta amounted to $28.6 million at
September 30, 1996. Other assets qualifying for liquidity outstanding at
September 30, 1996 amounted to $34.7 million. 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. For additional
information about cash flows from the Association's 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 the Association requires funds beyond its ability to generate
them internally, borrowing agreements exist with the FHLB of Atlanta which
provide an additional source of funds. At September 30, 1996, the Association
had $36.4 million in advances from the FHLB of Atlanta. At September 30, 1996,
the Association had outstanding loan commitments, excluding the unfunded portion
of loans in process of $17.6 million and commitments to purchase loans of
$619,000. Certificates of deposit scheduled to mature in less than one year at
September 30, 1996, totaled $240.2 million. 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. 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 current 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 pay significantly lower
premiums than SAIF-insured institutions.
5
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 which mandated that all institutions which have
deposits insured by SAIF are 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 will increase 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 1996 operating results.
In August 1996, Congress passed legislation which repeals the Association's
present method of accounting for bad debts for federal income tax purposes. As
discussed in Note 13 to the consolidated financial statements, the Association
currently uses the percentage of taxable income method to determine its bad debt
deduction, in the computation of its taxable income. Under the new legislation,
the Association will be required to use the specific charge-off method, which
may result in a different deduction for bad debts in determining taxable income
than as presently computed under the current method. Additionally, the
Association will be required to recapture its post-1987 additions to its bad
debt reserves. Since the Association had previously provided deferred taxes for
the income tax bad debt reserves established after 1987, management does not
anticipate any additional income tax liability related to the recapture. The new
legislation is effective for taxable years beginning after December 31, 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Association and 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 the
Association's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Association are monetary. As a result, interest
rates have a greater impact on the Association's 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
SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995
Total assets increased $83.3 million to $650.3 million at September 30, 1996 as
compared to $567.0 million at September 30, 1995. The increase in total assets
was primarily due to a $46.8 million increase in the Association's loan
portfolio as well as a $37.3 million increase in the Association's securities
portfolio (which includes securities available for sale, investment securities,
and mortgage-backed and related securities). These increases were the result of
implementation of the Association's growth strategy for fiscal year 1996. This
strategy emphasized increased loan production funded by retail deposits,
combined with the purchase of securities funded by public fund deposits,
odd-term certificates of deposit, or FHLB of Atlanta advances. To increase the
loan portfolio, the Association implemented a new incentive-based loan
origination program which resulted in new loan originations of $113.3 million,
as well as purchases totaling $16.8 million, primarily consisting of loans
secured by one- to four-family residential real estate, offset in part by
repayments, sales, and other adjustments of $83.3 million.
The securities portfolio underwent not only an increase in its overall size but
experienced a shift in its composition during the year. Investment securities
held to maturity decreased $37.4 million to $22.3 million at September 30, 1996
from $59.7 million at September 30, 1995, as did mortgage-backed and related
securities which decreased $22.6 million to $54.9 million at September 30, 1996
from $77.5 million at September 30, 1995. These decreases were due primarily to
a one-time reclassification of $49.5 million of securities held to maturity to
securities available for sale in accordance with the provisions of Financial
Accounting Standards Board ("FASB") "A Guide to Implementation of SFAS No. 115
on Accounting for Certain Investments in Debt and Equity Securities - Questions
and Answers". Securities available for sale increased $97.3 million to $124.3
million at September 30, 1996 from $27.0 million at September 30, 1995 due to
the $49.5 million reclassification, as well as purchases of new securities of
$67.6 million, which included $13.9 million in U. S. Government and agency
securities, $37.7 million in mortgage-backed and related securities, and $16.0
million in mutual funds. These purchases were partially offset by sales, calls,
repayments, and other adjustments of $19.8 million.
6
The increase in total assets was funded primarily by a $61.6 million increase in
deposits to $498.9 million at September 30, 1996 as compared to $437.4 million
at September 30, 1995. The deposit growth reflected the introduction in fiscal
1996 of a 13-month certificate of deposit product, an increase in the use of
public fund deposits, as well as increased retail deposits. In addition,
advances from the FHLB increased $18.2 million to $36.4 million at September 30,
1996 from $18.2 million at September 30, 1995 primarily to fund the purchase of
securities.
Shareholders' equity increased to $75.1 million or $15.33 per share at September
30, 1996 from $72.8 million or $15.04 per share at September 30, 1995,
reflecting net income for the year of $3.9 million offset primarily by dividends
paid on the common stock totaling $1.7 million.
RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL
Net income for the year ended September 30, 1996 decreased 15.2% to $3.9
million, or $0.79 per share, compared to $4.6 million, or $0.94 per share, for
the same period last year due primarily to the $2.8 million special SAIF
assessment as well as a $1.8 million increase in other operating expense. Such
increases in expenses were partially offset by an increase in net interest
income of $1.9 million, a decrease of $142,000 in provision for loan loss, and a
decrease in the provision for income taxes of $2.0 million
INTEREST INCOME
Interest income for the year ended September 30, 1996 totaled $43.9 million, an
increase of $6.2 million, or 16.4%, from $37.7 million for the year ended
September 30, 1995. The increase was due primarily to an increase in average
interest-earning assets of $70.6 million to $575.9 million for the year ended
September 30, 1996 from $505.3 million for the same period in 1995, enhanced by
an increase in the average yield on average interest-earning assets to 7.62% for
the year ended September 30, 1996 from 7.46% for the year ended September 30,
1995. Interest income on loans increased $3.4 million, or 13.7%, to $28.3
million for the year ended September 30, 1996 compared to $24.9 million for the
same period in 1995. Interest income on real estate loans increased by $3.1
million, or 11.7%, to $26.8 million for the year ended September 30, 1996 from
$23.7 million for the same period in 1995, primarily because of an increase in
the average yield on real estate loans to 8.09% from 7.66%, and an increase in
average balance of real estate loans of $22.4 million, or 7.3%. Interest income
on consumer and other loans increased by $288,000 in 1996 as compared to 1995,
principally because of an increase in the average balance of such loans of $2.6
million to $15.7 million for the year ended September 30, 1996 from $13.1
million for the year ended September 30, 1995. Interest income on
mortgage-backed and related securities increased by $205,000, or 4.9%, to $4.4
million. The increase in interest income from mortgage-backed and related
securities is primarily attributable to an increase in the average balance of
mortgage-backed and related securities to $100.0 million from $53.3 million,
partially offset by a decrease in the average yield to 7.43% from 7.87%.
Interest income from investment securities and securities available for sale
increased by $2.8 million, or 46.7%, to $8.7 million for the year ended
September 30, 1996 from $5.9 million for the year ended September 30, 1995. The
increase in income from investment securities and securities available for sale
was primarily caused by an increase in the average balance of $3.6 million to
$87.3 million for the year ended September 30, 1996 from $83.7 million, offset
by a decrease in the average yield to 6.53% for the year ended September 30,
1996 from 7.11% for the year ended September 30, 1995. Interest income from
other investments decreased $226,000, or 8.3%, to $2.5 million for the year
ended September 30, 1996 from $2.7 million for the year ended September 30,
1995. The decrease in interest from other investments is primarily attributable
to a $4.6 million, or 9.9%, decrease in the average balance of other investments
to $41.8 million during 1996 from $46.4 million during 1995, partially offset by
an increase in the average yield on other investments to 5.96% for the year
ended September 30, 1996 from 5.85% for the year ended September 30, 1995.
INTEREST EXPENSE
Interest expense increased $4.2 million, or 22.7%, to $22.9 million for the year
ended September 30, 1996 from $18.6 million for the same period in 1995.
Interest on deposits increased $3.6 million, or 22.8%, to $19.2 million for the
year ended September 30, 1996 from $15.7 million for the year ended September
30, 1995. The increase was due primarily to the increase in average cost of
deposits to 4.02% from 3.65%, and to a lesser degree, an increase in the average
balance of deposits of $49.1 million, or 11.4%, to $479.0 million during 1996
from $429.9 million during 1995. In order to maintain, and if possible, to
increase its market share of total deposits, during fiscal 1996 the Association
placed an increased emphasis on certificate of deposit products, including a new
odd-term certificate of deposit product, 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. Interest expense attributable to borrowed funds increased $657,000, or
22.2%, to $3.6 million for the year ended September 30, 1996 from $3.0 million
for the year ended
7
September 30, 1995. The increase in interest expense attributable to borrowed
funds is due to an increase in the average balance of borrowed funds to $42.4
million during fiscal 1996 from $29.1 million during fiscal 1995, partially
offset by a decrease in the average cost of borrowed funds to 8.52% for the year
ended September 30, 1996 from 10.16% for the same period in 1995. During fiscal
year 1996, the Association used additional advances from the FHLB 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, the 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 Association's actual loss experience, as
well as standards applied by the OTS and the FDIC. The Association's provision
for loan losses was $98,000 for the year ended September 30, 1996 as compared to
$240,000 for the year ended September 30, 1995. The decrease in the provision
for loan losses for fiscal 1996 was attributable to management's assessment that
the allowance for loan losses was sufficient to absorb risk inherent in the
Association's portfolio. Management reviews the adequacy of its allowances for
loan losses monthly through asset classification review. The Association's
allowance for loan losses as a percentage of net loans receivable at September
30, 1996 was 0.61%.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale or call of mortgage-backed and related securities and
investment securities and income or loss from the Association's subsidiary's
real estate venture. Other income decreased $50,000, or 1.5%, to $3.3 million
for the year ended September 30, 1996 from $3.4 million for the year ended
September 30, 1995. The decrease in other income was primarily due to a
substantial decrease in the Association's income from its subsidiary's real
estate venture to $47,000 from $326,000 reflecting the smaller number of
closings on sales of units during fiscal 1996 as the Association's real estate
venture has sold the majority of the units, and a net loss on the sale of loans
of $225,000. For more information on the real estate venture, see Note 8 to the
Notes to the Consolidated Financial Statements. Such declines were partially
offset by increases of $383,000 in NOW account and other customer fees
(consisting of fees from money orders, transaction accounts, safe deposit boxes,
and overdraft fees), $53,000 in gains on calls of securities, and $54,000 in
miscellaneous other income.
OPERATING EXPENSE
Total operating expense increased $4.7 million to $19.6 million for the year
ended September 30, 1996 from $14.9 million for the year ended September 30,
1995. The increase in operating expense is primarily attributable to a 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 Deposit Insurance Funds Act of 1996, passed
by Congress and signed by the President on September 30, 1996. In addition,
employee compensation and benefits increased by $492,000 to $7.8 million during
1996 from $7.3 million during 1995, miscellaneous expense increased by $636,000
to $3.0 million during 1996 from $2.3 million during 1995, and the net gain on
real estate owned decreased by $569,000 to $243,000 for 1996 from $812,000 for
1995. During fiscal year 1996, the Association received an additional payment of
$470,000 representing a final settlement of the Association's claim with the
State of Florida Department of Insurance, as Receiver for International Medical
Centers, Inc. of Miami ("IMC"). Of this amount, $260,000 was classified as net
gain on real estate owned while the remaining $210,000 was classified as
interest income. During fiscal 1995, the Association received an initial
settlement of this claim of $816,000 which was classified as net gain on real
estate owned. Occupancy and equipment expense increased $75,000 to $4.6 million
for 1996 from $4.5 million for 1995 primarily due to the opening of a new
office, and advertising and promotion increased $71,000 to $616,000 for 1996
from $545,000 for 1995 primarily due to increased advertising for the
Association's lending products.
PROVISION FOR INCOME TAXES
Provision for income taxes decreased $2.0 million to $761,000 for the year ended
September 30, 1996 from $2.8 million for the same period in 1995. The decrease
in income tax expense reflected lower pre-tax income during the comparative
periods as well as 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.
8
RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
GENERAL
Net income for the year ended September 30, 1995 increased 22.4% to $4.6
million, or $0.94 per share, compared to $3.7 million for fiscal 1994 due
primarily to an increase in net interest income of $481,000, a decrease of
$749,000 in the provision for loan loss, and a decrease in operating expenses of
$36,000. This was partially offset by an increase in the provision for income
taxes combined with a decrease of $77,000 in other income.
