SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 1996
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 33-97422
COUNTY FINANCIAL CORPORATION
(Name of Small Business Issuer as Specified in its Charter)
FLORIDA 59-2320497
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
801 N.E. 167 STREET
NORTH MIAMI BEACH, FLORIDA 33162
(Address of Principal Executive Offices)
ISSUER'S TELEPHONE NUMBER: (305) 651-7110
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.
Yes X No
--------- ---------
As of July 31, 1996, the registrant had 1,263,617 outstanding shares of
common stock $.01 par value.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of County Financial Corporation
and its subsidiaries (the "Company" or "CFC") for the six months ended June 30,
1996 and 1995 are set forth on pages 20 to 24 of this Form 10-QSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS
CFC's consolidated net income for the first six months of 1996 was
$1,702,000 or 76.7% more than the $ 963,000 earned in the same period in 1995.
Net income per common share was $ 1.35 in 1996 and $0.76 in 1995. CFC's
performance in the first six months of 1996 resulted in a return on average
stockholders' equity of 16.5%, compared to 10.3% in 1995. The return on average
assets was 1.49% in 1996, compared to 0.86% in 1995.
On January 12, 1996, the Company acquired Carney Bank. The acquisition
was treated as a "pooling of interests" for accounting purposes, and
accordingly, all prior period financial information has been restated.
The improvement in CFC's performance is primarily due to the
utilization of Carney Bank's net operating loss carryforward, as well as
increased interest income and reduced operating expenses.
NET INTEREST INCOME
Net interest income is defined as the total of interest income on
earning assets less interest expense on deposits and other interest-bearing
liabilities. Earning assets, which consist of loans, investment securities,
federal funds sold and securities purchased under agreements to resell, are
financed by a large base of interest-bearing funds in the form of money-market,
NOW, savings and time deposits. Earning assets are also funded by the net amount
of non-interest related funds, which consist of non-interest bearing demand
deposits, the allowance for loan losses and stockholders' equity, reduced by
non-interest bearing assets such as cash and due from banks, and premises and
equipment, and other real estate owned ("OREO").
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The following table sets forth the Company's average balance sheets and
related interest, yield and rate information for the first six months of 1996
and 1995.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
JUNE 30,
1996 1995
---------------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income $136,543 $6,746 9.94% $133,342 $6,846 10.35%
Investment Securities 63,300 1,857 5.90% 64,550 1,735 5.42%
Federal funds sold 9,656 254 5.29% 7,559 226 6.02%
-------- --------- ----- -------- --------- ------
Total earning assets 209,499 8,857 8.50% 205,451 8,807 8.64%
-------- --------- ----- -------- --------- ------
NON-INTEREST EARNING
ASSETS:
Cash and due from banks 12,785 12,141
Premises and equipment, net 4,223 4,261
Other Real Estate Owned, net 3,317 3,979
Other assets 2,688 2,805
Allowance for loan losses (2,647) (2,887)
-------- --------
Total non-interest
earning assets 20,366 20,299
-------- --------
TOTAL ASSETS $229,865 $225,750
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Savings accounts $23,815 $338 2.85% $26,575 $387 2.93%
Money market/NOW accounts 73,684 869 2.37% 74,862 1,006 2.71%
Time deposits 51,451 1,370 5.35% 47,551 1,205 5.11%
Repurchase agreements 1,075 19 3.55% 900 18 4.03%
Other borrowings 913 46 10.13% 1,119 53 9.55%
-------- --------- ----- -------- --------- ------
Total interest
bearing liabilities 150,938 2,642 3.52% 151,007 2,669 3.56%
-------- --------- ----- -------- --------- ------
NON-INTEREST BEARING
LIABILITIES:
Demand deposits 56,473 54,052
Other liabilities 1,767 1,781
-------- --------
Total non-interest
bearing liabilities 58,240 55,833
-------- --------
Total liabilities 209,178 206,840
STOCKHOLDERS' EQUITY 20,687 18,910
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $229,865 $225,750
======== ========
Net interest Income/Spread $6,215 4.98% 6,138 5.08%
======== =========
Net interest yield 5.97% 6.02%
</TABLE>
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Notes:
- The amounts set forth as average balances are based on daily
averages for each period.
- Loan fees, which are included in interest income and in the
calculation of average yields, were $ 123,515 and $ 158,070 in the
first six months of 1996 and 1995, respectively.
- Tax exempt income is not calculated on a tax equivalent basis.
- Non-accruing loans are included in average loans.
Net interest income is primarily affected by changes in the amounts and
types of earning assets, interest-bearing funds and net non-interest related
funds, as well as their relative sensitivity to interest rate movements.
Net interest income for the first six months of 1996 was $ 6,215,000,
up 1.3% from $6,137,000 in 1995. Interest income from earning assets increased
from $8,807,000, in the first six months of 1995 to $ 8,857,000 in the same
period of 1996. This increase was due to the increase in the yield on investment
securities from 5.42% in the first six months of 1995 to 5.90% in the same
period of 1996; although, the average investment balance decreased $1,250,000.
Federal funds sold increased $2,097,000 as well as average loans which showed a
$3,201,000 increase. The increase in loans was accompanied by a decline in the
average yield which dropped from 10.35% for the first six months of 1995 to
9.94% in the first six months of 1996. The effect of these factors was to cause
the yield on the Company's earning assets to decline from 8.64% for the first
six months of 1995 to 8.50% for the first six months of 1996.
Interest expense on interest bearing liabilities decreased from
$2,670,000 in the first six months of 1995 to $2,642,000 in the first six months
of 1996. This decrease was due to a $2,760,000 decrease in average savings and
$1,178,000 decline in Money Market/NOW accounts which more than offset a
$3,900,000 increase in time deposits during the same period. The cumulative
impact of these changes was to decrease the average cost of funds from 3.56% for
all interest bearing liabilities for the first six months of 1995 to 3.52% for
the first six months of 1996.
NON-INTEREST INCOME
Non-interest income in the first six months of 1996 totalled
$1,405,000, compared with $1,425,000 in 1995. Customer service charges totalled
$ 1,220,000 in 1996, down 3.4% from $1,263,000 in 1995 due to customers shifting
their funds to time deposits, which do not pay service charges.
