OFFICE OF THRIFT SUPERVISION
WASHINGTON, DC 20552
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FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
----------------
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from OCTOBER 1, 1996 to DECEMBER 31, 1996
--------------------- -------------------
OTS Docket number 05939
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COMMUNITY SAVINGS, F. A.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UNITED STATES 65-0525685
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
660 US Highway One
North Palm Beach, FL 33408
- ---------------------------------------- ---------------------------------
(Address of principal executive (Zip code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561)
881-4800
-------------------------------------------------------
Indicate by check whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of February 7, 1997 there were 5,090,120 shares of the Registrant's
common stock outstanding.
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1996 (unaudited) and September 30, 1996 2
Consolidated Statements of Operations for the three months
ended December 31, 1996 and 1995 (unaudited) 3
Consolidated Statements of Changes in Shareholders' Equity for the
three months ended December 31, 1996 (unaudited) and the year
ended September 30, 1996 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
- --------------------------
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Default Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
Signature Page 17
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
December 31, September 30,
1996 1996
------------ -------------
(unaudited)
ASSETS (In Thousands)
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 13,547 $ 15,600
Interest-bearing deposits 28,895 29,180
--------- ---------
Total cash and cash equivalents 42,442 44,780
Securities available for sale 123,152 124,287
Investments - held to maturity 22,139 22,293
Mortgage-backed and related securities - held to maturity 53,405 54,945
Loans receivable, net of allowance for loan losses 389,040 376,219
Accrued interest receivable 2,354 2,208
Office properties and equipment, net 16,368 16,359
Investment in and advances to real estate venture 62 218
Real estate owned, net 1,455 1,384
Federal Home Loan Bank stock - at cost 2,864 5,384
Other assets 1,928 2,255
--------- ---------
Total assets $ 655,209 $ 650,332
========= =========
LIABILITIES
Deposits $ 513,709 $ 498,929
Mortgage-backed bond - net 17,230 17,453
Advances from Federal Home Loan Bank 34,763 36,350
ESOP borrowings 1,915 2,064
Advances by borrowers for taxes and insurance 1,059 6,861
Other liabilities 8,378 11,599
Deferred income taxes 2,036 2,020
--------- ---------
Total liabilities 579,090 575,276
--------- ---------
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, 5,090,120 shares outstanding 5,090 5,090
Additional paid in capital 29,950 29,881
Retained income - substantially restricted 44,603 43,902
Common stock purchased by Employee Stock Ownership Plan (1,848) (1,965)
Common stock issued to Recognition and Retention Plan (608) (654)
Unrealized decrease in market value of assets available
for sale, net of income taxes (1,068) (1,198)
--------- ---------
Total shareholders' equity 76,119 75,056
--------- ---------
Total liabilities and shareholders' equity $ 655,209 $ 650,332
========= =========
See Notes to consolidated financial statements.
2
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
For the three months
ended December 31,
1996 1995
---- ----
(unaudited)
(In Thousands)
Interest income:
Real estate loans $ 7,427 $ 6,278
Consumer and commercial business loans 408 344
Investment securities and securities available for sale 2,566 1,361
Mortgage-backed and related securities 1,004 1,565
Interest-earning deposits 491 657
------- -------
Total interest income 11,896 10,205
------- -------
Interest expense:
Deposits 5,251 4,499
Advances from Federal Home Loan Bank
and other borrowings 1,127 850
------- -------
Total interest expense 6,378 5,349
------- -------
Net interest income 5,518 4,856
------- -------
Provision for loan losses 243 30
------- -------
Net interest income after provision for loan losses 5,275 4,826
------- -------
Other income:
Servicing income and other fees 33 35
NOW account and other customer fees 820 789
Net gain on sale of securities
available for sale 51 110
Net gain on sale of loans receivable 3 --
Equity in net income of real estate venture 72 107
Miscellaneous 246 39
------- -------
Total other income 1,225 1,080
------- -------
Operating expense:
Employee compensation and benefits 2,125 2,003
Occupancy and equipment 1,201 1,144
Net loss on real estate owned 37 81
Advertising and promotion 240 105
Federal deposit insurance premium 288 255
Miscellaneous 753 600
------- -------
Total operating expense 4,644 4,188
------- -------
Income before provision for income taxes 1,856 1,718
Provision for income taxes 696 667
------- -------
Net income $ 1,160 $ 1,051
======= =======
Primary and fully diluted earnings per share $ 0.23 $ 0.22
======= =======
See Notes to consolidated financial statements.