INTEREST INCOME
Interest income for the year ended September 30, 1995 totaled $37.7 million, an
increase of $3.6 million, or 10.6%, from $34.1 million for the year ended
September 30, 1994. The increase was due primarily to an increase in the average
yield on average interest-earning assets to 7.46% for the year ended September
30, 1995 from 6.96% for the year ended September 30, 1994, enhanced by an
increase in the average balance of interest-earning assets of $14.6 million to
$505.3 million for the year ended September 30, 1995 from $490.7 million for the
same period in 1994. Interest income on loans decreased $303,000, or 1.3%, to
$23.7 million for the year ended September 30, 1995 compared to $23.4 million
for the same period in 1994. Interest income on real estate loans decreased by
$305,000, or .1%, to $23.7 million for the year ended September 30, 1995 from
$24.0 million for the same period in 1994, primarily because of a decrease in
the average yield on real estate loans to 7.66% from 7.72%, and a decrease in
average real estate loans of $1.6 million, or .5%. Interest income on consumer
and other loans increased by $187,000 in 1995 as compared to 1994, principally
because of a $1.8 million increase in the average balance of such loans to $13.1
million for the year ended September 30, 1995 from $11.3 million for the year
ended September 30, 1994. Interest income on mortgage-backed and related
securities increased by $1.7 million, or 68.0%, to $4.2 million. The increase in
interest income from mortgage-backed and related securities is primarily
attributable to an increase in the average balance of mortgage-backed and
related securities to $53.3 million from $28.8 million, partially offset by a
decrease in the average yield to 7.87% from 8.82%. Interest income from
investment securities increased by $651,000, or 1.2%, to $5.9 million for the
year ended September 30, 1995 from $5.3 million for the year ended September 30,
1994. The increase in income from investment securities was primarily caused by
an increase in the average yield of 2.12% to 7.11% from 4.99%, offset by a $22.3
million decrease in the average balance to $83.7 million for the year ended
September 30, 1995 from $106.0 million for the year ended September 30, 1994.
Interest income from other investments increased $1.4 million, or 107.7%, to
$2.7 million for the year ended September 30, 1995 from $1.3 million for the
year ended September 30, 1994. The increase in interest from other investments
is primarily attributable to a $12.3 million, or 36.1%, increase in the average
balance of other investments to $46.4 million during 1995 from $34.1 million
during 1994, as well as an increase in the average yield on other investments to
5.85% for the year ended September 30, 1995 from 3.87% for the year ended
September 30, 1994.
INTEREST EXPENSE
Interest expense increased $3.1 million, or 20.0%, to $18.6 million for the year
ended September 30, 1995 from $15.5 million for the same period in 1994.
Interest on deposits increased $2.4 million, or 18.0%, to $15.7 million for the
year ended September 30, 1995 from $13.3 million for the year ended September
30, 1994. The increase was due primarily to the increase in average cost of
deposits to 3.65% from 2.94%, offset by a decrease in the average balance of
deposits of $22.1 million, or 4.9%, to $429.9 million during 1995 from $452.1
million during 1994. Interest expense attributable to borrowed funds increased
$728,000, or 32.7%, to $3.0 million for the year ended September 30, 1995 from
$2.2 million for the year ended September 30, 1994. The increase in interest
expense attributable to borrowed funds is due to a increase in the average
balance of borrowed funds to $29.1 million during 1995 from $23.7 million during
1994, as well as an increase in the average cost of borrowed funds of 77 basis
points to 10.16% for the year ended September 30, 1995 from 9.39% for the same
period in 1994. During fiscal year 1995, the Association used advances from the
FHLB to fund the purchase of mortgage-backed and related securities, and
borrowed $2.8 million from an unaffiliated third party lender in order to
purchase 190,388 shares of the Association's common stock in the open market to
fund the ESOP plan.
PROVISION FOR LOAN LOSSES
The Association's provision for loan losses was $240,000 for the year ended
September 30, 1995 as compared to $989,000 for the year ended September 30,
1994. The decrease in provision for loan losses was attributable to management's
assessment that the allowance for loan losses was sufficient to absorb risk
inherent in the Association's portfolio as well as a lower level of charge-offs
for the fiscal year ended September 30, 1995 as compared to the fiscal year
ended September 30, 1994. Management reviews the adequacy of its allowances for
loan losses monthly through asset classification review. The Association's
allowance for loan losses as a percentage of net loans receivable at September
30, 1995 was 1.06%.
9
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale of mortgage-backed and related securities and investment
securities and income or loss from the Association's subsidiary's real estate
venture. Other income increased $77,000, or 2.3%, to $3.4 million for the year
ended September 30, 1995, from $3.3 million for the year ended September 30,
1994. The increase in other income was primarily due to a net gain on sale of
securities available for sale of $2,000 for the year ended September 30, 1995 as
compared to a net loss of $369,000 for the same period in 1994. This increase of
$371,000 as well as increases of $21,000 in servicing income and other fees,
$17,000 in NOW account and other customer fees (consisting of fees from money
orders, transaction accounts, safe deposit boxes, and overdraft fees), and
$41,000 in miscellaneous other income were offset by a substantial decrease in
the Association's income from its subsidiary's real estate venture to $326,000
from $444,000. The decrease was due to the fewer number of closings on sales of
units during fiscal 1995 as the Association's real estate venture continued to
wind down. In addition, for the year ended September 30, 1994, the Association
experienced net gains on the early maturity of mortgage-backed and related
securities and on the sale of loans both of which did not reoccur in 1995.
OPERATING EXPENSE
Total operating expense remained essentially unchanged during the year ended
September 30, 1995 from the year ended September 30, 1994. The slight decrease
in operating expense of $36,000 is primarily attributable to an increase in net
gain on real estate owned of $907,000 to $812,000 for the year ended September
30, 1995, from a loss of $95,000 for the same period in 1994. The increase in
net gain on real estate owned resulted from the receipt of $816,000,
representing a partial settlement of Community Savings' claim with the State of
Florida Department of Insurance, as Receiver for IMC, offset by other net losses
of real estate owned totaling $4,000. This increase was partially offset by an
increase in employee compensation and benefits of $487,000 to $7.3 million for
the year ended September 30, 1995 as compared to $6.8 million for the same
period in 1994, primarily due to the granting of stock awards pursuant to the
stock compensation benefit plans adopted during fiscal 1995. Advertising and
promotion increased $228,000 to $545,000 for the year ended September 30, 1995
as compared to $317,000 for the same period in 1994, which resulted from
increased marketing efforts promoting new and existing products. Occupancy and
equipment increased $85,000 in 1995 due primarily to the opening of a new branch
in Jupiter, and miscellaneous expense increased $91,000 primarily due to public
company related expenses.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $506,000 million, or 22.4%, to $2.8 million
for the year ended September 30, 1995 from $2.3 million for the same period in
1994. The increase in income tax expense reflected higher pre-tax income during
fiscal 1995.
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS - In May, 1995, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights". The Statement, which amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities", requires mortgage banking enterprises
that acquire mortgage servicing rights through either the purchase of or
origination of mortgage loans and sell or securitize those loans with servicing
rights retained to allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans based on their relative fair values. Mortgage
banking enterprises include commercial banks and thrift institutions that
conduct operations substantially similar to the primary operations of a mortgage
banking enterprise. SFAS No. 122 applies prospectively in fiscal years beginning
after December 15, 1995, to sales of mortgage loans with servicing rights
retained and to impairment evaluations of all amounts capitalized as mortgage
servicing rights, including those purchased before the adoption of this
Statement. Management is in the process of evaluating the impact of SFAS No.
122.
ACCOUNTING FOR STOCK-BASED COMPENSATION - In October, 1995, FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation". This Statement requires certain
disclosures about stock-based employee compensation arrangements, regardless of
the method used to account for them, and defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for stock-based compensation plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures of net income
and, if presented, earnings per share, as if the fair value method of accounting
defined in this Statement had been applied. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The disclosure
requirements of this Statement are effective for financial statements for fiscal
years
10
beginning after December 15, 1995. Pro forma disclosures required for entities
that elect to continue to measure compensation cost using APB No. 25 must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994. Management is in the process of evaluating the impact of SFAS
No. 123.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Association's
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 Years Ended September 30,
-------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
=========================================================================================================================
(Dollars In Thousands)
Interest-earning assets:
Real estate loans $331,134 $26,765 8.09% $308,793 $23,661 7.66% $310,380 $23,999 7.73%
Consumer and other loans 15,746 1,508 9.48 13,056 1,197 9.17 11,341 977 8.61
Mortgage-backed securities 99,959 7,423 7.43 53,349 4,198 7.87 28,843 2,543 8.82
Investment securities 87,280 5,700 6.53 83,650 5,945 7.11 106,031 5,294 4.99
Other investments (1) 41,817 2,493 5.96 46,444 2,719 5.85 34,056 1,317 3.87
-------- ------- ------ ----- ------ -----
Total interest-earning assets 575,936 43,889 7.62 505,292 37,720 7.46 490,651 34,130 6.96
Non-interest-earning assets 36,068 39,263 37,635
-------- -------- --------
Total assets $612,004 $544,555 $528,286
======== ======== ========
Interest-bearing liabilities:
Deposits $478,955 19,247 4.02% $429,893 15,679 3.65% $452,070 13,298 2.94%
Stock subscriptions (2) -- -- -- -- -- -- 252 5 1.98
Borrowed funds 42,416 3,612 8.52 29,086 12,955 10.16 23,657 2,222 9.39
-------- ------- -------- ------ -------- ------
Total interest-bearing
liabilities 521,371 22,859 4.38 458,979 28,634 4.06 475,979 15,525 3.26
Non-interest-bearing
liabilities 15,995 16,313 15,931
-------- -------- --------
Total liabilities 537,366 475,292 491,910
Equity 74,638 69,263 36,376
-------- -------- --------
Total liabilities
and equity $612,004 $544,555 $528,286
======== ======== ========
Net interest income $21,030 $19,086 $18,605
======= ======= =======
Net interest rate spread (3) 3.24% 3.40% 3.69%
======= ======= =======
Net yield on interest-
earning assets (4) 3.65% 3.78% 3.79%
======= ======= =======
Ratio of average interest
-earning assets to average
interest-bearing liabilities 110.47% 110.09% 103.08%
======= ======= =======
- ------------------------------------------------------------
(1) Includes interest-earning deposits and FHLB stock.
(2) Calculated on a daily average basis - all funds received in September
1994.
(3) 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.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
11
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 Association's 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 September 30,
=====================================================================================================
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
-----------------------------------------------------------------------------------------------------
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 $1,711 $1,297 $ 96 $3,104 $(123) $(186) $ 4 $ (305) $(2,612) $(3,874) $ 348 $(6,138)
Consumer and other loans 247 54 10 311 153 29 5 187 (87) (10) 2 (95)
Mortgage-backed securities 3,668 (235) (208) 3,225 2,161 (274) (232) 1,655 1,953 (886) (771) 296
Investment securities 258 (485) (18) (245) (1,117) 2,248 (480) 651 733 (548) (73) 112
Interest-earning deposits (271) 51 (6) (226) 479 674 249 1,402 96 103 9 208
------ ------ ----- ------ ------ ----- ----- ----- ------- ------- ----- -------
Total interest-earning
assets 5,613 682 (126) 6,169 1,553 2,491 (454) 3,590 83 (5,215) (485) (5,617)
------ ------ ----- ------ ------ ----- --=-- ----- ------- ------- ----- -------
INTEREST EXPENSE
Deposits 1,791 1,591 186 3,568 (652) 3,210 (177) 2,381 (201) (1,595) (9) (1,805)
Borrowed funds 1,354 (477) (220) 657 482 203 43 728 (317) 22 (14) (309)
------ ------ ----- ------ ------ ----- ----- ----- ------ ------ ----- -------
Total interest-bearing
liabilities 3,145 1,114 (34) 4,225 (170) 3,413 (134) 3,109 (518) (1,573) (23) (2,114)
------ ------ ----- ------ ------ ----- ----- ----- ------ ------ ----- -------
Net change in net interest
income $2,467 $(415) $ (108) $1,944 $1,723 $(922) $(320) $ 481 $ 601 $ (3,642) $ (462) $(3,503)
====== ====== ====== ====== ====== ===== ===== ====== ====== ======== ====== =======
ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS
The extent to which assets and liabilities are "interest rate sensitive" is
measured by an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. Based on the model presented in the
following table, during a period of rising interest rates, a negative gap would
tend to positively affect net interest income. Conversely, during a period of
falling interest rates, a negative gap would tend to positively affect net
interest income while a positive gap would tend to adversely affect net interest
income.
In the declining interest rate environment that has existed over the past
several years, the Association invested a substantial portion of its assets in
short- and medium-term liquid assets. While such investments typically yield
less than could be obtained in investments in mortgage loans, the Association
believes such investments will allow it to reinvest at higher yields if interest
rates rise. In this regard, the Association has emphasized the origination of
adjustable-rate mortgage ("ARM") loans and other adjustable-rate or short-term
loans, as well as purchased short-term and medium-term investments. In recent
years, the Association has de-emphasized the origination of fixed-rate
residential loans. In a low interest rate environment, borrowers typically
prefer fixed-rate loans, resulting in a decreased volume of loan originations.
During fiscal year 1996, the Association sought to increase its loan
originations with the implementation of a new incentive-based loan origination
program and increased emphasis on its commercial lending program. The
Association currently sells fixed-rate residential mortgage loans with
maturities of more that 15 years in the secondary market, and retains ARM loans
and fixed-rate loans with maturities of 15 years or less. The Association also
invests in United States Government and agency securities, investment
securities, including mutual funds that invest in adjustable-rate securities,
and short-term and medium-term fixed-rate mortgage-backed and government
securities. Of the Association's total investment in loans, mortgage-backed
securities and investment securities at September 30, 1996, $321.9 million, or
12
53.0%, had adjustable interest rates. In addition, the Association does not
solicit high-rate certificates of deposit in excess of $100,000 or brokered
funds.