INVESTMENT SECURITIES GAINS AND LOSSES
At June 30, 1996, the Company held investment securities with a market
value of $60,086,000, which was $409,000 lower than the amortized cost of the
portfolio. This difference
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consisted of $182,000 of gross unrealized gains and $591,000 of gross unrealized
losses. There were net losses of $ 7,000 from the sale of securities in the
first six months of 1996, and a loss of $ 12,000 from the sale of securities in
the same period of 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses totalled $ 12,000 in the first six months
of 1996 compared to $145,000 in 1995. The decrease of $133,000 was due to the
discontinuation of Carney Bank's policy of adding $20,000 per month to its
allowance for loan losses. See "Allowance and Provision for Loan Losses."
NON-INTEREST EXPENSES
Non-interest expenses for the first six months of 1996 totalled
$5,852,000, which was down 1.8% from $5,959,000 in 1995. Non-interest expenses
are discussed below in more detail.
PERSONNEL. Personnel expense (which includes salaries and benefits)
represented 49.1% of total non-interest expenses in 1996. Personnel expenses
increased 0.14% to $2,874,000 in 1996 from $2,870,000 in 1995. These net
increases were the result of salary increases, higher benefit costs, and
upgrading of personnel. Staff on a full-time equivalent basis averaged 161 in
1996 compared to 182 in 1995. The decrease was the result of the reduction of
several employees after the consolidation of the merger, the elimination of the
internal audit department which was replaced by an external source, and other
positions absorbed due to attrition and reorganization.
OCCUPANCY EXPENSE. Net occupancy expense in 1996 totalled $801,000, up
8.7% from $737,000 in 1995. The increase was due to the opening of a new branch
in Coral Springs, Florida in March 1995, and higher rent at existing branch
locations due to CPI increases.
PREMISES AND EQUIPMENT EXPENSE. Premises and equipment expense, which
includes furniture and equipment depreciation, rental and maintenance, totalled
$289,000 in 1996, down 4.0% from $301,000 in 1995. The decrease was due to the
elimination of several of Carney Bank's equipment maintenance contracts after
the consummation of the merger.
OTHER NON-INTEREST EXPENSES. Other non-interest expenses for the first
six months of 1996 totalled $1,888,000, down 7.9% from $2,051,000 in 1995. This
category of expenses continues to be impacted by relatively high legal and
professional service fees. Legal and other professional fees for the Premium
Group matter were $373,000 in the first six months of 1996, compared to $139,000
in 1995. See "Legal Proceedings." This increase was more than offset by a
decline in several expense categories, including a decline in the FDIC
assessment which dropped from $268,000 in 1995 to $6,000 in 1996; and the level
of OREO write-downs which decreased from $100,000 in 1995 to $20,000 in the same
period of 1996.
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PROVISION FOR INCOME TAXES
The income tax provision totalled $54,000 in 1996 compared with
$495,000 in 1995. The decrease is due to the utilization of a part of Carney
Bank's net operating loss of approximately $2.7 million. During the last quarter
CFC recalculated the estimated net operating loss carryforward and as a result
of the recalculation the amount of the N.O.L. decreased from $2.9 million to
$2.7 million. The Company is eligible to utilize this loss for income earned
after January 12, 1996 (i.e., the date of the merger).
CAPITAL EXPENDITURES
CFC's capital expenditures are reviewed by its Board of Directors. CFC
makes capital expenditures in order to improve its ability to provide quality
services to its customers. Capital expenditures for the first six months of 1996
equaled $187,000 compared to $245,000 in 1995, and were principally related to
equipment purchased for various branch sites and changes in equipment due to
technological advances. CFC filed an application with the Office of the
Comptroller of the Currency for the opening of a new branch at Pembroke Pines,
Florida on July 29, 1996. The opening date is anticipated for the first quarter
of 1997 and capital expenditures have been estimated at $180,000.
ASSET QUALITY AND CREDIT RISK
INVESTMENT SECURITIES. CFC maintains a high quality investment
portfolio including U.S. Treasury securities, securities of other U.S.
government entities, state and municipal securities, and other securities such
as Federal Reserve Bank stock. Securities issued by the U.S. Treasury, other
U.S. government entities and states constitute approximately 99% of CFC's
investment portfolio. CFC believes that the securities have very little risk of
default. At June 30, 1996, 99% of the securities held in CFC's investment
portfolio were classified available for sale and were rated "A" or better (with
a majority rated triple "A"). A rating of "A" or better means that the bonds are
of "upper medium grade, with strong ability to repay, possibly with some
susceptibility to adverse economic conditions or changing circumstances." Only
one security, a $95,000 municipal bond acquired through the merger, is rated A
minus ("A-"). Ratings are assigned by independent rating agencies and are
subject to the accuracy of reported information concerning the issuers and the
subjective judgment and analysis of the rating agencies. They are not a
guarantee of collectibility. Approximately 39.1% of these securities mature in
one year or less and 96.3% in five years or less. As such, the risk of
significant fluctuations in value due to changes in the general level of
interest rates is limited.
The following table sets forth information regarding the composition of
the investment portfolio at June 30, 1996 and 1995 (amounts in thousands).
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INVESTMENT PORTFOLIO
JUNE 30,
-----------------------
1996 1995
(amounts in thousands)
U.S. Treasury Securities $34,353 $ 47,829
Securities of other U.S. Government 25,112 12,740
agencies and corporations
Obligations of states and political 96 2,428
subdivisions
Other Securities 525 360
-------- ---------
Total investments $60,086 $63,357
======== =========
During the last period, CFC's investment portfolio decreased by 5.2% as
a result of the sale of U.S. Treasury securities needed to fund loan growth.
During this period, CFC has adjusted the mix of its investment securities from
U.S. Treasury securities to securities of U.S. Government agencies to obtain
higher yields. U.S. Treasury securities represented 57.2% in 1996, and 75.5% in
1995, while securities of U.S. Government agencies and municipals represented
42.0% in 1996, and 24.0% in 1995.