3
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
Unrealized
Increase
(Decrease)
in
Retained Employee Recognition Market Value
Additional Income- Stock and of Assets
Common Paid In Substantially Ownership Retention Available for
Stock Capital Restricted Plan Plan Sale Total
====================================================================================
(In Thousands)
Balance - September 30, 1995 $ 5,089 $ 30,182 $ 41,666 $ (2,456) $ (1,162) $ (471) $ 72,848
Net income for 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
Net income for three months ended
December 31, 1996 -- -- 1,160 -- -- -- 1,160
Stock options exercised -- 4 -- -- -- -- 4
Unrealized increase in market value
of assets available for sale
(net of income taxes) -- -- -- -- -- 130 130
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan -- 65 -- 117 46 -- 228
Dividends declared -- -- (459) -- -- -- (459)
---------------------------------------------------------------------------------
Balance - December 31,1996
(unaudited) $ 5,090 $ 29,950 $ 44,603 $ (1,848) $ (608) $ (1,068) $ 76,119
=================================================================================
See Notes to consolidated financial statements.
4
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
For the three months ended
December 31,
1996 1995
---- ----
(unaudited)
(In Thousands)
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $ 1,160 $ 1,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 329 364
ESOP and Recognition and Retention Plan compensation expense 228 255
Accretion of discounts, amortization of premiums, and other deferred yield items (396) (371)
Provision for loan losses 243 30
Provision for losses and net losses on sales of real estate owned -- 28
Amortization of discount on mortgage-backed bond 123 124
Net (gain) loss on sale of securities available for sale (50) --
Net loss on sale of loans and other assets (10) --
(Increase) decrease in accrued interest receivable (146) 171
(Increase) decrease in other assets 327 (14)
Decrease (increase) in loans available for sale 137 (210)
(Decrease) increase in other liabilities (3,221) 792
-------- --------
Net cash (used for) provided by operating activities (1,276) 2,220
-------- --------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans (11,257) (5,165)
Principal payments received on mortgage-backed and related securities 2,840 2,489
Principal payments on investments 475 596
Purchases of:
Loans (1,998) (104)
Mortgage-backed and related securities -- (6,013)
Securities available for sale -- (4,308)
Office property and equipment (344) (115)
Proceeds from sales of:
Securities available for sale 100 749
Office property and equipment 178 18
Real estate acquired in settlement of loans -- 38
Federal Home Loan Bank stock 2,520 --
Proceeds from maturities of investments -- 8,799
Investment in real estate venture 156 1,201
Other investing (184) (59)
-------- --------
Net cash used for investing activities (7,514) (1,874)
-------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Net increase in:
NOW accounts, demand deposits, and savings accounts 3,112 7,541
Certificates of deposit 11,668 16,768
Repayment of advances from Federal Home Loan Bank (1,587) (1,087)
Advances by borrowers for taxes and insurance (5,802) (5,537)
ESOP loan (149) (148)
Sale of common stock-net of issuance costs 4 --
Payments made on mortgage-backed bond (346) (347)
Dividends paid (448) (391)
-------- --------
Net cash provided by (used for) financing activities 6,452 16,799
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,338) 17,145
CASH AND CASH EQUIVALENTS, beginning of period 44,780 42,497
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 42,442 $ 59,642
======== ========
See Notes to consolidated financial statements
5
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated interim financial statements for Community
Savings, F. A. and its subsidiaries ("Community Savings" or the
"Association"), the majority-owned subsidiary of ComFed, M. H. C., reflect
all adjustments (consisting only of normal recurring accruals) which, in
the opinion of management, are necessary to present fairly the
Association's consolidated financial condition and the consolidated
results of operations and cash flows for interim periods. The results for
interim periods are not necessarily indicative of trends or results to be
expected for the full year. All weighted interest rates are presented on
an annualized basis. The unaudited consolidated interim financial
statements and notes should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Association's Annual Report to shareholders for the year ended September
30, 1996.
