SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter period ended MARCH 31, 1996
Commission file number 1-10633
CFX CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF NEW HAMPSHIRE 02-0402421
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
102 MAIN STREET
KEENE, NEW HAMPSHIRE 03431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(603) 352-2502
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 [XX] NO
The number of shares outstanding of each of the issuer's classes of common
stock, $0.66 2/3 par value per share, as of March 31, 1996 was 7,561,176.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Balance Sheets -- March 31, 1996
and December 31, 1995 .........................1
Consolidated Statements of Income -- Three
months ended March 31, 1996 and 1995 ..........2
Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 1996 .............3
Consolidated Statements of Cash Flows -- Three
months ended March 31, 1996 and 1995 ..........4
Notes to Consolidated Financial Statements -
March 31, 1996 ................................5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .............10
PART II OTHER INFORMATION
Item 1 Legal Proceedings ...............................21
Item 2 Changes in Securities ...........................21
Item 3 Defaults upon Senior Securities .................21
Item 4 Submission of Matters to a Vote of
Security Holders .............................21
Item 5 Other Information ...............................21
Item 6 Exhibits and Reports on Form 8-K ................22
SIGNATURES ......................................23
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
[/TABLE]
[CAPTION]
MARCH 31, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
[S] [C] [C]
ASSETS
Cash and cash equivalents $24,281 $ 28,766
Interest bearing deposits with other banks 314 327
Federal Home Loan Bank of Boston stock 7,496 7,388
Trading securities 24,400 -
Securities available for sale 101,303 98,047
Securities held to maturity 19,410 19,729
Mortgage loans held for sale 7,794 6,554
Loans and leases 725,703 698,972
Less allowance for loan and lease losses 7,936 7,689
NET LOANS AND LEASES 717,767 691,283
Premises and equipment 13,513 13,548
Mortgage servicing rights 4,473 4,373
Goodwill and deposit base intangibles 9,720 9,884
Foreclosed real estate 1,141 1,129
Other assets 26,677 19,521
$958,289 $900,549
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $669,703 $617,872
Noninterest bearing 55,275 47,851
TOTAL DEPOSITS 724,978 665,723
Short-term borrowed funds 27,901 31,735
Advances from Federal Home Loan Bank of Boston 97,355 100,814
Other liabilities 17,422 12,323
TOTAL LIABILITIES 867,656 810,595
SHAREHOLDERS' EQUITY
Common stock, par value $.66 2/3 per share-
authorized 22,500,000 shares, issued 7,561,176
shares at March 31, 1996 and 7,509,921 shares
at December 31, 1995 5,041 5,007
Paid-in capital 66,150 65,763
Retained earnings 20,389 19,422
Net unrealized losses on securities
available for sale, after tax effects (947) (238)
TOTAL SHAREHOLDERS' EQUITY 90,633 89,954
$958,289 $900,549
Number of common shares outstanding 7,561 7,510
Common shareholders' equity per share $ 11.99 $ 11.98
See accompanying notes to unaudited consolidated financial statements.
[/TABLE]
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
<S> <C> <C>
Interest and dividend income:
Interest on loans and leases $15,677 $13,303
Interest on investment securities:
Taxable 1,481 1,421
Tax-exempt 210 255
1,691 1,676
Interest and dividends on trading securities - 3
Dividends on marketable equity securities 50 69
Other 132 215
TOTAL INTEREST AND DIVIDEND INCOME 17,550 15,266
Interest expense:
Interest on deposits 6,980 5,987
Interest on borrowings:
Short-term 1,746 1,385
Long-term 3 3
TOTAL INTEREST EXPENSE 8,729 7,375
NET INTEREST AND DIVIDEND INCOME 8,821 7,891
Provision for loan and lease losses 800 150
NET INTEREST AND DIVIDEND INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES 8,021 7,741
Other income:
Service charges on deposit accounts 565 552
Loan servicing fees 400 427
Net gains on trading securities 153 224
Net gains on investment securities 57 -
Net gains on sales of loans 430 12
Leasing activities 748 510
Other 260 339
2,613 2,064
Other expense:
Salaries and employee benefits 3,522 3,546
Occupancy and equipment 1,061 974
Professional fees 366 385
Marketing 355 187
Operation of foreclosed real estate 56 33
FDIC deposit insurance 1 362
Goodwill and deposit base intangible amortization 167 189
Other 1,763 1,631
7,291 7,307
INCOME BEFORE INCOME TAXES 3,343 2,498
Income taxes 1,015 942
NET INCOME 2,328 1,556
Preferred stock dividends - 67
NET INCOME AVAILABLE TO COMMON STOCK $2,328 $ 1,489
Weighted average common shares outstanding 7,540 7,056
Earnings per common share $ .31 $ .21
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSSES ON
SECURITIES
COMMON STOCK PAID-IN RETAINED AVAILABLE
(IN THOUSANDS) SHARES DOLLARS CAPITAL EARNINGS FOR SALE TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 7,510 $ 5,007 $ 65,763 $19,422 $ (238) $89,954
Net income - - - 2,328 - 2,328
Common cash dividends
declared ($.18
per share) - - - (1,361) - (1,361)
Issuance of common
stock under stock
option plan 36 24 264 - - 288
Issuance of common
stock under employee
stock purchase plan 16 11 148 - - 159
Increase in net
unrealized losses on
securities available
for sale - - - - (709) (709)
Fractional shares
paid out (1) (1) (25) - - (26)
BALANCE AT
MARCH 31,1996 $7,561 $5,041 $66,150 $20,389 $ (947) $90,633
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS) 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,328 $1,556
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 1,094 740
Amortization of deferred credit on leasehold residual (353) -
Provision for loan and lease losses 800 150
Loans originated and acquired for sale (25,896)(18,281)
Principal balance of loans sold 24,656 18,517
Net loss on sale of foreclosed real estate 9 11
Net gain on investment securities (57) -
Net increase in trading securities (24,400)(16,174)
Net deferred income tax provision 713 840
Other (2,219) (3,749)
NET CASH USED BY OPERATING ACTIVITIES (23,325)(16,390)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 1,904 1,011
Purchases from maturities of securities available for sale 6,656 -
Purchases of securities available for sale (13,354) -
Proceeds from maturities of securities held to maturity 612 2,498
Purchases of securities held to maturity (300) (1,000)
Proceeds from the sale of, or payments on,
foreclosed real estate 248 382
Purchase of Federal Home Loan Bank of Boston stock (108) -
Net decrease in interest bearing deposits with other banks 13 1,118
Net increase in loans and leases (26,241) (4,806)
Purchases of premises and equipment (408) (431)
NET CASH USED BY INVESTING ACTIVITIES (30,978) (1,228)
FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing
deposits and savings accounts 1,647 (18,721)
Net increase in time certificates of deposit 57,608 73,849
Net decrease in short-term borrowings (3,834) (402)
Proceeds from Federal Home Loan Bank of Boston
advances with maturities in excess of three months 225 -
Payment of Federal Home Loan Bank of Boston advances
with maturities of three months or less (3,684)(36,513)
Common cash dividends paid (2,565) (1,018)
Preferred cash dividends paid - (67)
Proceeds from issuance of common stock under stock
option plan 288 1
Proceeds from issuance of common stock under employee stock
purchase plan 159 35
Fractional shares paid out (26) -
NET CASH PROVIDED BY FINANCING ACTIVITIES 49,818 17,164
DECREASE IN CASH AND CASH EQUIVALENTS (4,485) (454)
Cash and cash equivalents at beginning of period 28,766 22,750
CASH AND CASH EQUIVALENTS AT END OF PERIOD $24,281 $22,296
SUPPLEMENTARY INFORMATION:
Interest paid on deposit accounts $6,432 $5,351
Interest paid on borrowed funds 2,061 1,269
Income taxes paid 23 -
Transfers from loans to foreclosed real estate 423 454
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
current fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the CFX Corporation (the
Company) annual report on Form 10-K for the year ended December 31, 1995.
