<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------- ---------------
COMMISSION FILE NUMBER 1-10633
CFX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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
--------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------ -----
As of July 31, 1997, 13,157,620 shares of the registrant's common stock were
outstanding.
================================================================================
<PAGE> 2
CFX CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Item 1 Financial Statements:
Consolidated Balance Sheets -- June 30, 1997
and December 31, 1996............................................................1
Consolidated Statements of Income --
Three months ended June 30, 1997 and 1996;
Six months ended June 30, 1997 and 1996..........................................2
Consolidated Statement of Shareholders' Equity --
Six months ended June 30, 1997...................................................3
Consolidated Statements of Cash Flows --
Six months ended June 30, 1997 and 1996..........................................4
Notes to Consolidated Financial Statements --
June 30, 1997....................................................................5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................7
PART II OTHER INFORMATION
-----------------
Item 1 Legal Proceedings...................................................................20
Item 2 Changes in Securities...............................................................20
Item 3 Defaults upon Senior Securities.....................................................20
Item 4 Submission of Matters to a Vote of Security Holders.................................20
Item 5 Other Information...................................................................21
Item 6 Exhibits and Reports on Form 8-K....................................................21
SIGNATURES..........................................................................22
----------
</TABLE>
<PAGE> 3
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
==========================================================================================================================
JUNE 30, DECEMBER 31,
==========================================================================================================================
(DOLLARS IN THOUSANDS) 1997 1996
==========================================================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks $ 58,846 $ 50,404
Federal funds sold 10,000 -
----------- -----------
CASH AND CASH EQUIVALENTS 68,846 50,404
Interest bearing deposits with other banks 211 197
Securities available for sale 364,360 245,324
Securities held to maturity 30,247 32,670
Mortgage loans held for sale 14,089 15,212
Loans and leases 1,286,669 1,118,164
Less allowance for loan and lease losses 16,042 15,740
----------- -----------
NET LOANS AND LEASES 1,270,627 1,102,424
Premises and equipment 28,553 27,386
Mortgage servicing rights 5,937 5,313
Goodwill and deposit base intangibles 8,925 9,235
Foreclosed assets 5,631 2,223
Bank-owned life insurance 32,120 30,975
Other assets 29,484 25,729
----------- -----------
$ 1,859,030 $ 1,547,092
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $ 1,099,236 $ 1,020,332
Noninterest bearing 159,124 136,875
----------- -----------
TOTAL DEPOSITS 1,258,360 1,157,207
Short-term borrowed funds 117,919 67,374
Advances from Federal Home Loan Bank of Boston 326,754 175,081
Other liabilities 17,672 14,477
----------- -----------
TOTAL LIABILITIES 1,720,705 1,414,139
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share-authorized
4,000,000 shares, no shares outstanding in 1997 or 1996 - -
Common stock, par value $.66 (2/3) per share-authorized
22,500,000 shares, issued 13,181,500 shares at June 30,
1997 and 13,008,787 shares at December 31, 1996 8,788 8,672
Paid-in capital 99,269 97,406
Retained earnings 32,023 28,223
Net unrealized losses on securities available for sale, after
tax effects (1,164) (929)
Cost of 37,877 shares at June 30, 1997 and 28,055 shares at
December 31, 1996 of common stock in treasury (591) (419)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 138,325 132,953
----------- -----------
$ 1,859,030 $ 1,547,092
=========== ===========
Number of common shares outstanding 13,144 12,981
=========== ===========
Common shareholders' equity per share $ 10.52 $ 10.24
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-1-
<PAGE> 4
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
=================================================================================================================
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
=================================================================================================================
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996
=================================================================================================================
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases $ 25,593 $ 21,652 $ 49,992 $ 42,427
Interest on investment securities:
Taxable 6,312 4,660 11,108 9,083
Tax-exempt 172 228 330 449
-------- -------- -------- --------
6,484 4,888 11,438 9,532
Dividends on marketable equity securities 48 83 107 166
Other 138 269 229 507
-------- -------- -------- --------
TOTAL INTEREST AND DIVIDEND INCOME 32,263 26,892 61,766 52,632
-------- -------- -------- --------
Interest expense:
Interest on deposits 11,582 9,929 22,159 20,008
Interest on borrowings:
Short-term 3,250 2,639 7,066 4,596
Long-term 1,651 5 1,757 8
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 16,483 12,573 30,982 24,612
-------- -------- -------- --------
NET INTEREST AND DIVIDEND INCOME 15,780 14,319 30,784 28,020
Provision for loan and lease losses 702 750 1,404 1,655
-------- -------- -------- --------
NET INTEREST AND DIVIDEND INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES 15,078 13,569 29,380 26,365
-------- -------- -------- --------
Other income:
Service charges on deposit accounts 952 1,007 1,932 1,976
Mortgage banking activities 1,231 680 2,186 1,518
Net gains on trading securities - - - 153
Net gains on investment securities 133 146 127 203
Leasing activities 392 659 1,167 1,361
Bank-owned life insurance 444 242 845 242
Trust fees 650 606 1,267 1,165
Other 404 652 1,054 1,206
-------- -------- -------- --------
4,206 3,992 8,578 7,824
-------- -------- -------- --------
Other expense:
Salaries and employee benefits 6,858 5,897 13,419 11,650
Occupancy and equipment expense 2,151 1,600 4,086 3,349
Professional fees 346 489 722 1,108
Advertising and marketing expense 460 471 775 988
Operation of foreclosed assets 86 62 131 153
Goodwill and deposit base intangible amortization 155 168 310 335
Other 2,741 2,763 5,328 5,444
-------- -------- -------- --------
12,797 11,450 24,771 23,027
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,487 6,111 13,187 11,162
Income taxes 1,680 2,098 3,638 3,594
-------- -------- -------- --------
NET INCOME AVAILABLE TO COMMON STOCK $ 4,807 $ 4,013 $ 9,549 $ 7,568
======== ======== ======== ========
Weighted average common shares outstanding 13,102 12,945 13,058 12,726
======== ======== ======== ========
Earnings per common share $ .37 $ .31 $ .73 $ .59
======== ======== ======== ========
Dividends declared per common share $ .22 $ - $ .44 $ .17
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-2-
<PAGE> 5
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
====================================================================================================================================
NET
UNREALIZED
LOSSES
COMMON STOCK ON SECURITIES TREASURY STOCK
------------------ PAID-IN RETAINED AVAILABLE ----------------
(IN THOUSANDS) SHARES DOLLARS CAPITAL EARNINGS FOR SALE SHARES DOLLARS TOTAL
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 13,009 $ 8,672 $ 97,406 $ 28,223 $ (929) (28) $ (419) $ 132,953
Net income - - - 9,549 - - - 9,549
Common cash dividends
declared - $.44 per share - - - (5,749) - - - (5,749)
Issuance of common stock
under stock option plan
and related tax effects 156 104 1,648 - - - - 1,752
Issuance of common stock under
employee stock purchase plan 17 12 215 - - - - 227
Change in net unrealized gains
(losses) on securities available
for sale - - - - (235) - - (235)
Cost of shares acquired for treasury - - - - - (10) (172) (172)
-------- -------- -------- -------- -------- ------- -------- ---------