2. REORGANIZATION TO A MUTUAL HOLDING COMPANY AND CONVERSION TO STOCK FORM OF
OWNERSHIP
The Association was reorganized into a federal mutual holding company,
ComFed, M.H.C. (the "Holding Company") on October 24, 1994. In connection
with the reorganization, the Holding Company retained $200,000 for
operating capital. The Holding Company is chartered and regulated by the
Office of Thrift Supervision ("OTS").
Simultaneously with the reorganization into a mutual holding company, the
Association sold shares of common stock which represent a minority
interest in the Association to officers, directors, employees, and certain
depositors and borrowers of the Association, and to certain members of the
general public. The remaining issued and outstanding shares are owned by
the Holding Company. The reorganization and minority stock offering were
completed on October 24, 1994. The Association sold 2,379,856 shares at
$15 per share for total gross proceeds of $35,697,840. The minority stock
offering represented a minority ownership of 47.6% of the Association. The
net proceeds of the stock offering, after reflecting conversion expenses
of approximately $1,712,000, were $33,985,840. The net proceeds, less the
$200,000 retained by the Holding Company, were added to the Association's
general funds to be used for general corporate purposes.
In connection with the reorganization to the stock form of ownership, the
Community Savings, F. A. Employee Stock Ownership Plan ("ESOP") purchased
190,388 shares of the Association common stock at an average price of
$14.45 per share, or $2,752,977 in the aggregate, which was funded by a
loan from an unaffiliated lender. The Association makes scheduled cash
contributions to the ESOP sufficient to service the amount borrowed. For
the quarter ended December 31, 1996, total contributions made to the ESOP,
which are used to fund principal and interest payments on the ESOP debt,
totaled approximately $191,000.
3. CHANGE IN FISCAL YEAR END
During January 1997, the Board of Directors voted to change the
Association's year end from September 30th to December 31st, effective
with the year ending December 31, 1996.
6
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31, September 30,
------------ -------------
1996 1996
---- ----
(In Thousands)
Real estate loans:
Residential 1-4 family $293,296 $284,267
Residential 1-4 family held for sale (at lower of cost or fair value) 70 207
Residential construction loans 33,158 33,520
Non-residential construction loans 2,200 2,200
Land loans 19,426 16,846
Multi-family loans 8,096 8,153
Commercial 37,815 38,433
------ ------
Total real estate loans 394,061 383,626
------- -------
Non-real estate loans:
Consumer loans 16,028 15,606
Commercial business 2,458 1,874
----- -----
Total non-real estate loans 18,486 17,480
------ ------
Total loans receivable 412,547 401,106
Less:
Undisbursed loan proceeds 20,765 22,318
Unearned discount and net deferred loan fees 200 257
Allowance for loan losses 2,542 2,312
----- -----
Total loans receivable, net $389,040 $376,219
======== ========
The amount of loans on which the Association has ceased accruing interest
aggregated approximately $1,631,000 and $842,000 at December 31, 1996 and
September 30, 1996, respectively. The amount of interest not accrued
related to these loans was approximately $65,000 and $44,000 at December
31, 1996 and September 30, 1996, respectively.
An analysis of the changes in the allowance for loan losses is as follows:
For the three months
ended December 31,
1996 1995
---- ----
(In Thousands)
Balance, beginning of period $2,312 $3,492
Provision charged to income 243 30
Losses charged to allowance (13) (30)
Recoveries - -
- -
------ ------
Balance, end of period $2,542 $3,492
====== ======
7
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." The Statement
generally requires all creditors to account for impaired loans, except
those loans that are accounted for at fair value or at the lower of cost
or fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate. In October 1994, the
FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan Income Recognition and Disclosures." This statement amends SFAS No.
114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. SFAS No. 118 does not change the provisions in
SFAS No. 114 that require a creditor to measure impairment based on the
present value of expected future cash flows discounted at the loan's
effective interest rate, or at the market price of the loan or the fair
value of the collateral if the loan is collateral dependent. The
Association adopted the provisions of SFAS No. 114 as amended by SFAS No.
118 effective October 1, 1995.
