FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
Commission File Number 01-14346
CORNERSTONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0368172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 EAST BROADWAY, DERRY, NEW HAMPSHIRE 03038
(Address of principal executive offices and zip code)
(603) 432-9517
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of latest practicable date. August 1, 1995 - 2,109,872
shares
CORNERSTONE FINANCIAL CORPORATION
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Condition
June 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Income
three months ended June 30, 1995 and 4
June 30, 1994
Condensed Consolidated Statements of Cash Flows
three months ended June 30, 1995 and
June 30, 1994 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 10-14
Part II. Other Information 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Exhibits and Reports on Form 8-K 15
Item 6. Other Information 16
Exhibit 11 - Computation of Primary and Fully
Diluted Earnings Per Share 17
Signatures 18
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
(Unaudited)
CORNERSTONE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,960 $ 7,176
Interest-bearing deposits in other banks 1,506 1,051
Federal funds sold 4,250 3,890
Investment securities held to maturity
(market value of $22,043 in 1995 and
$22,655 in 1994 Note 2) 22,169 23,666
Investment securities available for sale
(Note 2) 41,767 39,765
Net loans (Note 3) 54,082 53,540
Premises and equipment, net 5,793 5,940
Other real estate owned (Note 4) 1,723 1,532
Other assets 5,575 6,331
-------- --------
Total assets $144,825 $142,891
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 5) $125,052 $123,299
Short-term borrowings 3,500 5,000
Other borrowings 3,508 3,508
Other liabilities 1,855 2,163
-------- --------
Total liabilities 133,915 133,970
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, no par; authorized,
8,000,000 shares; issued, 2,256,374
and 2,253,519, outstanding 2,109,872
and 2,107,017 1,410 1,408
Capital surplus 15,452 15,449
Retained deficit (4,337) (4,980)
-------- --------
12,525 11,877
Treasury stock, at cost, 146,502 shares
in 1995 and 1994 (1,381) (1,381)
Net unrealized gain (loss) on securities
available for sale (Note 2) (234) (1,575)
-------- --------
Total stockholders' equity $ 10,910 $ 8,921
-------- --------
Total liabilities and stockholders' equity $144,825 $142,891
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CORNERSTONE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 1,340 $ 1,157 $ 2,615 $ 2,340
Interest on investment securities 914 889 1,833 1,731
Interest on federal funds sold 42 21 79 37
--------- --------- --------- ---------
Total interest income 2,296 2,067 4,527 4,108
--------- --------- --------- ---------
Interest expense:
Interest on deposits 730 627 1,401 1,260
Other interest 119 63 243 126
--------- --------- --------- ---------
Total interest expense 849 690 1,644 1,386
--------- --------- --------- ---------
Net interest income 1,447 1,377 2,883 2,722
Provision for loan losses 0 (15) 0 (30)
--------- --------- --------- ---------
Net interest income after provision
for loan losses 1,447 1,362 2,883 2,692
Gain on security transactions, net 0 2 0 24
Other operating income 484 556 1,148 1,116
Income(loss) on other real estate owned 26 (41) 24 (153)
Other operating expenses (1,483) (1,577) (3,013) (3,044)
--------- --------- --------- ---------
Income before income taxes 474 302 1,042 635
Provision for income taxes 180 0 399 0
--------- --------- --------- ---------
Net income $ 294 $ 302 $ 643 $ 635
========= ========= ========= =========
Earnings per share:
Net income $ .13 $ .14 $ .29 $ .29
Cash dividends declared per share 0 0 0 0
Weighted average shares outstanding 2,184,000 2,163,000 2,180,000 2,162,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CORNERSTONE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
June 30, 1995 June 30, 1994
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 643 $ 635
Adjustments to reconcile net income to net
cash provided by operating activities-
Gain on security transactions, net - (24)
Depreciation and amortization 160 194
Provision for loan losses - 30
Other real estate owned valuation adjustments - 92
Gain on sale of loans (5) (50)
Disbursements for mortgage loans held for sale (1,027) (4,953)
