Registration No. 333-_____
Filed December 30, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Community Savings Bankshares, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its Articles of Incorporation)
United States 65-0870004
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
660 U.S. Highway One
North Palm Beach, Florida 33408
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
1995 Stock Option Plan, as amended
- --------------------------------------------------------------------------------
(Full Title of the Plan)
<TABLE>
<CAPTION>
COPIES TO:
<S> <C>
James B. Pittard, Jr. Philip R. Bevan, Esq.
President and Chief Executive Officer Elias, Matz, Tiernan & Herrick L.L.P.
Community Savings Bankshares, Inc. 734 15th Street, N.W.
660 U.S. Highway One Washington, D.C. 20005
North Palm Beach, Florida 33408 (202) 347-0300
(561) 881-2212
- --------------------------------------
(Name, address and telephone number of
agent for service)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
Securities Maximum Maximum Amount of
to be Amount to be Offering Price Aggregate Registration
Registered Registered(1) Per Share Offering Price Fee
=====================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par
value $1.00 419,756 $ 5.58(3) $2,343,077.99(3) $651.38
Common Stock, par
value $1.00 36,016 $10.68(4) $ 384,650.88(4) $106.93
--------- ------------- -------
Total 455,772(2) $2,727,728.87 $758.31
========= ============= =======
=====================================================================================================
</TABLE>
<PAGE>
(1) Represents shares of the common stock, $1.00 par value per share
("Common Stock"), of Community Savings Bankshares, Inc. (the "Company"
or "Registrant"), reserved for issuance pursuant to the1995 Stock
Option Plan, as amended (the "Plan").
(2) Represents shares currently reserved for issuance pursuant to the Plan.
(3) Estimated solely for the purpose of calculating the registration fee,
which has been calculated pursuant to Rule 457(h) promulgated under the
Securities Act of 1933, as amended ("Securities Act"). The Proposed
Maximum Offering Price Per Share is equal to the weighted average
exercise price for options to purchase 419,756 shares of Common Stock
which have been granted under the Plan as of the date hereof but not
yet exercised.
(4) Estimated solely for the purposes of calculating the registration fee
in accordance with Rule 457(c) promulgated under the Securities Act.
The Proposed Maximum Offering Price Per Share for 36,016 shares for
which stock options have not been granted under the Plan is equal to
the average of the high and low sale price of the Common Stock of the
Company on December 28, 1998 on the Nasdaq National Market.
--------------------------
This Registration Statement shall become effective automatically upon
the date of filing in accordance with Section 8(a) of the Securities Act and 17
C.F.R. ss. 230.462.
2
<PAGE>
PART I*
ITEM 1. PLAN INFORMATION.*
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION.*
- ------------
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from the Registration Statement in accordance with Rule
428 under the Securities Act and the Note to Part I of Form S-8.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed or to be filed with the Securities and
Exchange Commission (the "Commission") are incorporated by reference in this
Registration Statement:
(a) The Company's prospectus ("Prospectus") included in its
Registration Statement on Form S-1 (file No. 333-62067).
(b) The Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 of Community Savings Bankshares, Inc., a federal
corporation and predecessor to the Company.
(c) The description of the Common Stock of the Company as
contained in Item 1, "Description of Registrant's Securities to be
Registered" in the Company's Registration Statement on Form 8-A as
filed on November 20, 1998.
(d) All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the filing of a post-effective amendment which indicates that
all securities offered have been sold or which deregisters all
securities then remaining unsold.
Any statement contained in this Registration Statement, or in a document
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this Registration Statement to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement.
3
<PAGE>
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable since the Company's Common Stock was registered under
Section 12 of the Exchange Act upon the filing of a Registration Statement on
Form 8-A with the Securities and Exchange Commission on November 20, 1988.
ITEM. 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM. 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their capacity
as such. The Certificate of Incorporation and the Bylaws of the Company provide
that the directors, officers, employees and agents of the Company shall be
indemnified to the full extent permitted by law. Such indemnity shall extend to
expenses, including attorney's fees, judgments, fines and amounts paid in the
settlement, prosecution or defense of the foregoing actions.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows:
ARTICLE 10. INDEMNIFICATION. The Corporation shall indemnify its
directors, officers, employees, agents and former directors, officers, employees
and agents, and any other persons serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
incurred in connection with any pending or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, with
respect to which such director, officer, employee, agent or other person is a
party, or is threatened to be made a party, to the full extent permitted by the
General Corporation Law of the State of Delaware, provided, however, that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
The indemnification provided herein (i) shall not be deemed exclusive of any
other right to which any person seeking indemnification may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity, and (ii) shall inure to the benefit of the heirs, executors
and administrators of any such person. The Corporation shall have the power, but
shall not be obligated, to purchase and maintain insurance on behalf of any
person or persons enumerated above against any liability asserted against or
incurred by them or any of them arising out of their status as corporate
directors, officers, employees, or agents whether or not the Corporation would
have the power to indemnify them against such liability under the provisions of
this Article 10.
4
<PAGE>
Article VI of the Company's Bylaws provides as follows:
6.1 INDEMNIFICATION. The Corporation shall provide indemnification to
its directors, officers, employees, agents and former directors, officers,
employees and agents and to others in accordance with the Corporation's
Certificate of Incorporation.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of its
Certificate of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
5
<PAGE>
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable since no restricted securities will be reoffered or
resold pursuant to this Registration Statement.
ITEM 8. EXHIBITS
The following exhibits are filed with or incorporated by reference into
this Registration Statement on Form S-8 (numbering corresponds to Exhibit Table
in Item 601 of Regulation S-K):
No. Exhibit
4 Common Stock Certificate*
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P.
as to the legality of the securities
10.1 1995 Stock Option Plan*
13.1 Quarterly Report on Form 10-Q of Community Savings
Bankshares, Inc. for the quarter ended
September 30, 1998.
