UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20552
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
Commission File Number 000-29460
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COMMUNITY SAVINGS BANKSHARES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UNITED STATES 65-0780334
- ---------------------------------------- --------------------------------
(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) 881-2212
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Indicate by check whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 14, 1998, there were 5,100,120 shares of the Registrant's common
stock outstanding.
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information PAGE
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1998 (Unaudited) and December 31, 1997 2
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Comprehensive Income for the three months
ended March 31, 1998 and 1997 (Unaudited) 3
Consolidated Statements of Changes in Shareholders' Equity for the
three months ended March 31, 1998 (Unaudited) and
for the year ended December 31, 1997 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT MARCH 31, 1998 AND DECEMBER 31, 1997
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS (In thousands)
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 16,541 $ 12,333
Interest-bearing deposits 43,283 13,621
--------- ---------
Total cash and cash equivalents 59,824 25,954
Securities available for sale 111,704 142,269
Investments - held to maturity 21,363 21,388
Mortgage-backed and related securities - held to maturity 44,517 46,413
Loans receivable, net of allowance for loan losses 490,166 451,709
Accrued interest receivable 2,736 3,162
Office properties and equipment, net 20,592 20,206
Real estate owned, net 929 592
Federal Home Loan Bank stock - at cost 3,688 3,264
Other assets 5,091 5,176
--------- ---------
Total assets $ 760,610 $ 720,133
========= =========
LIABILITIES
Deposits $ 586,473 $ 550,708
Mortgage-backed bond - net 16,108 16,333
Advances from Federal Home Loan Bank 61,218 57,341
Employee Stock Ownership Plan borrowings -- 1,424
Advances by borrowers for taxes and insurance 2,951 931
Other liabilities 8,701 9,101
Deferred income taxes 2,994 3,036
--------- ---------
Total liabilities 678,445 638,874
--------- ---------
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; 5,100,120 and
5,094,920 shares outstanding at March 31, 1998 and December 31, 1997, 5,100 5,095
respectively
Additional paid in capital 30,475 30,278
Retained income - substantially restricted 48,593 47,887
Common stock purchased by Employee Stock Ownership Plan (1,326) (1,424)
Common stock issued to Recognition and Retention Plan (377) (423)
Unrealized decrease in market value of assets available
for sale, net of income taxes (300) (154)
--------- ---------
Total shareholders' equity 82,165 81,259
--------- ---------
Total liabilities and shareholders' equity $ 760,610 $ 720,133
========= =========
See notes to consolidated financial statements.
2
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For the three months
ended March 31,
1998 1997
------- -------
(Unaudited)
(In thousands)
Interest income:
Real estate loans $ 8,924 $ 7,688
Consumer and commercial business loans 446 407
Investment securities and securities available for sale 2,644 2,371
Mortgage-backed and related securities 842 989
Interest-earning deposits 502 565
------- -------
Total interest income 13,358 12,020
------- -------
Interest expense:
Deposits 5,925 5,370
Advances from Federal Home Loan Bank and other borrowings 1,374 1,078
------- -------
Total interest expense 7,299 6,448
------- -------
Net interest income 6,059 5,572
Provision for loan losses 117 30
------- -------
Net interest income after provision for loan losses 5,942 5,542
------- -------
Other income:
Servicing income and other fees 56 54
NOW account and other customer fees 822 778
Miscellaneous 56 59
------- -------
Total other income 934 891
------- -------
Operating expense:
Employee compensation and benefits 2,361 2,131
Occupancy and equipment 1,284 1,195
Net loss on real estate owned 19 6
Advertising and promotion 171 194
Federal deposit insurance premium 85 16
Miscellaneous 1,043 751
------- -------
Total operating expense 4,963 4,293
------- -------
Income before provision for income taxes 1,913 2,140
Provision for income taxes 681 789
------- -------
Net income $ 1,232 $ 1,351
======= =======
Basic earnings per share $ 0.25 $ 0.27
======= =======
Diluted earnings per share $ 0.24 $ 0.27
======= =======
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For the three months
ended March 31,
1998 1997
------- -------
(Unaudited)
(In thousands)
Net income $ 1,232 $ 1,351
Other comprehensive income, net of tax:
Change in unrealized decrease in market
value of assets available for sale (146) (532)
------- -------
Comprehensive income $ 1,086 $ 819
======= =======
See notes to consolidated financial statements.