LOANS. CFC maintains a high quality portfolio of real estate,
commercial and consumer loans. All loans are reviewed and approved by CFC's loan
committee, which ensures that loans comply with applicable credit standards. In
most cases, CFC requires collateral from the borrower. The type and amount of
collateral varies but may include residential or commercial real estate,
deposits held by financial institutions, U.S. Treasury securities, other
marketable securities and personal property. Collateral values are monitored to
ensure that they are maintained at proper levels.
As of June 30, 1996, approximately 74% of all CFC's loans were real
estate loans secured by real estate in South Florida. This level of
concentration could present a potential credit risk to CFC because the ultimate
collectibility of these loans' are susceptible to adverse changes in real estate
market conditions in this market. CFC has addressed this risk by limiting most
loans to a maximum of 70% of the appraised value of the underlying real estate
and maximum amortization schedules of 20 years.
Most of the loans are short-term and may be renewed or rolled over at
maturity. At that time, CFC undertakes a complete review of the borrower's
credit worthiness and the value of any collateral. If these items are
satisfactory, CFC will generally renew the loan at prevailing interest rates.
The following table divides CFC's loan portfolio into four categories.
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TYPES OF LOANS
JUNE 30,
--------------------------
1996 1995
---- ----
(amounts in thousands)
Commercial, financial and agricultural $ 34,689 $ 32,112
Real estate - construction 9,714 9,797
Real estate - mortgage 99,441 88,819
Installment loans 1,640 2,242
Overdrafts 226 125
-------- --------
Total loans $145,710 $133,095
======== ========
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. CFC makes commercial,
financial and agricultural loans to businesses located in South Florida. The
credit risk associated with business lending is influenced by general economic
conditions, deterioration in a borrower's capital position resulting in
increasing debt to equity ratios, deterioration in a borrower's cash position
resulting in a liquidity problem, and decreasing revenues due to inefficient
operations of the borrower. These loans are generally secured by corporate
assets, marketable securities or other liquid financial instruments. These loans
totalled approximately $34,689,000 at June 30, 1996, and $32,112,000 at June 30,
1995. Legally binding commitments to extend credit and letters of credit for
these borrowers totalled $15,663,000 at June 30, 1996 and $14,563,000 at June
30, 1995.
REAL ESTATE CONSTRUCTION LOANS. CFC makes real estate construction
loans from time to time for real estate projects located in South Florida. CFC
generally requires security in the form of a mortgage on the underlying real
property and the improvements constructed thereon and personal guarantees. CFC
attempts to limit its credit exposure to 70% of the appraised value of the
underlying real property. On June 30, 1996, construction loans totalled
$9,714,000. Risks associated with construction loans include variations from
vacancy projections, delays in construction, environmental factors, reliability
of subcontractors and timing and reliability of inspections, and costs overruns.
REAL ESTATE MORTGAGE LOANS. CFC makes both commercial and residential
real estate loans. These loans were $99,441,000 at June 30, 1996. Risks
associated with real estate mortgage loans include reliability of appraisals,
deterioration of market value, environmental contamination, and accelerated
depreciation of property due to deferred maintenance.
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CFC makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. At June 30, 1996, these loans totalled $77 million, or 52.8% of
total loans. Most of these loans have a maturity of five years or less. Almost
all of these loans are secured by real property located in South Florida. These
loans generally require a loan-to-collateral value of not more that 70%. At June
30, 1996, CFC had $1.6 million in legally binding commitments to extend credit
or standby letters of credit involving commercial real estate borrowers, and
$0.7 million at June 30, 1995.
Residential real estate loans totalled $22 million, or 15.1% of total
loans at June 30, 1996, compared with $18 million, or 13.5% at June 30, 1995.
Residential real estate loans are predominately adjustable rate home mortgages
which generally require a loan-to-collateral value of not more than 70% and
equity credit lines which generally limit the loan-to-collateral value to not
more than 70% to 80%. Most loans have a maximum term of five to seven years. CFC
does not ordinarily charge any points on its real estate loans. Almost all of
the residential real estate loans are secured by homes in South Florida. Legally
binding commitments to extend credit secured by residential mortgages totalled
$2,223,000 as of June 30, 1996 and $1,990,000 as of June 30, 1995.
INSTALLMENT LOANS. CFC offers consumer loans and personal and secured
loans. The security for these loans ordinarily consists of automobiles, consumer
goods, marketable securities, certificates of deposit and similar items. These
loans totalled approximately $1.6 million, or 1.1% of total loans, on June 30,
1996, compared with $2.2 million, or 1.7% of total loans, on June 30, 1995.
Risks associated with installment loans include loss of employment of borrowers,
declines in the financial condition of borrowers resulting in delinquencies, and
rapid depreciation of loan collateral.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem loans
which are known as "other real estate owned" or "OREO." Past due loans are loans
that are delinquent 30 days or more which are still accruing interest.
Maintaining a low level of non-performing assets is important to the
ongoing success of any financial institution. CFC's credit review and approval
process is critical to CFC's ability to minimize non-performing assets on a long
term basis. In addition to the negative impact on interest income,
non-performing assets also increase operating costs due to the expense of
collection efforts. It is CFC's policy to place all loans which are past due 90
days or more on non-accrual status, subject to exceptions made on a case by case
basis. CFC's results have been adversely affected over the last several years
due to a relatively high level of OREO. This problem was mitigated in 1995 by
CFC's success in selling a large amount of its OREO.
The following table presents CFC's non-performing assets and past due
loans for 1996 and 1995.
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NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
JUNE 30,
------------------
1996 1995
---- ----
(amounts in thousands)
Non-Accrual Loans $1,988 $1,002
OREO, net 3,394 3,692
------ ------
Total Non Performing Assets $5,382 $4,694
====== ======
Accruing Loans Past Due $ 0 $ 153
90 Days ====== ======
Of the total loan portfolio of $145.7 million at June 30, 1996, $5.4
million or 3.7%, was non-performing, or an increase of $688,000 from June 30,
1995. Non-performing loans at June 30, 1996 consisted of commercial and
residential real estate loans. The increase in non-accrual loans of $986,000 was
the result of one real estate loan in the process of foreclosure, two commercial
loans over 60 days past due, net of one loan transferred to OREO, as of June 30,
1996.