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P.
(contained in the opinion included as Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
24 Power of attorney for any subsequent amendments
(located in the signature pages of this Registration
Statement).
- -----------------
* Incorporated by reference from the Company's Registration Statement
on Form S-1 (File No. 333-62067) filed with the Commission on August 21, 1998.
ITEM 9. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section
6
<PAGE>
10(a)(3) of the Securities Act of 1933, (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change in such information in the Registration
Statement; provided, however, that clauses (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
clauses is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
4. That, for the purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
5. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in North Palm Beach, Florida, on this 30th day of December 1998.
Community Savings Bankshares, Inc.
By: /s/ James B. Pittard, Jr.
----------------------------------------
James B. Pittard, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints James B. Pittard, Jr. his or her true and
lawful attorney, with full power to sign for such person and in such person's
name and capacity indicated below, and with full power of substitution any and
all amendments to this Registration Statement, hereby ratifying and confirming
such person's signature as it may be signed by said attorney to any and all
amendments.
/s/ Forest C. Beaty, Jr. December 30, 1998
- --------------------------------------------
Forest C. Beaty, Jr.
Director
/s/ Robert F. Cromwell December 30, 1998
- --------------------------------------------
Robert F. Cromwell
Director
/s/ Karl D. Griffin December 30, 1998
- --------------------------------------------
Karl D. Griffin
Director
/s/ James B. Pittard, Jr. December 30, 1998
- --------------------------------------------
James B. Pittard, Jr.
President, Chief Executive Officer and Director
8
<PAGE>
/s/ Harold I. Stevenson December 30, 1998
- --------------------------------------------
Harold I. Stevenson
Director
/s/ Frederick A. Teed December 30, 1998
- --------------------------------------------
Frederick A. Teed
Director
/s/ Larry J. Baker December 30, 1998
- --------------------------------------------
Larry J. Baker
Senior Vice President and Chief Financial Officer
9
LAW OFFICES
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
TIMOTHY B. MATZ 12TH FLOOR JEFFREY D. HAAS
STEPHEN M. EGE 734 15TH STREET, N.W. KEVIN M. HOULIHAN
RAYMOND A. TIERNAN WASHINGTON, D.C. 20005 KENNETH B. TABACH
W. MICHAEL HERRICK _______ PATRICIA J. WOHL
GERARD L. HAWKINS JEFFREY R. HOULE
NORMAN B. ANTIN TELEPHONE: (202) 347-0300 FIORELLO J. VICENCIO*
JOHN P. SOUKENIK* FACSIMILE: (202) 347-2172 CRISTIN ZEISLER
GERALD F. HEUPEL, JR. WWW.EMTH.COM ANDREW ROSENSTEIN
JEFFREY A. KOEPPEL
DANIEL P. WEITZEL _____________________
PHILIP ROSS BEVAN ALLIN P. BAXTER
HUGH T. WILKINSON JACK I. ELIAS
SHERYL JONES ALU
*NOT ADMITTED IN D.C.
December 30, 1998
VIA EDGAR
Board of Directors
Community Savings Bankshares, Inc.
660 U.S. Highway One
North Palm Beach, Florida 33408
Re: Registration Statement on Form S-8;
455,772 Shares of Common Stock
Ladies and Gentlemen:
We have acted as special counsel to Community Savings Bankshares, Inc.,
a Delaware corporation (the "Corporation") and Community Savings, F. A. (the
"Association"), in connection with the preparation and filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form S-8 (the "Registration Statement"),
relating to the registration of up to 455,772 shares of common stock, par value
$1.00 per share (the "Common Stock"), to be issued pursuant to the 1995 Stock
Option Plan (the "Plan") of the Corporation upon the exercise of stock options
and/or limited stock appreciation rights (the "Option Rights") as defined in the
Plan. We have been requested by the Corporation to furnish an opinion to be
included as an exhibit to the Registration Statement. Capitalized terms defined
in the Registration Statement and not otherwise defined herein are used herein
with the meanings as so defined.
In so acting, we have reviewed the Registration Statement, the
Certificate of Incorporation and Bylaws of the Corporation, the Plan, a specimen
stock certificate evidencing the Common Stock and such other corporate records
and documents as we have deemed appropriate. We are relying upon the originals,
or copies certified or otherwise identified to our satisfaction, of the
corporate records of the Corporation and the Association and such other
instruments, certificates and representations of public officials, officers and
representatives of the Corporation and the Association, and have made such
inquiries of such officers and representatives as we have deemed relevant or
necessary as a basis for this opinion.
<PAGE>
Board of Directors
December 30, 1998
Page 2
In such examination, we have assumed, without independent verification,
the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and the conformance in all respects of copies to
originals. Furthermore, we have made such factual inquiries and reviewed such
laws as we determined to be relevant for this opinion.
For purposes of this opinion, we have also assumed that: (i) the shares
of Common Stock issuable pursuant to the Option Rights granted under the terms
of the Plan will continue to be validly authorized on the dates on which the
Common Stock is issued pursuant to the Option Rights; (ii) on the dates on which
the Option Rights are exercised, the Option Rights granted under the terms of
the Plan will constitute valid, legal and binding obligations of the Corporation
and will (subject to applicable bankruptcy, moratorium, insolvency,
reorganization and other laws and legal principles affecting the enforceability
of creditors' rights generally) be enforceable as to the Corporation in
accordance with their terms; (iii) the Option Rights are exercised in accordance
with their terms and the exercise price therefor is paid in accordance with the
terms thereof; (iv) no change shall have occurred in applicable law or the
pertinent facts; and (v) the provisions of "blue sky" and other securities laws
as may be applicable will have been complied with to the extent required.