An analysis of the recorded investment in impaired loans owned by the
Association at December 31, 1996 and the related allowance for those loans
is as follows:
December 31, 1996
-----------------------
Loan Related
Balances Allowances
-------- ----------
(In Thousands)
Impaired loan balances and related
allowances for loan losses $1,071 $252
====== ====
5. REAL ESTATE OWNED
Real estate owned consists of the following:
December 31, September 30,
1996 1996
---- ----
(In Thousands)
Real estate owned $1,547 $1,476
Less allowance for loss 92 92
-- --
Total $1,455 $1,384
====== ======
Changes in reserve for loss are as follows:
For the three months
ended December 31,
---------------------
1996 1995
---- ----
(In Thousands)
Balance, beginning of period $92 $113
Provision charged to income - 40
Losses charged to reserve - (4)
- ---
Balance, end of period $92 $149
=== ====
8
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEPOSITS
The weighted-average interest rates on deposits at December 31, 1996 and
September 30, 1996 were 4.15% and 4.09%, respectively. Deposit accounts,
by type and range of rates at December 31, 1996 and September 30, 1996,
consist of the following:
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1996 1996
---- ----
(In Thousands)
ACCOUNT TYPE AND RATE
Non-interest-bearing NOW accounts $ 18,627 $ 19,532
NOW, Super NOW and funds transfer accounts 67,076 63,098
Passbook and statement accounts 30,821 30,875
Money market accounts 69,514 69,421
-------- --------
Total non-certificate accounts 186,038 182,926
-------- --------
Certificates:
3.00% or less 1,035 1,600
3.01% - 3.99% 598 903
4.00% - 4.99% 51,484 80,831
5.00% - 5.99% 232,313 193,281
6.00% - 6.99% 33,568 29,571
7.00% - 7.99% 8,673 9,817
-------- --------
Total certificates of deposit 327,671 316,003
-------- --------
Total $513,709 $498,929
======== ========
Individual deposits greater than $100,000 at December 31, 1996 and
September 30, 1996 aggregated approximately $72,504,000 and $67,467,000,
respectively. Deposits in excess of $100,000 are not insured.
7. CONTINGENCIES
In connection with its mutual holding company reorganization and stock
offering, the Association's 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 and established a
specific reserve of $200,000. During the quarter ended December 31, 1996,
the Association received the final payment of $600,000 from the New York
Banking Department. As a result of the recovery of the entire amount due
the Association, the specific reserve of $200,000 was reversed.
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 established a liability
for the amount of the deductible during fiscal year 1996. Management
currently estimates that the loss in excess of the deductible will not
involve material amounts and will be covered by the 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 completed its investigation of the claim.
9
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
8. EARNINGS PER SHARE
The primary and fully diluted weighted-average number of shares includes
adjustments for the Association's ESOP, Recognition and Retention Plan
("RRP"), and stock options. For the quarter ended December 31, 1996, the
primary and fully diluted weighted-average number of shares was 4,983,996
and 5,001,648, respectively. For the quarter ended December 31, 1995, the
primary and fully diluted weighted-average number of shares was 4,928,860.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Community Savings, founded in 1955, is a federally-chartered savings and loan
association headquartered in North Palm Beach, Florida. The Association's
deposits are federally insured by the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF"). The
Association has been a member of the Federal Home Loan Bank of Atlanta ("FHLB")
since 1955. 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 newly formed mutual holding company, ComFed, M. H. C.
During July 1995, 88,900 shares of common stock were issued from authorized but
unissued shares to fund the Association's RRP, and during April 1996, 1,220
shares were issued upon the exercise of stock options, resulting in total shares
of common stock issued and outstanding of 5,090,120.
The Association is a community-oriented financial institution engaged primarily
in the business of attracting deposits from the general public and using such
funds, together with other borrowings, to invest in various consumer based real
estate loans and mortgage-backed securities ("MBS"). Community Savings' plan is
to operate as a well-capitalized, profitable and independent institution.
Community Savings currently exceeds all regulatory capital requirements. The
Association's profitability is highly dependent on its net interest income. The
components that determine net interest income are the amount of interest-earning
assets and interest-bearing liabilities, together with the rates earned or paid
on such interest rate-sensitive instruments. The Association is sensitive to
managing interest rate risk exposure by better matching asset and liability
maturities and rates. This is accomplished while considering the credit risk of
certain assets. The Association maintains asset quality by utilizing
comprehensive loan underwriting standards and collection efforts as well as by
primarily originating or purchasing secured or guaranteed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio is currently 5.0%. The
Association's liquidity ratio averaged 12.9% during the quarter ended December
31, 1996 while liquidity ratios averaged 14.8% for the year ended September 30,
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.