3
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998
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 - December 31, 1996 $ 5,090 $ 29,920 $ 44,603 $ (1,818) $ (608) $ (1,068) $ 76,119
Net income for the year ended
December 31, 1997 -- -- 5,356 -- -- -- 5,356
Stock options exercised 5 45 -- -- -- -- 50
Unrealized increase in market
value of assets available for sale
(net of income taxes) -- -- -- -- -- 914 914
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan -- 313 -- 394 185 -- 892
Dividends declared -- -- (2,072) -- -- -- (2,072)
------------------------------------------------------------------------------
Balance - December 31, 1997 5,095 30,278 47,887 (1,424) (423) (154) 81,259
Net income for the three months
ended March 31, 1998 -- -- 1,232 -- -- -- 1,232
Stock options exercised 5 53 -- -- -- -- 58
Unrealized increase in market
value of assets available
for sale (net of income taxes) -- -- -- -- -- (146) (146)
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan -- 144 -- 98 46 -- 288
Dividends declared -- -- (526) -- -- -- (526)
------------------------------------------------------------------------------
Balance-March 31, 1998 (unaudited) $ 5,100 $ 30,475 $ 48,593 $ (1,326) $ (377) $ (300) $ 82,165
==============================================================================
See notes to consolidated financial statements.
4
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For the three months
ended March 31,
1998 1997
-------- --------
(Unaudited)
(In thousands)
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $ 1,232 $ 1,351
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 369 329
ESOP and Recognition and Retention Plan compensation expense 288 180
Accretion of discounts, amortization of premiums, and other deferred (856) (383)
yield items
Provision for loan losses 117 30
Provision for losses and net losses (gains) on sales of real estate owned 3 (2)
Amortization of discount on mortgage-backed bond 121 123
Net gain on sale of loans and other assets -- (15)
Decrease in accrued interest receivable 426 116
Decrease (increase) in other assets 85 (1,043)
Decrease in loans available for sale -- 70
(Decrease) increase in other liabilities (400) 2,867
-------- --------
Net cash provided by operating activities 1,385 3,623
-------- --------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans-net (20,420) (6,077)
Principal payments received on mortgage-backed and related securities
and securities available for sale 5,955 2,709
Principal payments received on investments-held to maturity 419 501
Purchases of
Loans (18,227) (1,460)
Securities available for sale -- (20,079)
Federal Home Loan Bank stock (424) (399)
Office property and equipment (756) (1,163)
Proceeds from sales of:
Office properties and equipment -- 38
Real estate acquired in settlement of loans 111 189
Proceeds from calls or maturities of investments 26,461 7,300
Other investing (58) (119)
-------- --------
Net cash used for investing activities (6,939) (18,560)
-------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Net increase (decrease) in:
NOW accounts, demand deposits, and savings accounts 16,354 (8,490)
Certificates of deposit 19,411 15,804
Advances from Federal Home Loan Bank 6,000 --
Repayment of advances from Federal Home Loan Bank (2,123) (1,588)
Advances by borrowers for taxes and insurance 2,020 1,647
ESOP loan (1,424) (98)
Proceeds from exercise of stock options 58 --
Payments made on mortgage-backed bond (346) (347)
Dividends paid (526) (458)
-------- --------
Net cash provided by financing activities 39,424 23,450
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 33,870 8,513
CASH AND CASH EQUIVALENTS, beginning of period 25,954 42,442
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 59,824 $ 50,955
======== ========
See notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated interim financial statements for Community
Savings Bankshares, Inc. ("Bankshares") and its subsidiary Community
Savings, F. A. (the "Association"), reflect all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management,
are necessary to present fairly Bankshares' consolidated financial
condition and the consolidated results of operations and cash flows for
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 Bankshares' Annual Report to Shareholders
for the year ended December 31, 1997. As the Association represents
Bankshares' sole investment on a consolidated basis, the interim periods
presented herein are comparable to prior year financial data.