Other real estate owned at June 30, 1996 consisted of $1,092,000 of
residential real estate and $2,302,000 of commercial real estate. OREO at June
30, 1995 consisted of $1,277,000 of residential real estate and $2,415,000 of
commercial real estate. CFC believes that the carrying value of its OREO
portfolio is realizable.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
CFC evaluates the adequacy of its allowance for loan losses as part of
its ongoing credit review and approval process. The review process is intended
to identify, as early as possible, customers who may be facing financial
difficulties. Once identified, the extent of the client's financial difficulty
is carefully monitored by CFC's loan review officer, who recommends to the
directors loan committee the portion of any credit that needs a specific reserve
allocation or should be charged off. Other factors considered by the loan
committee in evaluating the adequacy of the allowance include overall loan
volume, historical net loan loss experience, the level and composition of
non-accrual and past due loans, local economic conditions, and value of any
collateral. From time to time, specific amounts of the reserve are designated
for certain loans in connection with the loan committee's and review officer's
analysis of the adequacy of the allowance for loan losses.
While the largest portion of this allowance is typically intended to
cover specific loan losses, it is considered a general reserve which is
available for all credit-related purposes. The allowance is not a precise
amount, but is derived based upon the above factors and represents
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management's best estimate of the amount necessary to adequately cover probable
losses from current credit exposures. The provision for loan losses is a charge
against current earnings and is determined by management as the amount needed to
maintain an adequate allowance.
The overall credit quality of the loan portfolio has improved in recent
years as evidenced by CFC's relatively low level of non-performing loans and net
charge-offs. Management relied on these factors, as well as its assessment of
the financial condition of specific clients facing financial difficulties, in
deciding the level of the allowance for loan losses of $2,587,000 at June 30,
1996, and $3,040,000 at December 31, 1995.
For the six months ended June 30, 1996, less that 0.32% of the entire
loan portfolio was charged off, with net charge-offs being $465,000. In 1995,
net recoveries were 0.05% of the entire portfolio. CFC's allowance for loan
losses decreased to $2,587,000 on June 30, 1996 which was approximately 1.78% of
total loans, from $2,912,000 on June 30, 1995 or 2.19% of total outstanding
loans.
During the second quarter of 1996, CFC experienced a lower level of net
charge-offs which amount to $95,000. The net amounts charged-off were $154,000
in commercial loans, and recoveries of $60,000 in residential real estate loans.
FINANCIAL CONDITION
CFC's goal is to maintain a high quality and liquid balance sheet. CFC
seeks to achieve this objective through increases in collateralized loans, a
strong portfolio of real estate loans and a stable portfolio of investment
securities of high quality.
INVESTMENT SECURITIES. As of June 30, 1996, investment securities
averaged $63.3 million or 30.2% of total earning assets. CFC's management
strategy for its investment account is to maintain a very high quality portfolio
with generally short-term maturities. To maximize after tax income, investments
in municipal securities are utilized but with somewhat longer maturities. The
investment portfolio, all of which has been classified as available for sale,
decreased 5.2% from $ 63.4 million at June 30, 1995 to $ 60.1 million at June
30, 1996.
LOANS. Loans averaged $ 136.5 million in the first six months of 1996
compared to $133.3 million for the same period of 1995, or an increase of 2.4%.
See "Asset Quality and Credit Risk - Loans," above.
INTEREST-BEARING LIABILITIES. Total interest-bearing liabilities
averaged $ 150.9 million in the first six months of 1996, down from $ 151.0
million in 1995. Average money market and NOW deposits decreased $ 1.2 million
or 1.6% to $ 73.7 million. The decline in average savings of $ 2.8 million or
10.4% was due to lower interest rates which resulted in customers shifting their
funds into higher yielding investments, a loss of some former Carney customers
and continuing competition from mutual funds and credit unions. There was a
significant increase in average time deposits of $ 3.9 million or 8.2% compared
to 1995.
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LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to
provide for adequate liquidity, to manage interest rate exposure by maintaining
a prudent relationship between rate sensitive assets and liabilities and to
manage the size and composition of the balance sheet so as to maximize net
interest income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. CFC primarily utilizes cash, federal funds sold and securities
purchased under repurchase agreements to meet its liquidity needs. Although not
utilized in managing daily liquidity needs, the sale of investment securities
provides a secondary source of liquidity.
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary objective of interest
rate sensitivity management is to prudently structure the balance sheet so that
movements of interest rates on assets and liabilities are highly correlated and
produce a reasonable net interest margin even in periods of volatile interest
rates.
Regular monitoring of assets and liabilities that are rate sensitive
within 30 days, 90 days, 180 days and one year is an integral part of CFC's
rate-sensitivity management process. It is CFC's policy to maintain a reasonable
balance of rate-sensitive assets and liabilities on a cumulative one year basis,
thus minimizing net interest income exposure to changes in interest rates. CFC's
sensitivity position at June 30, 1996 was such that net interest income would
decline modestly if there were an increase in short-term interest rates.
CFC monitors the interest rate risk sensitivity with traditional gap
measurements. The gap table has certain limitations in its ability to accurately
portray interest sensitivity; however, it does provide a static reading of CFC's
interest rate risk exposure.
As of June 30, 1996, CFC remained asset sensitive (interest sensitive
assets subject to repricing exceeded interest sensitive liabilities subject to
repricing) on a 365-day basis to the extent of $ 3.3 million. This positive gap
at June 30, 1996 was 1.4% of total assets compared with 10.2% at June 30, 1995.
The primary cause for this decrease in the gap was the decrease in the amount of
interest sensitive investments maturing within one year, from $ 31.9 million in
1995 to $ 22.7 million in 1996, and the overall decrease of interest earning
assets over interest earning liabilities of $ 19.7 million compared to the first
six months of 1995. CFC's targeted gap position is in the range of negative 5
percent to positive 10 percent. CFC measures its gap position as a percentage of
its total assets.
