<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996.
OR
( ) TRANSIT REPORT PURSUANT TO SECTION 35 OR 15 (d) OF THE SECURITIES
ACT OF 1934.
For the transition period from to .
------------ -------------
Commission File Number: 0-24316
COMMUNITY FINANCIAL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2762462
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
222 HADDON AVENUE 08108
WESTMONT NJ (Zip Code)
(Address of Principal
Executive Offices)
(609) 869-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
NUMBER OF SHARES
CLASS OUTSTANDING AS OF AUGUST 8, 1996
----- --------------------------------
<S> <C>
Common Stock, $5.00 par value 928,869
</TABLE>
<PAGE> 2
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION NO.
---
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 3
Consolidated Income Statements - Three Months ended June 30,
1996 and 1995; Six months ended June 30,
1996 and 1995. 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements -
June 30, 1996 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information
Signatures 17
<PAGE> 3
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30 DECEMBER 31
------ ------- -----------
1996 1995
---- ----
<S> <C> <C>
Cash and Due from Banks $ 7,237,315 $ 5,473,753
Federal Funds Sold 7,402,094 1,550,000
Securities Available for Sale 18,042,206 23,375,476
Investment Securities (Market Value
of $13,706,783 June 30,1996 and
$15,888,289 at December 31, 1995) 13,444,721 15,684,985
Loans 67,137,653 63,137,885
Less: Allowance for Loan Losses (719,470) (595,593)
------------- -------------
Net Loans 66,418,183 62,542,292
Bank Premises and Equipment, Net 1,996,998 1,934,602
Accrued Interest Receivable 834,040 978,455
Deferred Tax Assets 135,021 45,085
Other Assets 1,228,182 1,260,465
------------- -------------
Total Assets $ 116,738,760 $ 112,845,113
============= =============
LIABILITIES
Demand Deposits $ 66,566,162 $ 60,762,250
Savings Deposits 15,632,603 15,752,883
Time Deposits 21,020,279 22,989,356
------------- -------------
Total Deposits 103,219,044 99,504,489
Accrued Interest Payable 553,536 471,805
Securities Sold Under Repurchase
Agreements 2,452,124 2,777,677
Other Liabilities 238,460 129,866
------------- -------------
Total Liabilities 106,463,164 102,883,837
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock $5 Par Value
Authorized 1,600,000 Shares
Issued 928,869 Shares 1996 and
884,637 Shares 1995 4,695,345 4,695,345
Additional Paid In Capital 4,327,162 4,327,162
Retained Earnings 1,503,983 1,015,080
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Gain/(Loss) on Securities
Available for Sale (132,050) 42,533
------------- -------------
Total Shareholders' Equity 10,275,596 9,961,276
------------- -------------
Total Liabilities &
Shareholders' Equity $ 116,738,760 $ 112,845,113
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS END
JUNE 30, JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $2,938,633 $2,656,649 $1,480,303 1,390,451
Interest on Federal Funds Sold 107,117 112,813 66,710 62,904
Interest and Dividends on Investments 1,057,993 765,788 516,355 378,735
---------- ---------- ---------- ----------
Total Interest Income 4,103,743 3,545,250 2,063,368 1,832,090
---------- ---------- ---------- ----------
Interest Expense:
Interest on Demand Deposits 601,289 548,045 291,635 270,441
Interest on Savings Deposits 201,768 197,672 100,829 103,187
Interest on Time Deposits 575,690 433,093 279,404 232,119
---------- ---------- ---------- ----------
Total Interest Expense 1,378,747 1,178,810 671,868 605,747
---------- ---------- ---------- ----------
Net Interest Income 2,727,996 2,366,440 1,391,500 1,226,343
Provision for Loan Losses 145,000 150,000 90,000 75,000
---------- ---------- ---------- ----------
Net Int Income After Provision
for Loan Losses 2,579,996 2,216,440 1,301,500 1,151,343
---------- ---------- ---------- ----------
Other Income:
Service Charges on Deposit Accounts 239,017 246,273 123,127 127,827
Other Income, Service Charges and Fees 197,886 51,218 128,642 31,469
---------- ---------- ---------- ----------
Total Other Income 436,903 297,491 251,769 159,296
---------- ---------- ---------- ----------
Other Expenses:
Salaries, Wages and Employee Benefits 1,169,278 1,038,284 592,537 543,508
Occupancy and Equipment Expenses 375,388 340,758 183,980 169,819
FDIC Insurance Expense 1,500 88,500 1,250 44,250
Data Processing Expense 174,942 153,311 86,095 76,989
Other Operating Expenses 597,124 485,500 329,716 258,276
---------- ---------- ---------- ----------
Total Other Expenses 2,318,232 2,106,353 1,193,578 1,092,842
---------- ---------- ---------- ----------
Income Before Income Taxes 698,667 407,578 359,691 217,797
Income Tax Expense 209,764 120,000 112,764 58,000
---------- ---------- ---------- ----------
Net Income 488,903 287,578 246,927 159,797
========== ========== ========== ==========
</TABLE>
The accompanying notes are a integral part of these statements.