Based on the foregoing, and subject to the assumptions set forth herein,
we are of the opinion as of the date hereof that the shares of Common Stock to
be issued pursuant to the Plan, when issued and sold pursuant to the Plan and
upon receipt of the consideration required thereby, will be legally issued,
fully paid and non-assessable shares of Common Stock of the Corporation.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Philip Ross Bevan
---------------------------------------
Philip Ross Bevan, a Partner
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20552
-------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1998
------------------
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
---------
COMMUNITY SAVINGS BANKSHARES, INC.
- --------------------------------------------------------------------------------
(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
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 November 10, 1998, there were 5,103,960 shares of the Registrant's
common stock outstanding.
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
- ----------------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 (Unaudited) and December 31, 1997 2
Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1998 and 1997 3
Consolidated Statements of Comprehensive Income
(Unaudited) for the three and nine months
ended September 30, 1998 and 1997 4
Consolidated Statements of Changes in Shareholders' Equity for the
nine months ended September 30, 1998 (Unaudited) and
for the year ended December 31, 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Default Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 16,436 $ 12,333
Interest-bearing deposits 34,395 13,621
--------- ---------
Total cash and cash equivalents 50,831 25,954
Securities available for sale 100,317 142,269
Investments - held to maturity 21,595 21,388
Mortgage-backed and related securities - held to maturity 36,869 46,413
Loans receivable, net of allowance for loan losses 540,602 451,709
Accrued interest receivable 2,785 3,162
Office properties and equipment, net 23,822 20,206
Real estate owned, net 705 592
Federal Home Loan Bank stock - at cost 4,722 3,264
Other assets 9,043 5,176
--------- ---------
Total assets $ 791,291 $ 720,133
========= =========
LIABILITIES
Deposits $ 580,757 $ 550,708
Mortgage-backed bond - net 15,657 16,333
Advances from Federal Home Loan Bank 94,043 57,341
Employee Stock Ownership Plan borrowing -- 1,424
Advances by borrowers for taxes and insurance 8,007 931
Other liabilities 5,011 9,101
Deferred income taxes 3,260 3,036
--------- ---------
Total liabilities 706,735 638,874
--------- ---------
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; 5,103,960 and
5,094,920 shares outstanding at September 30, 1998 and December 31, 1997, respectively 5,104 5,095
Additional paid in capital 30,765 30,278
Retained income - substantially restricted 49,994 47,887
Common stock purchased by Employee Stock Ownership Plan (1,129) (1,424)
Common stock issued to Recognition and Retention Plan (284) (423)
Unrealized decrease in market value of securities available
for sale, net of income taxes 106 (154)
--------- ---------
Total shareholders' equity 84,556 81,259
--------- ---------
Total liabilities and shareholders' equity $ 791,291 $ 720,133
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Real estate loans $ 9,979 $ 8,065 $ 28,356 $ 23,544
Consumer and commercial business loans 490 405 1,403 1,222
Investment securities and securities available for sale 1,868 3,135 6,623 8,414
Mortgage-backed and related securities 837 816 2,474 2,827
Interest-earning deposits 589 473 1,735 1,464
----------- ----------- ----------- -----------
Total interest income 13,763 12,894 40,591 37,471
----------- ----------- ----------- -----------
Interest expense:
Deposits 6,101 5,800 18,078 16,832
Advances from Federal Home Loan Bank and borrowings
other borrowings 1,640 1,236 4,319 3,464
----------- ----------- ----------- -----------
Total interest expense 7,741 7,036 22,397 20,296
----------- ----------- ----------- -----------
Net interest income 6,022 5,858 18,194 17,175
Provision for loan losses 223 138 436 221
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,799 5,720 17,758 16,954
----------- ----------- ----------- -----------
Other income:
Servicing income and other fees 47 46 150 204
NOW account and other customer fees 866 876 2,543 2,483
Net loss on sale and early maturities of securities
available for sale -- (8) -- (8)
Gain on sale of other assets -- 617 -- 617
Net gain on sale of loans receivable -- 3 -- 3
Loss incurred in real estate venture -- (75) -- (75)
Miscellaneous income (loss) (7) 63 (31) 160
----------- ----------- ----------- -----------
Total other income 906 1,522 2,662 3,384
----------- ----------- ----------- -----------
Operating expense:
Employee compensation and benefits 2,567 2,332 7,561 6,585
Occupancy and equipment 1,396 1,257 3,923 3,677
Net gain (loss) on real estate owned 11 (26) 30 (29)
Advertising and promotion 195 115 663 547
Federal deposit insurance premium 88 86 259 185
Miscellaneous 809 1,209 2,476 2,813
----------- ----------- ----------- -----------
Total operating expense 5,066 4,973 14,912 13,778
----------- ----------- ----------- -----------
Income before provision for income taxes 1,639 2,269 5,508 6,560
Provision for income taxes 401 720 1,759 2,276
----------- ----------- ----------- -----------
Net income $ 1,238 $ 1,549 $ 3,749 $ 4,284
=========== =========== =========== ===========
Basic earnings per share $ 0.25 $ 0.31 $ 0.75 $ 0.85
=========== =========== =========== ===========
Diluted earnings per share $ 0.24 $ 0.30 $ 0.73 $ 0.84
=========== =========== =========== ===========
Basic weighted average shares outstanding 4,991,693 4,935,442 4,976,283 4,924,497
=========== =========== =========== ===========
Diluted weighted average shares outstanding 5,121,665 5,066,404 5,117,267 5,036,778
=========== =========== =========== ===========
</TABLE>
3
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the three months For the three months
ended September 30, ended September 30,
1998 1997 1998 1997
------ ------ ------ ------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Net income $1,238 $1,549 $3,749 $4,284
Other comprehensive income, net of tax:
Change in unrealized increase in
market value of assets available for sale 539 445 260 928
------ ------ ------ ------
Comprehensive income $1,777 $1,994 $4,009 $5,212
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Increase
(Decrease) in
Retained Employee Recognition Market Value
Additional Income- Stock and of Securities