While the absolute level of gap is a measurement of interest rate risk,
the quality of the assets and liabilities in the balance sheet must be analyzed
in order to understand the degree of
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interest rate risk taken by CFC. CFC does not invest in any derivative products
in order to manage or hedge its interest rate risk.
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and stockholders.
A strong capital position helps CFC withstand unforeseen adverse developments
and take advantage of attractive lending and investment opportunities when they
arise. During the first six months of 1996, stockholders' equity increased by $
2.2 million, or 11.5%, from June 30, 1995.
The Federal Reserve's final rules pertaining to risk-based capital
became effective as of December 31, 1992. Under these rules, at June 30, 1996,
CFC's tier one capital was 13.6% and the total capital was 14.8% of risk-based
assets. These risk-based capital ratios are well in excess of the minimum
requirements of 4% for tier one and 8% for total risk-based capital ratios. All
of these capital ratios experienced a slight decrease during the second quarter
of 1996 primarily due to an increase in the 100% risk-weighted assets such as
loans and a decrease in 0% risk-weighted investment securities basically U.S.
Treasury Notes. CFC's leverage ratio (tier one capital to total average
quarterly assets) of 9.4% at June 30, 1996, is also well in excess of the
minimum 4% requirement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PREMIUM GROUP LITIGATION
CNB is party to several legal proceedings arising out of the failure of
the food "diverting" business owned and operated by Premium Sales Corporation,
Plaza Trading Corporation and certain of their affiliates and associates (the
"Premium Group"). The food diversion business involves the purchase, from
grocers in one area of the country, of excess inventory of non-perishable food
goods and the simultaneous sale, at a higher price, of such food goods to
grocers located in other parts of the country. It appears that the founders of
the Premium Group started the diversion business in the 1980's and that the
business grew rapidly until its failure in June 1993. In June 1993, the Premium
Group was forced into bankruptcy and a receiver was appointed for the principal
members of the Premium Group. It appears that the Premium Group financed a major
portion of their operations by attracting funds from private investors. Many of
the investors in the Premium Group have alleged that the Premium Group was
involved in a "Ponzi" scheme in which the Premium Group paid high rates of
return to early investors from funds raised from later investors. These
investors have alleged that they suffered losses of more than $250 million.
Many members of the Premium Group maintained checking and other
depository accounts with CNB. Certain investors in the Premium Group, as well as
the receiver and trustee for the
13
<PAGE>
Premium Group, have alleged that CNB and Larry Robinette, Senior Vice President
- - - Commercial Loans of CNB, had knowledge of and facilitated the fraudulent
scheme and, therefore, are responsible for certain losses incurred by the
investors. Specifically, they allege that CNB agreed to participate in the
fraudulent scheme in order to recoup a loss of approximately $412,000 incurred
in 1987 on a loan made by CNB to a corporation associated with one of the
founders of the Premium Group, that CNB received more than $500,000 in income
from servicing the Premium Group accounts and that CNB and Mr. Robinette
facilitated the fraudulent scheme by: (i) allowing the Premium Group the
immediate use of uncollected funds, (ii) giving the Premium Group daily updates
of account information for accounts maintained by the Premium Group and their
investors, (iii) prematurely terminating an internal investigation of the
Premium Group, (iv) allowing the Premium Group to withdraw funds through checks
payable to cash, (v) allowing the Premium Group to commingle funds in their
accounts, to make transfers between accounts and to make wire transfers from
their accounts; and (vi) providing letters of reference for members of the
Premium Group. They also allege that Mr. Robinette personally handled the
Premium Group accounts, that he accepted cash payments in the amount of $2,000
per month for his assistance and that he and his family and associates were
significant investors in the Premium Group. CNB has denied any responsibility
for, or knowledge of, the fraudulent scheme (if any). Furthermore, it is CNB's
position that all of the services provided to the Premium Group were customary,
appropriate and regularly provided to other large commercial accounts. CNB
acknowledges that it conducted an investigation into the transactions in the
Premium Group accounts as part of its existing policy of reviewing accounts with
a large volume of transactions. This investigation yielded no evidence that the
Premium Group was involved in a fraudulent scheme. Mr. Robinette has also denied
that he had any knowledge of the fraudulent scheme, although certain members of
his family and associates did invest in the Premium Group. According to Mr.
Robinette, all of these persons suffered significant losses as a result of their
investments. The pending actions are described below.
WALCO INVESTMENTS ET AL. V. KENNETH THENEN, ET AL.
In June 1994, certain investors in the Premium Group filed a class
action complaint in the United States District Court for the Southern District
of Florida seeking in excess of $250 million in damages for losses sustained by
them by investing in the Premium Group. The complaint currently names more than
97 defendants, including the insiders of the Premium Group, certain food and
investment brokers, food distribution companies, law firms and CNB.
The plaintiffs have alleged that CNB, primarily through the actions of
one of its officers, Larry Robinette, facilitated the scheme and is liable for
the plaintiff's losses due to violations of federal and state RICO statutes and
common law fraud. The plaintiffs are seeking to recover their alleged damages of
more than $250 million as well as treble damages and punitive damages. The
amount of punitive damages sought has never been specified and it is impossible
for the Company to quantify the amount, if any, of punitive damages the
plaintiffs might receive if they are successful in this litigation.
CNB and Larry Robinette have filed an answer to the complaint denying
all allegations. CNB believes that it has no responsibility for the losses
suffered by the plaintiffs. Accordingly,
14
<PAGE>
the Board of Directors has instructed CNB's law firm to vigorously defend the
litigation. Nevertheless, in light of the uncertainty of the litigation,
there can be no assurance that this matter will be resolved without liability
to CNB.
IN RE: PREMIUM SALES CORPORATION ET AL., DEBTOR; HARLEY S. TROPIN, TRUSTEE V.
COUNTY NATIONAL BANK OF SOUTH FLORIDA AND LARRY ROBINETTE.
In July 1995, Harley S. Tropin, as the Chapter 11 trustee for the
estates of Premium Sales Corporation, Plaza Trading Corporation and the
designated corporate representative of Windsor Wholesale Corporation (the
"Premium Debtors"), commenced an adversary proceeding against CNB and Larry
Robinette in the United States Bankruptcy Court for the Southern District of
Florida.