At September 30, 1996, total interest-earning assets maturing or repricing
within one year exceeded total interest-bearing liabilities maturing or
repricing in the same period by $15.0 million, representing a cumulative
one-year gap ratio of a positive 2.3% (See table on page 14). The Association
has an Asset-Liability Committee which is responsible for reviewing the
Association's asset and liability policies. The Committee meets on a regular
basis and reports to the Board of Directors on interest rate risks and trends,
as well as liquidity and capital ratios and requirements.
MARKET VALUE PORTFOLIO EQUITY
In 1994, the OTS adopted amendments to its risk-based capital regulations
requiring savings associations to calculate the market value of their portfolio
equity ("MVPE"). These calculations are based upon data concerning
interest-earning assets, interest-bearing liabilities and other rate sensitive
assets and liabilities provided to the OTS on schedule CMR of the Quarterly
Thrift Financial Report. The amendments to the risk-based capital regulations
require institutions to hold additional risk-based capital in an amount equal to
one-half the amount an institution's interest rate risk exceeds the normal
amount of interest rate risk. Normal interest rate risk is defined as 2% of the
MVPE at static interest rates. If, after applying a rate shock of 200 basis
points ("bp") (one basis point equals .01%) of either a decline or increase in
rates, the resultant negative change in MVPE exceeds 2% of MVPE at static
interest rates, an institution is deemed to have excess interest rate risk.
Although the final rule was scheduled to be effective January 1994, the OTS has
indicated it will delay invoking application of the interest rate risk rule
until appeal procedures are implemented and evaluated. The OTS has not yet
established an effective date for the capital deduction.
The following table presents the Association's internal calculations of MVPE at
September 30, 1996.
Change in Interest Rates In Basis Actual Net Market Value of Portfolio Equity
Points
(Rate Shock) Amount $ Change % Change
- ------------------------------------------------------------------------------
(Dollars in Thousands)
400 61,366 (30,536) (33.2)%
300 68,228 (23,674) (25.8)%
200 75,573 (16,329) (17.8)%
100 83,447 (8,455) (9.2)%
Static 91,902 -- --
(100) 100,995 9,093 9.9%
(200) 110,790 18,888 20.6%
(300) 121,358 29,456 32.1%
(400) 132,779 40,877 44.5%
13
GAP TABLE
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996, which are
expected to reprice or mature, based on certain assumptions, in each of the
future time periods shown. Except as stated below, the amounts of assets and
liabilities shown that reprice or mature during a particular period were
determined in accordance with the earlier term of repricing or the contractual
terms of the asset or liability.
Amounts Maturing or Repricing
--------------------------------------------------------------------------------------
Less than 3 to 6 6 Months 1 to 3 3 to 5 5 to 10 More than
3 Months Months to 1 Year Years Years Years 10 Years Total
--------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest-earning assets:
Real estate loans:
Residential one- to four-family:
Market index ARMs $10,608 $78,740 $89,316 $2,800 $ 49 $ -- $ -- $181,513
Fixed-rate 5,635 5,329 9,523 27,776 24,746 29,115 15,081 117,205
Commercial and multi-family:
ARMs 9,001 15,528 15,339 10,273 477 -- -- 50,618
Fixed-rate 665 1,590 734 5,168 1,486 1,347 981 11,971
Valuation allowances -- -- -- -- -- -- (2,312) (2,312)
Yield adjustments (13) (13) (26) (103) (102) -- -- (257)
Consumer loans 765 901 1,289 2,767 674 146 -- 6,542
Equity line of credit loans 7,169 1 2 9 9 1,874 -- 9,064
Commercial business loans 1,691 14 11 143 15 -- -- 1,874
Collateralized mortgage
obligations 8,863 2,909 5,741 15,733 23,584 32,128 2,688 91,646
Other mortgage-backed securities 1,247 1,174 2,157 6,279 3,721 2,039 -- 16,617
Investment securities 79,995 3,737 816 7,651 14,262 15,529 452 122,442
FHLB stock 5,384 -- -- -- -- -- -- 5,384
------- ------- ------- ------ ------- -------- -------- -------
Total interest-earning
assets 131,010 109,910 124,902 78,496 68,921 82,178 16,890 612,307
------- ------- ------- ------ ------- -------- -------- -------
Interest-bearing liabilities:
Passbook accounts 1,314 1,314 2,625 6,616 3,200 6,374 9,432 30,875
NOW accounts 5,837 5,837 11,674 13,458 2,384 4,799 19,109 63,098
Money market accounts 13,710 13,710 27,420 1,608 680 584 11,709 69,421
Certificate accounts 91,087 97,517 51,839 42,510 31,690 1,360 -- 316,003
FHLB advances 1,588 2,123 3,711 14,843 11,943 2,142 -- 36,350
Borrowed funds 17,453 -- -- -- -- -- -- 17,453
------- ------- ------- ------ ------- -------- -------- -------
Total interest-bearing
liabilities 133,053 120,501 97,269 79,035 49,897 15,259 40,250 535,264
------- ------- ------ ------ ------- -------- -------- -------
Interest-earning assets less
interest-bearing liabilities
("interest rate sensitivity gap") $(2,043) $(10,591) $27,633 $ (539) $19,024 $ 66,919 $ (23,360) $77,043
======= ======== ======= ======= ======= ======== ========= =======
Cumulative excess (deficiency) of
interest-sensitive assets
over interest-sensitive
liabilities $(2,043) $(12,634) $14,999 $14,460 $33,484 $100,403 $ 77,043
======= ======== ======= ======= ======= ======== ========
Interest sensitivity gap to
total assets (0.31)% (1.63)% 4.25% (0.08)% 2.93% 10.29% (3.59)%
Cumulative interest sensitivity
gap to total assets (0.31)% (1.94)% 2.31% 2.22% 5.15% 15.44% 11.85%
Ratio of interest-earning
assets to interest-bearing
liabilities 98.46% 91.21% 128.41% 99.32% 138.13% 538.55% 41.96%
Cumulative ratio of interest-earning
assets to interest bearing
liabilities 98.46% 95.02% 104.28% 103.36% 106.98% 120.28% 114.39%
Cumulative interest-sensitive
assets $131,010 $240,920 $365,822 $444,318 $513,239 $595,417 $612,307
Cumulative interest-bearing
liabilities $133,053 $253,554 $350,823 $429,858 $479,755 $495,014 $535,264
In preparing the table above, it has been assumed, consistent with the
assumptions used by the FHLB of Atlanta, as of June 1996, in assessing the
interest rate sensitivity of savings associations, that: (i) adjustable-rate
first mortgage loans will prepay at a rate of 16% per year; (ii) fixed-rate
mortgage loans on one- to four-family residences with terms to maturity of 15
years or less will prepay at a rate of 10% per year; (iii) second mortgage loans
on one- to four-family
14
residences will prepay at a rate of 13% per year; (iv) fixed-rate first mortgage
loans on one- to four-family residential properties with remaining terms to
maturity of over 15 years will prepay annually as follows:
Prepayment Interest Rate Assumption
------------------------------------------------------------------
Less than 8% 9%
8 to 8.99% 11%
9 to 9.99% 14%
10 to 10.99% 21%
11 to 11.99% 21%
12 to 13.99% 21%
14% and over 21%
(v) fixed maturity deposits will not be withdrawn prior to maturity; and (vi)
these withdrawal rates as well as loan prepayment assumptions are based on
certain assumptions for loan prepayments and deposit withdrawals. Management
believes that these assumptions approximate actual experience and considers them
appropriate and reasonable. NOW, passbook and money market accounts will decay
at the following rates:
Over 1 Over 3 Over 5 Over 10
1 Year Through Through Through Through Over 20
or Less 3 Years 5 Years 10 Years 20 Years Years
--------------------------------------------------------------------
NOW accounts 37% 34% 9% 20% 20% 20%
Passbook accounts 17% 26% 17% 40% 40% 40%
Money market deposit accounts 79% 11% 5% 5% 5% 5%
The above assumptions utilized by the FHLB of Atlanta are annual percentages
based on remaining balances and should not be regarded as indicative of the
actual prepayments and withdrawals that may be experienced by the Association.
Moreover, certain shortcomings are inherent in the analysis presented by the
foregoing tables. 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. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind changes in
market interest rates. Additionally, certain assets, such as ARM loans, have
features that restrict changes in interest rates on a short-term basis and over
the life of the assets. Moreover, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. For information regarding the
contractual maturities of the Association's loans, investments, and deposits,
see Notes to Consolidated Financial Statements.
15
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Community Savings, F. A.:
We have audited the accompanying consolidated statements of financial condition
of Community Savings, F. A. (the "Association") and its subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1996. These consolidated financial
statements are the responsibility of the Association's 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Association and its
subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
As discussed in the Notes to the Consolidated Financial Statements, the
Association changed its method of accounting for debt and equity securities,
effective October 1, 1993, to conform with Statement of Financial Accounting
Standards No.
115.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida
November 15, 1996
16
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------
September 30,
1996 1995
- -------------------------------------------------------------------------------------------------
(In Thousands)
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 15,600 $ 13,126
Interest-bearing deposits (Note 1) 29,180 29,371
--------- ---------
Total cash and cash equivalents 44,780 42,497
Securities available for sale (Approximate cost -
1996, $125,928; 1995, $27,499)(Notes 1,2) 124,287 27,028
Investments - held to maturity (Approximate fair value - 1996,
$26,093; 1995, $64,135)(Notes 1,3,6,16) 22,293 59,679
Mortgage-backed and related securities - held to maturity
(Approximate fair value - 1996, $54,988; 1995, $77,818) (Notes 1,4,6) 54,945 77,499
Loans receivable, net of allowance for loan losses
(1996, $2,312; 1995, $3,492)(Notes 1,5,6) 376,219 329,442
Accrued interest receivable (Notes 1,7) 2,208 2,143
Investment in and advances to real estate venture (Notes 1,8) 218 1,523
Office properties and equipment, net (Notes 1,9) 16,359 16,255
Real estate owned, net (Notes 1,10) 1,384 1,910
Federal Home Loan Bank Stock - at cost (Notes 3,6) 5,384 7,384
Other assets 2,255 1,646
--------- ---------
Total assets $ 650,332 $ 567,006
========= =========
LIABILITIES
Deposits (Notes 6,11) $ 498,929 $ 437,376
Mortgage-backed bond, net (Notes 6,16) 17,453 18,344
Advances from Federal Home Loan Bank (Notes 6, 12) 36,350 18,200
Employee Stock Ownership Plan borrowings (Notes 14, 15) 2,064 2,557
Advances by borrowers for taxes and insurance 6,861 6,997
Other liabilities (Note 15) 11,599 7,175
Deferred income taxes, net (Notes 1,13) 2,020 3,509
--------- ---------
Total liabilities 575,276 494,158
--------- ---------
Commitments and contingencies (Note 14)
SHAREHOLDERS' EQUITY
Preferred stock ($1 par value) 10,000,000 authorized shares,
no shares issued -- --
Common stock ($1 par value) 20,000,000 authorized
shares, 1996, 5,090,120 and 1995, 5,088,900 shares
issued and outstanding 5,090 5,089
Additional paid in capital 29,881 30,182
Retained income - substantially restricted (Notes 13,17) 43,902 41,666
Common stock purchased by Employee Stock Ownership Plan (1,965) (2,456)
Common stock issued to Recognition and Retention Plan (654) (1,162)
Unrealized decrease in market value of securities available
for sale, net of income taxes (1,198) (471)
--------- ---------
Total shareholders' equity 75,056 72,848
--------- ---------
Total liabilities and shareholders' equity $ 650,332 $ 567,006
========= =========
See notes to consolidated financial statements.
