<PAGE> 1
UNITED STATES
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 Ended June 30, 1996 Commission File No. 0-18609
CFSB BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-2920051
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
112 East Allegan
Lansing, Michigan 48933
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (517) 371-2911
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
----- -----
There were 4,442,541 shares of the Registrant's $0.01 par value common stock
outstanding as of July 31, 1996.
<PAGE> 2
CFSB BANCORP, INC., AND SUBSIDIARY
Contents
Pages
-----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
at June 30, 1996, and December 31, 1995 (unaudited) 1
Consolidated Statements of Operations for the three months
ended June 30, 1996 and 1995 (unaudited) and for the
six months ended June 30, 1996 and 1995 (unaudited) 2
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 (unaudited) 4-5
Notes to Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-21
PART II - OTHER INFORMATION 22
SIGNATURES 23
<PAGE> 3
CFSB BANCORP, INC., AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 5,623,501 $ 7,070,041
Interest-earning deposits with Federal Home
Loan Bank and other depository institutions,
at cost which approximates market 11,690,289 22,654,134
Investment securities available for sale, at fair value 36,032,200 55,109,533
Mortgage-backed securities available for sale, at fair value - 607,895
Mortgage-backed securities held to maturity, net
(fair value $30,506,487 - 1996 and $35,160,963 - 1995) 30,314,214 34,548,012
Loans receivable, net 670,029,055 610,284,070
Accrued interest receivable, net 5,111,443 4,883,233
Real estate, net - 21,717
Premises and equipment, net 11,398,952 11,223,147
Stock in Federal Home Loan Bank of Indianapolis, at cost 8,820,700 8,536,800
Deferred federal income tax benefit 460,296 326,258
Other assets 12,129,438 6,152,932
------------ ------------
Total assets $791,610,088 $761,417,772
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $537,525,724 $527,816,178
Advances from Federal Home Loan Bank 174,674,796 160,649,376
Advance payments by borrowers for taxes and insurance 5,663,922 1,281,043
Accrued interest payable 3,548,457 3,474,063
Federal income taxes payable 847,197 783,000
Other liabilities 4,282,955 4,671,091
------------ ------------
Total liabilities 726,543,051 698,674,751
------------ ------------
Stockholders' equity:
Serial preferred stock, $0.01 par value; authorized
2,000,000 shares; issued - none - -
Common stock, $0.01 par value; authorized 10,000,000
shares; issued 4,518,478 shares 45,185 45,185
Additional paid-in capital 34,437,842 34,389,162
Retained income - substantially restricted 32,171,909 29,852,980
Net unrealized gains (losses) on available-for-sale securities,
net of tax benefit (expense) of $97,122 - 1996 and ($36,917)-1995 (188,530) 71,661
Employee Stock Ownership Plan (575,351) (691,294)
Treasury stock, at cost; 51,737 shares - 1996 and
62,668 shares - 1995 (824,018) (924,673)
------------ ------------
Total stockholders' equity 65,067,037 62,743,021
------------ ------------
Total liabilities and stockholders' equity $791,610,088 $761,417,772
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
CFSB BANCORP, INC., AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------------------------ ------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $ 12,593,062 $ 10,855,720 $ 24,707,604 $ 21,320,612
Mortgage-backed securities 598,085 1,089,588 1,247,338 2,202,798
Investment securities 594,740 1,019,319 1,262,453 2,227,935
Other 279,654 256,502 633,750 498,345
------------ ------------ ------------ ------------
Total interest income 14,065,541 13,221,129 27,851,145 26,249,690
INTEREST EXPENSE:
Deposits, net 5,849,951 6,006,040 11,850,728 11,489,131
Federal Home Loan Bank advances 2,494,168 2,172,339 4,912,189 4,610,010
------------ ------------ ------------ ------------
Total interest expense 8,344,119 8,178,379 16,762,917 16,099,141
Net interest income before provision
for loan losses 5,721,422 5,042,750 11,088,228 10,150,549
Provision for loan losses 60,000 60,000 120,000 120,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 5,661,422 4,982,750 10,968,228 10,030,549
OTHER INCOME (LOSS):
Service charges and other fees 814,474 686,925 1,582,328 1,209,628
Loan servicing income 102,960 120,534 213,944 243,817
Losses on sales of investment securities
available for sale, net (11,419) (2,975) (11,419) (2,975)
Gains (losses) on sales of loans, net (4,378) 24,268 101,821 28,557
Real estate operations, net (15,000) (30,000) (30,000) (60,000)
Other, net 20,305 129,337 71,369 194,180
------------ ------------ ------------ ------------
Total other income 906,942 928,089 1,928,043 1,613,207
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation, payroll taxes, and fringe benefits 2,180,029 2,042,108 4,227,532 4,059,130
Office occupancy and equipment 554,818 518,306 1,140,536 1,043,231
Federal insurance premiums 342,021 329,006 685,575 658,013
Data processing 89,022 101,275 173,086 153,294
Marketing 196,947 154,367 392,996 298,063
Other, net 747,821 590,942 1,424,639 1,241,141
------------ ------------ ------------ ------------
4,110,658 3,736,004 8,044,364 7,452,872
Loan origination costs capitalized (256,364) (127,667) (392,080) (235,559)
------------ ------------ ------------ ------------
Total general and administrative expenses 3,854,294 3,608,337 7,652,284 7,217,313
------------ ------------ ------------ ------------
Income before federal income tax expense 2,714,070 2,302,502 5,243,987 4,426,443
Federal income tax expense 863,000 715,000 1,678,000 1,373,000
------------ ------------ ------------ ------------
Net income $ 1,851,070 $ 1,587,502 $ 3,565,987 $ 3,053,443
============ ============ ============ ============
EARNINGS PER SHARE:
Primary $ 0.40 $ 0.34 $ 0.77 $ 0.66
============ ============ ============ ============
Fully diluted $ 0.40 $ 0.34 $ 0.77 $ 0.66
============ ============ ============ ============
DIVIDENDS PAID PER SHARE $ 0.11 $ 0.10 $ 0.22 $ 0.20
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
CFSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Additional Gains (Losses) Commitment Total