<PAGE> 5
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 488,903 $ 287,578
Adjustments To Reconcile Net Income to Net Cash By
Operating Activities:
Depreciation and Amortization 116,721 103,261
Provision For Loan Losses 145,000 150,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net (28,729) 16,568
Loss On Sale of Securities Available For Sale 5,127 0
Loss On Sale of Other Real Estate 17,488 0
Decrease (Increase) In Accrued Interest Receivable 144,415 (292)
Decrease (Increase) In Deferred Tax Assets (89,936) 84,409
Decrease (Increase) In Other Assets 14,795 (379,162)
Increase In Accrued Int. Payable 81,731 123,107
Increase In Other Liabilities 108,594 21,815
------------ ------------
Total Adjustments 515,206 146,577
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,004,109 434,155
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity and Sales Of Securities
Available For Sale (AFS) 12,511,687 3,000,000
Proceeds From Maturities and Prepayments
Of Investment Securities 3,912,462 1,275,499
Purchases Of Securities AFS (7,656,733) 0
Purchases Of Investment Securities (1,344,863) (1,915,473)
Repayments From (Loans Made To)
Customers, Net (4,020,891) (4,169,455)
Premises And Equipment Expenditures (179,117) (166,401)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,222,545 (1,975,830)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 3,714,555 4,971,303
Net Decrease In Short
Term Borrowings (325,553) (316,525)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,389,002 4,654,778
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 7,615,656 3,113,103
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,023,753 7,527,626
------------ ------------
CASH AND CASH EQUIVALENTS AS OF JUNE 30 $ 14,639,409 $ 10,640,729
============ ============
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $ 1,235,123 $ 906,759
Income Taxes 208,260 96,000
Non-Cash Items:
Net Unrealized Loss From
Securities AFS 200,076 83,756
Tax Effect Of Unrealized Loss
From Securities AFS 132,050 55,279
Acquisition of Real Estate in Settlement of Loans 0 504,941
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position of Community Financial Holding Corporation (the Corporation) and its
wholly owned subsidiary Community National Bank of New Jersey (the Bank) as of
June 30, 1996 and 1995 and the results of their operations for the three and six
months ended June 30, 1996 and 1995. The accounting policies and reporting
practices of the Corporation are in accordance with generally accepted
accounting principals and have been followed on a consistent basis.
The accompanying consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q and accordingly do not include all
of the detailed schedules, information and notes necessary for a fair
presentation of financial condition, results of operations and cash flows in
accordance with generally accepted accounting principals. This quarterly report
should be read in conjunction with Form 10-K dated December 31, 1995, which
contains audited consolidated financial statements of the Corporation.
The results of operations for the three and six months ended June 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. EARNINGS PER SHARE
Earnings per share was calculated based on the weighted average number
of shares of common stock outstanding for the respective periods. The
computation of the June 30, 1996 and 1995 weighted average number of common
shares gives retroactive recognition to a 5% stock dividend declared on November
13, 1995 payable to shareholders of record on December 1, 1995. The weighted
average numbers of shares used in the computation for the three and six months
ended June 30, 1996 and 1995 was 944,520.