2. REORGANIZATION TO A MID-TIER HOLDING COMPANY AND CONVERSION TO STOCK FORM
OF OWNERSHIP
On September 30, 1997, the Association completed its reorganization into
the two-tier form of mutual holding company ownership. Pursuant to the
reorganization, the Association is now the wholly owned subsidiary of the
federally chartered mid-tier stock holding company, Bankshares. Bankshares
is the majority owned subsidiary of ComFed, M.H.C. ("ComFed"), a federally
chartered mutual holding company. ComFed, Bankshares and the Association
are chartered and regulated by the Office of Thrift Supervision ("OTS").
The reorganization was accounted for in a manner similar to a pooling of
interests and did not result in any significant accounting adjustments.
Bankshares' only significant asset is the common stock of the Association.
Consequently, the majority of its net income is derived from the
Association.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income", which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the
period from nonowner sources, and No. 131 "Disclosures about Segments of
an Enterprise and Related Information", which establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas, and
major customers. Adoption of these statements has not impacted Bankshares'
consolidated financial position, results of operations or cash flows, and
any effect is limited to the form and content of its disclosures. Both
statements were effective for the fiscal year beginning January 1, 1998.
6
4. LOANS RECEIVABLE
Loans receivable consists of the following:
March 31, December 31,
1998 1997
---------- ----------
(In thousands)
Real estate loans:
Residential 1-4 family $ 377,860 $ 339,117
Residential 1-4 family held for sale
(at lower of cost or fair value) -- --
Residential construction loans 35,298 32,828
Non-residential construction loans -- 2,022
Land loans 13,516 17,117
Multi-family loans 8,824 8,800
Commercial 61,071 59,220
---------- ----------
Total real estate loans 496,569 459,104
---------- ----------
Non-real estate loans:
Consumer loans 15,435 15,694
Commercial business 4,325 3,530
---------- ----------
Total non-real estate loans 19,760 19,224
---------- ----------
Total loans receivable 516,329 478,328
Less:
Undisbursed loan proceeds 24,114 24,163
Unearned discount (premium) and
net deferred loan fees (costs) (643) (206)
Allowance for loan losses 2,692 2,662
---------- ----------
Total loans receivable, net $ 490,166 $ 451,709
========== ==========
The amount of loans which had ceased accruing interest aggregated
approximately $1,067,000 and $1,379,000 at March 31, 1998 and December 31,
1997, respectively. The amount of interest not accrued related to these
loans was approximately $59,000 and $86,000 at March 31, 1998 and December
31, 1997, respectively.
7
An analysis of the changes in the allowance for loan losses is as follows:
For the three months
ended March 31,
1998 1997
-------- --------
(In thousands)
Balance, beginning of period $ 2,662 $ 2,542
Provision charged to income 117 30
Losses charged to allowance (87) --
Recoveries -- --
-- --
-------- --------
Balance, end of period $ 2,692 $ 2,572
======== ========
The Association accounts for impaired loans in accordance with SFAS No.
114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
No. 118 "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures". There were no impaired loans at March 31,
1998.
6. REAL ESTATE OWNED
Real estate owned consists of the following:
March 31, December 31,
1998 1997
-------- --------
(In thousands)
Real estate owned $ 970 $ 633
Less allowance for loss 41 41
-------- --------
Total real estate owned $ 929 $ 592
======== ========
Changes in allowance for loss on real estate owned are as follows:
For the three months
ended March 31,
1998 1997
-------- --------
Balance, beginning of period $ 41 $ 92
Provision charged to income -- --
Losses charged to allowance -- (43)
-------- --------
Balance, end of period $ 41 $ 49
======== ========
8
7. DEPOSITS
The weighted-average interest rates on deposits at March 31, 1998 and
December 31, 1997 were 4.22% and 4.21%, respectively. Deposit accounts, by
type and range of rates at March 31, 1998 and December 31, 1997, consist
of the following:
March 31, December 31,
1998 1997
------------ ------------
(In thousands)
ACCOUNT TYPE AND RATE
---------------------
Non-interest-bearing checking accounts $27,851 $24,715
NOW, Super NOW and funds transfer accounts 75,252 69,862
Passbook and statement accounts 32,668 30,221
Money market accounts 84,213 78,832
------------ ------------
Total non-certificate accounts 219,984 203,630
------------ ------------
Certificates:
3.00% or less 999 1,436
3.01% - 3.99% 11 11
4.00% - 4.99% 43,985 35,699
5.00% - 5.99% 273,311 262,029
6.00% - 6.99% 39,416 39,186
7.00% - 7.99% 8,767 8,717
------------ ------------
Total certificates of deposit 366,489 347,078
------------ ------------
Total deposits $ 586,473 $ 550,708
============ ============
Individual deposits greater than $100,000 at March 31, 1998 and December
31, 1997 aggregated approximately $81,002,000 and $87,257,000,
respectively. Deposits in excess of $100,000 are not insured.