Common Paid-in Retained On Available-For- for ESOP Treasury Stockholders'
Stock Capital Income Sale Securities Debt Stock Equity
------- ----------- ----------- ----------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $45,185 $34,389,162 $29,852,980 $ 71,661 $(691,294) $(924,673) $62,743,021
Net income - - 3,565,987 - - - 3,565,987
Stock options exercised - - (217,124) - - 309,405 92,281
Repayment of ESOP debt - - - - 115,943 - 115,943
Cash dividends on common
stock - $0.23 per share - - (1,029,934) - - - (1,029,934)
Treasury stock purchased - - - - - (208,750) (208,750)
Tax benefit of ESOP dividends - 15,130 - - - - 15,130
Tax benefit associated with
exercise of stock options - 33,550 - - - - 33,550
Change in market value
of available-for-sale
securities, net - - - (260,191) - - (260,191)
------- ----------- ----------- --------- --------- --------- -----------
Balance at
June 30, 1996 $45,185 $34,437,842 $32,171,909 $(188,530) $(575,351) $(824,018) $65,067,037
======= =========== =========== ========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
CFSB BANCORP, INC., AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,565,987 $ 3,053,443
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 657,499 584,470
Provision for loan losses 120,000 120,000
Provision for real estate losses 30,000 60,000
Net amortization of premiums and accretion of discounts 268,142 634,344
Loan origination fees, net of costs deferred 58,494 221,941
Amortization of loan fees (144,977) (187,429)
Loans originated for sale (18,588,895) (2,391,675)
Proceeds from sales of loans originated for sale 13,924,936 2,216,149
Net gains on sales of loans and securities (90,402) (25,582)
Net (gains) losses on sales and disposals of premises and equipment 27,716 (2,042)
Net (gains) losses on sales of repossessed assets (430) 3,996
Recoveries of losses 18,868 34,456
Increase in accrued interest receivable (228,210) (206,396)
Increase in accrued interest payable 74,394 605,382
Increase in federal income taxes payable 143,000 423,000
Increase (decrease) in other liabilities (551,490) 338,914
Decrease (increase) in other assets (6,113,377) 3,783,862
------------ ------------
Net cash provided (used) by operating activities (6,828,745) 9,266,833
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (10,041,125) (5,065,650)
Proceeds from sales of investment securities available for sale 10,042,188 13,906,169
Principal repayments and maturities of investment
securities held to maturity - 8,000,000
Principal repayments and maturities of investment
securities available for sale 18,420,000 3,500,000
Loan originations (net of undisbursed loans in process) (78,102,486) (60,304,664)
Loans purchased (31,733,987) (24,100,790)
Proceeds from sales of loans 1,977,550 1,394,354
Principal repayments on loans 52,696,783 37,193,142
Principal repayments and maturities on mortgage-backed
securities available for sale 609,993 1,698,851
Principal repayments and maturities on mortgage-backed
securities held to maturity 4,214,179 3,802,826
Proceeds from sales, redemptions, and settlements of
real estate owned, net 374,341 338,861
Proceeds from sales of repossessed assets 5,510 6,304
Capitalized additions to real estate owned, net of recoveries (23,518) 2,181
Purchases of premises and equipment (865,645) (285,897)
Proceeds from sales and disposals of premises and equipment 4,624 2,042
Purchases of Federal Home Loan Bank stock (283,900) (374,000)
------------ ------------
Net cash used by investing activities (32,705,493) (20,286,271)
</TABLE>
4
<PAGE> 7
CFSB BANCORP, INC., AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 9,709,546 $ 21,400,065
Stock options exercised 92,281 55,761
Purchase of treasury stock (103,750) -
Net increase in advance payments by
borrowers for taxes and insurance 4,382,879 3,599,871
Federal Home Loan Bank advance repayments (9,721,539) (93,593,141)
Federal Home Loan Bank advances 23,746,959 83,020,247
Dividends paid on common stock (982,523) (887,085)
------------ ------------
Net cash provided by financing activities 27,123,853 13,595,718
------------ ------------
Net increase (decrease) in cash and cash equivalents (12,410,385) 2,576,280
Cash and cash equivalents at beginning of period 29,724,175 15,662,465
------------ ------------
Cash and cash equivalents at end of period $ 17,313,790 $ 18,238,745
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest expense $ 16,688,523 $ 15,493,759
Federal income taxes 1,535,000 950,000
Transfers of loans to real estate owned 107,733 264,637
Transfers of loans to repossessed assets 26,226 6,000
Loans charged-off 36,194 16,756
Loans to facilitate the sale of real estate owned 279,700 -
</TABLE>
5
<PAGE> 8
CFSB BANCORP, INC., AND SUBSIDIARY
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. 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 are included. The results of
operations for the three and six months ended June 30, 1996, are not
necessarily indicative of the results to be expected for the full year. These
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, for the year ended
December 31, 1995, included in the Corporation's 1995 Annual Report.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and transactions of
CFSB Bancorp, Inc. (Corporation) and its wholly-owned subsidiary, Community
First Bank (Bank), and the Bank's wholly-owned subsidiary, Capitol Consolidated
Financial Corporation (Capitol Consolidated), and Capitol Consolidated's
wholly-owned subsidiary, Allegan Insurance Agency. Intercompany transactions
and account balances are eliminated.
3. EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average number of
common shares and common share equivalents outstanding during the period.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following sections are designed to provide a more thorough discussion of
the Corporation's financial condition and results of operations as well as to
provide additional information on the Corporation's asset/liability management
strategies, sources of liquidity, and capital resources. Management's
discussion and analysis should be read in conjunction with the consolidated
financial statements and supplemental data contained elsewhere in this report.