Receipts from mortgage loans held for sale 1,109 5,203
Amortization of premiums on investment securities, net 74 126
Increase in interest payable 44 (20)
Increase (decrease) in interest receivable 140 (239)
Deferred compensation expense 87 84
Gain on sale of other assets (184) -
Other, net (162) (45)
------- -------
Net cash provided by operating activities 879 1,033
------- -------
Cash flow from investing activities:
Proceeds from sales of securities
available for sale - 7,588
Proceeds from maturities of securities
available for sale - 6,052
Purchases of securities available for sale - (13,278)
Purchases of securities held to maturity (718) (12,012)
Proceeds from maturities, redemptions or principal
payments on securities held to maturity 2,169 862
Proceeds from sale of other real estate owned 129 103
Net loan principal advances (1,115) (75)
Purchase of premises and equipment (3) (23)
------- -------
Net cash (used) provided by investing activities 462 (10,783)
------- -------
Cash flow from financing activities:
Proceeds from exercise of stock options 5 6
Decrease in short term borrowings (1,500) (460)
Net increase (decrease) in deposits 1,753 4,177
------- -------
Net cash used by financing activities 258 3,723
------- -------
Net increase (decrease) cash & cash equivalents 1,599 (6,027)
------- -------
Cash and cash equivalents, beginning of year 12,117 14,788
------- -------
Cash and cash equivalents, end of quarter $13,716 $ 8,761
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CORNERSTONE FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Data
- -------------------------------
Interim financial data is unaudited. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for the interim periods. Certain amounts
in prior periods have been reclassified to conform to the current
presentation.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" which was subsequently amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" in October 1994. The Company adopted these statements
effective January 1, 1995. SFAS 114 modifies the accounting for impaired
loans, defined as those loans where, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due, both interest and principal, according to the contractual terms of the
loan agreement. Specifically, SFAS 114 requires that the allowance for loan
losses related to impared loans be determined based on the present value of
the expected future cash flows discounted at the loan's effective rate, or,
as a practical expedient, the loan's observable market price or the fair
value of the loan's underlying collateral if the loan is collateral
dependent. For the most part, the Company uses an estimate of the fair
value of the loan's underlying collateral to determine the allowance for
loan losses related to impaired loans, as most loans to which SFAS 114
applies are collateral dependent. The Company has classified collateral
dependent loans with significant shortfalls as impaired and has placed some
of those impaired loans on nonaccrual status on the basis of repayment
histories in which the borrowers have moved into past due status (i.e., when
the loans are greater than 90 days past due) or when in management's
judgement, the ultimate collectibility of principal or interest is doubtful.
In addition, SFAS No. 114 modified the accounting for in-substance
foreclosures (ISF). A collateralized loan is considered an ISF and
reclassified to Other Real Estate Owned when the Company has received
physical possession of the collateral regardless of whether formal
foreclosure proceedings have taken place. The adoption of these statements
did not have a material impact on the Company's financial position or
results of operations. Instead, it resulted only in a reallocation of the
existing allowance for loan losses.
SFAS No. 114, as amended by SFAS No. 118, permits a creditor to use existing
methods for recognizing interest income on impaired loans. Generally,
interest income received on an impaired loan either continues to be applied
by the Company against principal or is realized as interest income,
according the management's judgment as to the collectibility of principal.
Prior to the adoption of SFAS 114, the Company accounted for troubled debt
restructurings in accordance with SFAS 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings."