NOTE B-INVESTMENT SECURITIES
Investments in debt securities that management has the positive intent and
ability to hold to maturity are classified as "held to maturity" and reflected
at amortized cost. Investments that are purchased and held principally for the
purpose of selling them in the near term are classified as "trading securities"
and reflected on the balance sheet at fair value, with unrealized gains and
losses included in earnings (see Note C). Investments not classified as either
of the above are classified as "available for sale" and reflected on the balance
sheet at fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity.
For all periods presented, purchase premiums and discounts are amortized to
earnings by a method which approximates the interest method over the terms of
the investments. Declines in the value of investments that are deemed to be
other than temporary are reflected in earnings when identified. Gains and losses
on disposition of investments are computed by the specific identification
method.
The carrying value and estimated fair value of investment securities at March
31, 1996 and December 31, 1995, follows:
MARCH 31, December 31,
1996 1995
CARRYING FAIR Carrying Fair
(IN THOUSANDS) VALUE VALUE Value Value
Securities available for sale,
at fair value $101,303 $101,303 $ 98,047 $98,047
Securities held to maturity,
at amortized cost 19,410 19,388 19,729 19,843
$120,713 $120,691 $117,776 $117,890
NOTE C-TRADING SECURITIES
Trading securities consist of marketable equity securities and debt securities
which the Company intends to trade in the near future. Trading positions are
taken to benefit from short-term movements in market prices. Trading securities
are stated at fair value. Changes in fair value are reflected in trading gains
and losses within the consolidated statement of income. Gains and losses on
trading securities sold are computed by the specific identification method.
<PAGE>
NOTE D-LOANS AND LEASES
All loans past due 90 days or more as to principal or interest are placed on
nonaccrual status. In addition, a loan (including a loan impaired under SFAS No.
114, defined below) is generally classified as nonaccrual when management
determines that significant doubt exists as to the collectibility of principal
or interest. An impaired loan may remain on accrual status if it is guaranteed
or well secured. Interest accrued but not received on loans placed on nonaccrual
status is reversed and charged against current income. Interest on nonaccrual
loans is recognized when received. Cash received on impaired loans is generally
allocated to principal and interest based on the contractual terms of the note,
unless management believes such receipt should be applied directly to principal
based on collection concerns. Loans are restored to accrual status when the
borrower has demonstrated the ability to make future payments of principal and
interest, as scheduled.
Loan origination and commitment fees and certain direct origination costs are
deferred, and the net amount amortized as an adjustment of the related loan's
yield using the interest method. The Company is generally amortizing these
amounts over the contractual life of the related loans.
Consumer lease financing loans are carried at the amount of minimum lease
payments plus residuals values, less unearned income which is amortized into
interest income using the interest method.
In May 1993, the Financial Accounting Standards Board issued Statement No. 114,
`Accounting by Creditors for Impairment of a Loan'', (``SFAS 114''), which was
amended in October 1994 by SFAS No. 118, `Accounting by Creditors for
Impairment of a Loan, Income Recognition and Disclosure' (``SFAS 118''). The
Company adopted SFAS Nos. 114 and 118 on January 1, 1995. Under this Statement,
a loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and insignificant shortfalls in payment amounts generally are not
classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loans and the borrower, including the length
of the delay, the reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the principal and interest owed.
The Statement is not applicable to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, and loans that are
measured at fair value or the lower of cost or fair value. Accordingly, the
Company has not applied SFAS No. 114 to its consumer and residential mortgage
loans which are collectively evaluated for impairment, or to loans held for
sale. The Company measures impairment on loan-by-loan basis by either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loans obtainable market price, or the fair value of the
collateral if the loan is collateral dependent. Collateralized loans are
generally measured by fair value of existing collateral, unless market prices or
discounted cash flow information is deemed to be more current and reflective of
the economies of the lending relationship.
SFAS No. 114 also limits the classification of loans as in-substance
foreclosures to situations where the creditor actually receives physical
possession of the debtor's assets.
<PAGE>
NOTE D-LOANS AND LEASES - Cont'd.
The adoption of SFAS No. 114 had no effect on the Company's assessment of the
overall adequacy of the allowance for loan and lease losses.
Loan losses, including those applicable to impaired loans, are charged against
the allowance for loan and lease losses when management believes the
collectibility of the loan balance is unlikely. The allowance is an estimate and
is increased by charges to current income in amounts sufficient to maintain the
adequacy of the allowance. The adequacy is determined by management's evaluation
of the extent of existing risk in the loan portfolio and prevailing economic
conditions.
NOTE E-MORTGAGE SERVICING RIGHTS
Effective January 1, 1995, the Company prospectively adopted SFAS No. 122,
`Accounting for Mortgage Servicing Rights'', whereby rights to service mortgage
loans for others are capitalized as separate assets, whether acquired through
purchase or origination, if such loans are sold or securitized with servicing
rights retained. Accordingly, the total cost of the mortgage loan is allocated
to the related servicing right and to the loan based on their relative fair
values if it is practicable to estimate those fair values. The Company estimates
fair value based on the present value of estimated future cash flows using
prepayment speeds and discount rates commensurate with the risks involved. Prior
to the adoption of SFAS No. 122, the capitalization of originated mortgage
servicing rights was not allowed under generally accepted accounting principles.
Capitalized mortgage servicing rights are amortized to servicing revenue in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. For purposes of measuring impairment, the rights are stratified
based on the following predominant risk characteristics of the underlying loans;
loan type (fixed rate, variable rate or state housing programs) and note rate.
Impairment is recognized through a valuation allowance for an individual
stratum, to the extent that fair value is less than the capitalized amount for
the stratum. No such impairment was recognized during each of the three months
ended March 31, 1996 and 1995.