GENERAL
CFSB Bancorp, Inc. (Corporation) is the holding company for Community First
Bank, a federal savings bank (Bank). Substantially all of the Corporation's
assets are currently held in, and operations conducted through its sole
subsidiary, Community First Bank. The Bank is a community-oriented financial
institution offering a variety of financial services to meet the needs of the
communities it serves. The Bank's primary market area is the greater Lansing
area, which is composed of the tri-county area of Clinton, Eaton, and Ingham
counties, the western townships of Shiawassee County, and the southwest corner
of Ionia County. The Bank's business consists primarily of attracting deposits
from the general public and using such deposits, together with Federal Home
Loan Bank (FHLB) advances, to make loans for the purchase and construction of
residential properties. To a lesser extent, the Bank also makes
income-producing property loans, commercial business loans, home equity loans,
and various types of consumer loans. The Bank's revenues are derived
principally from interest income on mortgage and other loans, mortgage-backed
securities, investment securities, and to a lesser extent, from fees and
commissions. The operations of the Bank, and the financial services industry
generally, are significantly influenced by general economic conditions and
related monetary and fiscal policies of financial institution regulatory
agencies. Deposit flows and cost of funds are impacted by interest rates on
competing investments and market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing is
offered.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1995
Net income for the three months ended June 30, 1996, was $1.9 million, or $0.40
per fully diluted share, a net increase of 16.6 percent, or $263,000, from $1.6
million, or $0.34 per fully diluted share, for the corresponding period in
1995. The Corporation's strong financial performance for the quarter reflected
a substantially improved net interest margin and controlled general and
administrative expense growth. Net income for the 1996 second quarter
represented a return on average assets of 0.95 percent, an increase from 0.87
percent for the 1995 second quarter and a return on average stockholders'
equity of 11.51 percent compared to 10.88 percent in 1995. The Corporation's
efficiency ratio, or operating expenses over recurring operating revenues, was
58.0 percent for the quarter ended June 30, 1996, an improvement from 60.6
percent for the quarter ended June 30, 1995.
7
<PAGE> 10
Net Interest Income
The most significant component of the Corporation's earnings is net interest
income, which is the difference between interest earned on loans,
mortgage-backed securities, investment securities and other earning assets, and
interest paid on deposits and FHLB advances. This amount, when annualized and
divided by average earning assets, is referred to as the net interest margin.
Net interest income and net interest margin are directly impacted by changes in
volume and mix of earning assets and interest-bearing liabilities, market rates
of interest, the level of non-performing assets, demand for loans, and other
market forces.
The following table presents the yields on the Corporation's earning assets and
costs of the Corporation's interest-bearing liabilities, the interest rate
spread, and the net interest margin for the three and six months ended June 30,
1996 and 1995, and at June 30, 1996, and December 31, 1995. The costs include
the annualized effect of the Corporation's interest rate exchange agreement.
<TABLE>
<CAPTION>
For the For the
Three Months Six Months
Ended Ended At At
June 30, June 30, June 30, December 31,
1996 1995 1996 1995 1996 1995
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average yield:
Loans receivable, net 7.66% 7.88% 7.69% 7.88% 7.64% 7.75%
Mortgage-backed securities 7.58 6.92 7.60 6.84 7.58 7.86
Investment securities 5.73 5.41 5.55 5.45 5.86 5.37
Interest-earning deposits 3.71 3.77 4.04 3.90 4.63 4.92
Other 7.22 7.48 7.40 7.46 7.25 7.61
---- ---- ---- ---- ---- ------
Total earning assets 7.49 7.49 7.49 7.46 7.50 7.49
Weighted average cost:
Savings, checking, and money
market accounts 2.45 2.80 2.52 2.85 2.44 2.76
Certificates of deposit 5.75 5.84 5.82 5.68 5.71 5.97
FHLB advances 6.02 6.25 6.05 6.29 6.03 6.02
---- ---- ---- ---- ---- ------
Total interest-bearing
liabilities 4.78 4.98 4.86 4.93 4.77 5.00
---- ---- ---- ---- ---- ------
Interest rate spread 2.71% 2.51% 2.63% 2.53% 2.73% 2.49%
==== ==== ==== ==== ==== ======
Net interest margin 3.04% 2.85% 2.96% 2.85% 3.05% 2.81%
==== ==== ==== ==== ==== ======
</TABLE>
8
<PAGE> 11
Net interest income before provision for loan losses was $5.7 million during
the second quarter of 1996, and represented a $678,000 increase compared to the
second quarter of 1995. Net interest income was positively affected by lower
deposit rates in 1996 and strong growth in earning assets. The Corporation's
net interest margin was 3.04 percent for the three months ended June 30, 1996,
an improvement from 2.85 percent for the comparable quarter of 1995. Because
the Corporation is liability sensitive, pressure may be felt on the
Corporation's net interest margin if short-term market interest rates rise. In
a falling interest rate environment, competition may pressure the Corporation's
net interest margin. A shift in the composition of average earning assets from
lower yielding more liquid assets toward higher-earning, longer-term assets
also contributed to an improved net interest margin during 1996. Average loans
receivable were $658.4 million in the second quarter of 1996 representing
growth of $107.0 million, or 19.4 percent, over average loans receivable of
$551.4 million in the same quarter a year earlier. The increased level of
loans outstanding resulted from originations of adjustable-rate mortgage loans
and purchases of adjustable- and fixed-rate, medium-term mortgage loans all of
which are held in the Corporation's portfolio.
The future trend of the Corporation's net interest margin and net interest
income may further be impacted by the level of mortgage loan originations,
purchases, repayments, and refinancings and a resulting change in the
composition of the Corporation's earning assets. The relatively flat yield
curve during the first quarter resulted in a shift toward more customers
exhibiting a preference for fixed-rate mortgage loans, most of which were
originated for sale in the secondary market. As the slope of the yield curve
began to steepen in the second quarter, customer preferences in the
Corporation's local market again favored adjustable-rate mortgage loans.
Additional factors affecting the Corporation's net interest income will
continue to be the volatility of interest rates, slope of the yield curve,
asset size, maturity/repricing activity, and competition.
Provision for Loan Losses
The allowance for loan losses, established through provisions for losses
charged to expense, is increased by recoveries of loans previously charged off
and reduced by charge-offs of loans. During the second quarter of 1996, the
provision for loan losses remained unchanged at $60,000 compared to the
year-ago period. Maintaining the current provision primarily resulted from
management's evaluation of the adequacy of the allowance for loan losses
including consideration of actual loss experience, delinquency rates, borrower
circumstances, current and projected economic conditions, the perceived risk
exposure among all loan types and other relevant factors. Management believes
the current provision and related allowance for loan losses is adequate to meet
current and potential credit risks in the current loan portfolio.