NOTE 2. Investment Securities
- ------------------------------
A summary of the amortized cost and market value of the securities available
for sale portfolio at June 30, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
June 30, 1995 Cost Gains Losses Value
- ------------- --------- ---------- ---------- ------
(In thousands)
<S> <C> <C> <C> <C>
U.S.Govt. & Fed. Agency Obl. $42,289 $ 50 $ (630) $41,709
Mortgage backed securities 59 0 (1) 58
------- ------ ------- -------
Total Securities Available
for sale $42,348 $ 50 $ (631) $41,767
======= ====== ======= =======
December 31, 1994
- -----------------
(In thousands)
U.S.Govt. & Fed. Agency Obl. $42,311 $ 0 $(2,611) $39,700
Mortgage backed securities 66 0 (1) 65
------- ------ ------- -------
Total Securities Available
for sale $42,377 $ 0 $(2,612) $39,765
======= ====== ======= =======
</TABLE>
A summary of the amortized cost and market value of securities held to
maturity at June 30, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
June 30, 1995 Cost Gains Losses Value
- ------------- --------- ---------- ---------- ------
(In thousands)
<S> <C> <C> <C> <C>
U.S.Govt. & Fed. Agency Obl. $ 7,858 $ 30 $ (5) $ 7,883
Collateralized Mtg. Obgl. 1,270 1 (21) 1,250
Mortgage-backed securities 4,947 0 (71) 4,876
Corporate bonds 6,660 8 (68) 6,600
------- ------ ------- -------
Total debt securities 20,735 39 (165) 20,609
Federal Home Loan Bank stock 1,434 0 0 1,434
------- ------ ------- -------
Total securities held to
maturity $22,169 $ 39 $ (165) $22,043
======= ====== ======= =======
December 31, 1994
- -----------------
(In thousands)
U.S.Govt. & Fed. Agency Obl. $ 7,863 $ 0 $ (193) $ 7,670
Collateralized Mtg. Obgl. 1,604 0 (86) 1,518
Mortgage-backed securities 5,200 0 (409) 4,791
Corporate bonds 7,697 0 (323) 7,374
------- ------ ------- -------
Total debt securities 22,364 0 (1,011) 21,353
Federal Home Loan Bank stock 1,302 0 0 1,302
------- ------ ------- -------
Total securities held to
maturity $23,666 $ 0 $(1,011) $22,655
======= ====== ======= =======
</TABLE>
NOTE 3. Net Loans and Allowance for Loan Losses
- ------------------------------------------------
Net loans at June 30, 1995 and December 31, 1994 were as follows:
June 30, 1995 December 31, 1994
------------- -----------------
(Dollars in Thousands)
Real estate mortgage loans $10,133 $10,082
Commercial and other loans 41,720 40,786
Consumer loans 4,274 4,686
------- -------
Total loans 56,127 55,554
Less:
Allowance for loan losses (2,045) (2,014)
------- -------
Net loans $54,082 $53,540
======= =======
Activity related to the allowance for loan losses for the three months ended
June 30, 1995 and 1994 was as follows:
Allowance for Loan Losses at: 1995 1994
(Dollars in Thousands)
Balance, January 1 $ 2,014 $ 2,118
Provision for loan losses 0 30
Recoveries of loans previously
charged off 43 35
Loans charged off (12) (75)
------- -------
Balance, March 31 $ 2,045 $ 2,108
======= =======
At June 30, 1995, the recorded investment in loans that are considered
impaired under SFAS No. 114 was $4,873,000. Included in this amount is
$2,848,000 of impaired loans for which the related SFAS No. 114 allowance
for loan losses is $806,000 and $2,025,000 of impaired loans that do not
have a related SFAS No. 114 allowance for loan losses. During the second
quarter and six months ended June 30, 1995, the Company recognized $108,000
and $188,000 of interest for the respective three and six month periods.
The average impaired loan balances for the respective three and six month
periods were $4,945,000 and $5,008,000. This amount was recognized on an
accrual basis which did not vary significantly from a cash basis.
At June 30, 1994, the Company had $2,150,000 in restructured loans. For the
second quarter and six months ended June 30, 1994 the aggregate amount of
interest income recorded on these restructured loans was $37,000 and
$75,000, respectively, and the amount of income that would have been
recorded had the restructured loans been current in their original terms was
approximately $45,000 and $91,000, respectively.