8. CONTINGENCIES
The Association has completed its investigation of a previously reported
possible employee defalcation which apparently had been occurring for
several years. The Association maintains insurance to cover possible
defalcation losses with a claim deductible of $200,000. A liability for
the amount of the deductible was established during the fiscal year ended
September 30, 1996. The insurance company was notified of the potential
claim and the insurance company acknowledged coverage. The insurance
company has completed its due diligence related to the claim. The
Association and the insurance company are currently negotiating the final
settlement of the claim. Management does not believe that the claim will
have any material adverse effect on its financial position or results of
its operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In the following discussion, references to "Bankshares" relate to Community
Savings Bankshares, Inc. together with its subsidiary, Community Savings, F. A.(
the "Association").
COMMUNITY SAVINGS BANKSHARES, INC.
Bankshares is a federally chartered mid-tier stock holding company organized in
August 1997. The only significant asset of Bankshares is its investment in its
wholly-owned subsidiary, the Association. Bankshares is majority owned by
ComFed, M.H.C. ("ComFed"), a federally chartered mutual holding company. After
the close of business on September 30, 1997, Bankshares acquired all of the
issued and outstanding common stock of the Association in connection with the
Association's reorganization into the two-tier form of mutual holding company
ownership. At that time, each share of the Association's common stock was
converted into one share of Bankshares' common stock. At March 31, 1998, ComFed
owned 2,620,144 shares of Bankshares' common stock with the remaining 2,479,976
shares owned by minority shareholders. The holding company reorganization was
accounted for at historical cost in a manner similar to a pooling of interests.
COMMUNITY SAVINGS, F. A.
The Association, founded in 1955, is a federally chartered savings and loan
association headquartered in North Palm Beach, Florida. The Association's
deposits are federally insured by the Federal Deposit Insurance Corporation
("FDIC") through the Savings Association Insurance Fund ("SAIF"). The
Association has been a member of the Federal Home Loan Bank of Atlanta ("FHLB")
since 1955. The Association is regulated by the Office of Thrift Supervision
("OTS"). On October 24, 1994, the Association completed a reorganization into a
federally chartered mutual holding company, ComFed. As part of the
reorganization, the Association organized a new federally chartered stock
savings association and transferred substantially all of its assets and
liabilities to the stock savings association in exchange for a majority of the
common stock of the stock savings association.
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, commercial loans, mortgage-backed securities ("MBS"), and
investment securities. The Association's plan is to operate as a
well-capitalized, profitable and independent institution. The Association
currently exceeds all regulatory capital requirements. The Association's
profitability is highly dependent on its net interest income. The components
that determine net interest income are the amount of interest-earning assets and
interest-bearing liabilities, together with the rates earned or paid on such
interest rate-sensitive instruments. The Association is sensitive to managing
interest rate risk exposure by better matching 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.
10
LIQUIDITY AND CAPITAL RESOURCES
The Association adjusts its liquidity levels in order to meet funding needs of
deposit outflows, payment of real estate taxes on mortgage loans, repayment of
borrowings, and loan commitments. The Association also adjusts liquidity as
appropriate to meet its asset and liability management objectives. A major
portion of the Association's liquidity consists of cash and cash equivalents,
which are a product of its operating, investing, and financing activities.
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 4.0%. The
Association's liquidity ratio averaged 13.5% during the three months ended March
31, 1998 while liquidity ratios averaged 14.2% for the year ended December 31,
1997.