17
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest income:
Real estate loans (Note 1) $ 26,765 $ 23,661 $ 23,999
Consumer and commercial business loans 1,508 1,197 977
Investment securities and securities available for sale (Notes 2,3) 8,720 5,945 5,294
Mortgage-backed and related securities (Note 4) 4,403 4,198 2,543
Interest-earning deposits 2,493 2,719 1,317
----------- ----------- -----------
Total interest income 43,889 37,720 34,130
----------- ----------- -----------
Interest expense:
Deposits (Note 11) 19,247 15,679 13,298
Advances from Federal Home Loan Bank and other borrowings (Notes 12, 16) 3,612 2,955 2,227
----------- ----------- -----------
Total interest expense 22,859 18,634 15,525
----------- ----------- -----------
Net interest income 21,030 19,086 18,605
Provision for loan losses (Notes 1,5) 98 240 989
----------- ----------- -----------
Net interest income after provision for loan losses 20,932 18,846 17,616
----------- ----------- -----------
Other income:
Servicing income and other fees 148 184 163
NOW account and other customer fees 3,150 2,767 2,750
Net loss on sale of securities available for sale -- -- (369)
Gain on early maturity of investments 254 -- 236
Net gain (loss) on sale of loans (225) -- 19
Equity in net income of real estate venture (Note 8) 47 326 444
Miscellaneous 170 117 74
----------- ----------- -----------
Total other income 3,544 3,394 3,317
----------- ----------- -----------
Operating expense:
Employee compensation and benefits (Note 15) 7,785 7,293 6,806
Occupancy and equipment (Notes 9,14) 4,581 4,506 4,421
Net (gain) loss on real estate owned (243) (812) 95
Advertising and promotion 616 545 317
Federal deposit insurance premium 3,883 1,029 1,049
Miscellaneous 3,178 2,342 2,251
----------- ----------- -----------
Total operating expense 19,800 14,903 14,939
----------- ----------- -----------
Income before provision for income taxes 4,676 7,337 5,994
----------- ----------- -----------
Provision (benefit) for income taxes: (Notes 1,13)
Current 1,817 3,126 2,697
Deferred (1,056) (363) (440)
----------- ----------- -----------
Total provision for income taxes 761 2,763 2,257
----------- ----------- -----------
Net income $ 3,915 $ 4,574 $ 3,737
=========== =========== ===========
Primary and fully diluted earnings per share $ 0.79 $ 0.94 N/A
=========== =========== ===========
Weighted average common shares outstanding 4,936,763 4,845,383 N/A
=========== =========== ===========
See notes to consolidated financial statements.
18
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------------------------------------------------
Unrealized
Increase
(Decrease) in
Market Value
Additional Retained Employee Recognition of
Paid Income- Stock and Securities
Common In Substantially Ownership Retention Available for
Stock Capital Restricted Plan Plan Sale Total
---------------------------------------------------------------------------------
(In Thousands)
Balance - September 30, 1993 $ -- $ -- $34,846 $ -- $ -- $ -- $34,846
Net income for the year ended
September 30, 1994 -- -- 3,737 -- -- -- 3,737
Adjustment for change in method
of accounting for investments
in mutual funds and equity
securities (See Notes 1,2) -- -- -- -- -- 69 69
Unrealized decrease in market value
of assets available for sale,
pursuant to adoption of SFAS
115 (net of income taxes) -- -- -- -- -- (542) (542)
------------------------------------------------------------------------------------
Balance - September 30, 1994 -- -- 38,583 -- -- (473) 38,110
Issuance of Common Stock
pursuant to Reorganization, net
of costs of issuance of $1,712 5,000 28,984 -- -- -- -- 33,984
Assets distributed to Mutual
Holding Company pursuant to
Reorganization -- -- (200) -- -- -- (200)
Purchase of Common Stock by Employee
Stock Ownership Plan -- -- -- (2,753) -- -- (2,753)
Distribution of Common Stock to
Recognition and
Retention Plan 89 1,278 -- -- (1,367) -- --
Net income for the year ended
September 30, 1995 -- -- 4,574 -- -- -- 4,574
Unrealized increase in market value
of assets available for sale
(net of income taxes) -- -- -- -- -- 2 2
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan -- (80) -- 297 205 -- 422
Dividends declared -- -- (1,291) -- -- -- (1,291)
------------------------------------------------------------------------------------
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 -- --
Amortization of deferred compensation
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
====================================================================================
See notes to consolidated financial statements.
19
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(In Thousands)
Cash flows from (for) operating activities:
Net income $ 3,915 $ 4,574 $ 3,737
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 1,304 1,353 1,434
Employee Stock Ownership Plan and Recognition
compensation expense and Retention Plan 686 422 --
Deferred income tax provision (1,056) (363) (440)
Federal Home Loan Bank stock dividend -- -- (182)
Accretion of discounts, amortization of
items premiums, and other deferred yield (1,494) (1,497) (1,725)
Provision for losses on other assets 200 -- --
Provision for loan losses 98 240 989
Provision for losses and net losses on sales of real estate owned (67) (102) (20)
Amortization of discount on mortgage-backed bond 496 498 506
Net (gain) loss on sale of: Securities available for sale -- -- 369
Loans and other assets 208 4 (7)
Net gain on call of securities (254) -- (237)
(Increase) decrease in accrued interest receivable (65) (1,181) 176
(Increase) decrease in other assets (609) 473 (725)
Decrease (increase) in loans available for sale 109 (316) 566
Increase in other liabilities 4,424 85 734
-------- -------- --------
Net cash provided by operating activities 7,895 4,190 5,175
-------- -------- --------
Cash flows from (for) investing activities:
Loan originations and principal payments on loans - net (34,182) (10,825) 8,290
Principal payments received on mortgage-backed and related securities 11,454 5,286 5,628
Principal payments received on investments 2,671 2,694 898
Purchases of: Loans (16,775) (2,728) (2,395)
Mortgage-backed and related securities (6,013) (41,549) (32,460)
Investments -- (30,085) (34,053)
Securities available for sale (67,641) -- (41,122)
Office property and equipment (1,481) (1,805) (1,762)
Proceeds from sales of: Securities available for sale 749 -- 82,712
Federal Home Loan Bank stock 2,000 -- --
Office property and equipment 443 25 189
Real estate acquired in settlement of loans 767 3,130 1,767
Loans purchased 3,452 -- --
Proceeds from maturities of investments 22,012 21,000 26,687
Investment in real estate venture 1,305 1,588 1,920
Other investing (455) 148 (71)
-------- -------- --------
Net cash provided by (used for) investing activities (81,694) (53,121) 16,228
-------- -------- --------
Cash flows from (for) financing activities:
Net increase (decrease) in: NOW accounts, demand deposits, and savings
accounts (1,200) (34,139) 9,848
Certificates of deposit 62,753 41,868 (30,557)
Stock subscriptions applied or returned -- (55,716) --
Proceeds from sale of stock subscriptions -- -- 55,716
Advances from Federal Home Loan Bank 22,500 19,000 --
Repayment of advances from Federal Home Loan Bank (4,350) (800) --
Advances by borrowers for taxes and insurance (136) 99 (368)
Proceeds from borrowings under lines of credit -- -- 25,000
Payments made on lines of credit -- -- (25,000)
Employee Stock Ownership Plan loan (493) 2,557 --
Purchases of Employee Stock Ownership Plan shares -- (2,753) --
Sale of common stock-net of issuance costs 13 33,758 --
Payments made on mortgage-backed bond (1,387) (1,387) (1,387)
Dividends paid (1,618) (902) --
-------- -------- --------
Net cash provided by financing activities 76,082 1,585 33,252
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,283 (47,346) 54,655
Cash and cash equivalents, beginning of period 42,497 89,843 35,188
-------- -------- --------
Cash and cash equivalents, end of period $ 44,780 $ 42,497 $ 89,843
======== ======== ========
See notes to consolidated financial statements.
20
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Community Savings, F. A. (the
"Association") and its subsidiaries 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 the Association and its wholly- owned
subsidiaries, ComFed, Inc. ("ComFed") and ComFed Development Co. ("ComFed
Development"). ComFed was formed for the purpose of owning and operating
an insurance agency, Community Insurance Agency. ComFed Development is
engaged in real estate development activities under joint venture
arrangements with local developers. Prior to fiscal year 1995, the
Association had two other wholly-owned subsidiaries, 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 Development during September
1995. All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and that affect the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS - For presentation purposes in the consolidated
financial statements, the Association considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
INVESTMENTS - HELD TO MATURITY - Investments - held to maturity are
carried at cost, adjusted for amortization of premiums and accretion of
discounts using the interest method. The Association has the intent and
ability to hold these securities to maturity.
SECURITIES AVAILABLE FOR SALE - Securities available for sale are carried
at fair value. In accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investments in
Debt and Equity Securities", unrealized gains or losses related to
securities available for sale are excluded from earnings and reported as a
net amount as a separate component of equity. The Association adopted the
provisions of SFAS No. 115, effective October 1, 1993. Gains and losses on
sales of securities available for sale are computed using the specific
identification method.
MORTGAGE-BACKED AND RELATED SECURITIES - HELD TO MATURITY -
Mortgage-backed and related securities - held to maturity are carried at
cost, adjusted for amortization of premiums and accretion of discounts
using the interest method. The Association has the intent and ability to
hold these securities to maturity.
INTEREST RATE RISK - The Association is engaged principally in providing
first mortgage loans (both adjustable-rate and fixed-rate) to individuals
and commercial enterprises. At September 30, 1996 and 1995, 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.
PROVISIONS FOR LOSSES - Provisions for losses, which increase the
allowances for loan losses and real estate losses, are established by
charges to income. Such allowances represent the amounts which, in
management's judgment, are adequate to absorb charge-offs of both existing
loans which may become uncollectable and for future declines in the fair
value of real estate owned. The adequacy of the allowances are determined
by management's monthly evaluation of the loan and real estate portfolios
in light of past loss experience, present economic conditions and other
factors considered relevant by management. Anticipated changes in economic
factors which may influence the level of the allowances are considered in
the evaluation by management when the likelihood of the changes can be
reasonably determined.
UNCOLLECTED INTEREST - The Association reverses accrued interest on
mortgage loans which are more than ninety days past due and ceases
accruing interest on such loans thereafter. Any such interest ultimately
collected is credited to income in the period of recovery.
21
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OFFICE PROPERTIES AND EQUIPMENT - Office properties and equipment are
carried at cost less accumulated depreciation. 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.
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.
REAL ESTATE OWNED - Real estate owned is recorded at cost which is the
estimated fair value of the property at the time the loan is foreclosed.
Subsequent to foreclosure, these properties are carried at the lower of
cost or fair value minus estimated costs to sell. Provisions for losses on
real estate owned are summarized in Note 10.
The amounts the Association could ultimately recover from real estate
owned could differ materially from the amounts used in arriving at the net
carrying value of the assets because of future market factors beyond the
Association's control or changes in the Association's strategy for
recovering its investment.
LOAN FEES - Loan origination fees and certain direct incremental costs
related to such loans are deferred. Net deferred loan fees are amortized
to income using the interest method over the contractual life of the loan.
Unamortized net loan fees on loans sold prior to maturity are credited to
income as an adjustment to the gain or loss at the time of sale.
PREMIUMS AND DISCOUNTS ON LOANS - Unearned discounts on home improvement
loans and other installment loans are amortized to income over the terms
of the related loans using the interest method. Premiums and discounts on
loans purchased are amortized to income using the interest method.
INCOME TAXES - The Association and its subsidiaries file consolidated
federal and state income tax returns. Income taxes are allocated
proportionately to the Association and its subsidiaries as though separate
tax returns were being filed.
Deferred income taxes are provided on items recognized for financial
reporting purposes in periods different than such items are recognized for
income tax purposes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No.109").
EARNINGS PER SHARE - The weighted average number of shares of common stock
used in calculating earnings per share was determined by reducing
outstanding shares by unallocated Employee Stock Ownership ("ESOP") shares
and unvested Recognition and Retention Plan ("RRP") shares. The effect of
stock options on weighted average shares outstanding are calculated using
the Treasury Stock method. Fully diluted shares outstanding include the
maximum dilutive effect of stock issuable upon exercise of common stock
options and unallocated ESOP and RRP shares of common stock. Earnings per
share information for periods prior to 1995 are not presented because the
Association did not complete its Reorganization until October 24, 1994.
IMPACT OF NEW ACCOUNTING ISSUES - In May, 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights" ("SFAS No. 122"). The Statement, which amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities", requires
mortgage banking enterprises that acquire mortgage servicing rights
through either the purchase of or origination of mortgage loans and sell
or securitize those loans with servicing rights retained to allocate the
total cost of the mortgage loans to the mortgage servicing rights and the
loans based on their relative fair values. Mortgage banking enterprises
include commercial banks and thrift institutions that conduct operations
substantially similar to the primary operations of a mortgage banking
enterprise. SFAS No. 122 applies prospectively in fiscal years beginning
after December 15, 1995 to sales of mortgage loans with servicing rights
retained and to impairment evaluations of all amounts capitalized as
mortgage servicing rights, including those purchased before the adoption
of this Statement. Management is in the process of evaluating the impact
of SFAS No. 122.
In October, 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). This Statement requires certain
disclosures about stock-based employee compensation arrangements,
regardless of the method used to account for them, defines a fair value
based method of accounting for an employee stock option or similar equity
instrument, and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for stock-based
compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"). Entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma
22
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
disclosures of net income and, if presented, earnings per share, as if the
fair value method of accounting defined in this Statement had been
applied. Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The disclosure
requirements of this Statement are effective for financial statements for
fiscal years beginning after December 15, 1995. Pro forma disclosures
required for entities that elect to continue to measure compensation cost
using APB Opinion No. 25 must include the effects of all awards granted in
fiscal years that begin after December 15, 1994. Management is in the
process of evaluating the impact of SFAS No. 123.