Note 4. Other Real Estate
- --------------------------
Other real estate owned is net of a valuation allowance of $253,000 at June
30, 1995. An analysis of the allowance for the valuation reserve for the
six month period ended June 30, 1995 is as follows:
(Dollars in Thousands)
Balance, January 1, 1995 $253
Additions to valuation reserves 0
----
Balance, June 30, 1995 $253
====
NOTE 5. Deposits
- -----------------
Deposits at June 30, 1995 and December 31, 1994 were as follows:
June 30, 1995 December 31, 1994
(Dollars in Thousands)
Demand $ 13,708 $ 13,511
NOW, money market 43,319 43,404
Passbook savings 34,843 35,219
Certificates of Deposit of
$100,000 or more 2,528 2,615
Other time 30,654 28,550
--------- ---------
Total $ 125,052 $ 123,299
========= =========
Item #2 - Management Discussion and Analysis of Financial Condition
and Results of Operation.
On March 23, 1995, Cornerstone entered into a merger agreement pursuant to
which Cornerstone Financial Corporation will become a subsidiary of
BayBanks, Inc. a Massachusetts bank holding company, and Cornerstone
shareholders will receive $8.80 per share in cash. The merger is subject to
regulatory approval and approval by Cornerstone's shareholders.
The following table summarizes key financial operating data for the periods
indicated.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net interest income $ 1,447 $ 1,377 $ 2,883 $ 2,722
Provision for loan losses 0 (15) 0 (30)
Income(loss) on other real estate 26 (41) 24 (153)
Gain on securities
transactions, net 0 2 0 24
Other operating income 484 556 1,148 1,116
Other operating expenses (1,483) (1,577) (3,013) (3,044)
Provision for income taxes (180) 0 (399) 0
------- ------- ------- -------
Net income $ 294 $ 302 $ 643 $ 635
======= ======= ======= =======
</TABLE>
The Company had net income of $294,000 for the second quarter ended June 30,
1995, compared to net income of $302,000 for the second quarter 1994.
Total interest income for the second quarter ended June 30, 1995 increased
by $229,000, or 11%, when compared to the second quarter of 1994. The
increase was primarily due to an increase in loan interest income of
$183,000, or 16%, that was primarily attributable to increased loan balances
outstanding, on average, in 1995 compared to 1994 and higher interest rates
earned on these loan balances.
Investment interest income increased by $25,000, or 3%, due to higher
interest rates earned, and increased average investment balances
outstanding.
Total interest expense for the second quarter ended June 30, 1995 increased
by $159,000, or 23% from the corresponding quarter in 1994. The increase
was primarily attributable to higher rates paid on interest bearing deposits
as well as increased average balances of interest bearing liabilities.
Net interest income during the second quarter of 1995 increased by $70,000,
or 5%, from the second quarter of 1994 due to the factors discussed
previously.
Interest income on loans for the six month period ending June 30, 1995
increased by $275,000, or 12%, when compared to the corresponding six month
period in 1994. Interest income on investments increased by $102,000, or
6%, for the six months ended June 30, 1995 versus the six months ended June
30, 1994. Interest income from federal funds sold for the six month period
ended June 30, 1995 increased by $42,000 as compared to the corresponding
period in 1994. The increases in the interest income categories above were
primarily attributable to higher rates earned on interest earning assets and
increased average balances outstanding on these interest earning assets.
Total interest expense for the six month period ended June 30, 1995
increased by $258,000, or 19%, when compared to the corresponding six month
period in 1994. The factors contributing to the increase in total interest
expense were consistent with those cited earlier for the second quarter 1995
versus 1994.
Net interest income for the six month period 1995 increased by $161,000, or
6%, from the corresponding period in 1994 due to the factors discussed
previously.
For the first and second quarters of 1995 the provision for loan losses was
$0 as compared to a provision for $15,000 and $30,000 in the respective
first and second quarters of 1994. Management continues to monitor and
review its loan portfolio and the adequacy of loan loss reserves. In the
first six months of 1995 the loan charge-offs of $12,000 were offset by
recoveries of loans of $43,000 to show a net increase in the reserve for
loan losses of $31,000 from year end 1994.