Common Paid In Substantially Ownership Retention Available for
Stock Capital Restricted Plan Plan Sale Total
======================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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 nine months ended
September 30, 1998 -- -- 3,749 -- -- -- 3,749
Stock options exercised 9 90 -- -- -- -- 99
Unrealized increase in market value
of assets available for sale
(net of income taxes) -- -- -- -- -- 260 260
Amortization of deferred
compensation - Employee Stock
Ownership Plan and Recognition
and Retention Plan -- 397 -- 295 139 -- 831
Dividends declared -- -- (1,642) -- -- -- (1,642)
--------------------------------------------------------------------------------------
Balance-September 30, 1998
(Unaudited) $ 5,104 $ 30,765 $ 49,994 $ (1,129) $ (284) $ 106 $ 84,556
======================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
COMMUNITY SAVINGS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1998 1997
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $ 3,749 $ 4,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,092 1,049
ESOP and Recognition and Retention Plan compensation expense 831 603
Accretion of discounts, amortization of premiums, and other deferred yield items (2,000) (1,149)
Provision for loan losses 436 221
Provision for net gains on sales of real estate owned (9) (123)
Amortization of discount on mortgage-backed bond 364 369
Net loss on sale and early maturities of securities available for sale -- 8
Net loss (gain) on sale of loans and other assets 7 (630)
Decrease (increase) in accrued interest receivable 377 (470)
Increase in other assets (3,867) (2,120)
Decrease in loans available for sale -- 70
Decrease in other liabilities (4,090) (409)
-------- --------
Net cash (used for) provided by operating activities (3,110) 1,703
-------- --------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans-net (51,080) (25,750)
Principal payments received on mortgage-backed and related securities
and securities available for sale 33,902 10,194
Principal payments received on investments-held to maturity 1,012 1,438
Purchases of:
Loans (38,354) (4,463)
Mortgage-backed and related securities (20,086) --
Securities available for sale (5,000) (41,309)
Federal Home Loan Bank stock (1,458) (399)
Office property and equipment (4,723) (4,933)
Proceeds from sales of:
Office properties and equipment 76 129
Real estate acquired in settlement of loans 522 1,263
Proceeds from calls of securities available for sale 43,504 21,434
Proceeds from maturities of investments-held to maturity -- 300
Other investing (211) 331
-------- --------
Net cash used for investing activities (41,896) (41,765)
-------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Net increase in:
NOW accounts, demand deposits, and savings accounts 12,733 2,494
Certificates of deposit 17,316 28,092
Advances from Federal Home Loan Bank 42,000 20,000
Repayment of advances from Federal Home Loan Bank (5,298) (5,837)
Advances by borrowers for taxes and insurance 7,076 5,909
ESOP loan (1,424) (294)
Proceeds from exercise of stock options 99 54
Payments made on mortgage-backed bond (1,040) (1,041)
Dividends paid (1,579) (1,460)
-------- --------
Net cash provided by financing activities 69,883 47,917
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,877 7,855
CASH AND CASH EQUIVALENTS, beginning of period 25,954 42,442
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 50,831 $ 50,297
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated interim financial statements for Community
Savings Bankshares, Inc. ("Bankshares") and its wholly-owned 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 common stock of
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, substantially all of its net income is derived from the
Association.
3. REORGANIZATION TO STOCK HOLDING COMPANY STRUCTURE
During July, 1998, the Boards of Directors of ComFed, Bankshares and the
Association unanimously adopted a plan of conversion and agreement and
plan of reorganization (the "Plan of Conversion"), pursuant to which the
Association will reorganize from the two-tier mutual holding company
structure to the stock holding company structure. The Plan of Conversion
was amended on August 13, 1998 and October 14, 1998. Pursuant to the Plan
of Conversion, (i) ComFed and Bankshares will be merged with and into the
Association, with the Association as survivor, (ii) the Association will
become a wholly owned subsidiary of a newly formed Delaware corporation
("New Holding Company"), (iii) the shares of common stock of Bankshares
held by persons other than ComFed (whose shares will be cancelled) will be
converted into shares of common stock of the New Holding Company pursuant
to an exchange ratio designed to preserve the percentage ownership
interests of such persons, subject to certain adjustments, and (iv) the
New Holding Company will offer and sell shares of its common stock to
members of ComFed, shareholders of Bankshares and others in the manner and
subject to the priorities set forth in the Plan of Conversion.
The transactions contemplated by the Plan of Conversion are subject to
approval of Bankshares' shareholders, the members of ComFed, and various
regulatory agencies. The OTS has approved the Plan of Conversion, subject
to the approval of ComFed's members and Bankshares' shareholders and the
satisfaction of certain other conditions.
4. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), issued by FASB in June 1998, must be adopted
by Bankshares as of January 1, 2000. This Statement establishes accounting
and reporting standards for derivative financial instruments and for
hedging activities. Upon adoption of the Statement, all derivatives must
be recognized at fair value as either assets or liabilities in the
statement of financial position. Changes in the fair value of derivatives
not designated as hedging instruments are to be recognized currently in
earnings. Gains or losses on derivatives designated as hedging instruments
are either to be recognized currently in earnings or are to be recognized
as a component of other comprehensive income, depending on the intended
use of the derivatives and the resulting designations. Upon adoption,
retroactive
7
<PAGE>
application of this Statement to financial statements of prior periods is
not permitted. Bankshares is currently in the process of evaluating the
impact of SFAS No. 133 on its consolidated financial position and results
of operations and has neither determined whether to adopt it earlier than
required or whether any securities will be reclassified from held to
maturity to available for sale upon adoption of SFAS No. 133.