NOTE F-ACQUISITIONS
COMPLETED
On April 28, 1995, the Company acquired Orange Savings Bank (`Orange''), a
Massachusetts-chartered savings bank, headquartered in Orange, Massachusetts.
Before adjustments for the 1995 stock split and 5% stock dividend, each of
Orange's 724,412 outstanding shares of common stock was converted into .8075
shares of the Company's common stock, resulting in the issuance of 584,963
shares of the Company's common stock to Orange shareholders. In addition, the
holders of the outstanding Orange stock options (representing the right to
purchase 81,049 shares of Orange common stock) received options to purchase
65,447 shares of CFX common stock in exchange.
The acquisition was accounted for as a pooling-of-interest and, accordingly, the
consolidated financial statements have been restated to include the consolidated
accounts of Orange for all periods presented.
<PAGE>
PENDING
On January 5, 1996, the Company signed a definitive agreement to acquire all of
the outstanding capital stock of The Safety Fund Corporation (`Safety Fund''),
a Massachusetts bank holding company, headquartered in Fitchburg, Massachusetts.
Pursuant to the definitive agreement and in the event that the transaction is
accounted for as a pooling-of-interests, each of Safety Fund's outstanding
shares of common stock has the potential to be converted into 1.7 shares of
CFX's common stock. The actual number of shares of CFX's common stock issuable
in the transaction is subject to adjustment based on the average price of CFX
common stock for the ten trading days immediately before CFX receives the last
regulatory approval required to consummate the transaction. In the event that
the average price of CFX common stock is below $12.43, the exchange ratio
becomes 1.806 shares; and if the average price of CFX common stock is above
$18.65, the exchange ratio becomes 1.629 shares. Safety Fund has the right to
terminate the agreement if the average price of CFX Common Stock is below $11.65
per share unless CFX agrees to increase the exchange ratio. The transaction is
tax free to the owners of Safety Fund and is subject to regulatory approval and
the approval of both CFX's and Safety Fund's shareholders. It is anticipated
that the transaction will be accounted for by the pooling-of-interests method of
accounting. However, if the transaction is required to be accounted for under
the purchase method of accounting, the stock exchange ratio would be 1.52
shares, subject to adjustment based on the average price of CFX common stock. At
March 31, 1996, Safety Fund had total assets of $297,000,000, deposits of
$252,500,000 and stockholders' equity of $21,500,000. Safety Fund's bank
subsidiary, Safety Fund National Bank, operates 12 full-service offices and 11
automated teller machines in Worcester County and has a trust division with
approximately $349,000,000 in assets under management.
On February 9, 1996, the Company signed a definitive agreement to merge Milford
Co/operative Bank (Milford), headquartered in Milford, New Hampshire, into CFX
Bank. Pursuant to the definitive agreement, each of Milford's outstanding
shares of common stock has the potential to be converted into 2.645 shares of
the Company's common stock. The actual number of shares of the Company's common
stock issuable in the transaction is subject to adjustment based on the average
price of the Company's common stock for the ten trading days immediately before
the Company receives the last regulatory approval required to consummate the
transaction. In the event that the average price of the Company's common stock
is below $12.59, the exchange ratio becomes 2.70 shares; and, if the average
price of the Company's common stock is above $17.66, the exchange ratio becomes
2.61 shares. Milford has the right to terminate the agreement if the average
price of the Company's common stock is below $12.10 per share unless the Company
agrees to increase the exchange ratio. The transaction is tax free to the
shareholders of Milford and is subject to regulatory approval and the approval
of both the Company's and Milford's shareholders. It is anticipated that the
transaction will be accounted for by the pooling-of-interests method of
accounting. At March 31 1996, Milford Co/operative Bank had total assets of
$160,000,000, deposits of $141,000,000, and stockholder's equity of $15,500,000.
Milford operates six branches located in Amherst, Brookline, Milford, Mont
Vernon, New Boston, and Wilton/Lyndeborough, New Hampshire.
In order to comply with certain technical accounting rules relating to the
payment of special dividends preceding a business combination, the Company will
omit its regular cash dividend for the second quarter of 1996. Omission of the
second quarter dividend in an amount equal to the special dividend paid by the
Company in January, 1996, will permit CFX to account for its pending mergers
with The Safety Fund Corporation and Milford Co/operative Bank as pooling-of-
interests. Included herewith as Exhibit 99.1 is a press release, dated April 26,
1996, announcing the omission of the second quarter 1996 dividend.
<PAGE>
NOTE G-RECLASSIFICATIONS AND RESTATEMENTS
The consolidated financial statements as of March 31, 1995 and for the year
ended March 31, 1995 has been restated to reflect the pooling-of-interests with
Orange Savings Bank. In addition, certain amounts have been reclassified in the
1995 consolidated financial statements to conform to the 1996 presentation.
Prior period common per share data has been restated to reflect pooling-of-
interests with Orange Savings Bank, the Company's 3 for 2 stock split declared
on June 13, 1995 to shareholders of record on June 23, 1995, and the Company's
5% stock dividend declared on December 12, 1995 to shareholders of record on
December 22, 1995. In connection with the 3 for 2 stock split, the par value of
the Company's common stock was reduced from $1.00 to $.66 2/3.
NOTE H-EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of common shares outstanding and common share equivalents with a
dilutive effect. Common share equivalents are shares which may be issuable to
employees and non-employee directors upon exercise of outstanding stock options.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1996
GENERAL
All information within this section should be read in conjunction with the
consolidated financial statements and notes included elsewhere in this Form 10-
Q. All references in the discussion to financial condition and results of
operations are to the consolidated position of the Company and its subsidiaries
taken as a whole.
CFX Corporation is a bank holding company incorporated under the laws of the
State of New Hampshire. The Company's wholly-owned subsidiaries are CFX Bank,
headquartered in Keene, New Hampshire, and Orange Savings Bank, headquartered in
Orange, Massachusetts.
CFX Bank's direct subsidiaries, both of which are wholly-owned, are CFX Capital
Systems, Inc. (CFX Capital) and CFX Financial Services, Inc. (CFX Financial).
CFX Capital's wholly-owned subsidiary is CFX Mortgage, Inc. which engages in
mortgage banking. CFX Financial owns 51% of CFX Funding L.L.C. (CFX Funding),
which engages in the facilitation of lease financing and securitization. Orange
Savings Bank has one wholly-owned subsidiary, OSB Securities Corp, which is
engaged in investment activities.
On February 9, 1996 and on January 5, 1996, respectively, the Company entered
into separate definitive agreements for the acquisitions of the Milford
Co/operative Bank, headquartered in Milford, New Hampshire, and The Safety Fund
Corporation, headquartered in Fitchburg, Massachusetts. As a result of these
acquisitions, the Company will take a special charge to earnings in 1996 of
approximately $3.8 million on an after-tax basis for one time costs of the
transactions. It is intended that substantially all of the costs will be
recognized upon consummation of the acquisitions and will be paid in 1996 and/or
1997. The one time after-tax charge of the transactions pertain to the following
areas: data processing, $100,000; personnel, $1,000,000; and other, $2,700,000.