The following table summarizes the changes in the allowance for loan losses
for the periods indicated:
Six months ended
June 30,
----------------------
1995 1994
---- ----
(Dollars in thousands)
Balance at beginning of period $2,014 $2,118
Provision for loan losses 0 30
Recoveries of loans previously charged off 43 35
Loans charged off (12) (75)
------ ------
Balance at end of period $2,045 $2,108
====== ======
Allowance as a percent of period end loans 4.00% 3.82%
====== ======
Allowance as a percent of nonaccrual
loans 207.00% 691.00%
====== ======
The allowance for loan losses of $2,045,000, or 207% of nonaccrual loans and
4.0% of outstanding loans at June 30, 1995 was at a level considered
necessary by management to reflect the level of risk in the loan portfolio.
The following table summarizes nonperforming assets at the dates indicated.
June 30, December 31,
1995 1994
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Real estate $ 0 $ 0
Commercial, financial, and other 987 1,088
Consumer loans to individuals 0 1
------- -------
Total nonaccrual loans 987 1,089
------- -------
Other real estate 1,723 1,532
------- -------
Total nonperforming assets $ 2,710 $ 2,621
======= =======
The effect of nonperforming loans caused interest income to be reduced by $0
and $0, respectively, for the three and six months ended June 30, 1995 as
compared to $10,000 and $21,000, respectively for the comparable periods
ending June 30, 1994, from that which would have been recorded had such
loans remained current in accordance with their original terms. There were
no loans more than 90 days past due. At June 30, 1995, the recorded
investment in loans that are considered impaired under SFAS No. 114 was
$4,873,000 which includes $987,000 of loans accounted for on a nonaccrual
basis and was a single borrower. At December 31, 1994, the Company had
$2,481,000 of troubled debt restructurings involving a modification of
terms. In accordance with FAS 114, for the second quarter of 1995, these
same loans were evaluated for impairment based on their modified terms and,
as a result, their current balances were included in the balance of impaired
loans at June 30, 1995.
The second quarter of 1995 showed gains on other real estate owned of
$26,000 and $24,000 for the six months ended June 30, 1995. The losses on
other real estate of $38,000 were offset by income on other real estate of
$62,000 for the 1995 six month period. Losses on other real estate owned
were $41,000 and $153,000, respectively, for the respective three and six
months ended and June 30, 1994.
Net gains on sales of investment securities were $0 and $2,000,
respectively, for the second quarters of 1995 and 1994 and $0 and $24,000,
respectively, for the six months period ending June 30, 1995 and 1994. In
the second quarter of 1994 total gains were $2,000 while total losses were
$0. For the six month period in 1994 gains on the sale of securities was
$57,000 and losses on securities sales was $33,000. At June 30, 1995 the
Company's available for sale investment portfolio had a net unrealized loss
of $581,000 ($234,000, net of tax) and the held to maturity investment
portfolio had a net unrealized loss of $126,000.
Other operating income decreased by $72,000, or 13% in the second quarter
1995 versus the second quarter of 1994. The primary reason for the decrease
was reduced deposit fees of $29,000, mortgage servicing income of $25,000,
and several other fee income accounts totaling $18,000, when comparing 1995
versus 1994.
Other operating income increased by $32,000, or 3% in the first six months
of 1995 versus the first six months of 1994. The primary reason for the
increase was a gain from the sale of the assets in an employee trust of
$184,000 offset by reduced deposit fees of $69,000 and reduced gains on loan
sales of $45,000. The assets in the employee trust were primarily equity
securities which were sold to take advantage of existing stock prices which
management believed were not sustainable and the sales proceeds were
invested in U.S. Treasury securities to eliminate the risk associated with
investing in the stock market at its current levels.
Other operating expenses decreased by $94,000, or 6%, in the second quarter
of 1995 versus the second quarter of 1994. The primary reason for the
decrease was reduced salaries and benefits of $92,000, reduced occupancy
expenses of $32,000, offset in part by increased in several other expenses
totaling $30,000. Expenses for the previously mentioned merger of $110,000
are included in the second quarter.
Other operating expenses decreased by $31,000, or 1% in the first six months
of 1995 versus the first six months of 1994. The primary reason for the
decrease was increased office supplies and printing expenses of $53,000
offset in part by decreased salaries and benefits of $74,000, and several
other expenses totaling $10,000. Expenses for the previously mentioned
merger of $217,000 are included in the six month expenses.