5. LOANS RECEIVABLE
Loans receivable consists of the following:
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
(In thousands)
Real estate loans:
Residential 1-4 family $ 423,346 $ 339,117
Residential 1-4 family held for sale
(at lower of cost or fair value) -- --
Residential construction 48,188 32,828
Non-residential construction 4,329 2,022
Land 15,183 17,117
Multi-family 8,642 8,800
Commercial 47,960 59,220
--------- ---------
Total real estate loans 547,648 459,104
--------- ---------
Non-real estate loans:
Consumer 15,531 15,694
Commercial business 6,313 3,530
--------- ---------
Total non-real estate loans 21,844 19,224
--------- ---------
Total loans receivable 569,492 478,328
Less:
Undisbursed loan proceeds 27,185 24,163
Unearned discount (premium) and
net deferred loan fees (costs) (1,285) (206)
Allowance for loan losses 2,990 2,662
--------- ---------
Total loans receivable, net $ 540,602 $ 451,709
========= =========
The amount of loans which had ceased accruing interest aggregated
approximately $1,659,000 and $1,379,000 at September 30, 1998 and December
31, 1997, respectively. The amount of interest not accrued related to
these loans totalled approximately $90,000 and $86,000 at September 30,
1998 and December 31, 1997, respectively.
An analysis of the changes in the allowance for loan losses is as follows:
For the nine months
ended September 30,
--------------------
1998 1997
------ ------
(Unaudited)
(In thousands)
Balance, beginning of period $2,662 $2,542
Provision charged to income 436 221
Losses charged to allowance (108) (131)
Recoveries -- --
-- --
------ ------
Balance, end of period $2,990 $2,632
====== ======
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". Impaired loans totaled $25,000 and
$1,044,000 with related allowances of $25,000 and $252,000 at September
30, 1998 and December 31, 1997, respectively.
8
<PAGE>
6. REAL ESTATE OWNED
Real estate owned consists of the following:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
(In thousands)
Real estate owned $752 $633
Less allowance for loss 47 41
---- ----
Total real estate owned $705 $592
==== ====
Changes in the allowance for loss on real estate owned are as follows:
For the nine months
ended September 30,
---------------------
1998 1997
----- ----
(Unaudited)
(In thousands)
Balance, beginning of period $41 $92
Provision charged to income 6 --
Losses charged to allowance -- (43)
--- ---
Balance, end of period $47 $49
=== ===
7. CONTINGENCIES
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. Reference is made to Note 13 in the Notes to
Consolidated Financial Statements included in Bankshares' 1997 Annual
Report.
9
<PAGE>
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 September 30, 1998,
ComFed owned 2,620,144 shares of Bankshares' common stock with the remaining
2,483,816 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 and related 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. At September 30, 1998,
the interest rate composition of the Association's loan portfolio consisted of
42% of adjustable-rate mortgage loans, 17% of hybrid-rate mortgage loans (which
have a fixed rate for 7 or 10 years and which then convert to a one-year
adjustable rate), 33% of fixed-rate mortgage loans, 3% of consumer loans, and 5%
of commercial loans.
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 and
interest-bearing deposits, which are a product of its operating, investing, and
financing activities.
10
<PAGE>
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 11.2% during the nine months ended
September 30, 1998 compared to 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 $33.9
million at September 30, 1998. Other assets qualifying for liquidity outstanding
at September 30, 1998 amounted to $12.8 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 $94.0 million at September 30, 1998.
At September 30, 1998, outstanding loan commitments totaled $9.0 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 $248.5 million at
September 30, 1998. Based on prior experience, management believes that a
significant portion of such deposits will remain with the Association.
11
<PAGE>
FINANCIAL CONDITION
SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997
The following table summarizes certain information relating to Bankshares'
financial condition at the dates indicated.
<TABLE>
<CAPTION>
September, 30 December 31, Increase
1998 1997 (Decrease)
-------- -------- ----------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Assets:
Total assets $791,291 $720,133 $ 71,158
Cash and cash equivalents 50,831 25,954 24,877
Securities portfolio:
Investments- held to maturity 21,595 21,388 207
Securities available for sale 100,317 142,269 (41,952)
Mortgage-backed and related securities-
held to maturity 36,869 46,413 (9,544)
-------- -------- --------
Total securities portfolio 158,781 210,070 (51,289)
======== ======== ========
Loans receivable, net 540,602 451,709 88,893
Real estate owned, net 705 592 113
Liabilities and Shareholders' Equity:
Total liabilities 706,735 638,874 67,861
Deposits:
Passbook and statement savings accounts 32,652 30,221 2,431
NOW and non interest bearing checking accounts 99,221 94,577 4,644
Money market deposit accounts 84,490 78,832 5,658
Certificates of deposit 364,394 347,078 17,316
-------- -------- --------
Total deposits 580,757 550,708 30,049
======== ======== ========
Federal Home Loan Bank advances 94,043 57,341 36,702
Shareholders' equity 84,556 81,259 3,297
</TABLE>
Total assets increased $71.2 million to $791.3 million at September 30, 1998
from $720.1 million at December 31, 1997 primarily due to an $88.9 million
increase in the net loan portfolio as a result of the Association's continued
emphasis on expanding its lending activities. The securities portfolio (which
includes securities available for sale, investment securities and MBS) decreased
$51.3 million primarily due to calls and normal amortization. The proceeds
resulting from such calls and amortization were used in part to fund the loan
originations and purchases totalling $187.5 million during the nine month
period, and resulted in the $24.9 million increase in cash and cash equivalents
during the period. The increase in total assets was also funded in part by a
$30.0 million increase in deposits to $580.7 million at September 30, 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 deposit growth experienced at newer branch offices.