Data processing costs consist primarily of write-offs due to duplication of
computer hardware, software, and certain telecommunications equipment. Personnel
costs consist primarily of charges related to employee severance and employment
outplacement assistance. Other costs include investment banking fees, legal and
accounting fees, due diligence costs, proxy registration/filing fees and mailing
and printing costs. A significant portion of other costs are capitalized for tax
purposes and, therefore, are not tax deductible. CFX management continues to
review all these costs. There can be no assurance that such costs will not
exceed the amounts described above. In addition to the above charges there is
the possibility of a special assessment to certain savings institutions.
Presently, Congress is considering a bill recommending that savings institutions
(i.e. Milford) which have deposits insured by the Federal Deposit Insurance
Corporation's Savings Association Fund be charged a special assessment of .85%
of insured deposits in order to recapitalize the insurance fund. If a special
assessment is required, a one-time charge would result for Milford of
approximately $1.1 million.
The operating results of the Company depend primarily on its net interest and
dividend income, which is the difference between (i) interest and dividend
income on earning assets, primarily loans, leases, trading and investment
securities, and (ii) interest expense on interest bearing liabilities, which
consist of deposits and borrowings. The Company's results of operations are also
affected by the provision for loan and lease losses, resulting from the
Company's assessment of the adequacy of the allowance for loan and lease losses;
the level of its other operating income, including gains and losses on the sale
of loans and securities, and loan and other fees; operating expenses; and income
tax expenses.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
MARCH 31, 1996
FINANCIAL CONDITION
LOANS AND LEASES
The table below sets forth the composition of the Company's loan and lease
portfolio, net of unearned income and deferred costs, at the dates indicated:
MARCH 31, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
% OF % of
BALANCES PORTFOLIO Balances Portfolio
Real estate:
Residential $ 494,800 68.18% $474,015 67.82%
Construction 6,195 .85 5,902 .84
Commercial 85,895 11.84 87,469 12.51
Commercial, financial, and
agricultural 58,921 8.12 52,462 7.51
Warehouse lines of credit to
leasing companies 4,141 .57 12,906 1.85
Consumer lease financing 33,903 4.67 24,399 3.49
Other consumer 41,848 5.77 41,819 5.98
725,703 100.00% 698,972 100.00%
Less allowance for loan and
lease losses 7,936 7,689
Net loans and leases $717,767 $691,283
At December 31, 1995 and March 31, 1996, respectively, the recorded investment
in impaired loans (See Note D, `Loans and Leases'') totaled $2,981,000 and
$3,022,000, respectively, of which $993,000 and $840,000, respectively, related
to loans with no valuation allowance and $1,988,000 and $2,182,000,
respectively, related to loans with a corresponding valuation allowance of
$853,000 and $1,124,000, respectively.
The $26,731,000 increase in total loans and leases was primarily due to a
$20,785,000 increase in residential real estate loans and a $9,504,000 increase
in indirect automobile leasing, offset by a $8,765,000 decline in warehouse
lines to leasing companies. Residential loan production is generated by a
combination of originations and purchases by the Company's mortgage banking
affiliate, CFX Mortgage. The consumer lease paper is generated through a defined
lease program targeted towards automobile dealerships throughout New Hampshire
and central Massachusetts. In addition, lending volumes remain strong in the
warehouse lines of credit to leasing companies, lines available to small ticket
leasing companies who participate in the CFX Funding lease securitization
program. Although these warehouse lines of credit to leasing companies balances
at March 31, 1996 totaled only $4,141,000, the average balance for the quarter
ended March 31, 1996 totaled $10,858,000. In January and March of 1996, CFX
Funding completed two lease portfolio securitizations totaling $29,679,000.
RISK ELEMENTS
Nonperforming assets are evaluated quarterly by management to ensure proper
classification and to confirm that the recorded carrying value of the assets is
reasonable and in accordance with generally accepted accounting principles,
regulatory requirements, and the Company's policies. Loans are placed on
nonaccrual status when management determines that significant doubt exists as to
the collectibility of principal or interest on a loan. Moreover, loans past due
90 days or more as to principal or interest are placed on nonaccrual status.
<PAGE>
The following table provides information with respect to the Company's
nonperforming loans and assets at the dates indicated:
MARCH 31, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
Nonaccrual (nonperforming) loans $9,298 $7,844
Foreclosed real estate 1,141 1,179
Valuation allowance on foreclosed
real estate - (50)
Total nonperforming assets $10,439 $8,973
Nonperforming loans as a percent
of total loans and leases 1.28% 1.12%
Nonperforming assets as a percent
of total assets 1.09% 1.00%
The following table provides the composition of the Company's nonperforming
loans and assets at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
% OF % of
BALANCES PORTFOLIO Balances Portfolio
<S> <C> <C> <C> <C>
Nonperforming loans:
Real estate:
Residential $ 6,178 66.4% $ 5,097 65.0%
Commercial 1,740 18.7 1,487 19.0
Commercial, financial, and
agricultural 1,281 13.8 1,161 14.8
Consumer and other 99 1.1 99 1.2
9,298 100.0% 7,844 100.0%
Foreclosed real estate:
Residential 666 58.4% 728 64.5%
Construction 53 4.6 128 11.3
Commercial 422 37.0 323 28.6
Valuation allowance - - (50) (4.4)
1,141 100.0% 1,129 100.0%
Total nonperforming assets $10,439 $ 8,973
</TABLE>
<PAGE>
The following table provides a rollforward of the Company's foreclosed real
estate for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1996 1995
<S> <C> <C>
Balance at beginning of period $1,129 $1,985
Reclassification, net, to nonperforming loans
to reflect adoption of SFAS No. 114 - (714)
Balance at beginning of period, as reclassified 1,129 1,271
Additions 423 464
Provision for losses 50 (3)
Sales and other (461) (672)
Balance at end of period $1,141 $1,060
</TABLE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained through charges to
earnings. Loan and lease losses recognized,and recoveries received, are charged
or credited directly to the allowance. The Company's manage-ment determines the
level of the allowance for loan and lease losses based upon a review of the
Company's loan and lease portfolio. This review identifies specific problem
loans and leases requiring allocations of the allowance and also estimates an
allocation for potential loan and lease losses based on current economic
conditions and historical experience.
Changes in the allowance for loan and lease losses are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1996 1995
<S> <C> <C>
Balance at beginning of period $7,689 $7,558
Provision for loan and lease losses 800 180
Loans charged-off (669) (306)
Recoveries of loans previously charged-off 116 84
Balance at end of period $7,936 $7,516
Allowance for loan and lease losses
as a percent of total loans and leases 1.09% 1.16%
Allowance for loan and lease losses as a
percent of total nonperforming loans 85.35% 95.83%
</TABLE>
Management considers the allowance for loan and lease losses to be adequate in
view of its evaluation of the Company's loan and lease portfolio, the level of
nonperforming loans and leases, current economic conditions and historical
experience with loan and lease losses. However, if economic conditions
deteriorate, the Company may have to increase the allowance for loan and lease
losses from its current level.