BALANCE AT JUNE 30, 1997 13,182 $ 8,788 $ 99,269 $ 32,023 $ (1,164) (38) $ (591) $ 138,325
======== ======= ======== ======== ======== ======= ======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-3-
<PAGE> 6
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
======================================================================================================================
SIX MONTHS ENDED JUNE 30,
======================================================================================================================
(IN THOUSANDS) 1997 1996
======================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,549 $ 7,568
Adjustments to reconcile net income to net
provided (cash) used by operating activities:
Depreciation and amortization 2,190 2,644
Amortization of deferred credit on leasehold residual (583) (706)
Provision for loan and lease losses 1,404 1,655
Loans originated and acquired for sale (70,789) (55,536)
Principal balance of loans sold 71,912 49,058
Net gain on sale of portfolio loans (560) -
Net gain on sale of foreclosed real estate 72 15
Net gain on investment securities (127) (356)
Net deferred income tax provision 2,912 1,870
Increase in cash surrender value of bank-owned life insurance (845) (242)
Other (3,128) (2,179)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,008 3,791
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 121,126 12,904
Proceeds from maturities of securities available for sale 52,804 28,519
Purchase of securities available for sale (293,635) (49,533)
Proceeds from maturities of securities held to maturity 4,140 20,855
Purchase of securities held to maturity (1,580) (40,833)
Proceeds from the sale of, or payments on, foreclosed real estate 1,219 429
Proceeds from sale of portfolio loans 21,542 -
Net decrease in interest bearing deposits with other banks (14) (9,045)
Net increase in loans and leases (195,240) (78,551)
Purchases of bank-owned life insurance (300) (20,000)
Purchases of premises and equipment (3,271) (1,728)
--------- ----------
NET CASH USED BY INVESTING ACTIVITIES (293,208) (136,983)
--------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing deposits and savings accounts 19,924 12,246
Net increase in time certificates of deposit 81,229 53,815
Net increase (decrease) in short-term borrowings 50,545 61,534
Proceeds from FHLBB advances with maturities in excess of three months 382,080 226
Payment of FHLBB advances with maturities in excess of three months or less (147,000) (1)
Net increase (decrease) FHLBB advances with maturities of three months or less (83,407) 16,375
Common cash dividends paid (5,536) (4,580)
Proceeds from issuance of common stock 1,979 535
Payments on fractional shares - (26)
Acquisition of treasury shares (172) -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIE 299,642 140,124
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 18,442 6,932
Cash and cash equivalents at beginning of period 50,404 46,893
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,846 $ 53,825
========= =========
SUPPLEMENTARY INFORMATION:
Interest paid on deposit accounts $ 20,930 $ 19,108
Interest paid on borrowed funds 7,961 4,495
Income taxes paid (refunded), net 1,741 1,186
Transfers from securities held to maturity to securities available for sale 15 -
Transfers from loans to foreclosed real estate 4,699 1,743
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE> 7
CFX CORPORATION AND SUBSIDIARIES
Part I - Financial Information
Item 1 - Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
================================================================================
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 six month period ended June 30, 1997
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 (CFX
or the Company) annual report on Form 10-K for the year ended December 31,
1996.
================================================================================
NOTE B-ACQUISITIONS
================================================================================
On February 13, 1997, the Company signed a definitive agreement to acquire all
of the outstanding common stock of Portsmouth Bank Shares, Inc. (Portsmouth), a
New Hampshire bank holding company, headquartered in Portsmouth, N.H.
Pursuant to the definitive agreement each of Portsmouth's outstanding shares of
common stock will be converted into .9314 shares of the Company's common stock.
In the event that the average price of the Company's common stock for the ten
trading days immediately before the Company receives the last regulatory
approval required for the transaction is below $15.70, the exchange ratio
becomes 1.0294 shares and the exchange ratio floats between .9314 and 1.0294
shares if the average price of the Company's common stock is between $17.375
and $15.70. The exchange ratio will be .9314 shares of CFX Common stock for
each Portsmouth share if the average CFX Stock price exceeds $17.376.
Portsmouth has the right to terminate the agreement if the average price of the
Company's common stock is below $14.20 per share unless the Company agrees to
increase the exchange ratio.
At June 30, 1997, Portsmouth had unaudited total assets of $259 million,
deposits of $190 million and stockholders' equity of $67 million. Portsmouth's
bank subsidiary, Portsmouth Savings Bank, operates 3 full service offices in
Portsmouth, North Hampton and Greenland, New Hampshire.
On March 24, 1997, the Company entered into a definitive agreement to acquire
all of the outstanding common stock of Community Bankshares, Inc. (Community),
a New Hampshire bank holding company, headquartered in Concord, New Hampshire.
Pursuant to the definitive agreement, each outstanding share of Community
common stock will be converted into 2.2 shares of CFX common stock. If the
average price of CFX common stock for the fifteen days preceding the closing
date is between $18.18 and $20.00, the exchange ratio floats between 2.2 and
2.0 shares. The exchange ratio will be 2.0 shares of CFX common stock for each
Community share if the average CFX stock price exceeds $20.00. Community may
terminate the agreement if the average price of CFX common stock is below
$13.50 per share unless CFX agrees to increase the exchange ratio.
At June 30, 1997, Community had unaudited total assets of $616 million,
deposits of $429 million and shareholders' equity of $43 million. Community's
bank subsidiaries, Concord Savings Bank, headquartered in Concord, New
Hampshire, and Centerpoint Bank, headquartered in Bedford, New Hampshire,
collectively operate 12 branches located in Merrimack, Hillsborough, Belknap
and Rockingham Counties.
Both proposed transactions are expected to be tax free to the owners of
Portsmouth and Community and are subject to regulatory approval and the
approval of the Company's, Portsmouth's and Community's shareholders. It is
anticipated that the transactions will be accounted for by the
pooling-of-interests method of accounting.
Shareholders of CFX approved the transactions at their annual meeting held on
July 30, 1997. Community shareholder approval was received at a special meeting
also held on July 30, 1997. In addition, Portsmouth shareholder approval was
received at their special meeting held on July 31, 1997. The final exchange
ratios for the Portsmouth and Community transactions are expected to be
determined in August under the terms of the respective agreements. With the
exception of the Massachusetts Board of Bank Incorporation, all regulatory
approvals have been received.
The following unaudited pro forma combined condensed financial statements give
effect to the acquisitions under the pooling-of-interests method of accounting,
but do not reflect anticipated expenses and nonrecurring charges or estimated
expense savings and revenue enhancements anticipated to result from the
acquisitions.
-5-
<PAGE> 8
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
================================================================================
NOTE B-ACQUISITIONS - (Cont'd.)
================================================================================
The unaudited pro forma combined financial data is not necessarily indicative
of the financial position and results of future operations of the combined
entity or the actual financial position and results of operations that would
have been achieved had the acquisitions been consummated at the date indicated.