NOTE 3. SECURITIES
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, (FAS 115) "Accounting for Certain Investments in
Debt and Equity Securities", which requires, among other things, that debt and
equity securities classified as available for sale be reported at fair value
with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of income taxes. The net effect
of unrealized gains or losses, caused by marking an available for sale portfolio
to market, causes fluctuations in the level of shareholders' equity and related
financial ratios as market interest rates cause the fair value of fixed rate
securities to fluctuate.
The unrealized loss on securities available for sale was $132,000 at
June 30, 1996 as compared to a gain of $42,533 at December 31, 1995. This
decrease is primarily due to the current interest rate environment and the short
term nature of portfolio maturities.
<PAGE> 7
NOTE 4. LOANS
In May 1993, FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan" and in October 1994, FASB issued SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," an
amendment of SFAS 114. Under SFAS 114 and 118, "impaired" loans must be measured
based on the present value of expected future cash flows discounted at the
loans' effective interest rate or, as a practical expedient, at the loans'
observable market price or the fair value of the collateral if the loan is
collateral dependent. Based on management's analysis, the adoption of SFAS 114
and 118, which is effective beginning in 1995, has not had and is not expected
to have a material effect on the Corporation's consolidated financial
statements.
NOTE 5. OTHER ASSETS
In June 1995, the Bank foreclosed on a commercial property which is
classified as Other Real Estate Owned (OREO). The fair value of the property is
recorded as $440,000 and is currently being marketed for sale. The loan was
written down to its fair value with an offset to the reserve for possible loan
losses. The loan secured by the property was previously classified by management
and as such was included in managements' analysis of the adequacy of the reserve
for possible loan losses.
<PAGE> 8
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Corporation reported net income for the first six months of 1996 of
$489,000, an increase of $201,000, or 70.0% when compared to the first six
months of 1995. The increase in earnings was due primarily to an increase in net
interest income and non-interest income. The increase in earnings was partially
offset by increases in non-interest expense.
The Corporation also reported net income of $247,000 for the three
months ended June 30, 1996, an increase of $87,000 or 54.5% when compared to the
three months ended June 30, 1995. The increase in earnings was due primarily to
an increase in net interest income and non-interest income. These increases were
partially offset by increases in the provision for loan losses and non-interest
expense.
Net interest income for the six months ended June 30, 1996 was $2.7
million, an increase of $362,000 or 15.3% over the first six months of 1995.
Non-interest income for the first six months of 1996 was $437,000, an increase
of $140,000 or 46.9% over the first six months of 1995. Non- interest expense
was $2.3 million for the first six months of 1996, an increase of $212,000 or
10.1% over the first six months of 1995.
Net interest income for the three months ended June 30, 1996 was $1.4
million, an increase of $165,000 or 13.5% over the three months ended June 30,
1995. Non-interest income for the three months ended June 30, 1996 was $252,000,
an increase of $92,000 or 58.1% over the three months ended June 30, 1995. The
provision for loan losses for the three months ended June 30, 1996 was $90,000,
an increase of $15,000 or 20.0% from the provision for the three months ended
June 30, 1995. The increase in the provision for loan losses is the result of
managements analysis of the risk inherent in the loan portfolio. Non-interest
expenses for the three months ended June 30, 1996 were $1.2 million, an increase
of $101,000 or 9.2% as compared to the three months ended June 30, 1995.
Expressed on a per share basis (after giving retroactive effect to the
payment of a 5% stock dividend in 1995), net income for the first six months of
1996 was $0.52 per share compared to $0.30 per share for the first six months of
1995, an increase of 73.3%. Net income for the three months ended June 30, 1996
was $0.26 per share compared to $0.17 per share for the three months ended June
30, 1995, an increase of 52.9%. Book value per share as of June 30, 1996 was
$11.06 an increase of 10.0% from book value per share of $10.05 at June 30,
1995.