<PAGE>
DEPOSITS AND BORROWED FUNDS
The following table shows the various components of average deposits and the
respective rates paid on such deposits for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED,(DOLLARS IN THOUSANDS) 1996 1995
AMOUNT RATES AMOUNT RATES
<S> <C> <C> <C> <C>
Deposits:
Noninterest bearing demand deposits $ 51,506 - $ 45,665 -
Regular savings deposits 118,719 3.03% 121,486 2.99%
NOW & money market deposits 164,237 1.90 187,485 2.18
Time deposits 311,275 5.76 274,074 5.15
Total retail deposits 645,737 3.82 628,710 3.47
Brokered time deposits 65,281 6.74 39,480 6.16
Total deposits $711,018 3.99% $668,190 3.63%
Borrowed Funds:
Advances from Federal Home Loan Bank
of Boston $ 91,207 5.95% $ 63,477 6.25%
Other borrowed funds 33,456 4.80 28,929 5.75
Total borrowed funds $124,663 5.64% $ 92,406 6.04%
</TABLE>
Over the past twelve months, the Company has increased average demand deposits
by $5,441,000 and average interest bearing retail deposits by $11,881,000. The
majority of the increase in overall deposits is the result of two de-novo New
Hampshire branches opened in Gilford (December, 1994) and Manchester (June,
1995). In addition, as a result of fixed rate deposits (time deposits) becoming
more attractive to our customers, the Company has experienced a shift in
deposits from shorter-term variable rate deposits (savings, NOW, and money
market accounts) to longer-term fixed rate deposits.
The increase in advances from the Federal Home Loan Bank of Boston, short-term
borrowed funds, and brokered deposits funded asset growth over the past twelve
months. Management customarily directs movement of funding between brokered
deposits, advances from the Federal Home Loan Bank and repurchase agreements
(included in other borrowed funds) in order to achieve a more favorable cost of
funds.
<PAGE>
SHAREHOLDERS' EQUITY
Shareholders' equity increased by $679,000 as of March 31, 1996 from $89,954,000
at December 31, 1995 to $90,633,000 at March 31, 1996. The increase was due to
$2,328,000 in net income, issuance of $288,000 in common stock under the stock
option plan, issuance of $159,000 in common stock under the employee stock
purchase plan offset by a $709,000 increase in net unrealized losses on
securities available for sale, $26,000 paid for fractional shares on a 3 for 2
stock split, and $1,361,000 in common cash dividends.
Historically, CFX has, in accordance with its strategic plans, with the
exception of reacting to the economic downturn from 1992 and 1994, declared cash
dividends on average in excess of 80% of earnings on an annual basis in order to
maximize shareholder value to appropriately leverage the Company's capital.
Consistent with the Company's most recent strategic plan and past history of
leveraging capital through dividends was the declaration of a $.1714 special
dividend in the fourth quarter of 1995, which was paid in January 1996.
As a result of the pending acquisitions described in Note F - Acquisitions of
the `Notes to Consolidated Financial Statements'', the Company was required to
omit its second quarter dividend in 1996 in order to comply with certain
technical accounting rules relating to the payment of special dividends
preceding a business combination. Omission of the second quarter dividend in an
amount equal to the special dividend paid by CFX in January, 1996, will permit
CFX to account for its pending mergers with The Safety Fund Corporation and
Milford Co/operative Bank as poolings-of-interests.
Because the funds that would otherwise have been paid out as a cash dividend
will be retained by the Company and increase book value, omission of the second
quarter dividend will have no adverse economic effect on the interest of CFX
shareholders. CFX is taking this action because it believes that pooling-of-
interests accounting is advantageous to the shareholders of CFX, Safety Fund and
Milford. The dividend will be omitted solely in connection with The Safety Fund
and Milford mergers, transactions that the Company expects will benefit CFX
shareholders over the long-term. This action is one-time in nature and does not
reflect any change in CFX's dividend policy, particularly in view of CFX's
record earnings in the first quarter of 1996 and the outlook for the remainder
of 1996. Accordingly, the Company fully expects that normal dividends will
resume in the third quarter.
<PAGE>
RESULTS OF OPERATIONS - GENERAL
The following tables set forth comparisons of average interest earning assets
and interest bearing liabilities, and interest income and interest expense
expressed as a percentage of the related asset or liability. In order to reflect
the economic impact of the Company's investments in state and municipal
securities and to present data on a comparative basis, the income from and
yields on these securities have been restated to a taxable-equivalent basis
(using a 38.62% tax rate). The taxable-equivalent income adjustments are
$132,000 and $160,000 for the three months ended March 31, 1996 and 1995,
respectively. These adjustments, however, are for comparison purposes only and
have no impact on reported net income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 1995
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest and dividend earning assets:
Loans and leases $722,311 $ 15,677 8.73% $ 648,412 $ 13,303 8.32%
Taxable securities 125,420 1,531 4.91 110,098 1,493 5.50
Tax-exempt securities 19,008 342 7.24 23,690 415 7.10
Other 8,817 132 6.02 13,152 215 6.54
Total interest earning assets 875,556 17,682 8.12 795,352 15,426 7.87
Noninterest earning assets 63,114 66,397
Total $938,670 $ 861,749
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $282,956 1,648 2.34 $ 308,971 1,905 2.50
Time deposits 376,556 5,332 5.70 313,554 4,082 5.28
Advances from Federal Home Loan
Bank of Boston 91,207 1,350 5.95 63,477 978 6.25
Other borrowed funds 33,456 399 4.80 28,929 410 5.75
Total interest bearing liabilities 784,175 8,729 4.48 714,931 7,374 4.18
Noninterest bearing liabilities:
Demand deposits 51,106 45,665
Other 12,379 13,280
Shareholders' equity 91,010 87,873
Total $938,670 $ 861,749
Net interest and dividend income $ 8,953 $ 8,051
Interest rate spread 3.64% 3.69%
Net interest margin 4.11% 4.11%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS - GENERAL - (Cont'd.)