IMPACT OF NEW LEGISLATIVE ISSUES.
In August 1996, Congress passed legislation which repeals the
Association's present method of accounting for bad debts for federal
income tax purposes. As discussed in Note 13 to the consolidated financial
statements, the Association currently uses the percentage of taxable
income method to determine its bad debt deduction, in the computation of
its taxable income. Under the new legislation, the Association will be
required to use the specific charge-off method, which may result in a
different deduction for bad debts in determining taxable income than as
presently computed under the current method. Additionally, the Association
will be required to recapture its post-1987 additions to its bad debt
reserves. As the Association had provided deferred taxes for the income
tax bad debt reserves established after 1987, management does not
anticipate any additional income tax liability related to the recapture.
The new legislation is effective for taxable years beginning after
December 31, 1995.
On September 30, 1996, Congress passed, and the President signed, the
Deposit Insurance Fund Act of 1996 which mandated that all institutions
which have SAIF-insured deposits are required to pay a one-time special
assessment of 65.7 basis points (subject to certain adjustments) on
SAIF-insured deposits that were held at March 31, 1995 payable by November
27, 1996 to recapitalize the SAIF which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). The assessment will bring the
SAIF's reserve ratio to a comparable level of the Bank Insurance Fund's
("BIF'") at 1.25 percent 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 included in the consolidated financial statements at September 30,
1996.
RECLASSIFICATIONS - Certain amounts in the 1995 and 1994 consolidated
financial statements have been reclassified to conform to the presentation
for 1996.
23
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES AVAILABLE FOR SALE
During the quarter ended December 31, 1995, the Association adopted the
provisions of SFAS No. 115 Questions and Answers Guide ("SFAS No. 115
Q&A") which allowed a one time reclassification of securities between held
to maturity and available for sale between November 15, 1995 and December
31, 1995. The Association reclassified $49.5 million of securities from
held to maturity to available for sale. Such reclassification resulted in
a credit of $247,000 to shareholders' equity. The Association subsequently
sold $749,000 of such securities at no gain or loss.
Securities available for sale at September 30, 1996 and 1995 are
summarized as follows:
---------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
September 30, 1996:
Equity securities $ 57 $ 58 $ -- $ 115
United States Government and agency obligations 28,238 31 (327) 27,942
Mutual funds 43,443 5 (536) 42,912
Collateralized mortgage obligations:
Government backed 3,677 -- (7) 3,670
Private issue 50,513 239 (1,104) 49,648
-------- ---- ------ --------
Total collateralized mortgage obligations 54,190 239 (1,111) 53,318
-------- ---- ------ --------
Total securities available for sale $125,928 $333 $(1.974) $124,287
======== ==== ======== ========
Weighted average interest rate 6.60%
======
September 30, 1995:
Equity securities $ 57 $ 39 $ -- $ 96
Mutual funds 27,442 -- (510) 26,932
-------- ---- ------ --------
Total securities available for sale $ 27,499 $ 39 $ (510) $ 27,028
======== ==== ====== ========
Weighted average interest rate 6.11%
======
All securities available for sale at September 30, 1996 and 1995 had
contractual maturities of one year or less.
Proceeds from the sale of securities available for sale were $749,000, $0
and $82,712,000 during the fiscal years ended September 30, 1996, 1995,
and 1994, respectively. There were no gross realized gains or losses
during the fiscal years ended September 30, 1996 and 1995. For the year
ended September 30, 1994, sales resulted in gross losses of $369,000.
The fair value of securities available for sale is based on quoted market
prices.
24
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS - HELD TO MATURITY
Investments - held to maturity at September 30, 1996 and 1995 are
summarized as follows:
---------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
September 30, 1996:
United States Government and agency obligations $11,391 $3,431 $ -- $14,822
Municipal obligations 300 4 -- 304
Corporate debt issues:
Chase Federal mortgage-backed bond 7,320 359 -- 7,679
Auto Bond Receivables Corp. 3,282 8 (2) 3,288
------- ------ ----- -------
Total corporate debt issues 10,602 367 (2) 10,967
------- ------ ----- -------
Total investment securities $22,293 $3,802 $ (2) $26,093
======= ====== ===== =======
Weighted average interest rate 8.72%
=======
September 30, 1995:
United States Government and agency obligations $38,187 $4,134 $(134) $42,187
Certificates of deposit 7,000 33 7,033
Municipal obligations 800 23 -- 823
Corporate debt issues:
Chase Federal mortgage-backed bond 7,673 392 -- 8,065
Pru-Bache zero coupon 468 17 -- 485
Auto Bond Receivables Corp. 5,551 19 (28) 5,542
------- ------ ----- -------
Total corporate debt issues 13,692 428 (28) 14,092
------- ------ ----- -------
Total investment securities $59,679 $4,618 $(162) $64,135
======= ====== ===== =======
Weighted average interest rate 7.05%
=======
The table below sets forth the contractual maturity distribution of the
Association's investment securities at September 30, 1996 and 1995:
---------------------------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1995
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------------------------------------------------------------------
(In Thousands)
Due in one year or less $ 300 $ 304 $ 9,566 $ 9,608
Due after one year through five years 4,379 4,517 24,871 24,958
Due after five years through ten years 9,843 13,049 17,150 20,975
Due after ten years 7,771 8,223 8,092 8,594
------- ------- ------- -------
Total $22,293 $26,093 $59,679 $64,135
======= ======= ======= =======
There were no sales of investment securities during the years ended
September 30, 1996, 1995, and 1994. The fair value of investment
securities is based on quoted market prices.
25
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK STOCK - At September 30, 1996 and 1995 the
Association held $5,384,000 and $7,384,000, 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. MORTGAGE-BACKED AND RELATED SECURITIES - HELD TO MATURITY
Mortgage-backed and related securities - held to maturity at September 30,
1996 and 1995 are summarized as follows:
- ----------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
September 30, 1996:
FHLMC $ 9,973 $ 73 $ (269) $ 9,777
GNMA - pass throughs 2,233 79 (14) 2,298
FNMA - pass throughs 4,076 2 (140) 3,938
Agency for International
Development - pass throughs 335 -- -- 335
Collateralized mortgage obligations:
Government-backed 12,763 510 (34) 13,239
Private issue 25,545 353 (517) 25,381
------- ------ ----- -------
Total collateralized mortgage obligations 38,308 863 (551) 38,620
CMO residual interest bonds 20 -- -- 20
------- ------ ------- -------
Total mortgage-backed and related securities $54,945 $1,017 $ (974) $54,988
======= ====== ======= =======
September 30, 1995:
FHLMC $11,943 $ 73 $ (291) $11,725
GNMA - pass throughs 2,774 108 (6) 2,876
FNMA - pass throughs 4,691 -- (46) 4,645
Agency for International
Development - pass throughs 387 -- -- 387
Collateralized mortgage obligations:
Government-backed 15,395 761 (213) 15,943
Private issue 42,191 321 (528) 41,984
------- ------ ------- -------
Total collateralized mortgage obligations 57,586 1,082 (741) 57,927
CMO residual interest bonds 118 140 -- 258
------- ------ ------- -------
Total mortgage-backed and related securities $77,499 $1,403 $(1,084) $77,818
======= ====== ======= =======
There were no sales of mortgage-backed and related securities during the
years ended September 30, 1996, 1995, and 1994. The fair value of
mortgage-backed and related securities 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 collateralized
26
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
mortgage obligations. 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 September 30, 1996, the Association had $38,328,000 in such
mortgage-related securities, which were held for investment and had a
market value of $38,640,000. The Association's fixed-rate CMOs have coupon
rates ranging from 6.0% to 12.0%.
The Association's variable-rate CMOs are indexed to the London Interbank
Offered Rate ("LIBOR") or the Ten-Year Treasury Index, and the residual
tranches do not have a stated coupon. The weighted average yield of the
Association's CMO securities was 7.54% at September 30, 1996. The residual
interest is in a CMO in which at least one class of bonds has a variable
interest rate. In these investments, a rise in the variable-rate index
reduces the cash flows available to the residual owner. Conversely, in a
low interest rate environment, collateral prepayments will usually
accelerate. The Association's ability to recover its investment in the CMO
residuals is dependent on the future outcome of the above factors. At
September 30, 1996, the Association's interest in CMO residual bonds was
$20,000 with a market value of $20,000.
5. LOANS RECEIVABLE
Loans receivable consisted of the following:
-------------------------------------------------------------------------
September 30,
1996 1995
-------------------------------------------------------------------------
(In Thousands)
Real estate loans:
Residential 1-4 family $284,267 $248,453
Residential 1-4 family held for sale (at
lower of cost or estimated fair value) 207 316
Residential construction loans 33,520 27,314
Nonresidential construction loans 2,200 --
Land loans 16,846 15,601
Multi-family loans 8,153 7,351
Commercial 38,433 35,402
-------- --------
Total real estate loans 383,626 334,437
-------- --------
Non-real estate loans:
Consumer loans 15,606 12,638
Commercial business 1,874 1,958
-------- --------
Total non-real estate loans 17,480 14,596
-------- --------
Total loans receivable 401,106 349,033
Less:
Undisbursed loan proceeds 22,318 15,253
Unearned discount and net deferred loan fees 257 846
Allowance for loan losses 2,312 3,492
-------- --------
Total loans receivable, net $376,219 $329,442
======== ========
The Association's lending market is concentrated in Palm Beach, Martin,
St. Lucie, and Indian River Counties, Florida.
The amount of loans on which the Association has ceased accruing interest
aggregated approximately $842,000, $662,000, and $3,195,000 at September
30, 1996, 1995, and 1994, respectively. The amount of interest not accrued
related to these loans was approximately $44,000, $49,000, and $243,000 at
September 30, 1996, 1995, and 1994, respectively.
27
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the changes in the allowance for loan losses for the years
ended September 30, 1996, 1995, and 1994 is as follows:
--------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
--------------------------------------------------------------------------
(In Thousands)
Balance, beginning of period $ 3,492 $ 3,390 $ 3,748
Provision charged to income 98 240 989
Losses charged to allowance (1,278) (138) (1,292)
Recoveries -- -- (55)
------- ------- -------
Balance, end of year $ 2,312 $ 3,492 $ 3,390
======= ======= =======
During the year ended September 30, 1996, the Association sold a
participation 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 participation
interest. In connection with the sale of the participation interest, the
Association recorded an additional loss of $217,000.
LOANS HELD FOR SALE - The Association originates both adjustable- and
fixed-rate loans. The adjustable-rate loans are held in the Association's
portfolio and currently, all fixed-rate loans with maturities greater than
15 years are sold when originated, except those originated for special
financing on low income housing. Included in the loans receivable at
September 30, 1996 and 1995 are $207,000 and $316,000, respectively, of
loans held for sale.
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 September 30, 1996, 1995,
and 1994 were $22,466,000, $26,466,000, and $32,380,000, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $497,000, $600,000, and $595,000, respectively.
RATE COMPOSITION OF LOANS - The Association originates and purchases both
adjustable- and fixed-rate loans. At September 30, 1996, fixed-rate loans
totaled $133,338,000 and adjustable-rate loans totaled $242,881,000. The
adjustable-rate loans have interest rate adjustment limitations and are
generally indexed to the OTS National Monthly Median Cost of Funds. Future
market factors may affect the correlation of the interest rate adjustment
with the rates the Association pays on the short-term deposits that have
been primarily utilized to fund those loans.
COMMERCIAL REAL ESTATE LENDING - The Association originates and purchases
commercial real estate and construction loans, which totaled $40,633,000
and $35,402,000 at September 30, 1996 and 1995, respectively. These loans
are considered by management to be of a somewhat greater risk of
collectibility due to the dependency on income production or future
development of the real estate. Accordingly, Association management
establishes a greater provision for probable, but not yet identified,
losses on these loans than on less risky residential mortgage loans. The
composition of commercial real estate loans and its primary collateral at
September 30, 1996 and 1995 are approximately as follows:
--------------------------------------------------------------------------
September 30,
1996 1995
--------------------------------------------------------------------------
(In Thousands)
Commercial land $ 120 $ 495
Office buildings 4,583 8,986
Hotel property 4,310 5,113
Shopping centers 3,293 3,115
Light industrial and warehouses 7,444 4,276
Churches 4,433 3,854
Other commercial 14,250 9,563
------- -------
Total commercial real estate 38,433 35,402
Commercial construction projects 2,200 --
------- -------
Total commercial real estate and construction loans $40,633 $35,402
======= =======
28
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a federally chartered savings and loan association's
aggregate commercial real estate loans may not exceed 400% of its capital
as determined under the capital standards provisions of FIRREA. The
Association is federally chartered and subject to this limitation. FIRREA
does not require divestiture of any loan that was lawful when it was
originated. At September 30, 1996, the Association estimates that, while
complying with this limitation, it could originate an additional
$261,791,000 of commercial real estate loans, but has no immediate plans
to do so.