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
====================================================================================================================================
JUNE 30, 1997 PRO FORMA PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) CFX PORTSMOUTH COMMUNITY ADJUSTMENT CFX
====================================================================================================================================
ASSETS
<S> <C> <C> <C> <C> <C>
Investment securities $ 394,607 $ 116,503 $ 231 $ 664,341
Net loans and leases 1,270,627 89,362 412,299 1,772,288
Other assets 193,796 53,588 50,344 $ (10,000)(1) 287,728
----------- ----------- ---------- ----------- ----------
TOTAL ASSETS $ 1,859,030 $ 259,453 $ 615,874 $ (10,000) $2,724,357
=========== =========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 1,258,360 $ 189,869 $ 428,560 $1,876,789
Borrowed funds 444,673 - 138,875 $ (10,000)(1) 573,548
Other liabilities 17,672 2,293 5,346 25,311
----------- ----------- ---------- ----------- ----------
TOTAL LIABILITIES 1,720,705 192,162 572,781 (10,000) 2,475,698
----------- ----------- ---------- ----------
SHAREHOLDERS' EQUITY 138,325 67,291 43,043 248,659
----------- ----------- ---------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,859,030 $ 259,453 $ 615,874 $ (10,000) $2,724,357
=========== =========== =========== =========== ==========
Common shares outstanding 13,144 10,716(2) 23,860
=========== =========== ==========
Pro forma common shareholders'
equity per share $ 10.52 $ 10.42
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORM COMBINED CONDENSED INCOME STATEMENTS
====================================================================================================================================
PRO FORMA PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) CFX PORTSMOUTH COMMUNITY ADJUSTMENT CFX
====================================================================================================================================
FOR THE THREE MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C> <C>
Net interest and dividend income $ 15,780 $ 2,600 $ 6,005 $ 24,385
Provision for loan and lease losses 702 - 318 1,020
Other income 4,206 267 1,288 5,761
Other expense 12,797 815 4,541 18,153
Income taxes 1,680 524 910 3,114
--------- --------- --------- ---------
NET INCOME $ 4,807 $ 1,528 $ 1,524 $ 7,859
========= ========= ========= =========
Weighted average common shares
outstanding 13,102 10,806(2) 23,908
========= ========= =========
Earnings per common share $ .37 $ .33
========= =========
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Net interest and dividend income $ 30,784 $ 5,185 $ 11,718 $ 47,687
Provision for loan and lease losses 1,404 - 558 1,962
Other income 8,578 509 2,586 11,673
Other expense 24,771 1,703 9,211 35,685
Income taxes 3,638 955 1,688 6,281
--------- --------- --------- ---------
NET INCOME $ 9,549 $ 3,036 $ 2,847 $ 15,432
========= ========= ========= =========
Weighted average common shares
outstanding 13,058 10,724(2) 23,782
========= ========= =========
Earnings per common share $ .73 $ .65
========= =========
</TABLE>
(1) Pro forma adjustment is for Federal Funds sold to Community by CFX.
(2) The pro forma financial statements reflect the exchange of Portsmouth
Common Stock for CFX Common Stock in connection with the Portsmouth
acquisition at a Portsmouth Exchange Ratio of .9314 and reflect the
exchange of Community Common Stock for CFX Common Stock at a Community
Exchange Ratio of 2.0951, based on the average CFX Stock price for the
period preceding July 31, 1997. The actual Exchange Ratios will depend
on the CFX prices at or around the actual merger date, anticipated
during the third quarter of 1997.
-6-
<PAGE> 9
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 1997
================================================================================
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 and Annual Report on Form 10-K for the year ended December 31, 1996. All
references in this discussion to the 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 multi-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, Orange Savings Bank, headquartered
in Orange, Massachusetts, and Safety Fund National Bank, headquartered in
Fitchburg, Massachusetts.
The results of operations for 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, expenses, and income tax
expense.
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings per share, cost savings related to
acquisitions, credit quality and other financial business matters for 1997 and,
in certain instances, subsequent periods. The Company cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, and that statements for periods subsequent to 1997 are subject
to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: continued
pricing pressures on loan and deposit products, actions of competitors, changes
in economic conditions, the extent and timing of actions of the Federal Reserve
Board, continued customer disintermediation, customers' acceptance of the
Company's products and services, the extent and timing of legislative and
regulatory actions and reforms, and the ability of the Company to realize the
benefits of its' integration plans associated with acquisitions.
The Company's forward-looking statements speak only as of the date on which
such statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
NET INCOME AND EARNINGS PER COMMON SHARE
Net income was $4,807,000 and $9,549,000, or $.37 and $.73 per share, for the
three and six months ended June 30, 1997, respectively, compared to $4,013,000
and $7,568,000, or $.31 and $.59 per share, for the corresponding periods a
year ago. Return on average assets was 1.10% and 1.14% for the three and six
months ended June 30, 1997, respectively, compared to 1.10% and 1.07% for the
corresponding periods a year ago. For the three and six months ended June 30,
1997, return on average common equity was 13.99% and 14.07%, respectively,
compared to 12.37% and 11.48% for the corresponding periods a year ago.
The increase in net income was primarily due to increased net revenues (net
interest and dividend income and other income). Net revenues were $19,986,000
and $39,362,000 for the three and six months ended June 30, 1997, respectively,
compared to $18,311,000 and $35,844,000 for the corresponding periods a year
ago, an increase of 9.15% and 9.81% for the three and six months ended June 30,
1997, respectively. The stronger net revenues were the result of a $221
million, or 16.7%, increase in average interest earning assets during the six
months ended June 30, 1997, compared to the same period in 1996 and continued
focus on noninterest income. However, a portion of the increase in net
revenues was offset by an increase in certain operating expenses. The increase
interest earning assets was due to a planned balance sheet leverage strategy
designed as a result of the pending acquisition of
-7-
<PAGE> 10
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
RESULTS OF OPERATIONS - GENERAL
================================================================================
Portsmouth Bank Shares, Inc. which has high capital ratios. When the Portsmouth
acquisition is consummated, it is expected that the capital ratios, on a
combined basis, will approximate the capital ratios of the Company prior to the
acquisition and leverage strategy.
NET INTEREST AND DIVIDEND INCOME
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 tax-exempt loans and leases and
investments in state and municipal securities and to present data on a
comparative basis, the income from, and yields on, these loans and leases and
securities have been restated to a taxable-equivalent basis using a 34.00% and
38.62% tax rate, respectively. The taxable-equivalent income adjustments for
loans and leases are $85,000 and $160,000 for the three and six months ended
June 30, 1997, respectively, compared to $94,000 and $174,000 for the
corresponding periods a year ago. The taxable-equivalent income adjustments for
investment securities are $107,000 and $207,000 for the three and six months
ended June 30, 1997, respectively, compared to $144,000 and $282,000 for the
corresponding periods a year ago. These adjustments, however, are for
comparison purposes only and have no impact on reported net income available to
common stock.