The growth also reflected the Association's continued efforts to competitively
price deposit accounts to enhance its market share. In addition, a $36.7 million
net increase in FHLB advances was used to partially fund the increase in the
loan portfolio as well as to purchase mortgage-backed securities. Shareholders'
equity increased to $84.6 million or $16.91 per share at September 30, 1998 from
$81.3 million or $16.39 per share at December 31, 1997, reflecting net income
for the nine months of $3.7 million, offset primarily by dividends totalling
$1.6 million declared during the nine months on the common stock held by
minority shareholders. For further information, see the unaudited consolidated
statements of changes in shareholders' equity in the accompanying consolidated
financial statements.
12
<PAGE>
The Association is required to report regulatory capital ratios unconsolidated
with Bankshares. The Association's actual regulatory capital amounts and ratios
at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
To be Considered
Well
For Capitalized
Capital for Prompt
Adequacy Action
Actual Purposes Provisions
---------------- ---------------- ----------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total risk-based capital (to
risk-weighted assets) 18.17% $78,182 8.0% $34,424 10.0% $43,030
Core (Tier 1) capital
(to adjusted tangible assets) 9.51 75,215 4.0 31,648 5.0 39,560
Tangible capital (to tangible assets) 9.51 75,215 1.5 11,868 N/A N/A
Core (Tier 1) capital
(to risk-weighted assets) 17.48 75,215 4.0 17,212 6.0 25,818
</TABLE>
As of September 30, 1998, tangible assets, adjusted tangible assets, and
risk-weighted assets were $791.2 million, $791.2 million, and $430.3 million,
respectively.
13
<PAGE>
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 for which 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 September 30, 1998 or December 31, 1997.
The following table sets forth information regarding the delinquent loans and
foreclosed real estate at the dates indicated:
September 30, December 31,
1998 1997
------ ------
(In thousands)
Non-performing loans:
Residential real estate loans:
Loans 60 to 89 days delinquent $ 684 $ 492
Loans more than 90 days delinquent 1,494 1,344
------ ------
Total 2,178 1,836
------ ------
Commercial and multi-family real estate loans:
Loans 60 to 89 days delinquent -- --
Loans more than 90 days delinquent 52 --
------ ------
Total 52 --
------ ------
Consumer and commercial business loans:
Loans 60 to 89 days delinquent 19 31
Loans more than 90 days delinquent 49 --
------ ------
Total 68 31
------ ------
Land:
Loans 60 to 89 days delinquent -- 35
Loans more than 90 days delinquent 64 --
------ ------
Total 64 35
------ ------
Total non-performing loans 2,362 1,902
Real estate owned net of related allowance 705 592
Loans to facilitate sale of real estate owned 152 217
------ ------
Total non-performing assets and
loans to facilitate sale of real estate owned $3,219 $2,711
====== ======
YEAR 2000 CONSIDERATIONS
In order to be ready for the year 2000 (the "Year 2000 Issue"), the Association
has developed a Year 2000 Action Plan (the "Action Plan") which was presented to
the Audit Committee of the Board of Directors during July 1997. The Action Plan
was developed using the guidelines outlined in the Federal Financial
Institutions Examination's Council's "The Effect of 2000 on Computer Systems."
The Association's Strategic Planning Committee assigned responsibility for the
Action Plan to the Year 2000 Committee which reports to the Strategic Planning
Committee and the Board of Directors on a monthly basis. The Action Plan
recognizes that the Association's operating, processing and accounting
operations are computer reliant and could be affected by the Year 2000 Issue.
The Association is primarily reliant on third party vendors for its computer
output and processing, as well as other significant functions and services (i.e.
securities safekeeping services, securities pricing information, et cetera). The
Year 2000 Committee is currently working with these third party vendors to
assess their year 2000 readiness. Based upon the initial assessment, management
presently believes that with planned modifications to existing software and
hardware and planned conversions to new software and hardware, the Association's
third party vendors are taking the appropriate steps to ensure critical systems
will function properly.
14
<PAGE>
The Association has identified 64 mission critical (without which the
Association cannot operate) and critical (necessary applications but the
Association can function for a moderate amount of time without such applications
being Year 2000 complaint) applications operated by third party vendors. Of such
mission critical and critical applications, the Association has been informed
that a majority are already Year 2000 compliant and approximately 30% are in the
process of revising and testing their systems for Year 2000 compliance. Of such
64 mission critical and critical applications, approximately 25% are provided by
the Association's data service processor which has informed the Association that
it expects to complete testing of its updated systems (in which testing the
Association has been involved) by the end of 1998. The initial phase of testing
of the data service processor's updated system was completed in October 1998
with substantially all such systems evidencing Year 2000 compliance.
Substantially all of the Association's vendors of its mission critical and
critical applications have provided written assurances that their products and
services will be Year 2000 compliant. The Association currently expects the
majority of such modifications and conversions and related testing of such
systems to be completed by December 31, 1998 with any remaining ones being
completed by March 31, 1999. While the Association has received assurances from
such vendors as to compliance, such assurances are not guarantees and may not be
enforceable. The Association's existing older contracts with such vendors do not
include Year 2000 certifications or warranties. Thus, in the event such vendor's
products and/or services are not Year 2000 compliant, the Association's recourse
in the event of such failure may be limited. If the required modifications and
conversions are not made, or are not completed on a timely basis, the Year 2000
Issue could have a material impact on the operations of the Association. There
can be no assurance that potential systems interruptions or unanticipated
additional expense incurred to obtain Year 2000 compliance would not have a
material adverse effect on the Association's business, financial condition,
results of operations and business prospects. Nevertheless, the Association does
not believe that the cost of addressing the Year 2000 issues will be a material
event or uncertainty that would cause reported financial information not to be
necessarily indicative of future operating results or financial conditions, nor
does it believe that the costs or the consequences of incomplete or untimely
resolution of its Year 2000 issues represent a known material event or
uncertainty that is reasonably likely to affect its future financial results, or
cause its reported financial information not to be necessarily indicative of
future operating results or future financial condition.