The Corporations' assets totalled $117.0 million at June 30, 1996, an
increase of $3.9 million or 3.5% over total assets of $112.8 million at December
31, 1995. The increase was due primarily to growth in deposits which increased
$3.7 million or 3.7% from December 31, 1995 primarily from increased market
share in the Corporations' primary service area. Total loans were $67.1 million
at June 30, 1996 compared to $63.1 million at December 31, 1995, an increase of
$4.0 million or 6.3%. Cash and cash equivalents, including federal funds sold,
increased $7.6 million or 108.4% to $14.6 million at June 30, 1996 from $7.0
million at December 30, 1995. This increase reflects management's decision to
temporarily invest the deposit increase and proceeds from the sale and maturity
of securities in short term federal funds. The Corporation sold $5.0 million of
securities in anticipation of a temporary outflow of deposits. The investment
portfolio was $31.5 million at June 30, 1996, a decrease of $7.6 million or
19.4% from $39.1 million at December 31, 1995. The unrealized loss on securities
available for sale at June 30, 1996, net of taxes, was $132,000. The change from
a gain of $42,000 at December 31, 1995 is due primarily to the short term
maturities of the available for sale portfolio and the current nature of the
interest rate environment. Maturities have primarily been used to fund loans and
short term investments.
<PAGE> 9
NET INTEREST INCOME
The principal source of revenue for the Corporation is net interest
income. Net interest income is the difference between interest income earned on
loans and other interest-earning assets and interest expense paid on deposits.
Changes in the volume and mix of interest-earning assets and interest-bearing
liabilities, as well as their respective yields and rates, have a significant
impact on the level of net interest income. Net interest income was $2.7 million
for the six months ended June 30, 1996. This represents a 15.3% increase when
compared to net interest income of $2.4 million for the same period in 1995. Net
interest income for the three months ended June 30, 1996 was $1.4 million. This
represents a 13.5% increase when compared to net interest income of $1.2 million
for the same period in 1995.
Average interest-earning assets for the first six months of 1996 were
$104.5 million, an increase of $14.4 million or 16.0% as compared to the first
six months of 1995. The most significant increase in average earning assets
occurred in the loan and investment portfolios. The loan portfolio average
balance for the first six months of 1996 was $63.8 million, an increase of $7.7
million or 13.6% as compared to the first six months of 1995. The investment
portfolio average balance for the first six months of 1996 was $36.7 million, an
increase of $6.8 million or 22.9% over the average balance for the first six
months of 1995. These increases were funded primarily from an increase in
deposits.
Average interest-earning assets for the three months ended June 30,
1996 were $105.4 million, an increase of $13.8 million or 15.1% as compared to
the three months ended June 30, 1995. The most significant increase in average
earning assets occurred in the loan and investment portfolios. The loan
portfolio average balance for the three months ended June 30, 1996 was $64.8
million, an increase of $7.2 million or 12.5% as compared to the three months
ended June 30, 1995. The investment portfolio average balance for the three
months ended June 30, 1996 was $35.6 million, an increase of $5.8 million or
19.3% as compared to the three months ended June 30, 1995. These increases were
also funded primarily from an increase in deposits.
The positive impact on net interest income from increased
interest-earning assets for the first six months of 1996 as compared to the
first six months of 1995 was partially offset by an increase in interest-bearing
deposits. Average interest-bearing deposits for the first six months of 1996
were $79.0 million, an increase of $10.9 million or 16.0% as compared to the
first six months of 1995. The most significant increase in interest-bearing
deposits occurred in interest-bearing demand deposits and certificates of
deposit. The interest-bearing demand deposit average balance for the first six
months of 1996 was $37.9 million, an increase of $5.8 million or 18.1% over the
first six months of 1995. The certificate of deposit average balance for the
first six months of 1996 was $22.0 million, an increase of $3.7 million or 20.3%
as compared to the first six months of 1995.
The positive impact on net interest income from increased
interest-earning assets for the three months ended June 30, 1996 as compared to
the three months ended June 30, 1995 was also partially offset by an increase in
interest-bearing deposits. Average interest-bearing deposits for the three
months ended June 30, 1996 were $79.1 million, an increase of $10.8 million or
15.8% as compared to the three months ended June 30, 1995. The most significant
increase in interest-bearing deposits occurred in interest-bearing demand
deposits and certificates of deposit. The interest-bearing demand deposit
average balance for the three months ended June 30, 1996 was $38.2 million, an
increase of $6.5 million or 20.5% as compared to the three months ended June 30,
1995. The certificate of deposit average balance for the three months ended June
30, 1996 was $21.5 million, an increase of $2.8 million or 14.9% as compared to
the three months ended June 30, 1995.