A major portion of the Association's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities.
The Association'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, 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 $28.7 million at December 31,
1996. Other assets qualifying for liquidity outstanding at December 31, 1996
amounted to $32.4 million. For additional information about cash flows from the
Association's operating, financing, and investing activities, see the unaudited
consolidated statements of cash flows included in
10
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
the financial statements. The primary sources of cash were net income and
principal repayments on loans and mortgage-backed securities.
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 which provide an
additional source of funds. At December 31, 1996, the Association's advances
from the FHLB totaled $34.8 million. The Association has in the past utilized
borrowings from the FHLB principally to reduce interest rate risk, rather than
for liquidity purposes.
At December 31, 1996, the Association had outstanding loan commitments totalling
$5.8 million, which amount does not include the unfunded portion of loans in
process. Certificates of deposit scheduled to mature in less than one year
totaled $253.6 million at December 31, 1996. Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Association.
FINANCIAL CONDITION
December 31, 1996 compared to September 30, 1996
------------------------------------------------
The following table summarizes certain information relating to the Association's
financial condition at the dates indicated.
December 31, September 30, Increase
1996 1996 (Decrease)
---- ---- ----------
(unaudited)
(In Thousands)
Assets:
Total assets $655,209 $650,332 $4,877
Cash and cash equivalents 42,442 44,780 (2,338)
Securities portfolio:
Investment securities 22,139 22,293 (154)
Securities available for sale 123,152 124,287 (1,135)
Mortgage-backed and related securities 53,405 54,945 (1,540)
Total securities portfolio 198,696 201,525 (2,829)
Loans receivable, net 389,040 376,219 12,821
Real estate owned, net 1,455 1,384 71
Liabilities:
Total liabilities 579,090 575,276 3,814
Deposits 513,709 498,929 14,780
ESOP borrowings 1,915 2,064 (149)
Advances by borrowers for taxes and insurance 1,059 6,861 (5,802)
Shareholders' equity 76,119 75,056 1,063
Total assets increased $4.9 million to $655.2 million at December 31, 1996, as
compared to $650.3 million at September 30, 1996 primarily due to a $12.8
million increase in loans receivable to $389.0 million at December 31, 1996 from
$376.2 million at September 30, 1996. The increase in total assets was partially
offset by a $2.3 million decrease in cash and cash equivalents, a $2.8 million
decrease in the securities portfolio and a $2.8 million decrease in other
assets. The increase in total assets was primarily funded by a $14.8 million
increase in deposits to $513.7 at December 31, 1996 from $498.9 million at
September 30, 1996.
The securities portfolio experienced a net decrease of $2.8 million which
primarily reflected scheduled principal reductions and amortization of premiums
and discounts.
Loans receivable increased $12.8 million as a result of the Association's
continued emphasis on its lending activities. Loan originations of $29.6 million
and purchases of $2.0 million, (primarily consisting of one- to four-family
residential properties) were offset by repayments and other adjustments of $18.8
million. Real estate owned
11
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
increased $71,000 to $1.5 million at December 31, 1996, from $1.4 million at
September 30, 1996, primarily due to the addition of new foreclosed real estate.
Total liabilities increased $3.8 million to $579.1 million at December 31, 1996,
from $575.3 million at September 30, 1996. Total deposits increased by $14.8
million to $513.7 million at December 31, 1996 from $498.9 million at September
30, 1996 due primarily to increased retail deposits and public funds. Advances
by borrowers for taxes and insurance decreased $5.8 million to $1.1 million at
December 31, 1996, from $6.9 million at September 30, 1996, due to the payment
of real estate taxes during the three month period. In addition during the
quarter ended December 31, 1996, the Association made its $2.8 million payment
for the SAIF recapitalization premium which had been accrued and included in
other liabilities.