The following table presents changes in interest and dividend income, interest
expense, and net interest income which are attributable to changes in the
average amounts of interest earning assets and interest bearing liabilities
and/or changes in rates earned or paid thereon. The net changes attributable to
both volume and rate have been allocated proportionately.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31
1996 VS. 1995
INCREASE(DECREASE) DUE TO
(IN THOUSANDS) VOLUME RATE NET
<S> <C> <C> <C>
Interest and dividends earned on:
Loans and leases $1,685 $ 686 $2,371
Investments 126 (161) (35)
Other (64) (16) (80)
Total interest and
dividend income 1,747 509 2,256
Interest paid on:
Savings and time
deposits 762 232 994
Borrowed funds 485 (124) 361
Total interest expense 1,247 108 1,355
Change in net interest
and dividend income $ 500 $ 401 $ 901
</TABLE>
NET INCOME & NET INCOME AVAILABLE TO COMMON STOCK
Net income for the three months ended March 31, 1996 was $2,328,000, compared to
$1,566,000, for the same period a year ago. Net income available to common stock
for the three months ended March 31, 1996 was $2,328,000, or $.31 per share,
compared with $1,489,000, or $.21 per share, for the corresponding period a year
ago.
The increase in earnings was primarily due to increased core earnings (net
interest and dividend income and noninterest income) and reduced Federal Deposit
Insurance Corporation (FDIC) insurance premiums. The stronger core earnings were
the result of a $74 million, or 11.40%, increase in average loans and leases
over the past twelve months, and an increased focus on the generation of
noninterest income. However, a portion of the increase in income was offset by a
$650,000 increase in the provision for loan and lease losses.
Total core earnings were $11,434,000, for the three months ended March 31, 1996,
compared to $9,955,000 for the same period a year ago. The Company's net
interest margin was 4.11% for the three months ended March 31, 1996 and 1995.
<PAGE>
NET INTEREST AND DIVIDEND INCOME
Taxable-equivalent net interest income was $8,953,000, for the three months
ended March 31, 1996, compared to $8,051,000 for the same period a year ago. The
increase in net interest income in the 1996 period was principally due to higher
average interest earning assets and higher demand deposits .
The increase in average interest earning assets resulted principally from growth
in loans and leases (see `Financial Condition - Loans and Lease'' section of
this Management's Discussion and Analysis), as loan and lease demand increased
in the current environment.
The interest rate spread in the 1996 period declined from the 1995 period
principally as a result of increases in the cost of deposits and borrowed funds.
In addition to interest rates paid for certificates of deposit increasing over
the last nine months, the Company's deposit customers have shifted funds from
variable rate deposits (savings, NOW, and money market accounts) to the higher
rate certificate accounts. Although the interest rate spread declined in 1996,
the net interest margin remained constant in the first quarter of 1996 compared
to the first quarter 1995 as a result of the increase in demand deposits in 1996
compared to 1995.
Volatile interest rates can have a material impact on the performance of
financial institutions. Since late 1993 interest rates have alternated between
periods of significant increase and rapid decline. The Company attempts to
manage and minimize the earnings impact of charging interest rates by
comprehensively assessing the impact of interest rate changes on forecasted
income and equity levels. Included in these analyses are estimates of prepayment
variability in certain asset categories, changes in mix and cost of deposits and
other liabilities, and other imbedded options throughout the balance sheet, and
equity leverage or arbitrage activities. Policy guidelines for interest rate
risk exposure are established and have allowed the Company to maintain a
relatively stable interest margin throughout several interest rates to could
cause pressure toward lower net interest margins
PROVISION FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained through charges to
earnings. Loan and lease losses realized, and recoveries received, are charged
or credited directly to the allowance. The Company's management determines the
level of the allowance for loan and lease losses based upon a review of the
Company's loan and lease portfolio. This review identifies specific problem
loans and leases requiring allocations of the allowance and also estimates an
allocation for potential loans and leases based on current economic conditions
and historical experience.
The provision for loan and lease losses in the first quarter of 1996 was
$800,000, compared to $150,000 in 1995. The higher provision for loan and lease
losses in 1996 is principally the result of continued growth in the loan
portfolio, the change in loan mix toward consumer loans and leases, an increase
in nonperforming loans; and the higher net charge-offs in 1996 compared to 1995.
Total net charge-offs amounted to $553,000 for the first quarter of 1996 as
compared to $222,000 for the first quarter of 1995.
At March 31, 1996, nonperforming loans stood at $9,298,000, or 1.28% of total
loans and leases, compared to $7,844,000, or 1.12% of total loans and leases, as
of December 31, 1995. The allowance for loan and lease losses as a percentage of
nonperforming loans as of March 31, 1996 and December 31, 1995 amounted to
85.35% and 98.02%, respectively.
<PAGE>
OTHER INCOME
Other income for the three months ended March 31, 1996 totaled $2,613,000
compared to $2,064,000, for the same period a year ago.
The increase in other income is principally due to an increase in mortgage
banking and leasing activities in the first quarter of 1996. During the first
quarter of 1996, CFX Mortgage produced increased gains on the sale of loans as
interest rates declined and volumes increased. In addition, CFX Funding
completed two lease securitizations during the first quarter of 1996, compared
to one lease securitization for the year ago quarter.
OTHER EXPENSE
Other expense for the three months ended March 31, 1996 totaled $7,291,000,
compared to $7,307,000 for the same period a year ago.
While other expense remained constant in the first quarter of 1996 compared to
1995, the increase in occupancy and equipment costs and marketing costs in 1996
was offset by a reduction in FDIC insurance premiums. The higher occupancy and
equipment costs reflect the new Manchester, NH branch which opened in June 1995
and the higher snow removal costs in 1996, compared to 1995. Marketing costs
increased to support the implementation of the new free CFX Bank ATM card and
other marketing initiatives.
INCOME TAX
Income taxes for the three months ended March 31, 1996 was 30.36% of pretax
income, compared to 37.71% of pretax income for the same period a year ago. The
effective tax rate for the three months ended March 31, 1996 was lower because
of higher tax-exempt income and tax credits pertaining to low-income housing
projects.
ASSET/LIABILITY MANAGEMENT
The Company's primary objective regarding asset/liability management is to
position the Company so that changes in interest rates do not have a materially
adverse impact upon forecasted net income and the net fair value of the Company.
The Company's primary strategy for accomplishing its asset/liability management
objective is achieved by matching the weighted average maturities of assets,
liabilities, and off-balance-sheet items (duration matching).
To measure the impact of interest rate changes, the Company utilizes a
comprehensive financial planning model that recalculates the fair value of the
Company assuming both instantaneous, permanent parallel shifts in the yield
curve of both up and down 100 and 200 basis points, or four separate
calculations. Larger increases or decreases in forecasted net income and the net
market value of the Company as a result of these interest rate changes represent
greater interest rate risk than do smaller increases or decreases.