In his complaint, the trustee alleged that various transactions between
CNB and the Premium Debtors represented avoidable transfers under federal
bankruptcy and federal and state fraudulent conveyance laws. He has requested a
judgment against CNB for all amounts involved in these transactions, which have
not been specified but could exceed $750 million. The trustee further alleged
that CNB extended unsecured credit to the Premium Debtors by providing access to
uncollected funds and by permitting certain overdrafts. He has also alleged that
CNB should be required to return the profits which it received from servicing of
the Premium Group accounts under a theory of unjust enrichment.
CNB has filed an answer denying all of the trustee's allegations. CNB
believes that the allegations are based on incorrect interpretations of law that
are factually inaccurate. CNB is vigorously defending these claims. However, in
light of the uncertain nature of litigation, there can be no assurance that this
matter will be resolved without liability to CNB.
HARLEY S. TROPIN, AS RECEIVER, V. KENNETH THENEN, ET AL.
On December 23, 1993, Harley S. Tropin, as receiver for certain members
of the Premium Group, filed a complaint in the United States District Court for
the Southern District of Florida against various parties seeking to recover
unspecified damages suffered by the Premium Group from the defendants'
participation and assistance in the allegedly fraudulent scheme conducted by the
Premium Group. In October 1995, the receiver amended its complaint to add CNB as
an additional defendant in the litigation. In its complaint, the receiver has
alleged that CNB aided, abetted and participated in the fraudulent scheme and,
therefore, is liable to the receiver for the damages suffered by these
corporations as a result of the "Ponzi" scheme. CNB intends to vigorously defend
the allegations made in this complaint. CNB believes that the allegations lack
merit as a matter of law and questions whether the receiver has standing to
assert claims for these alleged damages. However, in light of the uncertain
nature of litigation, there can be no assurance that this matter will be
resolved without any liability to CNB.
15
<PAGE>
GRAND JURY INVESTIGATION
CNB is aware that the U.S. Attorney convened a grand jury to
investigate possible criminal violations with respect to the Premium Group
matter. To date, several directors and officers of CNB have appeared as
witnesses before the grand jury. The U.S. Attorney's office has informed CNB and
Larry Robinette that they are subjects, but not target, of the investigation. At
the present time, none of the directors or other officers of CNB are subjects or
targets. The Department of Justice Manual defines a subject as "a person whose
conduct is within the scope of the grand jury's investigation." A target is a
"person as to whom the prosecutor or the grand jury has substantial evidence
linking him to the commission of a crime and who, in the judgment of the
prosecutor, is a punitive defendant." To date, no parties have been indicted by
the grand jury with respect to the Premium Group matter.
RELATED MATTERS
CNB has expended approximately $ 1,120,000 through June 30, 1996 in
legal fees and other expenses in connection with the legal proceedings related
to the failure of the Premium Group. CNB is currently spending more than $25,000
per month for legal fees and related items with respect to the pending
litigation. It expects this amount to increase when the pending cases go to
trial which has been scheduled for October 1996. The Premium Group matter has
been highly publicized in South Florida and widely reported by the local media.
This has resulted in adverse publicity for CNB, and may have caused a loss of
business for CNB in the form of deposit withdrawals and other customer
relationships. It is likely that the Premium Group cases will continue to have
an adverse effect on CNB until they are resolved.
As indicated above, CNB has denied any knowledge or responsibility for
the fraud allegedly committed by the Premium Group and believes that it should
ultimately prevail on all of the claims made against it. However, due to the
uncertain nature of litigation, there can be no assurance that this matter will
be resolved without liability to CNB (whether as a result of a settlement or a
judgment).
POTENTIAL LITIGATION INVOLVING FLORIDA HOME FINDERS, INC.
In June 1995, CNB made a loan in the amount of $2,000,000 to the
principals of Florida Home Finders, Inc. ("FHF"). The loan was utilized to pay
part of the purchase price of FHF owed by the principals to the former owners of
FHF. The loan was secured by a pledge of a $2,000,000 certificate of deposit
established by FHF at the time of the loan. FHF is a property management
company. As part of its business, it apparently received security deposits from
tenants at properties managed by FHF. It has been alleged that FHF utilized
these tenant security deposits to establish the certificate of deposit at CNB.
In September, 1995, the Florida Department of Business Regulation (the
"DBR") filed an action in the Circuit Court for St. Lucie County against FHF and
its principals based on the alleged misuse of the tenant security deposits and
other items. As part of this proceeding, the DBR sought a temporary injunction
preventing CNB from offsetting the $2,000,000 certificate of
16
<PAGE>
deposit against the amount of the loan. In seeking the injunction, the DBR
alleged that the certificate of deposit represented tenants' security deposits
and that such funds should have been held in segregated accounts by FHF. The
court granted the temporary injunction without notice to CNB. CNB subsequently
intervened in the proceeding and requested the court to dissolve the injunction
because: (i) CNB had a valid and perfected security interest in the certificate
of deposit, (ii) FHF had the right under Florida law to utilize the security
deposits to establish the certificate of deposit because it had posted a
$250,000 bond with the State of Florida; and (iii) certain other reasons. The
court subsequently held that the injunction would dissolve within 10 days unless
the DBR either posted a bond in the amount of $25,000,000 with the court, or
filed a motion with the appellate court with respect to its obligation to post
the bond. The DBR failed to take either action within the required time period.
In October, 1995, CNB took the position that the injunction against CNB
was dissolved because the DBR had failed to take either of the required actions
within the required time period. Accordingly, CNB applied the certificate of
deposit against the outstanding balance of the loan. The receiver for FHF
subsequently notified CNB that the set off of the certificate of deposit was
improper, and demanded that the certificate of deposit be reestablished. The
receiver requested they be able to amend the Complaint against CNB and Atlantic
Gulf Communities as well as add other defendants which includes but is not
limited to three other banks that acted as depositories of the security deposit
accounts. The Amended Complaint that is to be filed by the attorney for the
receiver is due on August 13, 1996. It is CNB's position that it acted properly
and is entitled to retain the proceeds from the certificate of deposit.