For more information on the Corporation's allowance for loan losses and
activity therein, reference is made to "Asset Quality."
9
<PAGE> 12
Other Income
Other income totaled $907,000 for the three months ended June 30, 1996,
relatively unchanged from $928,000 for the three months ended June 30, 1995.
During 1995, the Corporation introduced several highly competitive checking
account programs, and as a result, the Corporation has since opened a record
number of new accounts. The growing customer base has produced a
correspondingly higher level of transaction and account activity and generated
incremental fee income in 1996 as compared to 1995. More than offsetting the
impact of additional fee income was reduced other income from the Corporation's
third-party provider of alternative investments and non-recurring transactions
in both periods.
General and Administrative Expenses
General and administrative expenses were $3.9 million for the three months
ended June 30, 1996, an increase of $246,000 compared to $3.6 million for the
same quarter a year ago. The increase in general and administrative expenses
resulted from incremental marketing costs to attract new deposit accounts and
increased compensation costs to maintain the expanded account base. During the
second quarter of 1996, the Corporation opened a new branch office adjacent to
Michigan State University's campus and introduced its MoneyCard to its current
ATM customer base. This card serves as both an ATM card and a debit card
allowing customers to make direct withdrawals from their checking accounts when
making purchases at merchants accepting MasterCard. Costs incurred with the
promotion of the branch and the introduction of the debit card are expected to
be recovered through the generation of additional fee income in future periods.
The Bank is required to pay assessments based on a percentage of its insured
deposits to the Federal Deposit Insurance Corporation (FDIC) for insurance of
its deposits by the FDIC through the Savings Association Insurance Fund (SAIF).
Under the Federal Deposit Insurance Act, the FDIC is required to set
semi-annual assessments for SAIF-insured institutions at a level necessary to
maintain the designated reserve ratio of the SAIF at 1.25 percent of estimated
insured deposits or at a higher percentage of estimated insured deposits that
the FDIC determines to be justified for that year by circumstances indicating a
significant risk of substantial future losses to the SAIF. The assessment rate
currently ranges from 0.23 percent of insured deposits for well-capitalized
institutions to 0.31 percent of insured deposits for undercapitalized
institutions.
The FDIC also administers the Bank Insurance Fund (BIF), which has the same
designated reserve ratio as the SAIF. In late 1995, the FDIC amended the
risk-based assessment schedule to significantly lower the deposit insurance
assessment rate for most commercial banks and other depository institutions
with deposits insured by the BIF effective during the semi-annual period after
the BIF achieves its designated reserve ratio of 1.25 percent of BIF-insured
deposits. Under the new BIF assessment schedule, the assessment rates of
BIF-insured institutions range from 0.31 percent of insured deposits for
undercapitalized BIF-institutions to an annual payment of $2,000 for
well-capitalized institutions which constitute over 90 percent of BIF-insured
institutions. The BIF achieved the designated reserve ratio during 1995. The
FDIC does not
10
<PAGE> 13
anticipate the assessment rate for SAIF-insured institutions in even the lowest
risk-based premium category will fall below the current 0.23 percent of insured
deposits before the year 2002 absent a recapitalization of the SAIF. The new
BIF assessment schedule results in a substantial disparity in the deposit
insurance premiums paid by BIF and SAIF members and places SAIF-insured savings
associations such as the Bank at a competitive disadvantage to BIF-insured
institutions.
A number of proposals are being considered to recapitalize the SAIF in order to
eliminate the insurance premium disparity. Proposed legislation provides for a
one-time assessment currently estimated to be 80 to 85 basis points of insured
deposits that would fully capitalize the SAIF. Under this proposal, the BIF
and SAIF would be merged into one fund. It is unknown whether this
legislation will be enacted or whether premiums for either BIF or SAIF members
will be adjusted in the future by the FDIC or by legislative action. If a
special assessment as described above were to be required, it would result in a
one-time after-tax charge to the Bank of up to $3.0 million, assuming such
charge would be tax deductible and the special assessment is based on deposits
held at June 30, 1996. If such a special assessment were required, while the
Corporation's net income would initially be negatively impacted, the SAIF as a
result would be fully recapitalized and this would have the effect of reducing
the Bank's future deposit insurance premiums to the SAIF, thereby increasing
net income in future periods, and restoring competitive equality between
BIF-insured and SAIF-insured institutions.
Federal Income Tax Expense
Federal income tax expense was $863,000 for the three months ended June 30,
1996, compared to $715,000 for the comparable 1995 quarter. The increase in
federal income tax expense resulted primarily from a higher level of pre-tax
earnings.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1995
Net income for the six months ended June 30, 1996, was $3.6 million compared to
$3.1 million for the same period in 1995, a net increase of $512,000.
Principally accounting for this increase in net income between years was
significant growth in the Corporation's 1996 net interest margin and improved
fee income partially offset by increased general and administrative expenses.
The comparability of net earnings was also influenced by an increase in the
Corporation's effective tax rate. Net income for the six months ended June 30,
1996, represented a return on average stockholders' equity of 11.18 percent, an
increase from 10.69 percent in the 1995 period and a return on average assets
of 0.93 percent, an increase from 0.84 percent in the 1995 period. The
Corporation's efficiency ratio, or operating expenses over recurring operating
revenues, was 59.2 percent for the six months ended June 30, 1996, an
improvement from 61.5 percent in the year earlier period.
11
<PAGE> 14
Net Interest Income
Net interest income before provision for loan losses was $11.1 million during
the first six months of 1996, and represented a $937,000 increase compared to
the same period of 1995. Net interest income was positively affected by lower
deposit rates in 1996 and strong growth in earning assets. The Corporation's
net yield on average earning assets was 2.96 percent for the six months ended
June 30, 1996, an improvement from 2.85 percent for the comparable six-month
period of 1995. A shift in the composition of average earning assets from
lower yielding, more liquid assets toward higher earning, longer term assets
also contributed to an improved net interest margin.
Provision for Loan Losses
The provision for loan losses was $120,000 during both the six months ended
June 30, 1996 and 1995. Management believes the current provision and related
allowance for loan losses is adequate to meet current and potential credit
risks in the current loan portfolio.