LOANS TO ONE-BORROWER LIMITATION - Under FIRREA, the Association may not
make real estate loans to one borrower in excess of 15% of its unimpaired
capital and surplus. This 15% limitation results in a dollar limitation of
approximately $11,258,000 at September 30, 1996. At September 30, 1996,
the Association met the loans to one borrower limitation under current
regulations.
LOANS TO OFFICERS AND DIRECTORS - The Association offers loans to its
employees, including directors and senior management, at prevailing market
interest rates. 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 retained earnings at September
30, 1996. At September 30, 1996, the total of loans to directors,
executive officers, and associates of such persons was $337,000.
TROUBLED DEBT RESTRUCTURING - Included in loans receivable at September
30, 1996 and 1995 are loans considered to be troubled debt restructured
with an aggregate recorded investment of $1,081,000 and $1,577,000,
respectively. Included in interest income is interest on these loans which
totaled $94,000, $69,000, and $34,000 for the years ended September 30,
1996, 1995, and 1994, respectively.
IMPAIRED LOANS - Impaired loans owned by the Association have been
recognized in conformity 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" as of October
1, 1995. A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. An analysis of
the Association's recorded investment in impaired loans at September 30,
1996 and 1995 and the related allowance for those loans is as follows:
--------------------------------------------------------------------------
September 30,
1996 1995
--------------------------------------------------------------------------
(In Thousands)
Impaired loan balance $1,081 $6,244
Related allowance $ 252 $1,452
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 and cease accruing interest thereafter. Such
interest ultimately collected is credited to income in the period of
recovery.
6. PLEDGED ASSETS
In the normal course of doing business the Association is required to
comply with certain collateral requirements.
29
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth amounts of various asset components, as of
September 30, 1996 and 1995, which were pledged as collateral.
--------------------------------------------------------------------------
September 30,
1996 1995
--------------------------------------------------------------------------
(In Thousands)
Real estate loans (unpaid principal balance) $30,833 $10,682
FHLB Stock and accrued interest 5,517 7,518
------- -------
Total pledged to the FHLB $36,350 $18,200
======= =======
Other pledged assets:
Deposits of public funds - State of Florida
Mortgage-backed and related securities $21,681 $ 5,100
Line of credit - Federal Reserve Bank of Atlanta
United States Government and agency obligations 1,800 1,950
Treasury tax and loan deposits
United States Government and agency obligations 200 50
Mortgage-backed bond
Unpaid principal balance of loans 38,863 35,604
------- -------
Total for other pledged assets $62,544 $42,704
======= =======
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.
7. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30, 1996 and 1995 consisted of
the following:
--------------------------------------------------------------------------
September 30,
1996 1995
--------------------------------------------------------------------------
(In Thousands)
Loans $ 612 $ 253
Investments 184 1,080
Securities available for sale 979 140
Mortgage-backed and related securities 433 670
------ ------
Total accrued interest receivable $2,208 $2,143
====== ======
8. INVESTMENT IN AND ADVANCES TO REAL ESTATE VENTURE
On February 27, 1989, the Association's wholly-owned subsidiary, ComFed
Development, entered into a Development Agreement ("Agreement") with
Channing Corporation XX ("Channing") to construct and sell patio homes and
townhouses on a parcel of land owned by the Association at PGA National in
Palm Beach County, Florida.
The terms of the Agreement provide for ComFed Development to fund all
construction and development costs, via advances from the Association to
ComFed Development, including the costs of acquiring the land, and to
receive interest on any outstanding funding. Such loans are included
within "Investment in and Advances to Real Estate Venture" in the
Consolidated Statements of Financial Condition. Profits from home sales,
after interest, are to be split evenly between ComFed Development and
Channing. Cash flows are first allocated to ComFed Development to pay off
any outstanding funding and interest, then split evenly between the
parties.
30
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since the substance of the Agreement is that of a joint venture, the
Association accounts for it as such. The condensed financial information
is as follows:
--------------------------------------------------------------------------------------
September 30,
Balance Sheet 1996 1995
--------------------------------------------------------------------------------------
(In Thousands)
Assets:
Cash $ 40 $ 40
Cash escrow deposits -- 85
Land 38 431
Construction in progress 117 1,209
Receivables from partners 805 2,349
------ ------
Total assets $1,000 $4,114
====== ======
Liabilities and partners' capital:
Customers' deposits $ -- $ 85
Interest payable to ComFed Development -- 3,021
Partners' capital:
ComFed Development 500 504
Channing Corporation 500 504
------ ------
Total liabilities and partners' capital $1,000 $4,114
====== ======
-------------------------------------------------------------------------
For the Years Ended September 30,
Summary of Operations 1996 1995 1994
-------------------------------------------------------------------------
(Dollars In Thousands)
Income:
Sales $2,406 $4,579 $6,788
Miscellaneous 28 154 80
------ ------ ------
Total income 2,434 4,733 6,868
------ ------ ------
Expenses:
Cost of sales 2,050 4,044 6,094
General and administrative 392 813 962
------ ------ ------
Total expenses 2,442 4,857 7,056
------ ------ ------
Net loss $ (8) $ (124) $ (188)
====== ====== ======
Units sold and closed 201 189 166
Units under contract -- 7 12
Units under construction -- 6 24
Remaining units 1 -- --
------ ------ ------
Total Units 202 202 202
====== ====== ======
31
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income from real estate venture consisted of the Association's proportionate
share of income or loss in the venture and interest.
-------------------------------------------------------------------------------------------------
For the Year Ended September 30,
Reconciliation of Joint Venture Activity 1996 1995 1994
-------------------------------------------------------------------------------------------------
(In Thousands)
Net loss $ (8) $ (124) $(188)
Adjustments to convert joint venture accounting
to that followed by the Association and
to eliminate partners' share 6 62 95
Adjustments to reflect interest recognized on project loan
to the joint venture 53 388 539
Other adjustments (4) -- (2)
---- -- -----
Equity in net income of real estate venture $ 47 $ 326 $ 444
==== ====== =====
9. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30, 1996 and 1995 are
summarized as follows:
-------------------------------------------------------------------------
September 30,
1996 1995
-------------------------------------------------------------------------
(In Thousands)
Land $ 3,317 $ 2,835
Buildings and improvements 15,558 15,387
Furniture and equipment 12,974 12,397
------- -------
Total 31,849 30,619
Less accumulated depreciation 15,490 14,364
------- -------
Total office properties and equipment - net $16,359 $16,255
======= =======
10. REAL ESTATE OWNED
Real estate owned consisted of the following:
-------------------------------------------------------------------------
September 30,
1996 1995
-------------------------------------------------------------------------
(In Thousands)
Real estate owned $1,476 $2,023
Less allowance for loss 92 113
------ ------
Total real estate owned $1,384 $1,910
====== ======
32
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in allowance for losses on real estate owned were as follows:
------------------------------------------------------------------------
September 30,
1996 1995 1994
------------------------------------------------------------------------
(In Thousands)
Balance, beginning of period $113 $ 80 $ --
Provision charged to income 8 141 129
Losses charged to allowance (29) (108) (49)
---- ----- ---
Balance, end of period $ 92 $ 113 $ 80
==== ===== ====
11. DEPOSITS
The weighted-average interest rates on deposits at September 30, 1996 and
1995 were 4.09% and 4.05%, respectively. Deposit accounts, by type and
range of rates at September 30, 1996 and 1995 consisted of the following:
------------------------------------------------------------------------------------------
September 30,
1996 1995
------------------------------------------------------------------------------------------
(In Thousands)
Account type and rate:
Non-interest-earning NOW accounts $ 19,532 $ 14,844
NOW, Super NOW and funds transfer accounts 1996, 1995,
and 1994, 1.24% through 1.98% 63,098 63,861
Passbook and statement accounts 1996, 1995, and
1994, 1.73% through 1.98% 30,875 29,701
Money market accounts 1996, 1995, and 1994, 2.27% through 3.15% 69,421 75,720
-------- --------
Total non-certificate accounts 182,926 184,126
-------- --------
Certificates:
3.00% or less 1,600 930
3.01% - 3.99% 903 5,257
4.00% - 4.99% 80,831 55,583
5.00% - 5.99% 193,281 108,608
6.00% - 6.99% 29,571 70,456
7.00% - 7.99% 9,817 12,416
-------- --------
Total certificates of deposit 316,003 253,250
-------- --------
Total deposits $498,929 $437,376
======== ========
Individual deposits greater than $100,000 at September 30, 1996 and 1995
aggregated approximately $67,467,000 and $36,189,000, respectively.
Deposits in excess of $100,000 are not insured.
33
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled maturities of certificate accounts were as follows:
-------------------------------------------------------------------------
September 30,
1996 1995
-------------------------------------------------------------------------
(In Thousands)
Maturity
Less than 1 year $240,240 $193,500
1 year - 2 years 32,254 16,956
2 years - 3 years 10,460 15,468
3 years - 4 years 20,953 6,430
4 years - 5 years 10,738 20,103
Thereafter 1,358 793
-------- --------
Total certificates of deposit $316,003 $253,250
======== ========
Interest expense on deposits consisted of the following during the years
ended September 30, 1996, 1995, and 1994:
--------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
--------------------------------------------------------------------------
(In Thousands)
Passbook accounts $ 560 $ 625 $ 660
NOW accounts 930 1,002 1,111
Money market accounts 2,023 2,143 2,306
Certificate accounts 15,734 11,909 9,221
------- ------- -------
Total interest expense $19,247 $15,679 $13,298
======= ======= =======
12. ADVANCES FROM FEDERAL HOME LOAN BANK
At September 30, 1996, outstanding advances from the FHLB totaled
$36,350,000.
Scheduled maturities of FHLB advances are as follows:
--------------------------------------------------------------------------
Years Ending Average Interest $
September 30 Rate Maturing
--------------------------------------------------------------------------
(Dollars in Thousands)
1997 6.79% $ 7,422
1998 6.79 7,422
1999 6.79 7,422
2000 6.85 3,871
2001 6.38 8,071
2002 6.63 1,071
2003 6.63 1,071
-------
Total FHLB advances 6.70% $36,350
===== =======
34
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
The Association is permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. The bad debt deduction allowable equals 8%
of taxable income determined without regard to that deduction and with
certain adjustments. This addition differs from the provision for loan
losses used for financial reporting purposes. Pursuant to the provisions
of SFAS No. 109, no deferred taxes have been provided for the income tax
bad debt reserves prior to September 30, 1988 of $11,388,000. This tax
reserve for bad debts is included in taxable income of later years only if
the bad debt reserve is used subsequently for purposes other than to
absorb bad debt losses. Because the Association does not intend to use the
reserve for purposes other than to absorb losses, no deferred income taxes
have been provided. SFAS No. 109 requires the recognition of deferred tax
consequences due to differences between financial statement and income tax
treatment of allowances for loan losses arising after September 30, 1988.
Income tax provision consists of the following components for the years
ended September 30, 1996, 1995, and 1994:
--------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
--------------------------------------------------------------------------
(In Thousands)
Current - federal $ 1,592 $2,789 $2,384
Current - state 225 337 313
-------- ------ ------
Total current 1,817 3,126 2,697
Deferred - federal and state (1,056) (363) (440)
-------- ------ ------
Total provision for income taxes $ 761 $2,763 $2,257
======== ====== ======
The Association's provision for income taxes differs from the amounts
determined by applying the statutory federal income tax rate to income
before income taxes for the following reasons:
------------------------------------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
Amount % Amount % Amount %
------------------------------------------------------------------------------------------------------
(In Thousands)
Tax at federal tax rate $ 1,637 35.0% $2,568 35.0% $2,098 35.0%
State income taxes, net of
federal income tax benefits 139 3.0 186 2.5 259 4.3
Reversal of prior year liability (1,140) (24.4) -- -- -- --
Other 172 3.7 82 1.1 (40) (0.7)
Benefit of graduated tax rate (47) (1.0) (73) (1.0) (60) (1.0)
-------- ----- ------ ----- ------ -----
Total provision for income taxes $ 761 16.3% $2,763 37.6% $2,257 37.6%
======== ===== ====== ===== ====== =====
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.
For the year ended September 30, 1996, the Association's taxable income
did not exceed $10,000,000. Therefore, the Association was taxed at a 34%
federal income tax rate.