The Year 2000 issues also affect certain of the Association's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of June 30, 1998, the Association had contacted all of
its commercial credit customers (69 borrowers with loans outstanding aggregating
$60.1 million) regarding the customers' awareness of the Year 2000 Issue. While
no assurance can be given that its customers will be Year 2000 compliant,
management believes, based on representations of such customers and reviews of
their operations (including assessments of the borrowers' level of
sophistication and data and record keeping requirements), that the customers are
either addressing the appropriate issues to insure compliance or that they are
not faced with material Year 2000 issues. None of such borrowers use networked
computer systems or data centers to conduct their operations. In addition, in
substantially all cases the credit extended to such borrowers is collateralized
by real estate which inherently minimizes the Association's exposure in the
event that such borrowers do experience problems or delay becoming Year 2000
compliant.
The Association has completed its company-wide Year 2000 contingency plan.
Individual contingency plans concerning specific software and hardware issues
and operational plans for continuing operations were completed for a substantial
majority of its mission critical hardware and software applications as of
September 15, 1998 with the remainder expected to be completed by the end of
1998. The Year 2000 Committee is reviewing substantially all mission critical
test plans and contingency plans to ensure the reasonableness of the plans.
Testing began on mission critical systems in October 1998 and planned completion
of testing of a majority of such systems is expected by December 1998 with the
remainder by March 31, 1999. The Association has completed contingency plans for
more than 80% of its identified mission critical and critical applications. The
Association is working to develop contingency plans for the remainder by the end
of 1998 including working on contingency plans which address operational
policies and procedures in the event of data processing, electric power supply
and/or telephone service failures associated with the Year 2000. Such
contingency plans provide documented actions to allow the Association to
maintain and/or resume normal operations in the event of the failure of mission
critical and critical applications. Such plans identify participants, processes
and equipment that will be necessary to permit the Association to continue
operations. Such plans may include providing off-line system processing, back-up
electrical and telephone systems and other methods to ensure the Association's
ability to continue to operate.
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The costs of modifications to the existing software is being primarily absorbed
by the third party vendors, however the Association recognized that the need
exists to purchase new hardware and software. Based upon current estimates, the
Association has identified approximately $1.8 million in total costs, including
hardware, software, and other issues, for completing the Year 2000 project. Of
that amount, approximately $1.2 million and $39,000 was expensed during the
years ended December 31, 1997 and 1996, respectively, with the remaining
$535,000 budgeted for the year ended December 31, 1998.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL
Net income for the quarter ended September 30, 1998 was $1.2 million, or $0.25
basic earnings per share, a $311,000 decrease from $1.5 million, or $0.31 basic
earnings per share, for the quarter ended September 30, 1997.
NET INTEREST INCOME
Net interest income increased to $6.0 million for the quarter ended September
30, 1998 from $5.9 million for the same period in 1997 primarily as a result of
a $66.2 million increase in average interest-earning assets to $729.5 million
for the three months ended September 30, 1998 from $663.3 million for the same
period in the prior year, partially offset by a $71.9 million increase in
average interest-bearing liabilities to $679.4 million for the quarter ended
September 30, 1998 from $607.5 million for the same period in 1997 primarily
reflecting the growth of the Association's deposit portfolio and additional FHLB
advances. This increase related to volume was offset in part by a decrease in
the interest rate spread to 2.99% for the quarter ended September 30, 1998 from
3.15% for the same period in 1997.
PROVISION FOR LOAN LOSSES
The Association maintains an allowance for loan losses based upon a periodic
evaluation of, among other things, 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, volume and type of lending conducted by the Association and current
economic conditions in its market area. 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. Management
reviews the adequacy of its allowance for loan losses monthly through its asset
classification review. The provision for loan losses was $223,000 for the
quarter ended September 30, 1998, as compared to $138,000 for the quarter ended
September 30, 1997 primarily due to management's decision to increase the
allowance due to the continued growth in the loan portfolio during fiscal 1998
which increased the inherent potential risk of loss. The allowance for loan
losses as a percentage of net loans receivable was 0.55% and 0.63% at September
30, 1998 and 1997, 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 other assets. Other
income decreased $616,000 to $906,000 for the quarter ended September 30, 1998,
from $1.5 million for the same period in 1997, primarily as a result of a
$617,000 gain on the sale of the Association's investment in its service bureau
during the quarter ended September 30, 1997.
OPERATING EXPENSE
Operating expense increased $93,000 to $5.1 million for the three month period
ended September 30, 1998 from $5.0 million for the same period in 1997. Employee
compensation and benefits and occupancy and equipment expense increased $235,000
and $139,000, respectively, during the quarter ended September 30, 1998 as a
result of increased staffing due to branch office openings, and the expanded
loan production program. This increase was offset in part by a $400,000 decrease
in miscellaneous expense. Miscellaneous expense was higher during the 1997
period primarily as a result of the recognition of a $254,000 reserve for loss
on an insurance claim.
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PROVISION FOR INCOME TAXES
The provision for income taxes was $401,000 for the three months ended September
30, 1998 as compared to $720,000 for the same period in 1997 reflecting the
decrease in net income.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL
Net income for the nine months ended September 30, 1998 was $3.7 million, or
$0.75 basic earnings per share, a $535,000 decrease from $4.3 million, or $0.85
basic earnings per share, for the nine months ended September 30, 1997.