Total equity increased to $76.1 million at December 31, 1996, from $75.1 million
at September 30, 1996, due to net income of $1.2 million, the stock benefit
plans accrual of $228,000, and a net increase in the market value of assets
available for sale of $130,000, offset by the declaration of dividends totalling
$459,000. For further information, see the unaudited consolidated statements of
changes in shareholders' equity in the accompanying consolidated financial
statements.
At December 31, 1996, the Association exceeded all regulatory capital
requirements as follows:
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provision
-----------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
-----------------------------------------------------------------------------
As of December 31, 1996:
Shareholders' equity, and ratio
to total assets 11.6% $76,119
=====
Investment in subsidiary --
Intangible assets 1,068
-----
Tangible capital, and ratio to
adjusted total assets 11.8% $77,187 1.5% $9,844
===== ======= ==== ======
Tier 1 (core) capital, and ratio
to adjusted total assets 11.8% $77,187 4.0% $26,251 5.0% $32,814
===== ======= ==== ======= ==== =======
Tier 1 (core) capital, and ratio to
risk-weighted total assets 24.2% $77,187 6.0% $19,119
===== ------- ==== =======
Allowance for loan and lease losses 2,290
Equity investments (632)
-----
Tier 2 capital 1,658
-----
Total risk-based capital, and ratio to
risk-weighted total assets 24.7% $78,845 8.0% $25,492 10.0% $31,865
===== ======= ==== ======= ===== =======
Total assets $655,209
========
Adjusted total assets $656,277
========
Risk-weighted assets $318,650
========
ASSET QUALITY
Loans 90 days past due are generally placed on non-accrual status. The
Association ceases to accrue interest on a loan once it is placed on non-accrual
status and interest accrued but unpaid at such time is charged against interest
income. Additionally, any loan where it appears evident prior to being past due
90 days that the collection of interest is in doubt is also placed on
non-accrual status. The Association carries real estate owned at the lower of
cost or fair value, less cost to dispose. Management regularly reviews assets to
determine proper valuation. The Association did not have any restructured loans
within the meaning of Statement of Financial Accounting Standards No. 15 at
December 31, 1996 or September 30, 1996.
12
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
The following table sets forth information regarding the Association's
delinquent loans and foreclosed real estate at the dates indicated:
December 31, September 30,
1996 1996
---- ----
(unaudited)
(In Thousands)
Residential real estate loans:
Loans 60 to 89 days delinquent $ 446 $ 209
Loans more than 90 days delinquent 1,524 832
------ ------
Total 1,970 1,041
------ ------
Commercial and multi-family real estate loans:
Loans 60 to 89 days delinquent -- --
Loans more than 90 days delinquent -- --
------ ------
Total -- --
------ ------
Consumer and commercial business loans:
Loans 60 to 89 days delinquent 72 3
Loans more than 90 days delinquent 107 10
------ ------
Land
Loans 60 to 89 days delinquent -- --
Loans more than 90 days delinquent -- --
------ ------
Total -- --
------ ------
Total non-performing loans 2,149 1,054
------ ------
Real estate owned net of related allowance 1,455 1,384
Loans to facilitate sale of real estate owned 224 226
Other non-performing assets net of related allowance -- 400
------ ------
Total non-performing assets and loans to facilitate sale of real estate owned $3,828 $3,064
====== ======
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net income for the quarter ended December 31, 1996 increased 10.5% to $1.2
million, or $.23 per share, compared to $1.1 million, or $.22 per share, for the
quarter ended December 31, 1995. The increase in net income was due to increases
in net interest income of $662,000 and in other income of $145,000 offset in
part by increases of $213,000 in the provision for loan losses, $455,000 in
operating expense, and $29,000 in the provision for income taxes.
NET INTEREST INCOME
Net interest income increased to $5.5 million for the quarter ended December 31,
1996 from $4.9 million for the quarter ended December 31, 1995 primarily as a
result of an $78.0 million increase in average interest-earning assets to $616.6
million for the three months ended December 31, 1996 from $538.6 million for the
same period in 1995. This increase was offset in large part by a $74.8 million
increase in average interest-bearing liabilities to $559.8 million for the three
months ended December 31, 1996 from $485.0 million for the same period in 1995.