<TABLE>
<CAPTION>
==================================================================================================================================
THREE MONTHS ENDED JUNE 30, 1997 1996
==================================================================================================================================
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 $1,208,681 $ 25,430 8.44% $ 989,182 $ 21,468 8.73%
Tax-exempt loan and leases 9,163 248 10.86 9,150 278 12.22
Taxable securities 361,823 6,361 7.05 304,686 4,742 6.26
Tax-exempt securities 14,793 279 7.56 20,291 372 7.37
Other 8,799 138 6.29 21,588 270 5.03
---------- ---------- ----------- ----------
Total interest earning assets 1,603,259 32,456 8.12 1,344,897 27,130 8.11
---------- ----------
Noninterest earning assets 146,852 116,201
---------- ----------
Total $1,750,111 $1,461,098
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $431,713 2,410 2.24 $ 451,093 2,622 2.34
Time deposits 654,882 9,173 5.62 529,160 7,307 5.55
Advances from Federal Home Loan
Bank of Boston 255,000 3,756 5.91 118,593 1,650 5.60
Other borrowed funds 88,672 1,145 5.18 83,302 994 4.80
---------- ---------- ----------- ----------
Total interest bearing liabilities 1,430,267 16,484 4.62 1,182,148 12,573 4.28
---------- ----------
Noninterest bearing liabilities:
Demand deposits 148,440 131,035
Other 33,633 17,463
Shareholders' equity 137,771 130,452
---------- ----------
Total $1,750,111 $1,461,098
========== ==========
Net interest and dividend income $ 15,972 $ 14,557
========== ==========
Interest rate spread 3.50% 3.83%
Net interest margin 4.00% 4.35%
</TABLE>
-8-
<PAGE> 11
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
RESULTS OF OPERATION - GENERAL - (Cont'd.)
================================================================================
<TABLE>
<CAPTION>
==================================================================================================================================
SIX MONTHS ENDED JUNE 30, 1997 1996
==================================================================================================================================
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 $1,182,789 $ 49,682 8.47% $ 964,293 $ 42,089 8.78%
Tax-exempt loans and leases 9,197 470 10.31 8,654 512 11.90
Taxable securities 330,106 11,216 6.85 306,992 9,249 6.06
Tax-exempt securities 14,422 537 7.51 20,049 731 7.33
Other 6,081 229 7.59 21,308 508 4.79
---------- ---------- ---------- ----------
Total interest earning assets 1,542,595 62,134 8.12 1,321,296 53,089 8.08
---------- ----------
Noninterest earning assets 139,835 106,358
---------- ----------
Total $1,682,430 $1,427,654
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $432,125 4,823 2.25 $ 450,641 5,275 2.35
Time deposits 624,100 17,337 5.60 528,825 14,733 5.60
Advances from Federal Home Loan
Bank of Boston 226,875 6,501 5.78 105,900 3,032 5.76
Other borrowed funds 91,962 2,322 5.09 67,143 1,572 4.71
---------- ---------- ---------- ----------
Total interest bearing liabilities 1,375,062 30,983 4.54 1,152,509 24,612 4.29
---------- ----------
Noninterest bearing liabilities:
Demand deposits 142,565 126,489
Other 27,933 16,127
Shareholders' equity 136,870 132,529
---------- ----------
Total $1,682,430 $1,427,654
========== ==========
Net interest and dividend income $ 31,151 $ 28,477
========== ==========
Interest rate spread 3.58% 3.79%
Net interest margin 4.07% 4.33%
</TABLE>
-9-
<PAGE> 12
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
===============================================================================
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 FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 VS. 1996 1997 VS. 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
========================================================================================================================
(IN THOUSANDS) VOLUME RATE NET VOLUME RATE NET
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest and dividends earned on:
Loans and leases $ 8,437 $(4,475) $ 3,962 $11,742 $(4,149) $ 7,593
Tax-exempt loans and leases 3 (33) (30) 75 (117) (42)
Taxable securities 968 651 1,619 720 1,247 1,967
Tax-exempt securities (156) 63 (93) (245) 51 (194)
Other (475) 343 (132) (810) 531 (279)
------- ------- ------- ------- ------- -------
Total interest and
dividend income 8,777 (3,451) 5,326 11,482 (2,437) 9,045
------- ------- ------- ------- ------- -------
Interest paid on:
Savings deposits (106) (106) (212) (222) (230) (452)
Time deposits 1,772 94 1,866 2,604 - 2,604
Advances from Federal Home
Loan Bank of Boston 2,009 97 2,106 3,459 10 3,469
Other borrowed funds 68 83 151 616 134 750
------- ------- ------- ------- ------- -------
Total interest expense 3,743 168 3,911 6,457 (86) 6,371
------- ------- ------- ------- ------- -------
Change in net interest
and dividend income $ 5,034 $(3,619) $ 1,415 $ 5,025 $(2,351) $ 2,674
======= ======= ======= ======= ======= =======
</TABLE>
-10-
<PAGE> 13
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
RESULTS OF OPERATIONS - GENERAL - (cont'd.)
================================================================================
Taxable-equivalent net interest and dividend income was $15,972,000 and
$31,151,000, respectively, for the three and six months ended June 30, 1997,
compared to $14,557,000 and $28,477,000 for the same periods a year ago. The
increase in net interest and dividend income in the 1997 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 economic environment.
Although net interest and dividend income has increased during the 1997 periods
compared to the respective 1996 periods, the net interest margin has declined.
This is highlighted in the previous table which indicates that increased margin
dollars have resulted from volume which is partially offset by decreases in
rates. The Company's net interest margin of 4.00% for the three months ended
June 30, 1997 decreased from 4.35% for the corresponding period a year ago. The
net interest margin for the six months ended June 30, 1997 was 4.07%, compared
to 4.33% for the corresponding period a year ago. The decreases in net interest
margins were partially due to the increase in average earning assets being
funded with higher cost liabilities (predominantly FHLBB borrowings, repurchase
agreements and brokered certificates of deposits) and due to the Company's
investment in Bank-Owned Life Insurance ("BOLI") which totaled $32 million at
June 30, 1997. The increase in average interest-earning assets was primarily
the result of a leverage strategy invoked to utilize excess capital being
acquired with the Portsmouth merger. These assets are being funded with
wholesale borrowings creating a reduction in the net interest margin (see
"Financial Condition - Investment Securities" section of this "Management's
Discussion and Analysis"). The investment in BOLI, which occurred in the second
and third quarters of 1996, had a negative impact on the net interest margin of
11 basis points for the three months ended June 30, 1997, and 12 basis points
for the six months ended June 30, 1997. BOLI generates non-interest income for
the Company, tax free, as the cash surrender value of the policies increase.
However, these insurance policies are funded with wholesale borrowings, which
decrease the Company's net interest margin. On a fully tax-equivalent basis,
the BOLI investments are yielding approximately 10%. (For more information on
BOLI, see "Financial Condition - Other Assets" section of this "Management's
Discussion and Analysis".) The current leverage strategies are designed to
optimize the use of capital and enhance earnings and the return on equity. As
traditional retail opportunities become available it's the Company's intent
that, the leveraged assets, or wholesale assets, will be redeployed into higher
yielding investments and wholesale funding will be replaced with core deposits.
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 changing 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 rate
cycles. (For further discussion on interest rates, see "Asset/Liability
Management" section of this "Management's Discussion and Analysis".)