The Association's primary sources of funds are deposits, amortization and
prepayment of loans and MBS, maturities of investment securities and other
short-term investments, FHLB advances, and earnings and funds provided from
operations. While scheduled principal repayments on loans and MBS, and
maturities of securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Association manages the pricing of its
deposits to maintain a desired deposit balance. In addition, the Association
invests funds in excess of its immediate needs in short-term interest-earning
deposits and other assets, which provide liquidity to meet lending requirements.
Short-term interest-bearing deposits with the FHLB of Atlanta amounted to $43.0
million at March 31, 1998. Other assets qualifying for liquidity outstanding at
March 31, 1998 amounted to $31.1 million. For additional information about cash
flows from the operating, financing, and investing activities, see the unaudited
consolidated statements of cash flows included in the financial statements.
Liquidity management is both a daily and long-term function of business
management. If funds are required beyond the ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. FHLB advances totaled $61.2 million at March 31, 1998.
At March 31, 1998, outstanding loan commitments totaled $20.5 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 $284.8 million at
March 31, 1998. Based on prior experience, management believes that a
significant portion of such deposits will remain with the Association.
11
FINANCIAL CONDITION
MARCH 31, 1998 COMPARED TO DECEMBER 31, 1997
--------------------------------------------
The following table summarizes certain information relating to Bankshares'
financial condition at the dates indicated.
March 31, December 31, Increase
1998 1997 (Decrease)
-------- -------- ----------
(Unaudited)
(In thousands)
Assets:
Total assets $760,610 $720,133 $ 40,477
Cash and cash equivalents 59,824 25,954 33,870
Securities portfolio:
Investments- held to maturity 21,363 21,388 (25)
Securities available for sale 111,704 142,269 (30,565)
Mortgage-backed and related securities-
held to maturity 44,517 46,413 (1,896)
-------- -------- --------
Total securities portfolio 177,584 210,070 (32,486)
Loans receivable, net 490,166 451,709 38,457
Real estate owned, net 929 592 337
Liabilities and Shareholders' Equity:
Total liabilities 678,445 638,874 39,571
Deposits 586,473 550,708 35,765
Federal Home Loan Bank advances 61,218 57,341 3,877
Advances by borrowers for taxes and insurance 2,951 931 2,020
Shareholders' equity 82,165 81,259 906
Total assets increased $40.5 million to $760.6 million at March 31, 1998, as
compared to $720.1 million at December 31, 1997 primarily due to an increase of
$38.5 million in the net loan portfolio to $490.2 million at March 31, 1998 from
$451.7 million at December 31, 1997, and a $33.9 million increase in cash and
cash equivalents to $59.8 million at March 31, 1998 from $26.0 million at
December 31, 1997, partially offset by a $32.5 million net decrease in the
securities portfolio (which includes securities available for sale, investment
securities, and MBS) to $177.6 million at March 31, 1998 from $210.1 million at
December 31, 1997. The increase in total assets was funded primarily by a $35.8
million net increase in deposits to $586.5 million at March 31, 1998 from $550.7
million at December 31, 1997. In addition, FHLB advances increased $3.9 million,
totaling $61.2 million and $57.3 million at March 31, 1998 and December 31,
1997, respectively.
The securities portfolio net decrease of $32.5 million primarily reflects calls
of $26.5 million of securities available for sale as well as scheduled principal
reductions and amortization of premiums and discounts amounting to $6.0 million.
As a result, cash and cash equivalents increased $33.9 million as the funds were
not immediately reinvested.
12
Loans receivable increased $38.5 million as a result of continued emphasis on
expanded lending activities. Loan originations of $51.4 million and purchases of
$18.2 million (consisting of one- to four-family residential properties) were
offset in part by repayments and other adjustments of $31.1 million.
Real estate owned increased $337,000 to $929,000 at March 31, 1998, from
$592,000 at December 31, 1997, primarily due to foreclosures on six residential
properties during the period, partially offset by the sale of three foreclosed
residential properties.
Total liabilities increased $39.6 million to $678.4 million at March 31, 1998,
from $638.9 million at December 31, 1997. Total deposits increased by $35.8
million to $586.5 million at March 31, 1998 from $550.7 million at December 31,
1997. The increase in deposits primarily reflected increased retail deposits
resulting from special promotions of odd-term certificates and growth of newer
branch offices as well as continued efforts to competitively price deposit
accounts to enhance the Association's market share during the period.