13
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
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 FDIC. The Association's provision for
loan losses was $243,000 for the quarter ended December 31, 1996, as compared to
$30,000 for the quarter ended December 31, 1995. The increase in the provision
of $213,000 included a $200,000 transfer to the general loan valuation allowance
from a specific reserve which had been maintained with respect to an
interest-earning deposit which was pledged as collateral for the ESOP loan and
which was recovered during the quarter ended December 31, 1996 (see Note 7 to
the Notes to the Consolidated Financial Statements). The Association's allowance
for loan losses as a percentage of net loans receivable was .65% and 1.04% at
December 31, 1996 and 1995, respectively, and 55.9% and 35.6% of classified
assets at December 31, 1996 and 1995, respectively.
OTHER INCOME
Other income consists of servicing income and fee income, service charges, gain
or loss on the sale of securities available for sale and income or loss from the
Association's subsidiary's real estate venture. Other income increased $145,000
to $1.2 million for the quarter ended December 31, 1996 from $1.1 million for
the same period in 1995, due to the reversal of a specific reserve of $200,000
referenced above which had been maintained with respect to an interest-earning
deposit which was pledged as collateral for the ESOP loan and which was
recovered during the quarter (see Note 7 to the Notes to Consolidated Financial
Statements).
OPERATING EXPENSE
Operating expense increased $455,000, or 10.9%, to $4.6 million for the three
month period ended December 31, 1996, from $4.2 million from the same period in
1995, primarily due to increases of $135,000 in advertising and promotion due to
increased advertising designed to increase the Association's market share, and
$122,000 in employee compensation and benefits as a result of increased staffing
due to both a branch office opening and the expanded loan production program.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $29,000 to $696,000 for the three months
ended December 31, 1996 as compared to $667,000 for the same period in 1995 due
to the increase in net income.
14
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits in which the Association is
periodically involved incidental to the Association's business. In
the opinion of management, no material loss is expected from any
of such pending claims or lawsuits.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Association held its Annual Meeting of Shareholders on January
15, 1997. Of the 5,090,120 shares eligible to vote, 4,799,755
shareholders or 94.3%, including 2,620,144 shares owned by ComFed,
M. H. C., were represented in person or by proxy at the meeting.
The votes cast produced the following results:
Number Of Votes
Election of Directors for ---------------
a three year term expiring in 2000 For Withheld
---------------------------------- --- --------
Karl D. Griffin 4,744,958 54,797
Harold I. Stevenson 4,745,278 54,477
Election of a Director for a two
year term expiring in 1999
------------------------------------
James B. Pittard, Jr. 4,744,792 54,963
Number of Votes
-----------------------------------------------------------
For Against Abstain
--- ------- -------
Ratification of Deloitte
& Touche LLP as auditors
for fiscal year 1997 4,754,079 25,580 20,096
15
COMMUNITY SAVINGS, F. A. AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION.
(a)
On January 16, 1997, the Board of Directors of the Association
adopted a resolution to proceed with filing an application with
the Office of Thrift Supervision ("OTS") to reorganize Community
Savings into a two-tier holding company structure. As a result of
the reorganization, the Association will be a wholly-owned
subsidiary of a Florida-chartered company which will be owned by
the existing shareholders.
ComFed, M. H. C., the Association's mutual holding company, will
hold a majority of the common stock of the new mid-tier stock
holding company, which will own 100% of the common stock of
Community Savings. Under the reorganization, each share of
Association common stock held by existing shareholders of
Community Savings will be exchanged for a share of common stock of
the mid-tier stock holding company. The reorganization of the
Association will be structured as a tax-free reorganization and
will be accounted for in a manner similar to a pooling of
interests. Completion of the reorganization is subject to
regulatory approval by the OTS and to shareholder approval. It is
expected to be completed during the second quarter of 1997.
(b)
During January 1997, the Board of Directors of the Association
approved a change of the Association's fiscal year from September
30 to December 31, effective December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
---------
None.
(b) Current Reports On Form 8-K.
----------------------------
None.
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMMUNITY SAVINGS, F. A.
/s/ JAMES B. PITTARD, JR
-------------------------------------
Date: February 11, 1997 James B. Pittard, Jr.
President and Chief Executive Officer
Date: February 11, 1997 /s/ LARRY J. BAKER
-------------------------------------
Larry J. Baker
Senior Vice President and Treasurer
17