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses in the three and six months ended June
30, 1997 was $702,000, and $1,404,000, respectively, compared to $750,000, and
$1,655,000 for the same periods a year ago. The lower provision for loan and
lease losses in 1997 is primarily the result of lower net charge-offs in 1997
and lower nonperforming loans and leases as discussed in the "Risk Elements -
Allowance for Loan and Lease Losses" section of the Management's Discussion and
Analysis. Total net charge-offs amounted to $1,102,000 for the six months ended
June 30, 1997 ($537,000 resulting from one borrower) as compared to $1,673,000
for the six months ended June 30, 1996. The higher net charge-offs in 1996 were
principally due to residential real estate foreclosures and the resolution of
several long-term problem commercial loan relationships.
At June 30, 1997, nonperforming loans were $7,730,000, or .60% of total loans
and leases, compared to $8,299,000, or .74% of total loans and leases, as of
December 31, 1996. The allowance for loan and lease losses as a percentage
-11-
<PAGE> 14
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
RESULTS OF OPERATIONS - GENERAL - (Cont'd.)
================================================================================
of nonperforming loans as of June 30, 1997 and December 31, 1996 amounted to
207.53% and 189.66%, respectively.
OTHER INCOME
Other income for the three and six months ended June 30, 1997 totaled
$4,206,000 and $8,578,000, respectively, compared to $3,992,000, and
$7,824,000, for the same periods a year ago. The increase in other income for
1997 compared to 1996 is principally due to mortgage banking activities,
investments in BOLI and trust fees. The BOLI investment, totaling $32 million
at June 30, 1997 generated $444,000 in other income during the second quarter
of 1997, and $845,000 for the six months ended June 30, 1997. This investment
was purchased in the second quarter of 1996. (For more information on BOLI, see
"Financial Condition - Other Assets" section of this "Management's Discussion
and Analysis".)
The increase in mortgage banking activities in 1997 compared to 1996 is due to
higher net gains on sales of loans and a sale of mortgage loan servicing. Net
gains on the sale of loans for the first six months of 1997 increased by
$137,000 over the same period a year ago from the sale of approximately $72
million in loans in 1997 as compared to $49 million in 1996. During the second
quarter of 1997, servicing rights pertaining to approximately $80 million of
mortgage loans was sold for a pre-tax gain of $435,000.
The increase of $202,000 in BOLI revenue in the second quarter of 1997 versus
1996 resulted from an increase in the investment of such insurance and having
it for the entire 3-month period in 1997 compared to a partial period in 1996.
This investment, totaling $32 million at June 30, 1997 generated $444,000 in
other income during the second quarter of 1997, and $845,000 for the six months
ended June 30, 1997. (For more information on BOLI, see "Financial Condition -
Other Assets" section of this "Management's Discussion and Analysis".) Trust
assets increased 13% over the past year, to end at $405 million at June 30,
1997. Offsetting the increase in other income for the six months ended June 30,
1997 as compared to the same period a year ago, was a decrease in leasing
activities as a result of one securitization in 1997 compared to three during
the first six months of 1996, and the decrease in net gains on trading and
investment securities of $229,000.
OTHER EXPENSE
Other expense for the three and six months ended June 30, 1997 totaled
$12,797,000 and $24,771,000, respectively, compared to $11,450,000 and
$23,027,000, respectively, for the same periods a year ago.
The increases in other expenses of $1,347,000 and $1,744,000 in the three and
six month periods ended June 30, 1997, respectively, compared to the same
period a year ago, are principally due to increases in salaries and employee
benefits of $961,000 and $1,769,000, occupancy and equipment expenses of
$551,000 and $737,000, offset by reductions in professional fees of $143,000
and $386,000 and advertising and marketing expenses of $11,000 and $213,000.
The increases in salaries was the result of merit increases, an increase in
staffing in the lending and data processing functions, the additional staffing
for two de novo branches, the development of a trust function at CFX Bank and
the expansion of the trust function at Safety Fund National Bank. Occupancy and
equipment expenses have increased as a result of opening a new operations
center, technology enhancements, the creation of two de novo branches, and the
relocation of two branches. The reductions in professional fees are due to
efficiencies gained in the 1996 mergers. The decrease in advertising and
marketing is primarily due to timing of expenditures related to specific
product initiatives. Beginning in the second quarter of 1997 a relationship
account was announced which has increased these expenses closer to the 1996
levels for the quarter.
INCOME TAX
Effective income tax rates for the three and six months ended June 30, 1997
were 25.90% and 27.59%, respectively, compared to 34.33%, and 32.20% for the
same periods a year ago. The effective tax rates for the three and six month
periods ended June 30, 1997 were lower than the respective periods in prior
year because of higher credits pertaining to low-income housing projects, the
increased investment in BOLI and other tax-exempt investments and the
development of a Real Estate Investment Trust (REIT).
-12-
<PAGE> 15
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
FINANCIAL CONDITION
================================================================================
INVESTMENT SECURITIES
The carrying value and estimated fair value of investment securities at June
30, 1997 and December 31, 1996, follows:
<TABLE>
<CAPTION>
=================================================================================================================
JUNE 30, DECEMBER 31,
1997 1996
=================================================================================================================
AMORTIZED FAIR AMORTIZED FAIR
(IN THOUSANDS) COST VALUE COST VALUE
=================================================================================================================
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
United States Treasury and agency obligations $ 78,897 $ 78,072 $ 129,426 $ 128,863
State and municipal 439 441 439 441
Corporate bonds 1,005 1,019 3,138 3,163
Federal agency mortgage pass-through securities 91,699 90,866 76,068 75,153
Other collateralized mortgage
obligations (CMO's) 173,176 172,997 19,799 19,608
Marketable equity securities 2,910 2,719 5,960 5,961
Federal Home Loan Bank of Boston and Federal
Reserve Bank of Boston stock 18,246 18,246 12,135 12,135
--------- --------- --------- ---------
TOTAL SECURITIES AVAILABLE FOR SALE $ 366,372 $ 364,360 $ 246,965 $ 245,324
========= ========= ========= =========
Securities held to maturity:
Debt securities:
United States Treasury and agency obligations $ 7,566 $ 7,486 $ 9,417 $ 9,389
State and municipal 14,023 14,080 13,986 14,083
Federal agency mortgage pass-through securities 7,492 7,568 7,783 7,874
Other collateralized mortgage
obligations (CMO's) 766 767 1,184 1,185
Other 400 400 300 300
--------- --------- --------- ---------
TOTAL SECURITIES HELD TO MATURITY $ 30,247 $ 30,301 $ 32,670 $ 32,831
========= ========= ========= =========
</TABLE>
As discussed in Note B-Acquisitions in the "Notes to Consolidated Financial
Statements" section the Company signed a definitive agreement to acquire all of
the outstanding capital stock of Portsmouth. At June 30, 1997, Portsmouth has a
Tier 1 leverage capital ratio of 25.7%. A total of approximately $300 million
in interest earning assets and interest bearing liabilities are anticipated to
be added to the Company to leverage this higher capital base. The Company
commenced the leverage strategy during the first quarter of 1997. As of June
30, 1997, the Company has purchased $128,539,000 in investment securities and
$105,665,000 in mortgage loans. The purchase of the investment securities and
loans were funded through additional advances from the Federal Home Loan Bank
of Boston. See "Financial Condition - Deposits and Borrowed Funds" of this
"Management's Discussion and Analysis".