Other Income
Other income was $1.9 million for the six months ended June 30, 1996, an
increase of $315,000 compared to $1.6 million for the six months ended June 30,
1995. Growth in other income resulted primarily from increased deposit fees
assessed on a higher level of transaction account activity. Although offset in
part by a lower-of-cost or market adjustment on loans held for sale in the
secondary market, increased gains on loan sales, including the impact of
adopting SFAS 122, also contributed to the higher level of other income.
Reduced other income resulted from several non-recurring transactions in both
periods.
Effective January 1, 1996, the Corporation adopted the provisions of SFAS 122.
This statement requires the Corporation to recognize as separate assets rights
to service mortgage loans for others, however those servicing rights are
acquired. Prior to adoption of SFAS 122, the Corporation had no assets
capitalized for originated or purchased servicing rights. The fair value of
capitalized originated mortgage servicing rights is determined based on the
estimated discounted net cash flows to be received. In applying this valuation
method, the Corporation uses assumptions market participants would use in
estimating future net servicing income, which includes estimates of the cost of
servicing per loan, the discount rate, float value, an inflation rate,
ancillary income per loan, prepayment speeds, and default rates. Originated
mortgage servicing rights are amortized in proportion to and over the period of
estimated net loan servicing income. These capitalized mortgage servicing
rights are periodically reviewed for impairment based on the fair value of
those rights.
The ongoing impact of SFAS 122 will depend upon demand in the Corporation's
lending market for fixed-rate residential mortgage loans salable in the
secondary mortgage market. The Corporation capitalized approximately $117,000
of originated mortgage servicing rights during the six months ended June 30,
1996, of which $8,000 has been amortized. No valuation allowances for
capitalized originated mortgage servicing rights were considered necessary as
of June 30, 1996.
12
<PAGE> 15
General and Administrative Expenses
General and administrative expenses were $7.7 million for the six months ended
June 30, 1996, an increase of $435,000 compared to $7.2 million for the same
period a year ago. Compensation rose between periods as a result of upward
merit-based salary adjustments and an increased provision for the management
incentive program partly offset by the effect of fewer full-time equivalent
employees. Furniture and equipment depreciation increased over the comparable
1995 period primarily as a result of accelerating the depreciation on the
computer equipment purchased in conjunction with the May 1994 conversion to
more closely reflect the estimated remaining life of this equipment. The
recent introduction of the MoneyCard resulted in debit card embossment and
servicing charges not previously incurred in the 1995 period. Marketing
expense also increased over the 1995 period principally as the result of the
continued promotion of the Corporation's checking account products.
Federal Income Tax Expense
Federal income tax expense was $1.7 million for the six months ended June 30,
1996, an increase of $305,000 from $1.4 million for the comparable 1995 period.
The increase in federal income tax expense resulted from a higher level of
pre-tax earnings combined with an increase in the Corporation's effective tax
rate from 31.0 percent to 32.0 percent for 1996. The increase in the effective
tax rate is the result of accounting for changes in the Corporation's tax
reserves under Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). To the extent the Corporation's loan and
mortgage-backed security portfolio increased during 1995, a deferred tax
liability for the excess of the Corporation's tax bad debt reserves over the
amount of such reserves as of December 31, 1987, was reduced which had the
effect of lowering the Corporation's effective tax rate. The Corporation's
adjusted base-year tax bad debt reserve increased during 1995 to the level of
the Corporation's actual base-year tax bad debt reserve. As a result, 1996
growth in the Corporation's loan and mortgage-backed securities portfolio will
result neither in a reduced liability nor lowered tax expense. The
Corporation's federal income tax expense was also favorably impacted during
both periods by the expected annual use of $228,000 of low-income housing
federal income tax credits.
ASSET QUALITY
The following table presents the Corporation's nonperforming assets.
Management normally considers loans to be nonperforming when payments are 90
days or more past due, when credit terms are renegotiated below market levels,
or when an analysis of an individual loan indicates repossession of the
collateral may be necessary to satisfy the loan. As of June 30, 1996, the
Corporation had no loans which were "troubled debt restructurings" as defined
in Statement of Financial Accounting Standards No. 15, Accounting by Debtors
and Creditors for Troubled Debt Restructurings. Additionally, management,
after reviewing the Corporation's commercial business and income-producing loan
portfolios, does not believe it has any nor has had any impaired loans, as
defined by Statement of Financial Accounting Standards No. 114, Accounting
13
<PAGE> 16
by Creditors for Impairment of a Loan, at or during the quarter
ended June 30, 1996. The Corporation, however, had $11,000 and $17,000 of
loans on accrual status as of June 30, 1996, and December 31, 1995,
respectively, which were 90 days or more delinquent. Payment of interest on
such loans was either guaranteed or otherwise fully collectible. For purposes
of presentation, these loans are included as nonaccruing loans in the following
table.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
(dollars in thousands)
Nonaccruing loans:
One- to four-family
residential mortgages $ 426 $ 68
FHA-partially insured
and VA-partially guaranteed 120 253
Consumer installment 129 28
----- -----
Total $ 675 $ 349
===== =====
Percentage of total assets 0.09% 0.05%
===== =====
Real estate owned:(1)
One-to four-family
residential mortgages $ 56 $ 238
Construction and development 26 7
----- -----
Total $ 82 $ 245
===== =====
Percentage of total assets 0.01% 0.03%
===== =====
Total nonaccruing loans
and real estate owned $ 757 $ 594
===== =====
Percentage of total assets 0.10% 0.08%
===== =====
</TABLE>
(1) Real estate owned includes properties in redemption and acquired through
foreclosure.
14
<PAGE> 17
The following is a summary of the Corporation's loan and real estate owned loss
experience from December 31, 1992, through June 30, 1996.