<PAGE> 10
Net interest margin is calculated as the tax-equivalent net interest
income divided by the average earning assets and represents the Corporations'
net yield on its earning assets. The net interest margin increased from 5.20% to
5.34% for the six months ended June 30, 1995 and 1996, respectively. This
increase is primarily resultant from the interest yield of interest-earning
assets which increased 18 basis points from 7.82% to 8.00% for the six months
ended June 30, 1995 and 1996, respectively. The most significant increase in
yield occurred in the investment and loan portfolios. The yield from the
investment portfolio increased 58 basis points from 5.51% to 6.09%. The yield
from the loan portfolio increased 8 basis points from 9.18% to 9.26% for the six
months ended June 30, 1995 and 1996, respectively. These increases in interest
yields were partially offset by a decrease in the yield from federal funds sold
which declined 71 basis points from 6.03% to 5.32% for the six months ended June
30, 1995 and 1996, respectively.
The increased yield from interest-earning assets was also partially
offset by the cost of average interest-bearing deposits which increased 4 basis
points to 3.51% for the first six months of 1996 as compared to 3.47% for the
first six months of 1995. In addition, average interest-earning assets for the
first six months of 1996 increased $14.4 million or 16.0% from $90.1 million for
the first six months of 1995. The most significant increase in interest rates
was in the rate paid for time deposit balances which increased 24 basis points
from 3.88% to 4.12% for the six months ended June 30, 1995 and 1996,
respectively. This increase was offset partially by a decrease in the rate paid
for interest-bearing demand deposits. This rate decreased 17 basis points from
3.02% for the first six months of 1995 to 2.85% for the first six months of
1996.
The net interest margin for the three months ended June 30, 1996 was
5.41%, a decrease of 9 basis points from 5.50% for the three months ended June
30, 1995. This decrease is primarily resultant from a decline in the interest
yield from interest-earning assets of 18 basis points from 8.15% to 7.97% for
the three months ended June 30, 1995 and 1996, respectively. The most
significant decline in interest yield was in the loan portfolio which declined
50 basis points from 9.69% to 9.19% for the three months ended June 30, 1995 and
1996, respectively. The interest yield from federal funds sold also declined 76
basis points from 6.06% to 5.30% for the three months ended June 30, 1995 and
1996, respectively. In addition, average interest-earning assets for the three
months ended June 30, 1996 increased $13.8 million or 15.1% from $91.6 for the
three months ended June 30, 1995. Partially offsetting the decrease in yield
from the loan portfolio and federal funds sold was the investment portfolio for
which the yield increased 65 basis points from 5.48% to 6.13% for the three
months ended June 30, 1995 and 1996, respectively.
The decreased yield from interest-earning assets was also partially
offset by a decrease in the rate paid for interest-bearing deposits which
decreased 14 basis points from 3.56% for the three months ended June 30, 1995 to
3.42% for the three months ended June 30 1996. This decrease was primarily
resultant from the rate paid for interest-bearing demand deposits which declined
27 basis points from 3.04% for the three months ended June 30, 1995 to 2.77% for
the three months ended June 30, 1996.