-13-
<PAGE> 16
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
FINANCIAL CONDITION - Cont'd.
================================================================================
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:
<TABLE>
<CAPTION>
============================================================================================================================
JUNE 30, DECEMBER 31,
============================================================================================================================
(DOLLARS IN THOUSANDS) 1997 1996
============================================================================================================================
% OF % OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO
============================================================================================================================
<S> <C> <C> <C> <C>
Real estate:
Residential $ 849,919 66.06% $ 712,980 63.76%
Construction 9,309 .72 8,101 .72
Commercial 147,035 11.43 142,989 12.79
Commercial, financial, and agricultural 121,851 9.47 120,380 10.77
Warehouse lines of credit to leasing companies 20,006 1.55 18,393 1.64
Consumer lease financing 93,047 7.23 67,146 6.01
Other consumer 45,502 3.54 48,175 4.31
----------- ------ ----------- ------
Total loans and leases 1,286,669 100.00% 1,118,164 100.00%
====== ======
Less allowance for loan and lease losses 16,042 15,740
----------- -----------
Net loans and leases $ 1,270,627 $ 1,102,424
=========== ===========
</TABLE>
The $168,505,000 increase in total loans and leases was primarily due to a
$136,939,000 increase in residential real estate loans From the Company's
leverage strategy (see "Financial Condition - Investment Securities" section of
this "Management's Discussion and Analysis") and a $25,901,000 increase in
consumer lease financing. Residential loan production is generated by a
combination of originations and purchases by the Company's mortgage banking
affiliate, CFX Mortgage. The consumer lease financing is generated through a
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 participating in CFX Funding's
lease financing and securitization programs. CFX Funding services
approximately $117 million in leases for others.
Residential loan production is primarily generated by a combination of
originations and purchases by the Company's mortgage banking affiliate, CFX
Mortgage. Residential loans are originated using standards established by the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC) allowing CFX Mortgage to sell to the secondary market those
loans which are not desired by the Company's banking subsidiaries. During the
first six months of 1997, CFX Mortgage originated and purchased $188 million in
residential loans, compared to $153 million in the same period of 1996. As of
June 30, 1997, CFX Mortgage services approximately $895 million in mortgage
loans for others.
OTHER ASSETS
In June 1997, the Company reclassified $3,395,000 in warehouse lines of credit
to a leasing company from portfolio loans to foreclosed assets. See "Risk
Elements" of this Management's Discussion and Analysis for further discussion.
During 1996, the Company invested $30 million in BOLI to help finance the cost
of certain employee benefit plan expenses.
The BOLI investment is accomplished through the purchase of life insurance on
the lives of certain employees through two insurance companies with a Standard
& Poors rating of AA+ or better. The Company, not the employee or family, is
the beneficiary of the insurance policies. The first source of income is from
the growth of the cash surrender value (CSV) of the policy. The CSV increases
each year as interest (rate is guaranteed each year and changes annually to
reflect market rates) is added by the insurance company. The second source of
income comes from the insurance proceeds paid to the bank when an employee
dies. The payment of the insurance proceeds and the earnings from the
-14-
<PAGE> 17
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
FINANCIAL CONDITION - Cont'd.
================================================================================
cash value are income tax free (unless the policy is surrendered). The Company
finances the cost of the premium payment with wholesale funding (i.e. Federal
Home Loan Bank of Boston advances). While the earnings from the investment are
recorded in other income as the CSV increases, the net interest margin is
negatively impacted as a result of funding the investment with wholesale
borrowings.
================================================================================
DEPOSITS AND BORROWED FUNDS
================================================================================
The following table shows the various components of deposits and borrowed funds
at the dates indicated:
<TABLE>
<CAPTION>
==============================================================================================================
JUNE 30, DECEMBER 31,
==============================================================================================================
(DOLLARS IN THOUSANDS) 1997 1996
==============================================================================================================
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
==============================================================================================================
<S> <C> <C> <C> <C>
Deposits:
Noninterest bearing demand deposits $ 159,124 12.65% $ 136,875 11.83%
Regular savings deposits 175,789 13.97 167,465 14.47
NOW & money market deposits 257,373 20.45 268,022 23.16
Time deposits 522,157 41.50 515,085 44.51
------------ ------ ----------- ------
Total retail deposits 1,114,443 88.56 1,087,447 93.97
Brokered time deposits 143,917 11.44 69,760 6.03
------------ ------ ----------- ------
Total deposits $ 1,258,360 100.00% $ 1,157,207 100.00%
============ ====== =========== ======
Borrowed Funds:
Advances from Federal Home Loan Bank
of Boston:
Short-term $ 180,000 40.48% $ 174,657 72.04%
Long-term 146,754 33.00 424 .17
Short-term borrowed funds 117,919 26.52 67,374 27.79
----------- ------ ----------- ------
Total borrowed funds $ 444,673 100.00% $ 242,455 100.00%
=========== ====== =========== ======
</TABLE>
The increase in deposits, advances from the Federal Home Loan Bank of Boston,
and other borrowed funds funded asset growth and the leverage strategy over the
past six months. Management customarily directs movement of funding between
brokered deposits, advances from the Federal Home Loan Bank of Boston
(FHLBB)and repurchase agreements (included in short-term borrowed funds).
During the first six months of 1997, there has been a shift from short-term to
long-term funding from the FHLBB to meet interest-risk parameters and secure
long-term funding costs.
================================================================================
SHAREHOLDERS' EQUITY
================================================================================
Shareholders' equity was $138,325,000 as of June 30, 1997, an increase of
$5,372,000 when compared to $132,953,000 at December 31, 1996. The net increase
was due to $9,549,000 in net income, issuance of $1,752,000 in common stock
under the stock option plan and issuance of $227,000 in common stock under the
employee stock purchase plan, offset by a $235,000 increase in net unrealized
losses on securities available for sale, cost of shares acquired for treasury
of $172,000, and declaration of $5,749,000 in cash dividends on common stock.
================================================================================
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.
-15-
<PAGE> 18
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
RISK ELEMENTS - Cont'd.
================================================================================
The following table provides the composition of the Company's nonperforming
assets at the dates indicated:
<TABLE>
<CAPTION>
======================================================================================================================
JUNE 30, DECEMBER 31,
======================================================================================================================
(DOLLARS IN THOUSANDS) 1997 1996
======================================================================================================================
% OF % OF
BALANCES TOTAL BALANCES TOTAL
======================================================================================================================
<S> <C> <C> <C> <C>
Nonperforming loans:
Real estate:
Residential $ 4,173 53.98% $ 5,986 72.13%
Commercial 2,005 25.94 1,146 13.18
Commercial, financial, and
agricultural 1,376 17.80 1,021 12.30
Consumer and other 176 2.28 146 1.76
---------- ------ -------- -------
7,730 100.00% 8,299 100.00%
---------- ====== -------- =======
Foreclosed assets:
Residential real estate 1,520 26.99% 1,383 62.21%
Construction 439 7.80 428 19.25
Commercial real estate 287 5.10 422 18.98
Leasing receivables - equipment 3,395 60.29 - -
Valuation allowance (10) (.18) (10) (.44)
---------- ------ -------- -------
5,631 100.00% 2,223 100.00%
---------- ====== -------- =======
Total nonperforming assets $ 13,361 $ 10,522
========== ========
Nonperforming loans as a percent of total
loans and leases .60% .74%
========== ========
Nonperforming assets as a percent
of total loans and leases and
foreclosed assets 1.03% .94%
========== ========
</TABLE>
During the second quarter of 1997, the Company reclassified $3,395,000 in
warehouse lines of credit to a leasing company in the CFX Funding lease
financing program from portfolio loans to foreclosed assets as a result of the
Company substantively taking possession of the underlying collateral. The
Company has concluded that there is sufficient collateral available to cover
the loans; accordingly, there has been no loss recognized. During the third
quarter of 1997, the Company sold at par, $2,771,000 of this foreclosed asset.