<TABLE>
<CAPTION>
Real
Loans Estate Total
----------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1992 $3,836,856 $ 236,894 $4,073,750
Provision for losses 240,000 330,000 570,000
Charges against the allowance (347,789) (535,479) (883,268)
Recoveries 117,666 135,672 253,338
---------- --------- ----------
Balance at December 31, 1993 3,846,733 167,087 4,013,820
Provision for losses 240,000 565,000 805,000
Charges against the allowance (153,263) (711,937) (865,200)
Recoveries 190,448 55,823 246,271
---------- --------- ----------
Balance at December 31, 1994 4,123,918 75,973 4,199,891
Provision for losses 240,000 120,000 360,000
Charges against the allowance (55,107) (34,614) (89,721)
Recoveries 54,328 62,218 116,546
---------- --------- ----------
Balance at December 31, 1995 4,363,139 223,577 4,586,716
Provision for losses 120,000 30,000 150,000
Charges against the allowance (36,194) (26,690) (62,884)
Recoveries 18,868 106,036 124,904
---------- --------- ----------
Balance at June 30, 1996 $4,465,813 $ 332,923 $4,798,736
========== ========= ==========
</TABLE>
While the $4.5 million allowance for loan losses at June 30, 1996, grew from
$4.4 million at December 31, 1995, the allowance for loan losses as a
percentage of total loans as of June 30, 1996, declined to 0.65 percent
compared to 0.69 percent at December 31, 1995, and 0.74 percent at June 30,
1995. Nonperforming assets as a percentage of total assets declined from 0.44
percent at June 30, 1995, to 0.08 percent at December 31, 1995, and increased
slightly to 0.10 percent at June 30, 1996.
Management believes the current provision and related allowance for loan and
real estate owned losses is adequate to meet current and potential credit risks
in the current loan and real estate owned portfolios, although there can be no
assurances the related allowances may not have to be increased in the future.
ASSET/LIABILITY MANAGEMENT
The operating results of the Corporation are dependent, to a large extent, upon
its net interest income, which is the difference between its interest income
from interest-earning assets, such as loans, mortgage-backed securities and
investment securities, and interest expense on interest-
15
<PAGE> 18
bearing liabilities, such as deposits and FHLB advances. In recent years,
financial institutions have experienced significant fluctuations in net
interest income caused by rapidly changing interest rates and by differences in
the repricing characteristics of their interest-earning assets and
interest-bearing liabilities.
One indicator used to measure interest rate risk is the one-year gap which
represents the difference between interest-earning assets which mature or
reprice within one year and interest-bearing liabilities which mature or
reprice within one year. The Corporation's one-year gap was a negative 11.5
percent at June 30, 1996, compared to a negative 7.1 percent at December 31,
1995, and the Corporation's three-to-five-year gap was a negative 1.4 percent
at June 30, 1996, compared to a negative 0.6 percent at December 31, 1995. The
change in the Corporation's negative gap position between periods is primarily
the result of using available liquidity from shorter-term net deposit inflows,
the proceeds from maturities and repayments of investment and mortgage-backed
securities, and short-term FHLB borrowings to fund the origination of
three-year adjustable-rate mortgages and the purchase of medium-term fixed- and
adjustable-rate mortgage loans.
LIQUIDITY AND CAPITAL RESOURCES
Total assets rose to $791.6 million at June 30, 1996, an increase of $30.2
million, or 4.0 percent, from $761.4 million at December 31, 1995.
The Corporation's regulatory liquidity ratios at June 30, 1996, and December
31, 1995, were 8.8 percent and 12.7 percent, respectively. The Corporation
anticipates it will have sufficient funds available to meet current commitments
either through operations, deposit growth, or borrowings from the FHLB. At
June 30, 1996, the Corporation had total outstanding mortgage loan commitments
of $36.3 million of which $28.2 million were for adjustable-rate loans and $8.1
million were for fixed-rate loans. The interest rate on fixed-rate loans
generally is not determined until the approximate closing date. Loans in
process at quarter-end June 1996 totaled $12.0 million and primarily
represented undrawn funds on adjustable- and fixed-rate construction loans of
$10.6 million and $1.4 million, respectively. The Corporation also had
commitments to extend adjustable-rate home equity lines of credit in the amount
of $30.4 million at June 30, 1996. There were $1.7 million of loans in process
or undrawn lines of credit on installment and commercial business loans as of
June 30, 1996. The Corporation had no firm commitments to purchase mortgage
loans and had commitments to sell $0.9 million of fixed-rate, residential
mortgage loans at June 30, 1996. Approximately $8.8 million of one- to
four-family residential, fixed-rate mortgage loans was held for sale at
June 30, 1996, with a weighted average interest rate of 7.9 percent.
Lending
Loans receivable increased $59.7 million, or 9.8 percent, to $670.0 million at
June 30, 1996, from $610.3 million at December 31, 1995, and increased $105.8
million, or 18.8 percent from $564.2 million at June 30, 1995.
16
<PAGE> 19
The Corporation originated $59.0 million and $96.5 million of loans during the
second quarter and first half of 1996, respectively, a substantial increase
from $33.2 million and $62.1 million during the comparable periods of 1995,
respectively. The volatility of the interest rate environment during 1996
resulted in significant loan demand. As rates moved lower during early 1996,
customers sought to refinance their mortgages and as market rates edged upward,
customers sought to secure a mortgage loan with a favorable interest rate. As
a result of more refinancings and in general, greater origination activity,
principal repayments on loans were higher. The Corporation received principal
repayments on loans of $24.2 million and $52.7 million during the three and six
months ended June 30, 1996, respectively, compared to $20.6 million and $37.2
million during the second quarter and first half of 1995, respectively. The
following schedule sets forth the Corporation's loan originations for the three
and six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Fixed-rate:
One- to four-family residential $ 9,798 $ 2,968 $21,332 3,754
Income-producing - - 758 -
FHA-insured and VA-partially guaranteed 78 - 143 -
Construction and development:
One- to four-family residential 1,805 - 3,414 -
Commercial 253 83 263 144
Consumer 5,510 3,922 8,924 7,037
------- ------- -------- -------
17,444 6,973 34,834 10,935
Adjustable-rate:
One- to four-family residential 21,512 9,967 28,897 17,952
Income-producing 610 608 610 703
Construction and development:
One- to four-family residential 11,679 9,968 18,617 20,149
Income-producing 1,705 1,402 2,305 4,377
Commercial 730 671 1,750 907
Consumer 5,338 3,604 9,490 7,092
------- ------- ------- -------
41,574 26,220 61,669 51,180
------- ------- ------- -------
Total originations $59,018 $33,193 $96,503 $62,115
======= ======= ======= =======
</TABLE>
During the quarters ended June 30, 1996 and 1995, the Corporation sold
primarily fixed-rate loans aggregating $6.6 million and $2.5 million,
respectively. Loan sales for the six-month periods ended June 30, 1996 and
1995, were $15.8 million and $3.6 million, respectively. The level of loan
sales is partially a function of the interest rate environment. When the
spread between fixed and adjustable mortgage interest rates was relatively wide
in the first half of 1995,
17
<PAGE> 20
mortgage loan originations reflected customer preferences in the Corporation's
market area for adjustable-rate loans which are retained in the Corporation's
portfolio. In the first half of 1996, however, the spread between fixed and
adjustable mortgage rates narrowed and there was a proportionately higher
concentration of fixed-rate mortgage loan applications and subsequent closings.