Total equity increased to $82.2 million at March 31, 1998, from $81.3 million at
December 31, 1997, reflecting net income for the three months of $1.2 million,
the receipt of proceeds totaling $58,000 from the exercise of stock options, and
the stock benefit plans accrual totaling $288,000, offset in part by the
declaration of dividends totaling $526,000 and a net decrease in the market
value of assets available for sale of $146,000. For further information, see the
unaudited consolidated statements of changes in shareholders' equity in the
accompanying consolidated financial statements.
The Association is required to report capital ratios unconsolidated with
Bankshares. The Association's actual capital amounts and ratios at March 31,
1998 are as follows:
To be Considered
Well
For Capitalized
Capital for Prompt
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
(Dollars in thousands)
As of March 31, 1998.
Total capital (to Risk-weighted Assets) 18.3% $74,953 8.0% $32,834 10.0% $41,042
Core (Tier 1) Capital
(to Adjusted Tangible-Assets) 9.5 72,261 4.0 30,436 5.0 38,046
Tangible Capital (to Tangible Assets) 9.5 72,261 1.5 11,414 N/A N/A
Core (Tier 1) Capital
(to Risk-weighted Assets) 17.6 72,261 4.0 16,417 6.0 24,625
As of March 31, 1998, tangible assets, adjusted tangible assets, and
risk-weighted assets were $760,910,000, $760,910,000, and $410,419,000,
respectively
13
ASSET QUALITY
Loans 90 days past due are generally placed on non-accrual status. The
Association ceases to accrue interest on a loan once it is placed on non-accrual
status and interest accrued but unpaid at such time is charged against interest
income. Additionally, any loan where it appears evident prior to being past due
90 days that the collection of interest is in doubt is also placed on
non-accrual status. Real estate owned is carried at the lower of cost or fair
value, less cost to dispose. Management regularly reviews assets to determine
proper valuation. There were no restructured loans within the meaning of SFAS
No. 15 at March 31, 1998 or December 31, 1997.
The following table sets forth information regarding the delinquent loans and
foreclosed real estate at the dates indicated:
March 31, December 31,
1998 1997
------ ------
(In thousands)
Non-performing loans:
Residential real estate loans:
Loans 60 to 89 days delinquent $ 370 $ 492
Loans more than 90 days delinquent 920 1,344
------ ------
Total 1,290 1,836
------ ------
Commercial and multi-family real estate loans:
Loans 60 to 89 days delinquent -- --
Loans more than 90 days delinquent 48 --
------ ------
Total 48 --
------ ------
Consumer and commercial business loans:
Loans 60 to 89 days delinquent 4 31
Loans more than 90 days delinquent -- --
------ ------
Total 4 31
------ ------
Land
Loans 60 to 89 days delinquent 850 35
Loans more than 90 days delinquent 99 --
------ ------
Total 949 35
------ ------
Total non-performing loans 2,291 1,902
Real estate owned net of related allowance 929 592
Loans to facilitate sale of real estate owned 154 217
------ ------
Total non-performing assets and
loans to facilitate sale of real estate owned $3,374 $2,711
====== ======
14
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL
Net income for the quarter ended March 31, 1998 was $1.2 million, or $0.25 per
share, a $119,000 decrease from $1.4 million, or $0.27 per share, for the
quarter ended March 31, 1997. The decrease in net income was primarily the
result of increases in operating expense of $670,000 and the provision for loan
losses of $87,000, offset in part by the combination of a $400,000 increase in
net interest income and a $108,000 decrease in the provision for income taxes.