Loans delinquent less than 90 days have increased from $27,051,000 at December
31, 1996 to $31,456,000 at June 30, 1997 primarily reflecting the growth in the
residential and consumer lease portfolios. Delinquencies as a percent of total
loans and leases have remained consistently below 2.5%, with increases noted in
the residential real estate and commercial loan portfolios.
The following is a summary of information pertaining to impaired loans at the
dates indicated:
<TABLE>
<CAPTION>
===========================================================================================
JUNE 30 DECEMBER 31
===========================================================================================
(DOLLARS IN THOUSANDS) 1997 1996
===========================================================================================
<S> <C> <C>
Loans with a valuation allowance $ 1,810 $ 2,816
Loans without a valuation allowance 2,566 2,585
--------- ---------
Total impaired loans $ 4,376 $ 5,401
========= =========
Valuation allowance allocated to impaired loans $ 700 $ 934
========= =========
</TABLE>
-16-
<PAGE> 19
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
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 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 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>
===========================================================================================================
SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) 1997 1996
===========================================================================================================
<S> <C> <C>
Balance at beginning of period $ 15,740 $ 15,449
Provision for loan and lease losses 1,404 1,655
Loans and leases charged-off (1,584) (2,008)
Recoveries of loans and leases
previously charged-off 482 335
------------ ----------
Balance at end of period $ 16,042 $ 15,431
============ ==========
Allowance for loan and lease losses
as a percent of total loans and leases 1.25% 1.53%
============ ==========
Allowance for loan and lease losses as a
percent of total nonperforming loans 207.53% 150.43%
============ ==========
Net charge-offs/average loans and leases(1) .18% .34%
============ ==========
</TABLE>
- ---------------------
(1) Annualized
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.
-17-
<PAGE> 20
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONT'D.
JUNE 30, 1997
================================================================================
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 cash flows and repricing
characteristics, the weighted average maturities of assets, liabilities, and
off-balance-sheet items.
To measure the impact of interest rate changes, the Company utilizes a
comprehensive financial planning model that recalculates net income and the
fair value of the Company assuming 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 economic
conditions and other analyses. These assumptions are inherently uncertain and
subject to change as time passes. Accordingly, the Company adjusts the pro
forma 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 considers interest rate risk exposure in concert with other business
risks, such as credit risk and liquidity risk. The Company's Board of Directors
and the directors of each subsidiary bank establish various policy guidelines
and limitations for interest rate risk. Management communicates regularly with
boards of directors and board committees about key assumptions, current
strategies, and exposure positions being deliberated by the Company's
Asset/Liability Management Committee. Management feels that the processes in
place at the Company are in compliance with new risk management guidelines
issued jointly by the Company's three primary regulatory agencies.
================================================================================
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 are the primary sources of asset liquidity.
Because the Company's subsidiaries 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.
-18-
<PAGE> 21
CFX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONT'D.
JUNE 30, 1997
================================================================================
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. 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. 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).
As of June 30, 1997, the Company and each of its banking subsidiaries were in
compliance with all applicable regulatory capital requirements. The decline in
the capital ratios since year end is the result of the continued asset growth
and the Company's leverage program. It is expected that capital ratios will
increase to pre-acquisition levels following the acquisitions of Community and
Portsmouth. See "Financial Condition - Investment Securities" of this
"Management's Discussion and Analysis".
The following table sets forth the minimum regulatory capital requirements and
the actual capital ratios of the Company and its banking subsidiaries at June
30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
====================================================================================================
ACTUAL
====================================================================================================
REQUIRED JUNE 30, DECEMBER 31,
MINIMUM 1997 1996
====================================================================================================
<S> <C> <C> <C>
Total capital to risk-weighted assets:
Consolidated 8.0% 13.3% 14.8%
CFX Bank 8.0 11.1 12.2
Safety Fund 8.0 13.2 13.9
Orange 8.0 21.1 20.9
Tier 1 capital to risk-weighted assets:
Consolidated 4.0 12.0 13.5
CFX Bank 4.0 10.0 11.0
Safety Fund 4.0 12.0 12.6
Orange 4.0 19.8 19.7
Tier 1 capital to average assets:
Consolidated 4.0 7.5 8.0
CFX Bank 4.0 6.4 6.8
Safety Fund 4.0 6.7 7.0
Orange 4.0 11.0 9.8
</TABLE>
-19-
<PAGE> 22
CFX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
JUNE 30, 1997
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
At the Annual meeting of shareholders of the Company held on July 30, 1997,
the proposal made by the Board of Directors to amend the CFX Corporation
Articles of Incorporation to increase the authorized shares of CFX common
stock from 22,500,000 to 50,000,000 was approved. The Articles of
Incorporation of the Registrant, as amended, will be filed pursuant to the
Securities Exchange Act of 1934, as amended, when such amended articles are
filed with the New Hampshire Secretary of State.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual meeting of Shareholders of the Company, at which the
holders of common shares entitled to 11,023,641 votes were
represented in person or by proxy, was held on July 30, 1997.
(b) Election of Directors. Five nominees were elected as directors of the
Company, each for a term of three years.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Peter J. Baxter 10,582,224 441,417
Christopher W. Bramley 10,623,963 399,678
Calvin L. Frink 10,583,452 440,189
Douglas S. Hatfield 10,627,107 396,534
Philip A. Mason 10,559,873 463,768
</TABLE>
In addition, the following directors will continue in office
following the meeting:
<TABLE>
<S> <C>
Eugene E. Gaffey P. Kevin Condron
Richard F. Astrella David R. Grenon
William E. Aubuchon, III Elizabeth Sears Hager
Richard B. Baybutt Walter R. Peterson
Christopher V. Bean L. William Slanetz
</TABLE>
(c) Other Matters
(i) The adoption of the Agreement and Plan of Reorganization and
related Plan of Share Exchange, dated as of February 13, 1997
between CFX Corporation and Portsmouth Bank Shares, Inc. was
approved.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
9,512,376 40,457 85,126 1,385,682
</TABLE>
(ii) The adoption of the Agreement and Plan of Reorganization and
related Plan of Share Exchange, dated as of March 24, 1997
between CFX Corporation and Community Bankshares, Inc. was
approved.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
9,469,802 81,126 87,031 1,385,682
</TABLE>
-20-
<PAGE> 23
CFX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION - CON'T
JUNE 30, 1997
(iii) The amendment to the CFX Corporation Articles of
Incorporation to increase the authorized shares of CFX
Common Stock from 22,500,000 to 50,000,000 was approved.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
10,225,941 705,875 91,825 -
</TABLE>
(iv) The proposal for a new Stock Option Plan, the 1997
Long-Term Incentive Plan, was approved.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
9,729,462 1,014,206 279,973 -
</TABLE>
(v) The amendment of the Amended and Restated 1992 Employee
Stock Purchase Plan was approved.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
10,191,011 620,735 211,895 -
</TABLE>
(vi) The appointment, by the Board of Directors, of Wolf &
Company, P.C., as independent auditors for the
Registrant was ratified.