Consequently, there has been a higher level of sales in 1996.
During the three months ended June 30, 1996 and 1995, the Corporation purchased
from an unaffiliated financial institution $11.6 million and $24.1 million of
one- to four-family residential, fixed- and adjustable-rate, medium-term
mortgage loans, respectively. Loans purchased during the first quarter of 1996
totaled $20.1 million and there were no purchases during the 1995 first
quarter. The Corporation purchases residential loans to supplement and
complement its own mortgage loan production; purchases are also dependent upon
product availability.
Investment and Mortgage-Backed Securities
At December 31, 1995, investment and mortgage-backed securities available for
sale included unrealized net gains of $109,000 reported net of $37,000 of
federal income tax expense. Throughout the first half of 1996, market interest
rates generally climbed which unfavorably impacted the market value of the
principally fixed-rate investment and mortgage-backed securities available for
sale. At June 30, 1996, investment and mortgage-backed securities available
for sale included unrealized net losses of $286,000 reported net of $97,000 of
federal income tax benefit as a separate component of stockholders' equity.
The Corporation had no investment or mortgage-backed securities classified as
trading securities as of June 30, 1996.
Included in the composition of the Corporation's earning assets at June 30,
1996, were $30.3 million of mortgage-backed securities, a 13.8 percent decline
from the $35.2 million held at December 31, 1995. The relatively low interest
rate environment of early 1996 led to a more predominant refinance market and
resulted in acceleration of principal repayments on the mortgage loans
underlying these securities. While outstanding balances of mortgage-backed
securities were twice as high in 1995, principal repayments and maturities of
$4.8 million in the first half of 1996 approached the level of $5.5 million in
the comparable year-ago period. The Corporation did not purchase or sell any
mortgage-backed securities during the quarters or six months ended June 30,
1996 or 1995. The approximate fair value of the mortgage-backed securities
portfolio was $30.5 million at June 30, 1996, with gross unrealized gains and
losses of $413,000 and $220,000, respectively.
At June 30, 1996, the level of the Corporation's investment securities
portfolio declined to $36.0 million from $55.1 million at December 31, 1995.
The decrease in investment securities resulted principally from the maturity of
$14.1 million of investment securities, call options being exercised on $4.3
million of available-for-sale investment securities, and $10.0 million of sales
of investment securities available for sale. Proceeds from the maturities,
calls, and sales were, in part, used to purchase $7.0 million of
available-for-sale medium-term federal agency and corporate securities and a
$3.0 million available-for-sale medium-term U.S. Treasury security. The
proceeds from the maturities, calls, and sales also contributed to funding loan
originations
18
<PAGE> 21
and loan purchases. The approximate fair value of the Corporation's investment
securities was $36.0 million at June 30, 1996, with gross unrealized gains and
losses of $59,000 and $344,000, respectively.
Deposits
Total deposits grew from $527.8 million at December 31, 1995, to $537.5 million
at June 30, 1996. The $9.7 million increase resulted from transaction account
growth of $12.3 million partially offset by $2.6 million of net certificate of
deposit withdrawals. During 1995, the Corporation introduced Really Free
Checking and five other highly competitive checking account programs. To
support these checking account programs, the Corporation conducted a
comprehensive marketing campaign. As a result, a record number of new checking
accounts were opened during 1995. The continued promotion of Really Free
Checking in 1996 has resulted in an expansion of the Corporation's deposit base
through attracting new customers and cross-selling other Bank products to
existing customers.
Borrowings
Since mid-1993, borrowings from the FHLB have been an integral component of the
Corporation's funding strategy. Borrowings replaced maturing certificates of
deposit and other deposit withdrawals, funded asset growth, and were used to
manage interest rate risk. FHLB advances grew from $77.8 million at December
31, 1993, to $174.7 million at June 30, 1996. Of the outstanding FHLB advances
at June 30, 1996, $130.8 million carried a weighted average fixed-rate of 6.1
percent. Adjustable-rate advances at June 30, 1996, totaled $43.9 million, all
of which reprice based upon three-month LIBOR or prime. FHLB advances were
obtained, as needed in the first half of 1996, to meet the Corporation's
operating needs which included the funding of three-year adjustable-rate
mortgage loan originations. Recognizing there is additional interest rate risk
associated with funding medium-term assets with shorter-term liabilities in a
rising or volatile interest rate environment, the Corporation emphasized
increasing its deposit base by attracting new customers through various
promotional activities.
Capital
Total stockholders' equity was $65.1 million at June 30, 1996, a $2.3 million,
or 3.7 percent increase, compared to the 1995 year-end total of $62.7 million.
Book value per share correspondingly increased to $14.57 at June 30, 1996, from
$14.08 per share at December 31, 1995. The increases were primarily the result
of net income for the six months ended June 30, 1996, offset in part by
dividend declarations. Although stockholders' equity increased during the 1996
period, total assets also grew during 1996 and the ratio of stockholders'
equity to assets remained relatively unchanged at 8.22 percent at June 30,
1996, compared to 8.24 percent at December 31, 1995.