CERTAIN ENVIRONMENTAL MATTERS
At the time of the merger, Carney Bank was involved in an environmental
matter with respect to hazardous substances on certain real property. As a
result of the merger, the Company is now subject to such proceedings as
successor in interest to Carney Bank.
In 1993, Carney Bank took title to the premises of a former dry cleaner
located in Coral Springs, Florida pursuant to a foreclosure sale. Carney Bank
then arranged to sell the property to a third party. The purchaser required that
an environmental study be performed after the closing and that Carney Bank
indemnify the purchaser against any expenses that might result from the presence
of hazardous substances on the property. After the sale, Carney Bank engaged an
independent consultant to perform an environmental study of the property. This
study indicated that hazardous substances were located at the property. Based on
this study, Carney Bank's environmental consultant prepared a remedial action
plan (the "RAP") and submitted it to the Broward County Department of Natural
Resource Protection ("Broward County"). The RAP sets forth a plan to clean up
the hazardous substances over a period of two years. Carney Bank's consultant
has estimated that the cost of the plan will be approximately $178,000. There
can be no assurance that the actual cost of clean up will not exceed the
estimate made by Carney Bank's consultant. The RAP has received final approval
from Broward County.
In 1994, the State of Florida established a Dry Cleaning Solvent
Superfund program (the "Program") under which the State of Florida will pay for
the clean-up of certain contaminated dry
17
<PAGE>
cleaning sites. The State of Florida has not yet issued regulations and an
application form under the Program. When the application form becomes available,
the Company will apply for inclusion in the Program. Based on the eligibility
criteria set forth in the legislation, the property would appear to qualify for
inclusion in the Program. The Program preempts local government and private
enforcement actions with respect to contaminated sites eligible for inclusion in
the Program.
During 1995, Broward County requested Carney Bank to proceed with the
RAP at its own expense. Carney Bank resisted this request because it would
jeopardize its right to receive benefits of the Program. In October, 1995,
Carney Bank met with officials of Broward County to discuss this matter. Based
on the discussions, Carney Bank concluded that it was unlikely that Broward
County would institute an enforcement action with respect to the property.
If Broward County institutes enforcement action against the Company
with respect to the property, the Company intends to vigorously defend such
actions based on applicable provisions of Florida law. Although there can be no
assurance that those defenses would be successful or that the Company would not
be required to pay for clean up of the property, the Company believes that any
enforcement action against the Company will not have a material adverse effect
on the business or financial position of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSB
(a) The exhibits set forth in the following Index of Exhibits are files
as a part of this report.
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1996.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of North Miami Beach, Florida, on August 12, 1996.
COUNTY FINANCIAL CORPORATION
By: /s/ GEORGE M. APELIAN, PRESIDENT
---------------------------------
George M. Apelian, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on August 12, 1996.
SIGNATURES TITLE
/s/ GEORGE M. APELIAN
- - ------------------------- President, Chief Executive Officer and Director
George M. Apelian (Principal Executive Officer)
/s/ EILEEN A. SALSANO
- - ------------------------- Executive Vice President and Chief Operating Officer
Eileen A. Salsano (Principal Financial Officer and Principal
Accounting Officer)
19
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- - ----------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
(UNAUDITED)
<S> <C> <C>
EARNING ASSETS:
Loans $ 145,710 $ 139,387
Less: Unearned Income (746) (110)
Allowance for loan losses (2,587) (3,040)
--------- ---------
Total loans, net 142,377 136,237
Securities held to maturity 0 1,635
Securities available for sale 60,086 58,719
Federal funds sold 2,725 12,136
--------- ---------
Total earning assets 205,188 208,727
CASH AND DUE FROM BANKS 12,778 14,732
PREMISES AND EQUIPMENT, Net 4,270 4,369
OTHER REAL ESTATE OWNED, Net 3,394 3,329
INTEREST RECEIVABLE 1,826 1,865
OTHER ASSETS 1,305 1,000
--------- ---------
TOTAL $ 228,761 $ 234,022
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES Interest bearing deposits:
Savings accounts $ 24,629 $ 23,479
Interest checking, interest checking plus, and moneyfund accounts 71,290 74,247
Certificates of deposit, $100,000 and over 14,936 12,928
Other certificates of deposit 37,449 40,904
--------- ---------
Total interest bearing deposits 148,304 151,558
Securities sold under repurchase agreements 475 1,777
Other borrowings 900 950
--------- ---------
Total interest bearing liabilities 149,679 154,285
Demand deposits 55,146 57,687
--------- ---------
Total 204,825 211,972
Interest payable 684 729
Other liabilities 1,577 890
--------- ---------
Total liabilities 207,086 213,591
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value; 1,500,00 shares
authorized; 1,263,617 issued and outstanding 13 13
Capital surplus 13,554 13,554
Retained earnings 8,363 6,661
Net unrealized (loss) gain on securities available for sale,
net of taxes (255) 203
--------- ---------
Total stockholders' equity 21,675 20,431
--------- ---------
TOTAL $ 228,761 $ 234,022
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
- - ------------------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended For the Six Months Ended
June 30 June 30,
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,457 $ 3,470 $ 6,746 $ 6,846
Interest on investment securities:
Taxable 986 842 1,846 1,688
Non-taxable 2 23 11 47
Interest on federal funds sold 76 169 254 226
----------- ----------- ----------- -----------
Total interest income 4,521 4,504 8,857 8,807
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Savings 166 187 338 386
Interest checking, interest checking plus and moneyfund accounts 413 495 854 1,006
Certificates of deposit, $100,000 and over 191 144 360 260
Other certificates of deposit 505 527 1,010 946
Interest on other borrowings 34 38 80 72
----------- ----------- ----------- -----------
Total interest expense 1,309 1,391 2,642 2,670
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,212 3,113 6,215 6,137
Provision for loan losses 6 79 12 145