<PAGE> 11
The table below illustrates the changes in interest rate margin and
interest rate spread based on average amounts outstanding for the six and three
months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------- ------------------
JUNE 30, JUNE 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
ASSETS
<S> <C> <C> <C> <C>
Securities 6.09% 5.51% 6.13% 5.48%
Fed Funds 5.32% 6.03% 5.30% 6.06%
Loans 9.26% 9.18% 9.19% 9.69%
----- ----- ----- -----
Total Earning Assets 8.00% 7.82% 7.97% 8.15%
===== ===== ===== =====
LIABILITIES
Demand Deposits 2.85% 3.02% 2.77% 3.04%
Savings Deposits 2.51% 2.63% 2.42% 2.67%
Time Deposits 5.26% 4.75% 5.23% 4.98%
Repurchase Agreements 4.41% 4.93% 4.31% 5.07%
----- ----- ----- -----
Total Int Bearing Liabilities 3.51% 3.47% 3.42% 3.56%
===== ===== ===== =====
Net Interest Rate Spread 4.49% 4.35% 4.55% 4.59%
Net Interest Rate Margin 5.34% 5.20% 5.41% 5.50%
</TABLE>
Net interest income is also affected by the mix of interest-earning
assets and interest-bearing and non-interest bearing liabilities. Average loans,
which are the highest yielding earning assets, for the six months ending June
30, 1996 were 55.9% of average assets as compared to 57.3% of average assets for
the six months ending June 30, 1995. The average balance for certificates of
deposit and repurchase agreements, which are the highest yielding liabilities,
for the six months ending June 30, 1996 were 21.8% of average assets as compared
to 21.3% for the six months ending June 30, 1995. Average non-interest bearing
deposits for the six months ending June 30, 1996 were 21.3% of average assets as
compared to 21.0% for the six months ended June 30, 1995. The average balance
for non-interest bearing deposits was $24.4 million for the six months ended
June 30, 1996 as compared to $20.6 million for the six months ended June 30,
1995, an increase of $3.8 million or 18.5%.
Average loans for the three months ended June 30, 1996 were 56.3% of
average assets as compared to 58.1% of average assets for the three months ended
June 30, 1995. The average balance for certificates of deposit and repurchase
agreements for the three months ended June 30, 1996 was 20.9% of average assets
as compared to 21.3% for the three months ended June 30, 1995. Average
non-interest demand deposit balances for the three months ended June 30, 1996
were 21.7% of average assets as compared to 20.5% for the three months ended
June 30, 1995. The average balance for non-interest demand deposits was $25.0
million for the three months ended June 30, 1996 as compared to $18.9 million
for the three months ended June 30, 1995, an increase of $6.1 million or 32.5%.
NON-INTEREST INCOME
Non-interest income was $437,000, an increase of 46.9% or $140,000 for
the first six months of 1996 compared to $297,000 for the first six months of
1995. A primary component of non-interest income is fee income generated by the
Corporations' Residential Mortgage Department. This fee income was $112,000 for
the first six months of 1996, compared to $13,000 for the first six months of
1995. Service charges on depositor accounts, a component of non-interest income,
was $239,000 for the first six months of 1996 a decrease of 2.9% from $246,000
from the first six months of 1995.
Non-interest income was $252,000, an increase of 58.1% or $92,000 for
the three months ended June 30, 1996 compared to $159,000 for the three months
ended June 30, 1995. Fee income from the Residential Mortgage Department was
$60,000 for the three months ended June 30, 1996 as compared to $6,000 an
increase of $54,000. Service charges on depositor accounts was $123,000 for the
three months ended June 30, 1996 a decrease of $5,000 or 3.7% from $128,000 for
the three months ended June 30, 1995.
<PAGE> 12
In February 1996, the Corporation announced that monthly charges for
demand deposit accounts would be discontinued. Management expects the
discontinuance of monthly charges to reduce non-interest income. Management also
believes the "free-checking accounts" will enable greater access to new and
existing markets. Management also believes that non-interest bearing deposits
will increase which will help maintain a relatively lower average cost of funds.
NON-INTEREST EXPENSES
Non-interest expense increased $212,000 or 10.1% in the first six
months of 1996 compared to the first six months of 1995. Non-interest expense
increased $101,000 or 9.2% for the three months ended June 30, 1996 as compared
to the three months ended June 30, 1995. Expenditures related to salaries and
occupancy and equipment are the primary components of non-interest expense and
represent the largest portion of the increase. Salaries and benefits increased
12.6% or $131,000 in the first six months of 1996 compared to the first six
months of 1995. Salaries and benefits increased 9.0% or $49,000 for the three
months ended June 30, 1996 as compared to the three months ended June 30, 1995.
These increases were due primarily to staff additions for the residential
mortgage department as well as merit increases in salaries.