35
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
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:
------------------------------------------------------------------------------------------------------
September 30,
1996 1995 1994
-----------------------------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Depreciation $ 639 $ 551 $ 558
Loan fee income 188 319 582
FHLB stock dividends 868 1,172 1,166
Deferred loan costs 392 208 183
Unamortized discount on mortgage-backed bond 2,350 2,526 2,718
Book over tax on investments in partnerships 937 882 696
Other -- 17 --
------ ------ ------
Gross deferred tax liabilities 5,374 5,675 5,903
------ ------ ------
Deferred tax assets:
Excess of book bad debt reserve over tax reserve 907 1,298 1,263
Retirement plans 686 586 602
Unrealized loss on decrease in fair value
of securities available for sale 615 182 297
Deferred loss on loans held for sale 48 60 63
Deferred compensation 109 105 84
SAIF recapitalization 1,088 -- --
Other 83 117 20
------ ------ ------
Gross deferred tax assets 3,536 2,348 2,329
------ ------ ------
Valuation allowance on unrealized loss
on decrease in fair value
of securities available for sale (182) (182) --
------ ------ --
Gross deferred tax assets - net of valuation allowance 3,354 2,166 2,329
------ ------ ------
Net deferred tax liability $2,020 $3,509 $3,574
====== ====== ======
14. COMMITMENTS AND CONTINGENCIES
LOAN COMMITMENTS - In the normal course of business, the Association makes
commitments to extend credit. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. The interest rates on both fixed- and
variable-rate loans are based on the market rates in effect on the date of
closing.
Commitments generally have fixed expiration dates of 30 to 60 days and
other termination clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Association evaluates
each customer's creditworthiness 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. The Association had commitments to extend credit for
mortgage loans, excluding undisbursed portions of loans in process,
approximating $16,551,000 at September 30, 1996 and $8,485,000 at
September 30, 1995. At September 30, 1996, the $16,551,000 of loan
commitments were comprised of approximately $7,194,000 of fixed-rate
commitments and $9,357,000 of variable-rate commitments. These commitments
are at prevailing market rates and terms. Interest rates on fixed-rate
loan commitments were from 6.750% to 9.125% and 7.000% to 8.500% at
September 30, 1996 and September 30, 1995, respectively. The Association
places no value 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. The Association had unused consumer
lines of credit of $5,657,000 and $6,321,000 at September 30, 1996 and
1995, respectively.
36
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Association had commercial lines and letters of credit and other loan
commitments of $4,345,000 and $13,309,000 at September 30, 1996 and 1995,
respectively. The Association had commitments to sell loans to FNMA of
$207,000 and $316,000, respectively, at September 30, 1996 and 1995. The
Association had commitments to purchase loans of approximately $619,000 at
September 30, 1996 and $765,000 at September 30, 1995.
LEASE COMMITMENTS - The Association leases various properties for original
periods ranging from 2 to 25 years. Rent expense for the years ended
September 30, 1996, 1995, and 1994, was approximately $545,000, $535,000,
and $523,000 respectively. At September 30, 1996, future minimum lease
payments under these operating leases are as follows:
---------------------------------------
Years Ending
September 30, Amount
---------------------------------------
(In Thousands)
1997 $ 529
1998 501
1999 444
2000 444
2001 335
Thereafter 396
Total $2,649
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 6). At September 30, 1996 and
1995, the Association had no outstanding advances.
CONTINGENCIES - In connection with its mutual holding company
reorganization and stock offering, the Association's employee stock
ownership plan and trust (the "ESOP") borrowed funds from Nationar, a New
York trust company which was owned by savings banks in the state of New
York, and used the funds to purchase eight percent of the shares of the
Association's common stock in the open market. All of such shares were
pledged as collateral to support the ESOP loan. In connection with the
ESOP loan, the Association placed $1,200,000 in a non-insured
interest-earning deposit account with Nationar as collateral to secure the
ESOP loan. On February 6, 1995, Nationar was seized by the New York
Banking Department because of liquidity problems and continuing losses.
During the year ended September 30, 1995, the Association was uncertain as
to the recoverability of the collateral securing the ESOP loan. During
fiscal year 1995, the Superintendent transferred $200,000 of the
Association's collateral to a new interest-earning deposit account with
Northwest Savings Bank, leaving $1,000,000 in the Nationar account. During
the year ended September 30, 1996, the Association received $400,000 as a
partial settlement from the New York Banking Department. Management
believes, based on correspondence with the New York Banking Department,
that the full settlement of $600,000 will be received in December 1996.
In addition, the Association is investigating a possible employee
defalcation which may have been occurring for several years. The
Association maintains insurance to cover possible defalcation losses with
a claim deductible of $200,000. The Association has established a
liability for the amount of the deductible in the accompanying financial
statements. Management currently estimates that the loss in excess of the
deductible will not involve material amounts and will be covered by
insurance. Although the Association has notified its insurance company of
the potential claim and the insurance company has acknowledged coverage,
the insurance company has not begun its investigation of the claim.
15. 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.
37
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension expense for the plan amounted to $403,000, $578,000 and $581,000
for the years ended September 30, 1996, 1995, and 1994, respectively, and
included the following components:
--------------------------------------------------------------------------
Years ended September 30,
1996 1995 1994
--------------------------------------------------------------------------
(In Thousands)
Service cost $551 $603 $636
Interest cost 453 460 540
Actual return on assets (533) (417) (184)
Net amortization and deferral (68) (68) (411)
---- ---- ----
Net periodic pension cost $403 $578 $581
==== ==== ====
For the years ended September 30, 1996, 1995, and 1994, pension expense
amounts were based upon actuarial computations.
In accordance with the actuarially determined computation under SFAS No.
87, no funding was required for the 1996, 1995, and 1994 plan years.
The following sets forth the funded status of the qualified plan:
-------------------------------------------------------------------------------------
September 30,
1996 1995
-------------------------------------------------------------------------------------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefits $3,515 $3,598
Nonvested benefits 442 447
------ ------
Accumulated benefit obligation 3,957 4,045
Effect of anticipated future compensation levels and other events 2,683 2,943
------ ------
Projected benefit obligation 6,640 6,988
Fair value of assets held in the plan (estimated) 7,381 6,679
------ ------
Unfunded plan assets over projected benefit obligation $ 741 $ 309
====== ======
The unfunded plan assets consist of the following:
Unamortized net asset transition $ 428 $ (500)
Accrued pension cost (1,272) 1,031
Unrecognized net loss (gain) due to changes in assumptions 1,616 (256)
Prior service cost (31) 34
------ ------
Total $ 741 $ 309
====== ======
The pension plan invests primarily in GNMA certificates, conventional
mortgage pass-through certificates, mutual funds, and common and preferred
stocks.
SUPPLEMENTAL RETIREMENT INCOME PLAN - During 1989, the Association's Board
of Directors established a nonqualified unfunded defined benefit plan for
certain officers. For the years ended September 30, 1996, 1995, and 1994,
the net periodic expense for the officers' plan totaled $60,000, $65,000,
and $52,000 respectively. The projected benefit obligation as of September
30, 1996 and 1995 was estimated at $380,000 and $358,000, respectively.
38
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actuarial present value of benefit obligations was as follows:
------------------------------------------------------------------------
September 30,
1996 1995
------------------------------------------------------------------------
(In Thousands)
Projected benefit obligation $380 $358
Prior service cost 43 50
Unrecognized net gains 87 58
---- ----
Accrued retirement plan cost 510 466
Prior years accrual (466) (417)
Employer contributions 16 16
---- ----
Net periodic retirement plan expense $ 60 $ 65
==== ====
ACTUARIAL ASSUMPTIONS - Actuarial assumptions represent estimates of
future experience based on the characteristics of the plan and its covered
employees. The actuarial assumptions used in the pension plan and
retirement plan valuations were as follows:
-------------------------------------------------------------------------
Year ended September 30,
1996 1995 1994
------------------------------------------------------------------------
Discount rate 6.50% 6.50% 7.00%
Asset rate 8.00% 8.00% 8.00%
Salary scale 5.00% 6.00% 6.00%
The Association does not provide any material postretirement or
postemployment benefits.
EMPLOYEE STOCK OWNERSHIP PLAN - On October 24, 1994, in connection with
the Association's Plan of Reorganization (the "Reorganization") into a
Mutual Holding Company (See Note 19), the Association established an
Employee Stock Ownership Plan ("ESOP") for all eligible employees. As of
September 30, 1995, the ESOP had borrowed $2,800,000 from Nationar and
purchased 190,388 shares of common stock in the open market. Collateral
for the loan is the common stock purchased by the ESOP as well as
Association's funds on deposit with Nationar (See Note 14). The loan will
be repaid principally from the Association's contributions to the ESOP
over a period of up to seven years, and bears interest at the monthly
average of Federal Funds high and low rate plus 2.35%, which was 7.77% at
September 30, 1996.
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. During the years ended September 30, 1996 and
1995, the Association incurred compensation expense related to the ESOP of
$556,000 and $272,000, respectively. No expense was incurred for the year
ended September 30, 1994 as the ESOP was established as part of the
Reorganization.
Contributions to the ESOP will be in an amount proportional to the
repayment of the ESOP loan, 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.
39
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
88,900 shares of the Association's common stock, which vest in five equal
annual installments, starting January 1996. The fair value of the shares
on the date of award will be recognized as compensation expense over the
vesting period. To fund this plan, the Association issued 88,900 shares
from authorized but unissued shares of the Association's 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 $654,000 at September 30, 1996 is
reflected as a reduction of shareholders' equity. Compensation expense
related to this plan was $130,000 and $148,000 for the years ended
September 30, 1996 and 1995, respectively.
STOCK OPTION PLAN - The Association has adopted a stock option plan for
the benefit of directors, officers, and other key employees. The number of
shares of common stock reserved for issuance under the stock option plan
was equal to 237,986 shares or 10% of the total number of common shares
issued to persons other than ComFed, M.H.C. pursuant to the Association's
conversion to the stock form of ownership. 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
are exercisable in five equal annual installments. The first installment
became exercisable on January 18, 1996. At January 18, 1995, there were
237,450 options granted with 536 options reserved for future use. Below is
a summary of transactions:
Options Outstanding:
Balance - September 30, 1994 --
Granted - January 18, 1995 237,450
Exercised --
Canceled (14,500)
-------
Balance - September 30, 1995 222,950
Granted --
Exercised (1,220)
Canceled (4,880)
-------
Balance - September 30, 1996 216,850
=======
Options exercisable at year
end under stock option plan 43,370
=======
Option price per share of all
outstanding options $11,125
=======
16. 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"). 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
September 30, 1996 and 1995 was 5.7% and 6.59% respectively. The
unamortized discount at September 30, 1996 and 1995 was $6,052,000 and
$6,548,000, respectively. Principal and interest payments are due
quarterly. During the fiscal years ended September 30, 1996, 1995, and
1994, approximately $496,000, $498,000, and $506,000, respectively, of the
discount was accreted.
At September 30, 1996 and 1995, the Association held $11,391,000 and
$10,233,000 (net of discounts of $11,809,000 and $12,967,000),
respectively, of Salomon Brothers Certificates of Accrual on Treasury
Securities ("CATS") which were purchased at the time of issuing the
mortgage-backed bond. The accrual of interest on the CATS offsets the
discount amortization of the mortgage-backed bond. The CATS are included
in United States Government and agency obligations in Note 3 to the
consolidated financial statements.
40
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bond at September 30, 1996 was repayable as follows:
-----------------------------------------------------
Years Ending Amount
September 30, (In Thousands)
-----------------------------------------------------
1997 $ 1,387
1998 1,387
1999 1,387
2000 1,387
2001 1,387
2002 and after 16,570
-------
Total 23,505
Less unamortized discount 6,052
-------
Total mortgage-backed bond $17,453
=======
17. REGULATORY RESTRICTIONS ON RETAINED INCOME AND REGULATORY CAPITAL
REQUIREMENT
The Association is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision ("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 the Association's 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
September 30, 1996, that the Association meets all capital adequacy
requirements to which it is subject.
As of September 30, 1996, 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
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Association's actual capital amounts and ratios are presented in the
following table:
Minimum for To be Considered
Capital Well Capitalized
Adequacy for Prompt Corrective
Actual Purposes Action Provisions
---------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
---------------------------------------------------------------------------
As of September 30, 1996:
Shareholders' equity, and ratio
to total assets 11.5% $ 75,056
=====
Investment in subsidiary (2,655)
Intangible assets 1,198
--------
Tangible capital, and ratio to
adjusted total assets 11.3% $ 73,599 1.5% $ 9,770
===== ======== ==== =======
Tier 1 (core) capital, and ratio
to adjusted total assets 11.3% $ 73,599 4.0% $26,052 5.0% $32,565
===== ======== ==== ======= ==== =======
Tier 1 (core) capital, and ratio to
risk-weighted total assets 23.4% $ 73,599 6.0% $18,837
===== -------- ==== =======
Allowance for loan and lease losses 2,060
Equity investments (682)
--------
Tier 2 capital 1,378
--------
Total risk-based capital, and ratio
to risk-weighted total assets 23.9% $ 74,977 8.0% $25,115 10.0% $31,394
===== ======== ==== ======= ===== =======
Total assets $650,332
========
Adjusted total assets $651,306
========
Risk-weighted assets $313,942
========
As of September 30, 1995:
Shareholders' equity, and ratio
to total assets 12.8% $ 72,848
=====
Investment in subsidiary (3,956)
Intangible assets 472
--------
Tangible capital, and ratio to
adjusted total assets 12.3% $ 69,364 1.5% $ 8,489
===== ======== ==== =======
Tier 1 (core) capital, and ratio
to adjusted total assets 12.3% $ 69,364 4.0% $22,638 5.0% $28,297
===== ======== ==== ======= ==== =======
Tier 1 (core) capital, and ratio to
risk-weighted total assets 24.1% $ 69,364 6.0% $17,263
===== -------- ==== =======
Allowance for loan and lease losses 2,040
Equity investments (132)
--------
Tier 2 capital 1,908
--------
Total risk-based capital, and ratio to
risk-weighted total assets 24.8% $ 71,272 8.0% $23,018 10.0% $28,772
===== ======== ==== ======= ===== =======
Total assets $567,006
========
Adjusted total assets $565,942
========
Risk-weighted assets $287,720
========
42
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------
For the Years Ended September 30,
1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
(In Thousands)
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,877 $ 3,200 $ 2,737
======= ======= =======
Cash paid for interest on deposits and other borrowings $22,146 $17,949 $15,031
======= ======= =======
Supplemental schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 400 $ 1,394 $ 5,528
======= ======= =======
Distribution of Common Stock to fund the Recognition
and Retention Plan $ -- $ 989 $ --
======= ======= =======
19. CONVERSION TO MUTUAL HOLDING COMPANY
On March 31, 1994, the Board of Directors of the Association unanimously
adopted a plan of reorganization pursuant to which the Association
proposed to reorganize into a federally chartered mutual holding company.