The Company recorded tax provisions of $180,000 and $399,000, respectively,
in the three and six month period of 1995 while recording no tax provisions
in the comparable periods of 1994 primarily due to the realization of
deferred tax assets.
As a result of the factors discussed above, the Company reported net income
of $294,000 and $643,000 for the three month and six month periods ended
June 30, 1995 as compared to net income of $302,000 and $635,000 for the
corresponding periods in 1994.
EARNINGS PER SHARE
- ------------------
Net income per share was $.13 and $.29 for the respective three and six
months ended June 30, 1995 and $.14 and $.29 for the corresponding periods
in 1994.
FINANCIAL CONDITION AND CAPITAL RESERVES
- ----------------------------------------
Total assets at June 30, 1995 increased by $1,934,000, or 1% from December
1994. The total investment portfolio increased by $505,000, or 1% while net
loans increased by $542,000, or 1% at June 30, 1995 as compared to year end
1994.
Stockholders' equity at June 30, 1995 was $10,910,000, an increase of
$1,989,000 from December 31, 1994. The increase was a result of the
decrease in the unrealized loss on securities available for sale of
$1,341,000 (net of tax) and by net income of $643,000. The decrease in the
unrealized loss on securities available for sale included in equity is due
to the declining interest rate environment during the six month period.
The Company and its banking subsidiary, Cornerstone Bank, are each required
by regulation to maintain certain minimum capital ratios. The following
table summarizes the Company's and the Bank's capital ratios and amounts at
June 30, 1995.
Capital Ratios Capital Amounts (in 000's)
---------------------------- -----------------------------
Risk Based Leverage Risk Based Leverage
---------------- -------- ----------------- --------
Tier I Tier 2 Tier 1 Tier 1 Tier 2 Tier 1
------ ------ ------ ------ ------ ------
The Company
Balance 15.71% 16.98% 7.70% $10,997 $11,890 $10,997
Requirement 4.00% 8.00% 4.00% 2,801 2,601 5,712
The Bank
Balance 19.59% 20.87% 9.65% 13,693 14,584 13,693
Requirement 4.00% 8.00% 4.00% 2,796 5,591 5,673
The above capital ratios table does not include the net unrealized loss on
securities available for sale of $581,000.
LIQUIDITY
- ---------
The primary source of liquidity consists of debt securities, federal funds
sold and short term investments. At June 30, 1995, approximately
$29,835,000, or 46.7%, of the investment portfolio matures or reprices in
two years or less. In addition, amortizing installment and mortgage loans,
along with short term or direct reduction commercial loans, provide
additional sources of funds for liquidity purposes.
Furthermore, management has designated $41,767,000 of investment securities
as available for sale. These investments are accordingly carried at market
value. At June 30, 1995, market value was below the cost of these
investments by $581,000.
Part II - Other Information
Item 1. - Legal proceedings - Not applicable
Item 2. - Changes in securities - Not applicable
Item 3. - Defaults upon senior securities - Not applicable
Item 4. - Submission of matters to vote of security holders: - Not
applicable
Item 5. - Other information - Not applicable
Item 6. - Exhibits and reports on form 8-K
(a) Exhibit 27 - Financial data schedule (submitted only in electronic
format to the Securities and Exchange Commission)
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1995.
CORNERSTONE FINANCIAL CORPORATION
AVERAGE BALANCE, INTEREST INCOME AND EXPENSE AND EFFECTIVE RATES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
Interest Avg. Interest Avg.