The results of the financial planning model are highly dependent on numerous
assumptions. These assumptions generally fall into two categories: those
relating to the interest rate environment and those relating to general business
and economic factors. Assumptions related to the interest rate environment
include the prepayment speeds on mortgage-related assets and the cash flows and
maturities of financial instruments. Assumptions related to general business and
economic factors include changes in market conditions, loan volumes and pricing,
deposit sensitivity, customer preferences, competition, and management's
financial and capital plans. The assumptions are developed based on current
business and asset/liability management strategies, historical experience, the
current economic environment, forecasted
<PAGE>
ASSET/LIABILITY MANAGEMENT (Cont'd.)
economic conditions and other analyses. These assumptions are inherently
uncertain and subject to change as time passes. Accordingly, the Company adjusts
the proforma net income and net fair values as it believes appropriate on the
basis of historical experience and prudent business judgment. The Company
endeavors to maintain a position where it experiences no material change in net
fair value and no material fluctuation in forecasted net income as a result of
assumed 100 to 200 basis point increases and decreases in interest rates.
However, there can be no assurances that the Company's projections in this
regard will be achieved.
Management believes that the above method of measuring and managing interest
rate risk is consistent with the Federal Deposit Insurance Corporation (FDIC)
regulation regarding an interest rate risk component of regulatory capital.
LIQUIDITY
The Company maintains numerous sources of liquidity in the form of marketable
assets and borrowing capacity. Interest bearing deposits with other banks,
trading and available for sale securities, regular cash flows from loan and
securities portfolios and Federal Home Loan Bank of Boston borrowings are the
primary sources of asset liquidity. At March 31, 1996, interest bearing deposits
with other banks totaled $314,000 and trading and available for sale securities
totaled $125,703,000.
Because the Company's subsidiaries, CFX Bank and Orange Savings Bank, maintain
large residential mortgage loan portfolios, a substantial capability exists to
borrow funds from the Federal Home Loan Bank of Boston. Additionally, investment
portfolios are predominantly made up of securities which can be readily borrowed
against through the repurchase agreement market. Relationships with deposit
brokers and correspondent banks are also maintained to facilitate possible
borrowing needs. The holding company also maintains liquid assets totaling
$8,906,000 as of March 31, 1996, comprised of $1,868,000 in cash and due from
banks and interest bearing deposits with bank subsidiaries and notes receivable
from bank subsidiaries of $7,038,000.
CAPITAL RESOURCES
Federal regulation requires the Company to maintain minimum capital standards.
Tier 1 capital is composed primarily of common stock, retained earnings and
perpetual preferred stock in limited amounts less certain intangibles. The
minimum requirements include a 3% Tier 1 leverage capital ratio for the most
highly-rated institutions; all other institutions are required to meet a minimum
leverage ratio that is at least 1% to 2% above the 3% minimum. In addition, the
Company and its subsidiary banks are required to satisfy certain capital
adequacy guidelines relating to the risk nature of an institution's assets.
These guidelines, established by the Federal Reserve Board and the FDIC are
applicable to bank holding companies and state chartered non-member banks,
respectively. Under the "risk-based" capital rules, banks and bank holding
companies are required to have a level of Tier 1 capital equal to 4% of total
risk-weighted assets, as defined. Banks and bank holding companies are also
required to have total capital (composed of Tier 1 plus "supplemental" or Tier 2
capital, the latter being composed primarily of allowances for loan and lease
losses, perpetual preferred stock in excess of the amount included in Tier 1
capital, and certain "hybrid capital instruments" including mandatory
convertible debt) equal to 8% of total risk-weighted assets.
As of March 31, 1996, the Company's Tier 1 leverage capital ratio was 8.61%. In
addition, the Company's Tier 1 to risk-based capital ratio and total risk-based
capital ratio were 13.63 % and 14.90%, respectively.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
MARCH 31, 1996
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company, its
subsidiaries, or any directors, officers, affiliates or any owner of
record or beneficiary of more than five percent (5%) of the common stock
of the Company, or any associate of any such director, officer, affiliate
of the Company or any security holder is a party adverse to the Company
or its subsidiaries or has a material interest adverse to the Company or
its subsidiaries.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5 - OTHER INFORMATION
The consolidated financial statements of the Company as of
December 31, 1994, and for the years ended December 31, 1994 and
1993 have been restated to reflect the pooling-of-interests with
Orange Savings Bank. Wolf & Company, P.C., the Company's
independent auditors, did not audit the 1994 and 1993 financial
statements of Orange Savings Bank. Those statements were audited
by Deloitte & Touche LLP and KPMG Peat Marwick LLP whose reports
have been furnished to Wolf & Company, P.C., and Wolf & Company,
P.C.'s opinion, insofar as it related to the amounts included for
Orange Savings Bank as of December 31, 1994 and for the years
ended December 31, 1994 and 1993, is based solely on the reports
of Deloitte & Touche LLP and KPMG Peat Marwick LLP, whose consents
are provided in Exhibits 23.2 and 23.3, respectively. The
consolidated financial statements of the Company as of December
31, 1994, and for the years ended December 31, 1994 and 1993 are
incorporated by reference into Securities Act Registration Nos.
33-61787, 33-17071, and 33-52598 of CFX Corporation on Form S-8,
Registration Statement No. 33-54363 of CFX Corporation on Form
S-3, and Registration Statement No. 33-02911 of CFX Corporation on
Form S-4 in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
MARCH 31, 1996
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
EXHIBIT
NUMBER DESCRIPTION
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Coopers & Lybrand, L.L.P.
23.6 Consent of Shatswell, MacLeod & Company, P.C.
23.7 Consent of Ernst & Young LLP
27 Financial Data Schedule
99.1 Press Release, dated April 26, 1996, announcing the
omission of the second quarter 1996 dividend.
(b)Reports on Form 8-K
(i) On April 12, 1996, a Form 8-K was filed updating the February 9,
1996 Current Report on 8-K which was filed relative to the
Milford Co/operative Bank merger.
<PAGE>
CFX CORPORATION AND SUBSIDIARIES
MARCH 31, 1996
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.
CFX CORPORATION
May 15, 1996 /S/ Mark A. Gavin
Mark A. Gavin
Authorized Officer
Chief Financial Officer
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3, No. 33-54363) pertaining to the Dividend Reinvestment Plan of CFX
Corporation, of our report dated January 18, 1996, except for Note X as to which
the date is February 9, 1996, with respect to the consolidated financial
statements of CFX Corporation as of December 31, 1995, and for the year then
ended, incorporated by reference in the Annual Report on Form 10-K of CFX
Corporation for the year ended December 31, 1995.
/S/
Wolf & Company, P.C.
Boston, Massachusetts
Exhibit 23.2
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statement of
CFX Corporation on Form S-4 filed by CFX Corporation on April 26, 1996 of our
report on the consolidated financial statements of Orange Savings Bank, dated
January 27, 1995, appearing in the Annual Report on Form 10-K of CFX Corporation
and Subsidiaries for the year ended December 31, 1995.
/S/
Deloitte & Touche LLP
Boston, Massachusetts
Exhibit 23.3
Consent of Independent Auditors
The Board of Directors
Orange Savings Bank
We consent to the incorporation by reference in Registration Statements No. 33-
02911 on Form S-4 and 33-54363 on Form S-3 of CFX Corporation of our report
dated February 4, 1994 on the consolidated financial statements of Orange
Savings Bank and subsidiary for the year ended December 31, 1993 included in the
filing on Form 10-K of CFX Corporation for December 31, 1995.