----------- ----------- ----------- -----------
NET CREDIT INCOME 3,206 3,034 6,203 5,992
----------- ----------- ----------- -----------
NON-INTEREST OPERATING INCOME:
Service charges on deposit accounts 601 623 1,220 1,263
Net loss on sale of investment securities (20) (9) (7) (12)
Other 91 71 192 174
----------- ----------- ----------- -----------
Total non-interest operating income 672 685 1,405 1,425
----------- ----------- ----------- -----------
NON-INTEREST OPERATING EXPENSE:
Personnel expense 1,385 1,406 2,874 2,870
Occupancy expense, net 417 381 801 737
Premises and equipment expense 149 153 289 301
Other 1,033 1,096 1,888 2,051
----------- ----------- ----------- -----------
Total non-interest operating expense 2,984 3,036 5,852 5,959
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 894 683 1,756 1,458
PROVISION FOR INCOME TAXES 0 207 54 495
----------- ----------- ----------- -----------
NET INCOME $ 894 $ 476 $ 1,702 $ 963
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 0.71 $ 0.38 $ 1.35 $ 0.76
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 1,263,617 1,263,617 1,263,617 1,263,617
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
NET
UNREALIZED
GAIN (LOSS) ON
SECURITIES
COMMON CAPITAL RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 (as reported) $10 $4,679 11,982 $203 $16,874
Merger with Carney Bank 3 8,875 (5,321) -- 3,557
-------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1995 (as restated) 13 13,554 6,661 203 20,431
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes -- -- -- (458) (458)
Net income for the six months ended 1,702 1,702
-------- -------- -------- -------- --------
BALANCE JUNE 30, 1996 (unaudited) $13 $13,554 $8,363 ($255) $21,675
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
1996 1995
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,702 963
Adjustments to reconcile net income to net
cash provided by operating activitivities
Provision for loan losses 12 145
Depreciation and amortization 224 293
Deferred income tax benefit (17) (14)
Net loss on sale of investment securities 7 12
Decrease in interest receivable 39 365
Decrease (increase) in other assets 10 (130)
(Decrease) increase in interest payable (46) 64
Increase in other liabilities 686 227
-------- --------
Net cash provided by operating activities 2,617 1,925
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities held to maturity 0 9,714
Proceeds from sales and maturities of securities available for sale 22,133 5,500
Purchase of securities available for sale (22,710) (8,800)
(Increase) decrease in loans, net (6,099) 2,960
Proceeds from sale of other real estate owned 29 18
Purchases of premises and equipment, net (187) (245)
-------- --------
Net cash (used in) provided by investing activities (6,834) 9,147
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in savings 1,150 (3,280)
Decrease in interest checking, interest checking plus and moneyfund (3,415) (10,317)
(Decrease) increase in certificates of deposit (1,446) 11,485
(Decrease) increase in securities sold under repurchase agreements (845) 241
Repayment of long-term borrowings (50) (50)
Decrease in demand deposits (2,542) (4,309)
-------- --------
Net cash used in financing activities (7,148) (6,230)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,365) 4,842
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,868 17,317
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,503 22,159
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 2,596 2,606
======== ========
Income Taxes $ 0 593
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
23
<PAGE>
COUNTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
County Financial Corporation ("C.F.C."), a one Bank holding company, its
wholly-owned banking subsidiary, County National Bank of South Florida
(the "Bank") and its inactive wholly-owned non-banking subsidiary, Carnco
Corporation ("Carnco") are primarily engaged in the traditional banking
practices of gathering deposits and investing in loans and investment
securities. The Bank offers these services through its main office and
eleven branches located in Dade, Broward, and Palm Beach County, Florida.
Substantially all of the Bank's activities are conducted with customers in
South Florida.
The accounting and reporting policies and practices of C.F.C., the Bank,
and Carnco conform to the practices in the banking industry and generally
accepted accounting principles.
The accounting policies followed for quarterly reporting purposes are the
same as those disclosed in the 1995 Annual Report to Stockholders of
County Financial Corporation. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the information provided. These statements have been
prepared by C.F.C. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
statements have been omitted pursuant to such rules and regulations.
Although C.F.C. believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in conjunction with C.F.C.'s audited 1995 consolidated
financial statements and the notes thereto.
2. MERGER WITH CARNEY BANK
On January 12, 1996, Carney Bank was merged with and into the Bank with
the Bank being the surviving corporation. The merger was made pursuant to
an Agreement and Plan of Reorganization and related Agreement to Merge
(the "Merger Agreement"), dated May 10, 1995. Under the terms of the
Merger Agreement, the Company issued 284,564 shares of its common stock in
exchange for all outstanding common stock, stock options, and warrants of
Carney Bank. The merger was accounted for as a pooling of interests, and
accordingly, all prior period financial information has been restated.
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 12,778
<INT-BEARING-DEPOSITS> 148,304
<FED-FUNDS-SOLD> 2,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,086
<INVESTMENTS-CARRYING> 60,495
<INVESTMENTS-MARKET> 60,086
<LOANS> 145,710
<ALLOWANCE> 2,587
<TOTAL-ASSETS> 228,761
<DEPOSITS> 203,450
<SHORT-TERM> 475
<LIABILITIES-OTHER> 2,261
<LONG-TERM> 900
0
0
<COMMON> 13
<OTHER-SE> 21,662
<TOTAL-LIABILITIES-AND-EQUITY> 228,761
<INTEREST-LOAN> 6,746
<INTEREST-INVEST> 1,857
<INTEREST-OTHER> 254
<INTEREST-TOTAL> 8,857
<INTEREST-DEPOSIT> 2,562
<INTEREST-EXPENSE> 2,642
<INTEREST-INCOME-NET> 6,215
<LOAN-LOSSES> 12
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 1,888
<INCOME-PRETAX> 1,756
<INCOME-PRE-EXTRAORDINARY> 1,702
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,702
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 6.09
<LOANS-NON> 1,988
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,029
<ALLOWANCE-OPEN> 3,040
<CHARGE-OFFS> 595
<RECOVERIES> 130
<ALLOWANCE-CLOSE> 2,587
<ALLOWANCE-DOMESTIC> 2,587
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 911
</TABLE>