The Reorganization was completed on October 24, 1994. As part of the
Reorganization, the Association organized a new federally chartered stock
savings association (the "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 outstanding upon consummation of the Reorganization.
In connection with the Reorganization, $200,000 of the net proceeds were
contributed to the holding company, ComFed, M.H.C.
Concurrent with the Reorganization, the Association undertook an offering
of 2,379,856 shares of newly issued common stock at a price of $15.00 per
share. Costs of issuing the common stock in the amount of $1,712,000 were
deducted from the gross proceeds totaling $35,697,000, resulting in net
proceeds of $33,984,000. In addition, the Association issued 2,620,144
shares of common stock to ComFed, M.H.C.
The Reorganization was accounted for as change in corporate form with the
historic basis of the Association's assets, liabilities and equity
unchanged as a result. Subsequent to the Reorganization, the existing
rights of the Association's depositors upon liquidation as of the
effective date were transferred to the holding company and records
maintained to ensure such rights receive statutory priority in the event
of a future mutual to stock conversion, or in the event of the holding
company's liquidation.
20. 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 Association's 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 the Association could
realize in a current transaction.
43
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 NOW deposits,
interest-bearing NOW accounts, passbook and statement accounts, and money
market accounts is equal to the carrying amount because these deposits
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.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at September 30,
1996 and 1995:
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the Statement
of Financial Condition for cash and cash equivalents approximates their
fair value.
INVESTMENTS - 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, servicing costs and other relevant factors.
MORTGAGE-BACKED AND RELATED SECURITIES - Fair value is determined by
reference to quoted market prices or by use of broker price estimates.
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 adjusted for the cost of
servicing deposit accounts.
MORTGAGE-BACKED BOND - The carrying amount of the mortgage-backed bond is
a reasonable estimate of fair market value.
ADVANCES FROM FEDERAL HOME LOAN BANK - Fair value is estimated using the
Association's cost of funds adjusted for the cost of operations.
ESOP LOAN - The carrying amount of the ESOP loan is a reasonable estimate
of fair market value.
COMMITMENTS TO EXTEND CREDIT - At September 30, 1996 and 1995, 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 Association's financial instruments were
as follows:
----------------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1995
Carrying Value Fair Value Carrying Value Fair Value
----------------------------------------------------------------------------------------------------------
(In Thousands)
Financial Assets:
Cash and cash equivalents $ 44,780 $ 44,780 $ 42,497 $ 42,497
Investments - held to maturity 22,293 26,093 59,679 64,135
Securities available for sale 124,287 124,287 27,028 27,028
Mortgage-backed and related securities 54,945 54,988 77,499 77,818
Loans receivable - net 376,219 385,491 329,442 335,627
Financial Liabilities:
Deposits $498,929 $496,529 $437,376 $435,867
Mortgage-backed bond 17,453 17,453 18,344 18,344
Advances from FHLB 36,350 36,545 18,200 18,365
ESOP borrowings 2,064 2,064 2,557 2,557
44
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Year ended September 30, 1996:
Interest income $ 10,205 $ 10,748 $ 11,091 $ 11,845
Interest expense 5,349 5,834 5,724 5,952
--------- --------- --------- ----------
Net interest income 4,856 4,914 5,367 5,893
Provision for loan losses 30 2 38 28
Other income 1,080 967 370 927
Operating expense 4,189 3,992 4,277 7,142
Provision (benefit) for income taxes 667 619 (361) (164)
--------- --------- --------- ----------
Net income (loss) $ 1,050 $ 1,268 $ 1,783 $ (186)
========= ========= ========= ==========
Earnings (loss) per share $ 0.22 $ 0.26 $ 0.36 $ (0.04)
========= ========= ========= ==========
Weighted average common
shares outstanding 4,850,672 4,876,633 4,885,991 4,956,358
========= ========= ========= ==========
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Year ended September 30, 1995:
Interest income $ 8,872 $ 9,076 $ 9,657 $ 10,115
Interest expense 3,960 4,278 5,087 5,309
--------- --------- --------- ---------
Net interest income 4,912 4,798 4,570 4,806
Provision for loan losses 108 37 156 (61)
Other income 850 827 796 921
Operating expense 3,915 3,983 3,016 3,989
Provision for income taxes 673 617 822 651
--------- --------- --------- ---------
Net income $ 1,066 $ 988 $ 1,372 $ 1,148
========= ========= ========= ==========
Earnings per share $ 0.22 $ 0.21 $ 0.28 $ 0.24
========= ========= ========= ==========
Weighted average common
shares outstanding 4,887,160 4,817,262 4,822,362 4,838,575
========= ========= ========= =========
The fiscal 1996 third quarter results of operations include a $1,140,000
credit to the income tax provision related to the reversal of a liability
accrued in prior years which management concluded was no longer necessary.
The fiscal 1996 fourth quarter results of operations include a one-time
special assessment of $2.8 million for the recapitalization of the SAIF
administered by the FDIC.
45
C O R P O R A T E D I R E C T O R Y
BOARD OF DIRECTORS
FREDERICK A. TEED FOREST C. BEATY, JR. ROBERT F. CROMWELL
CHAIRMAN OF THE BOARD DIRECTOR DIRECTOR AND CHAIRMAN EMERITUS OF THE
BOARD
KARL D. GRIFFIN JAMES B. PITTARD, JR. HAROLD I. STEVENSON, CPA
DIRECTOR AND SECRETARY EMERITUS OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER DIRECTOR
BOARD
COMMUNITY SAVINGS' MANAGEMENT
ADMINISTRATIVE DIVISION
James B. Pittard, Jr. Joe L. Knorr Juanita Parkinson
CHIEF EXECUTIVE OFFICER INTERNAL AUDITOR MARKETING COORDINATOR
Deborah M. Rousseau Judith M. Hogan Jane H. Ryder
CORPORATE SECRETARY COMPLIANCE OFFICER PERSONNEL MANAGER
FINANCE DIVISION
Larry J. Baker, CPA Donna L. Sheppard, CPA Bruce C. Tissot
CHIEF FINANCIAL OFFICER CONTROLLER STAFF ACCOUNTANT
DIVISION DIRECTOR - FINANCE
LOAN DIVISION
Cecil F. Howard, Jr. Charles J. Gifford Michael E. Reinhardt
DIVISION DIRECTOR - LENDING NEW LOAN OPERATIONS MANAGER LOAN SERVICE AND ASSOCIATION
PROPERTIES MANAGER
Johnny L. Morris Mildred C. Lodge Carla Alexander
LENDING SALES MANAGER LOAN OFFICER/CONSUMER AND RESIDENTIAL LOAN ORIGINATOR
Priscilla D. Bailey Carole Blair Bruce Kerman
LOAN OFFICER LOAN ORIGINATOR LOAN ORIGINATOR
Donna Lubinsky Lawrence Richardson
LOAN ORIGINATOR LOAN ORIGINATOR
OPERATIONS DIVISION
Mary L. Kaminske Elizabeth A. DeLosh Rizwana Khalid
DIVISION DIRECTOR - OPERATIONS BRANCH OPERATIONS MANAGER DEPOSITS PRODUCTS MANAGER
Cindy L. Sheppard Theresa J. Brooks Patricia Dent
DATA SYSTEMS MANAGER REGIONAL BRANCH MANAGER DEPOSIT SALES REPRESENTATIVE
Darlene L. Deaton Allen Revell
REGIONAL BRANCH MANAGER DEPOSIT SALES REPRESENTATIVE
BRANCH MANAGERS
NORTH REGION
Helena Dumich Deana Fessel Judy Hamm Diane Lents
HOBE SOUND JENSEN BEACH PORT ST. LUCIE FORT PIERCE
Lesa Murphy Jeanne Powell Kevin Smith
MARTIN DOWNS PORT SALERNO ST. LUCIE WEST
SOUTH REGION
Naomi Belk Elizabeth Colgan Wendy Green Teresa Hazel
RIVIERA BEACH VILLAGE COMMONS TEQUESTA GALLERY SQUARE
Mary Beth Hoyla Corliss Jackson Charlene McBride Calvin Miller
PGA NORTH PALM BEACH BLUFFS SINGER ISLAND
Diana Miner Eileen St. Denis Thomas Welly
TONEY PENNA PALM BEACH GARDENS CHASEWOOD
46
C O R P O R A T E I N F O R M A T I O N
HOME OFFICE AUDITORS
& CORPORATE HEADQUARTERS Deloitte & Touche LLP
660 U.S. Highway One 1645 Palm Beach Lakes Boulevard, Suite 900
North Palm Beach, FL 33408 West Palm Beach, FL 33401
ANNUAL MEETING SPECIAL COUNSEL
January 15, 1997 Elias, Matz, Tiernan & Herrick L.L.P.
1:30 p.m. 734 15th Street, NW
Embassy Suites PGA 12th Floor
4350 PGA Boulevard Washington, DC 20005
Palm Beach Gardens, FL 33410
FORM 10-K
REGISTRAR & TRANSFER AGENT A copy of the Association's Annual Report on
ChaseMellon Shareholder Services, L.L.C. Form 10-K, as filed with the Office of Thrift
450 West 33rd Street Supervision, is available without charge.
15th Floor
New York, NY 10001-2697
(800) 526-0801 STOCK LISTING
The Common Stock
DIVIDEND SERVICES of Community Savings, F. A.
Dividend Reinvestment and Optional is traded on the Nasdaq National
Cash Investment Plan - provides shareholders Market under the symbol CMSV.
a regular way of investing cash Many newspaper stock tables
dividends in additional shares and list Community Savings'
investing optional cash payments stock as CommSv.
without payment of brokerage commissions.
SHAREHOLDER RELATIONS
SHAREHOLDER ACCOUNT ASSISTANCE Deborah M. Rousseau
Shareholders who wish to change the name Corporate Secretary
address or ownership of stock or report lost (561) 881-2212
certificates should contact the Registrar
and Transfer Agent at the address INVESTOR RELATIONS
or phone number above. James B. Pittard, Jr.
Chief Executive Officer
GENERAL COUNSEL (561) 881-2213
Cromwell, Pfaffenberger, Dahlmeier
Barner, Griffin & Colton Larry J. Baker, CPA
631 U.S. Highway One, Suite 410 Chief Financial Officer
North Palm Beach, FL 33408 (561) 881-2213
Community Savings' Common Stock began trading on October 24, 1994. As of
September 30, 1996, there were 5,090,120 shares of Common Stock outstanding and
930 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 tables sets forth quarter ending book value, high, low,
and closing trade prices, and dividend per share information.
QUARTERLY COMMON STOCK DATA
CLOSING PRICES
BOOK ------------------------------------------------- DIVIDEND
VALUE HIGH LOW CLOSE PER SHARE
----- ---- --- ----- ---------
September 30, 1996 $15.33 $17 $15 3/4 $16 3/4 $ .20
June 30, 1996 $15.38 $16 $14 1/4 $16 $ .20
March 31, 1996 $15.35 $17 $15 1/2 $15 1/2 $.1750
December 31, 1995 $15.35 $18 3/8 $16 3/4 $17 $.1750
September 30, 1995 $15.04 $17 3/4 $14 5/8 $17 5/8 $.1750
June 30, 1995 $14.93 $15 1/4 $11 3/8 $14 7/8 $.15
March 31, 1995 $14.69 $13 1/8 $10 3/4 $11 7/8 $.15
December 31, 1994 $14.51 $15 $10 $11 $.1125
47
[BACK COVER OF ANNUAL REPORT]
COMMUNITY SAVINGS, F.A.
660 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408