/S/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 25, 1996
Exhibit 23.4
Consent of Independent Auditors
The Board of Directors
The Safety Fund Corporation
We consent to the incorporation by reference in Registration Statement Nos. 33-
61787, 33-17071 and 33-52598 of CFX Corporation on Form S-8 and Registration
Statement No. 33-54363 of CFX Corporation on Form S-3 of our report dated
January 22, 1996, relating to the consolidated balance sheets of The Safety Fund
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended, which report appears in the December 31, 1995 annual
report on Form 10-KSB of The Safety Fund Corporation which is included as an
exhibit to the March 31, 1996 Form 10-Q of CFX Corporation.
/S/ KPMG Peat Marwick LLP
Boston, Massachusetts
May 10, 1996
Exhibit 23.5
Consent of Independent Accountants
We consent to the incorporation by reference in Registration Statement Nos. 33-
61787, 33-17071 and 33-52598 of CFX Corporation on Form S-8 and Registration
Statement No. 33-54363 of CFX Corporation on Form S-3 of our report (which
contains an explanatory paragraph regarding a change in 1994 in the method of
accounting for income taxes) dated August 4, 1994 on our audits of the statement
of financial condition of Milford Co/operative Bank as of June 30, 1994 and the
related statements of operations, changes in stockholders' equity and cash flows
for the two years then ended, which report is included in the Current Report on
Form 8-K of CFX Corporation dated April 11, 1996.
/S/
Coopers & Lybrand, L.L.P.
Boston, Massachusetts
Exhibit 23. 6
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements Nos. 33-
61787, 33-17071 and 33-52598 of CFX Corporation on Form S-8 and Registration
Statement No. 33-54363 of CFX Corporation on Form S-3 of our report dated July
20, 1995 on our audit of the financial statements of Milford Co/operative Bank
as of June 30, 1995 and for the year then ended.
/S/ Shatswell, MacLeod & Company, P.C.
W. Peabody, Massachusetts
Exhibit 23.7
Consent of Independent Auditors
We consent to the use of our report dated January 28, 1994 with respect to the
consolidated financial statements of The Safety Fund Corporation included in
Item 5 to Form 10-Q of CFX Corporation for the quarter ended March 31, 1996.
We also consent to the incorporation by reference of our report dated January
28, 1994 in Registration Statements Nos. 33-61787, 33-17071 and 33-52598 of CFX
Corporation on Form S-8 and Registration Statement No. 33-54363 of CFX
Corporation on Form S-3.
/S/
Ernst & Young LLP
Boston, Massachusetts
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from financial
statements and footnotes of the March 31, 1996 Form 10-Q and is qualified in its
entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,281
<INT-BEARING-DEPOSITS> 314
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 24,400
<INVESTMENTS-HELD-FOR-SALE> 101,303
<INVESTMENTS-CARRYING> 19,1410
<INVESTMENTS-MARKET> 19,388
<LOANS> 725,703
<ALLOWANCE> 7,936
<TOTAL-ASSETS> 958,289
<DEPOSITS> 724,978
<SHORT-TERM> 124,830
<LIABILITIES-OTHER> 17,422
<LONG-TERM> 426
0
0
<COMMON> 5,041
<OTHER-SE> 85,592
<TOTAL-LIABILITIES-AND-EQUITY> 958,289
<INTEREST-LOAN> 15,677
<INTEREST-INVEST> 1,691
<INTEREST-OTHER> 182
<INTEREST-TOTAL> 17,550
<INTEREST-DEPOSIT> 6,980
<INTEREST-EXPENSE> 1,749
<INTEREST-INCOME-NET> 8,821
<LOAN-LOSSES> 800
<SECURITIES-GAINS> 210
<EXPENSE-OTHER> 7,291
<INCOME-PRETAX> 3,343
<INCOME-PRE-EXTRAORDINARY> 3,343
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,328
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 8.12
<LOANS-NON> 9,298
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,689
<CHARGE-OFFS> 670
<RECOVERIES> 117
<ALLOWANCE-CLOSE> 7,936
<ALLOWANCE-DOMESTIC> 7,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 921
</TABLE>
Exhibit 99.1
CFX CORPORATION TO OMIT
SECOND QUARTER DIVIDEND TO QUALIFY
FOR ACCOUNTING TREATMENT; NORMAL DIVIDENDS
TO BE RESUMED IN THIRD QUARTER
Keene, N.H., April 26, 1996 -- CFX Corporation (AMEX: CFX) announced today
that it will omit its regular cash dividend for the second quarter of 1996 in
order to comply with certain technical accounting rules related to the payment
of special dividends preceding a business combination. Omission of the second
quarter dividend in an amount equal to the special dividend paid by CFX in
January, 1996, will permit CFX to account for its pending mergers with The
Safety Fund Corporation and Milford Co/operative Bank as pooling-of-interests.
Because the funds that would otherwise have been paid out as a cash
dividend will be retained by the Company and increase book value, omission of
the second quarter dividend will have no adverse economic effect on the
interests of CFX shareholders. CFX is taking this action because it believes
that pooling-of-interest accounting is advantageous to the shareholders of CFX,
Safety Fund and Milford. `The dividend will be omitted solely in connection
with The Safety Fund and Milford mergers, transactions that we expect will
benefit CFX shareholders over the long-term. This action is one time in nature
and does not reflect any change in CFX's dividend policy, particularly in view
of CFX's record earnings in the first quarter of 1996 and the outlook for the
remainder of 1996. Accordingly, we fully expect that normal dividends will
resume in the third quarter,' stated Peter J. Baxter, CFX's President and Chief
Executive Officer.
CFX Corporation is a multi-bank holding company with total assets of $958
million as of March 31, 1996. The Company's two banking subsidiaries are CFX
Bank, headquartered in Keene, New Hampshire, and Orange Savings Bank,
headquartered in Orange, Massachusetts. CFX Mortgage, Inc., CFX Bank's mortgage
banking subsidiary, services approximately $686 million in mortgage loans for
others. The Company operates 23 full service offices, 2 loan production
offices, and 50 automated teller and remote service banking locations in New
Hampshire and north central Massachusetts.
Upon completion of CFX's pending acquisitions of The Milford Co/operative
Bank and The Safety Fund Corporation, CFX will have $1.4 billion in assets with
41 full service banking offices, 2 loan production offices, and 61 automated
teller and remote service locations in New Hampshire and Massachusetts.
The Safety Fund Corporation, a bank holding company headquartered in
Fitchburg, Massachusetts, has 12 branches, $297 million in assets and a trust
division with $349 million in assets under management. The Milford Co/operative
Bank, headquartered in Milford, New Hampshire has six branches and total assets
of $160 million.