Community First Bank's regulatory capital ratios are well in excess of minimum
capital requirements specified by federal banking regulations. During 1993,
the Office of Thrift Supervision (OTS) issued a final rule adding an interest
rate risk component to the risk-based
19
<PAGE> 22
capital requirement for thrift institutions. The regulation requires thrifts
with a greater than normal interest rate exposure to take a deduction from the
total capital available to meet their risk-based capital requirements. The OTS
measures an institution's interest rate risk as a percentage change in the
market value of its portfolio resulting from a hypothetical 200-basis-point
shift in interest rates. The deduction from risk-based capital is equal to
one-half of the difference between the measured risk and 2 percent (normal
level) multiplied by the market value of an institution's assets. The OTS has
postponed the effective date for implementation of this regulation until it
finalizes the process under which institutions may appeal such capital
deductions. If applied as of June 30, 1996, this regulation would not have
significantly impacted the amount of the Bank's risk-based capital available
to meet the requirement. The Bank's risk-based capital ratio was 14.5 percent
at June 30, 1996.
Additionally, bank regulatory agencies require national banks with less than
the highest rating to maintain a core capital ratio of 4 to 5 percent. As
mandated by the Financial Institutions Reform, Recovery and Enforcement Act of
1989, the OTS must apply similar requirements to thrift institutions. The OTS
has issued a proposal to raise the minimum core capital ratio from 3 percent to
a range of 4 to 5 percent. At this date, Community First Bank cannot predict
its ultimate required capital level or when the proposal will be in effect.
Community First Bank's tangible and core capital ratios were 8.0 percent at
June 30, 1996. Based upon the present capital levels, management believes
Community First Bank is well positioned to meet future regulatory capital
provisions.
The Corporation's Board of Directors declared a cash dividend of $0.12 per
share in the second quarter of 1996, an increase of 20.0 percent over the $0.10
per share dividend declared in the second quarter of 1995. The Corporation's
cash dividend policy is continually reviewed by management and the Board of
Directors. The Corporation currently intends to continue its policy of paying
quarterly dividends, however, such payments will depend upon a number of
factors, including capital requirements, regulatory limitations, the
Corporation's financial condition and results of operations, and the Bank's
ability to pay dividends to the Corporation. Presently, the Corporation has no
significant source of income other than dividends from the Bank. Consequently,
the Corporation depends upon dividends from the Bank to accumulate earnings for
payment of cash dividends to its stockholders.
During June 1996, the Corporation's Board of Directors approved a stock
repurchase program pursuant to which the Corporation may repurchase up to 5
percent or approximately 224,000 shares of CFSB Bancorp, Inc. common stock.
Through the repurchase program, the Corporation repurchased 10,000 shares of
CFSB Bancorp, Inc. common stock on the open market for $208,750, or an average
purchase price of $20.88 per share. The program has a one-year term.
ACCOUNTING STANDARD
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123). This statement
encourages all entities to adopt a fair value based method of accounting for
their employee stock-based compensation
20
<PAGE> 23
plans. The statement also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (Opinion 25). Entities electing to remain with the
accounting in Opinion 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting defined in
SFAS 123 had been applied. The accounting and disclosure requirements of SFAS
123 are generally effective for transactions entered into in fiscal years that
begin after December 15, 1995, though they may be adopted on issuance. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using Opinion 25 must include the effects of all awards
granted in fiscal years that begin after December 15, 1994. The Corporation
adopted the provisions of SFAS 123 effective January 1, 1996, and will elect
the pro forma disclosure method in its year-end 1996 Consolidated Financial
Statements and Notes thereto.
21
<PAGE> 24
CFSB BANCORP, INC.
Part II
Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At CFSB Bancorp, Inc.'s Annual Meeting of Stockholders held on
April 16, 1996, the following directors were re-elected to serve
terms as follows: Cecil Mackey, James L. Reutter, and Donald F.
Wall to serve for three-year terms. Serving remaining terms of one
year are the following directors: David H. Brogan, William C.
Hollister, J. Paul Thompson, Jr., and Henry W. Wolcott, IV.
Serving a remaining term of two years is director Robert H. Becker.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) List of Exhibits
(27) Financial Data Schedule
b) Reports on Form 8-K
On June 21, 1996, the registrant filed a Form 8-K current report
announcing the registrant's board of directors authorized a stock
repurchase program pursuant to which the registrant may repurchase
up to 224,000 shares of the registrant's common stock, which
represents approximately 5 percent of the registrant's outstanding
common stock. The timing of the repurchases and the exact number
of shares to be repurchased will be dependent on future market
conditions.
22
<PAGE> 25
CFSB BANCORP, INC.
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.
CFSB BANCORP, INC.
(Registrant)
Date: August 9, 1996 By: /s/ Robert H. Becker
-------------------------
Robert H. Becker
President and
Chief Executive Officer
(Duly Authorized Officer)
Date: August 9, 1996 By: /s/ John W. Abbott
-------------------------
John W. Abbott
Executive Vice President,
Chief Operating Officer,
and Secretary
(Principal Financial and
Accounting Officer)
23
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,623,501
<INT-BEARING-DEPOSITS> 11,690,289
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,032,200
<INVESTMENTS-CARRYING> 30,314,214
<INVESTMENTS-MARKET> 30,506,487
<LOANS> 670,029,055
<ALLOWANCE> 4,465,813
<TOTAL-ASSETS> 791,610,088
<DEPOSITS> 537,525,724
<SHORT-TERM> 46,419,053
<LIABILITIES-OTHER> 14,342,531
<LONG-TERM> 128,255,743
0
0
<COMMON> 34,483,027
<OTHER-SE> 30,584,010
<TOTAL-LIABILITIES-AND-EQUITY> 791,610,088
<INTEREST-LOAN> 12,593,062
<INTEREST-INVEST> 1,192,825
<INTEREST-OTHER> 279,654
<INTEREST-TOTAL> 14,065,541
<INTEREST-DEPOSIT> 5,849,951
<INTEREST-EXPENSE> 8,344,119
<INTEREST-INCOME-NET> 5,721,422
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> (15,797)
<EXPENSE-OTHER> 3,854,294
<INCOME-PRETAX> 2,714,070
<INCOME-PRE-EXTRAORDINARY> 2,714,070
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,851,070
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 3.04
<LOANS-NON> 664,248
<LOANS-PAST> 11,186
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,411,210
<CHARGE-OFFS> 10,739
<RECOVERIES> 5,342
<ALLOWANCE-CLOSE> 4,465,813
<ALLOWANCE-DOMESTIC> 3,485,162
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 980,651
</TABLE>