<TABLE>
<CAPTION>
For Against Abstained Broker Non-Votes
--- ------- --------- ----------------
<S> <C> <C> <C>
10,747,376 53,182 223,083 -
</TABLE>
ITEM 5 - OTHER INFORMATION
As of July 31, 1997, all shareholder approvals have been received for
the acquisitions of Community Bankshares, Inc. and Portsmouth Bank
Shares, Inc. The final exchange ratios for the transactions are
expected to be determined in August under the terms of the respective
agreements. All regulatory approvals have been received, other than
the Massachusetts approvals expected in August.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
99.1 Press Release, dated July 31, 1997, announcing
the shareholder approval of Community and
Portsmouth mergers; regulatory approvals
received or expected shortly.
(b) REPORTS ON FORM 8-K
(i) None
-21-
<PAGE> 24
CFX CORPORATION AND SUBSIDIARIES
JUNE 30, 1997
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
August 14, 1997 By: /s/
--------------------------------
Gregg R. Tewksbury
Authorized Officer
Chief Financial Officer
-22-
<PAGE> 25
CFX CORPORATION AND SUBSIDIARIES
JUNE 30, 1997
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
August 14, 1997 By: /s/
------------------------------
Gregg R. Tewksbury
Authorized Officer
Chief Financial Officer
-22-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1997
<PERIOD-END> JUN-30-1996 JUN-30-1996 JUN-30-1997
<CASH> 0 0 58,846
<INT-BEARING-DEPOSITS> 0 0 211
<FED-FUNDS-SOLD> 0 0 10,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0 364,360
<INVESTMENTS-CARRYING> 0 0 30,247
<INVESTMENTS-MARKET> 0 0 30,301
<LOANS> 0 0 1,286,669
<ALLOWANCE> 0 0 16,042
<TOTAL-ASSETS> 0 0 1,859,030
<DEPOSITS> 0 0 1,258,360
<SHORT-TERM> 0 0 297,919
<LIABILITIES-OTHER> 0 0 17,672
<LONG-TERM> 0 0 326,754
0 0 0
0 0 0
<COMMON> 0 0 8,788
<OTHER-SE> 0 0 129,537
<TOTAL-LIABILITIES-AND-EQUITY> 0 0 1,859,030
<INTEREST-LOAN> 42,427 21,652 49,992
<INTEREST-INVEST> 9,532 4,888 11,438
<INTEREST-OTHER> 352 673 336
<INTEREST-TOTAL> 26,892 52,632 61,766
<INTEREST-DEPOSIT> 9,929 20,008 22,159
<INTEREST-EXPENSE> 12,573 24,612 30,982
<INTEREST-INCOME-NET> 14,319 28,020 30,784
<LOAN-LOSSES> 1,655 750 1,404
<SECURITIES-GAINS> 356 146 127
<EXPENSE-OTHER> 23,027 11,450 24,771
<INCOME-PRETAX> 11,162 6,111 13,187
<INCOME-PRE-EXTRAORDINARY> 7,568 4,013 9,549
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 0 9,549
<EPS-PRIMARY> .59 .31 .73
<EPS-DILUTED> 0 0 0
<YIELD-ACTUAL> 4.33 4.35 4.07
<LOANS-NON> 0 0 7,730
<LOANS-PAST> 0 0 31,456
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 15,449 0 15,740
<CHARGE-OFFS> 2,008 0 1,584
<RECOVERIES> 335 0 482
<ALLOWANCE-CLOSE> 15,431 0 16,042
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<PAGE> 1
Exhibit 99.1
[CFX NEWS RELEASE LETTERHEAD]
SHAREHOLDERS APPROVE COMMUNITY
AND PORTSMOUTH MERGERS; REGULATORY
APPROVALS IN HAND OR EXPECTED SHORTLY
Keene, NH, July 31, 1997 -- CFX Corporation (AMEX: CFX) announced today
that all shareholder approvals necessary for its mergers with Community
Bankshares, Inc. (NASDAQ: CBNH) and Portsmouth Bank Shares, Inc. (NASDAQ: POBS)
have been received. Both transactions are scheduled to close in the third
quarter of 1997.
Shareholders of CFX approved the transactions at their annual meeting
held on July 30, 1997. Community shareholder approval was received at a special
meeting also held on July 30, 1997. In addition, Portsmouth shareholder
approval was received at their annual meeting held earlier today. CFX
shareholders also re-elected directors, voted to amend the Articles of
Incorporation to increase the authorized shares of CFX Common Stock, approved a
new stock option plan, approved the amended and restated 1992 Employee Stock
Purchase Plan, and ratified the appointment of auditors.
The final exchange ratios for the Community and Portsmouth transactions
will be determined in August under the terms of the respective agreements. All
regulatory approvals have been received, other than the Massachusetts approvals
expected next month. It is anticipated that the transactions will be accounted
for by the pooling-of-interests method of accounting.
CFX Corporation is a multi-bank holding company with total assets of $1.86
billion as of June 30, 1997. The Company's three banking subsidiaries are CFX
Bank, headquartered in Keene, New Hampshire, Orange Savings Bank, headquartered
in Orange, Massachusetts, and The Safety Fund National Bank, headquartered in
Fitchburg, Massachusetts. CFX Mortgage, Inc., CFX Bank's mortgage banking
subsidiary, services approximately $895 million in mortgage loans for others.
In addition, CFX Funding L.L.C., a 51% owned subsidiary of CFX Bank that
engages in the facilitation of lease financing and rated securitizations, now
services over $117 million in leases for others. The Company operates 43 full
service offices, 3 loan production offices, and 68 automated teller and remote
service banking locations in New Hampshire and central Massachusetts, and
operates a trust division with $405 million in assets.
Upon completion of the pending acquisitions and planned increases in the
balance sheet leverage associated with the Portsmouth transaction, it is
anticipated that the Company will have $2.8 billion in assets, 58 full-service
banking offices, 3 loan production offices and 88 automated teller and remote
service locations in New Hampshire and central Massachusetts.
Portsmouth Bank Shares, Inc., a bank holding company headquartered in
Portsmouth, New Hampshire, has 3 full-service branches, and $259 million in
total assets as of June 30, 1997. Community Bankshares, Inc., a bank holding
company, headquartered in Concord, New Hampshire, has 12 full-service branches
and total assets of $616 million as of June 30, 1997.
###