Average Income/ Yield/ Average Income/ Yield/
Balance(1) Expense(2) Rate(2) Balance(1) Expense(2) Rate(2)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Taxable investment securities $ 66,035 $ 1,833 5.6% $ 64,559 $ 1,731 5.4%
Loans(2)(3) 56,846 2,623 9.2% 55,232 2,349 8.5%
Federal funds sold 2,546 79 6.2% 2,266 37 3.3%
Total $125,427 $ 4,535 7.2% $122,057 $ 4,117 6.7%
Interest paying liabilities:
Savings deposits $ 35,537 $ 367 2.1% $ 35,638 $ 350 2.0%
NOW and money market deposits 40,702 335 1.6% 41,640 283 1.4%
Time deposits 31,674 699 4.4% 33,647 627 3.7%
Other borrowed funds 7,315 243 6.6% 3,619 126 7.0%
Total $115,228 $ 1,644 2.9% $114,544 $ 1,386 2.4%
Net interest income $ 2,891 $ 2,731
Net interest margin 4.3% 4.3%
Net yield on earning assets 4.6% 4.5%
<FN>
(1) Based on daily averages
(2) On a fully taxable equivalent basis
(34% tax rate in 1995 and 1994)
(3) Average balance includes non-accrual loans.
</FN>
</TABLE>
CORNERSTONE FINANCIAL CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary earnings per share:
Net income $ 294 $ 302 $ 643 $ 635
======= ======= ======= =======
Common and common equivalent shares:
Weighted average number of
common shares outstanding 2,109 2,107 2,108 2,106
Add: Share arising from
assumed exercise of stock
options (as determined
under the Treasury Stock
Method) 75 56 72 56
------- ------- ------- -------
Weighted average of common
and equivalent shares
outstanding 2,184 2,163 2,180 2,162
======= ======= ======= =======
Primary earnings per share:
Net income $ .13 $ .14 $ .29 $ .29
======= ======= ======= =======
Fully diluted earnings per share:
Net income $ 335 $ 302 $ 725 $ 635
======= ======= ======= =======
Common shares-assuming full
dilution: (1)
Weighted average of common
shares outstanding 2,109 2,107 2,108 2,106
Add: Shares arising from
assumed exercise of stock
options (as determined under
the Treasury Stock Method) 305 56 306 56
------- ------- ------- -------
Weighted average of common
and equivalent shares 2,414 2,163 2,414 2,162
======= ======= ======= =======
Fully diluted earnings per share:
Net income $ .14 $ .14 $ .29 $ .29
======= ======= ======= =======
<FN>
Note (1): Shares applicable to convertible subordinated debentures were
anti-dilutive during respective periods.
</FN>
</TABLE>
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.
CORNERSTONE FINANCIAL CORPORATION
(Registrant)
DATE: August 4, 1995 /s/ JOHN M. TERRAVECCHIA
John M. Terravecchia
Chairman, President and
Chief Executive Officer
DATE: August 4, 1995 /s/ ROBERT E. BENOIT
Robert E. Benoit
Vice President/Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form 10Q
for Six Months Ended June 30, 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 7,960,000
<INT-BEARING-DEPOSITS> 1,506,000
<FED-FUNDS-SOLD> 4,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,767,000
<INVESTMENTS-CARRYING> 22,169,000
<INVESTMENTS-MARKET> 22,043,000
<LOANS> 56,127,000
<ALLOWANCE> 2,045,000
<TOTAL-ASSETS> 144,825,000
<DEPOSITS> 125,052,000
<SHORT-TERM> 3,500,000
<LIABILITIES-OTHER> 1,855,000
<LONG-TERM> 3,508,000
<COMMON> 1,410,000
0
0
<OTHER-SE> 9,500,000
<TOTAL-LIABILITIES-AND-EQUITY> 144,825,000
<INTEREST-LOAN> 2,615,000
<INTEREST-INVEST> 1,833,000
<INTEREST-OTHER> 79,000
<INTEREST-TOTAL> 4,527,000
<INTEREST-DEPOSIT> 1,401,000
<INTEREST-EXPENSE> 1,644,000
<INTEREST-INCOME-NET> 2,883,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,989,000
<INCOME-PRETAX> 1,042,000
<INCOME-PRE-EXTRAORDINARY> 643,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,000
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.60
<LOANS-NON> 987,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,365,000
<LOANS-PROBLEM> 4,873,000
<ALLOWANCE-OPEN> 2,014,000
<CHARGE-OFFS> 12,000
<RECOVERIES> 43,000
<ALLOWANCE-CLOSE> 2,045,000
<ALLOWANCE-DOMESTIC> 2,045,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