NET INTEREST INCOME
Net interest income increased to $6.1 million for the quarter ended March 31,
1998 from $5.6 million for the same period in 1997 primarily as a result of a
$63.5 million increase in average interest-earning assets to $694.6 million for
the three months ended March 31, 1998 from $631.1 million for the same period in
the prior year, reflecting the increase in the loan portfolio, and cash and cash
equivalents. In addition, the average yield on interest-earning assets increased
to 7.69% for the three months ended March 31, 1998 from 7.62% for the 1997
period, primarily as a result of increased average yield earned on investment
securities and consumer and other loans, which was offset in part by decreased
average yields on real estate loans and MBS. The increase in interest income was
partially offset by a $63.3 million increase in average interest-bearing
liabilities to $641.8 million for the three months ended March 31, 1998 from
$578.5 million for the same period in 1997, primarily reflecting the growth of
the Association's deposit portfolio. The average yield on interest-bearing
liabilities increased to 4.55% for the three months ended March 31, 1998 from
4.46% for the 1997 period, primarily as a result of the increased weighted
average cost of deposits to 4.18 % for the quarter ended March 31, 1998 from
4.09% for the same period in 1997. The increased cost of deposits reflects the
5.6% increase in total certificates of deposit which have a higher cost to the
Association as compared to a 8.0% increase in lower costing core deposits
(consisting of checking, NOW, statement, passbook, and money market deposit
accounts).
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, past loan loss
experience, adverse situations that may affect borrowers' ability to repay
loans, the estimated value of the underlying loan collateral, the nature and
volume of its loan activities, and current as well as expected future economic
conditions. Loan loss provisions are based upon management's estimate of the
fair value of the collateral and the actual loss experience, as well as
guidelines applied by the OTS and the FDIC. The provision for loan losses was
$117,000 for the quarter ended March 31, 1998, as compared to $30,000 for the
quarter ended March 31, 1997 primarily due to $87,000 in specific write-downs on
certain non-performing loans recognized during the three months ended March 31,
1998. The allowance for loan losses as a percentage of net loans receivable was
0.55% and 0.65% at March 31, 1998 and 1997, respectively.
15
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 other assets. Other
income increased $43,000 to $934,000 for the quarter ended March 31, 1998, from
$891,000 for the same period in 1997, primarily as a result of a $44,000
increase in NOW account and other customer fees to $822,000 for the three months
ended March 31, 1998 from $778,000 for the same period in 1997.
OPERATING EXPENSE
Operating expense increased $670,000 to $5.0 million for the three month period
ended March 31, 1998 from $4.3 million for the same period in 1997. Employee
compensation and benefits increased $230,000 during the quarter ended March 31,
1998 as a result of increased staffing due to branch office openings and the
expanded loan production program. In addition, other increases of $89,000 in
occupancy and equipment costs (also relating to the branch office openings),
$69,000 in FDIC premiums, and $292,000 in miscellaneous operating expense,
primarily as a result of increased loan expense occurred during the quarter
ended March 31, 1998 as compared to the same quarter in 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes was $681,000 for the three months ended March 31,
1998 as compared to $789,000 for the same period in 1997 reflecting the decrease
in net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of Bankshares' asset and liability management policies as well
as the potential impact of interest rate changes upon the market value of
Bankshares' portfolio equity, see "Management's Discussion and Analysis - Market
Risk Analysis" and -"Market Value of Portfolio Equity" in Bankshares' Annual
Report to Shareholders. There has been no material change in Bankshares' asset
and liability position or the market value of Bankshares' portfolio equity since
December 31, 1997.
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits in which Bankshares or the
Association are periodically involved incidental to its business. In
the opinion of management, no material loss is expected from any of
such pending claims or lawsuits.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Bankshares held its Annual Meeting of Shareholders on April 22, 1998.
Of the 5,100,120 shares eligible to vote, 4,741,340 shareholders or
93.0%, 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:
Election of Directors for
a three year term expiring Number Of Votes
in 2000 For Withheld
------------------------------------ --- --------
Forest C. Beaty, Jr. 4,698,690 42,650
Frederick A. Teed 4,695,982 45,358
Number of Votes
-----------------------------------------------------------
For Withheld Abstain
--- -------- -------
Ratification of Crowe, Chizek
and Company LLP as
independent auditors for
fiscal year 1998 4,717,229 8,478 15,633
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
None during the reporting period.
(b) CURRENT REPORTS ON FORM 8-K.
Form 8-K Current Report filed April 3, 1998.
"Changes in Registrant's Certifying Accountant".
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY SAVINGS BANKSHARES, INC.
/s/ JAMES B. PITTARD, JR.
-----------------------------------------
Date: May 14, 1998 James B. Pittard, Jr.
President and Chief Executive Officer
Date: May 14, 1998 /s/ LARRY J. BAKER
-----------------------------------------
Larry J. Baker
Senior Vice President and Treasurer
18