NET INTEREST INCOME
Net interest income increased to $18.2 million for the nine months ended
September 30, 1998 from $17.2 million for the same period in 1997 primarily as a
result of a $62.6 million increase in average interest-earning assets to $711.2
million for the nine months ended September 30, 1998 from $648.6 million for the
same period in the prior year, partially offset by a $65.3 million increase in
average interest-bearing liabilities to $659.6 million for the nine months ended
September 30, 1998 from $594.4 million for the same period in 1997, primarily
reflecting the growth of the Association's deposit portfolio and additional FHLB
advances. This increase related to volume was offset in part by a decrease in
the interest rate spread to 3.08% for the nine months ended September 30, 1998
from 3.15% for the same period in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $436,000 for the nine months ended September
30, 1998, as compared to $221,000 for the nine months ended September 30, 1997.
The increase was due to management's decision to increase the allowance due to
the continued growth in the loan portfolio during fiscal 1998 which increased
the inherent potential risk of loss.
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 decreased $722,000 to $2.7 million for the nine months ended September
30, 1998, from $3.4 million for the same period in 1997, primarily due to the
$617,000 gain on the sale of the Association's investment in its service bureau
during the 1997 period. In addition, amoritization of $211,000 of the $4.8
million affordable housing tax credit partnership was recognized in the nine
months ended September 30, 1998 as compared to $74,000 during the same period in
1997. The partnership began its scheduled amortization in August 1997.
OPERATING EXPENSE
Operating expense increased $1.1 million to $14.9 million for the nine month
period ended September 30, 1998 from $13.8 million for the same period in 1997.
Increased employee compensation and benefits and occupancy and equipment costs
accounted for the majority of such increase, increasing $976,000 and $246,000,
respectively, during the nine months ended September 30, 1998, as compared to
the 1997 period. Additional costs related to the incentive-based loan
originators were incurred during the 1998 period as a result of increased loan
originations. In addition, increases in staffing and occupancy costs resulted
from two additional branch offices operating in the nine months ended September
30, 1998 that were not open during the same period in 1997, the requirements of
the new company wide computer network, which involved new hardware and software
depreciation expense and additional personnel for implementation and training,
as well as the increased cost of benefit programs reflecting the increase in the
market value of Bankshares' common stock. These increases were offset in part by
a $337,000 decrease in miscellaneous expense primarily as a result of a $254,000
reserve for loss on an insurance claim which was recognized in the 1997 period
and not repeated in the 1998 period.
PROVISION FOR INCOME TAXES
The provision for income taxes was $1.8 million for the nine months ended
September 30, 1998 as compared to $2.3 million for the same period in 1997
reflecting the $260,000 tax benefit received from the affordable housing tax
credit partnership during the nine months ended September 30, 1998 as compared
to $126,000 for the 1997 period.
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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 for the year ended December 31, 1998. There has been no
material change in Bankshares' asset and liability position or the market value
of Bankshares' portfolio equity since December 31, 1997.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits in which Bankshares or the
Association are periodically involved incidental to its business.
In the opinion of management, no material loss is expected from
any of such pending claims or lawsuits. Reference is made to Note
13 in the Notes to Consolidated Financial Statements included in
Bankshares' 1997 Annual Report.
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
None.
ITEM 5. OTHER INFORMATION.
On July 29, 1998, the Boards of Directors of ComFed, Bankshares
and the Association unanimously adopted a plan of conversion and
agreement and plan of reorganization (the "Plan of Conversion"),
pursuant to which the Association will reorganize from the
two-tier mutual holding company structure to the stock holding
company structure. The Plan of Conversion was amended on August
13, 1998 and October 14, 1998. Pursuant to the Plan of Conversion,
(i) ComFed and Bankshares will be merged with and into the
Association, with the Association as survivor, (ii) the
Association will become a wholly owned subsidiary of a
to-be-formed Delaware corporation ("New Holding Company"), (iii)
the shares of common stock of Bankshares held by persons other
than ComFed (whose shares will be cancelled) will be converted
into shares of common stock of the New Holding Company pursuant to
an exchange ratio designed to preserve the percentage ownership
interests of such persons, subject to certain adjustments, and
(iv) the New Holding Company will offer and sell shares of its
common stock to members of ComFed, shareholders of Bankshares and
others in the manner and subject to the priorities set forth in
the Plan of Conversion.
The transactions contemplated by the Plan of Conversion are
subject to approval of Bankshares' shareholders, the members of
ComFed, and various regulatory agencies. The OTS has approved the
Plan of Conversion, subject to approval of ComFed's members and
Bankshares' shareholders and the satisfaction of certain other
conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
None.
(b) Current Reports on Form 8-K.
---------------------------
Form 8-KA Amendment No. 2 and 3 filed October 11, 1998 and October
27, 1998, respectively. "Changes in Registrant's Certifying
Accountant".
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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.
Date: November 12, 1998 /s/ James B. Pittard, Jr.
--------------------------------------
James B. Pittard, Jr.
President and Chief Executive Officer
Date: November 12, 1998 /s/ Larry J. Baker
--------------------------------------
Larry J. Baker
Senior Vice President and Treasurer
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Community Savings Bankshares, Inc. on Form S-8 of our report on the
consolidated financial statements of Community Savings F. A., dated February 20,
1998, appearing in and incorporated by reference in the Prospectus contained in
Registration Statement No. 333-62067 of Community Savings Bankshares, Inc., on
Form S-1.
DELOITTE & TOUCHE LLP
West Palm Beach, Florida
December 29, 1998