Occupancy and equipment expenses increased $35,000 or 10.2% in the
first six months of 1996 compared to the first six months of 1995. This increase
was primarily due to repair and maintenance expenses, the most significant of
which was snow removal expense.
There was minimal expense for FDIC insurance for the six months and
three months ended June 30, 1996 as compared to $89,000 for the six months ended
June 30, 1995 and $44,000 for the three months ended June 30, 1995. This
decrease was the result of recently enacted federal legislation which lowered
the premium for the Corporation.
Data Processing expense increased $22,000 or 14.1% for the six months
ended June 30,1996 as compared to the six months ended June 30, 1995. This
increase is primarily the result of increased transaction processing costs
associated with growth of the depositor base.
A primary component in the $112,000 or 23.0% increase in other
operating expenses for the first six months of 1996 as compared to the first six
months of 1995 is a loss of $17,000 on the sale of other real estate owned
(OREO) properties. These were residential properties taken in foreclosure and
sold. Legal fees, primarily related to Securities and Exchange Commission
filings and debt collection, increased $28,000 for the first six months of 1996
as compared to the first six months of 1995. In addition, audit expenses
increased $14,000 with implementation of an internal audit function. Expenses
for supplies increased $11,000 for the six months ending June 30, 1996 as
compared to the six months ending June 30, 1995.
INCOME TAXES
Income taxes increased $90,000 or 74.8% to $210,000 from $120,000 in
the first six months of 1996 and 1995, respectively. The increase resulted
primarily from the higher level of pre-tax income. The effective tax rates for
the first six months of 1996 and 1995 were 30.0% and 29.4% respectively.
<PAGE> 13
PROVISIONS FOR POSSIBLE LOAN LOSSES
The Corporation determines the provision for possible loan losses
through a quarterly analysis of the adequacy of the loan loss reserve. Factors
such as economic conditions and trends, the volume of non-performing loans,
concentrations of credit risk, adverse situations that may affect a borrower's
ability to pay, and prior loss experience within the various categories of the
portfolio are considered when reviewing the risks in the portfolio. While
management believes the allowance for loan losses is currently adequate, further
additions to the allowance will be predicated upon general economic conditions
and/or the condition of specific borrowers and overall growth of the loan
portfolio. Provisions for possible loan losses were $145,000 for the first six
months of 1996 as compared to a provision of $150,000 for the first six months
of 1995. The lower provision for the first six months of 1996 was due to overall
improvement in credit quality. The allowance for possible loan losses was
$719,000 at June 30, 1996 and $651,000 at June 30, 1995. The Bank had net
charge-offs of $21,000 and $103,000 for the six months ended June 30, 1996 and
1995, respectively.
The following is a summary of the activity in the allowances for loan
losses for the six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at the beginning of period $595,593 $604,054
Provision for loan losses 145,000 150,000
Recoveries 16,919 12,384
Losses charged against the allowance (38,042) (115,458)
-------- --------
Balance at June 30, 1996 $719,470 $650,980
======== ========
</TABLE>
The slight reduction in the provision for loan losses in the first six
month period of 1996 along with an increase in total loans reflects the
improvement in total loan quality at June 30, 1996. Management has, through its
most recent analysis of the adequacy of the allowance for loan losses completed
as of June 30, 1996, determined the allowance to be adequate. Future additions
to the allowance for possible loan losses through provisions charged to
operations will be determined as a result of managements' continuing analysis of
the adequacy for the allowance of possible loan losses.
The following is a summary of the Company's non-performing assets as of
June 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
JUNE 30 DEC 31
(DOLLARS IN THOUSANDS) 1996 1995
---------------------- ---- ----
<S> <C> <C>
Past due 90 days or more and
still accruing $27 $10
Non-Accrual loans 292 320
--- ---
Total non-performing loans 319 330
Other Real Estate Owned 440 638
--- ---
Total Non-Performing Assets $759 $968
==== ====
Non-performing loans as a
percentage of loans 0.48% 0.52%
Non-performing loans as a
percentage of loans and OREO 0.47% 1.52%
Non-performing assets as a
percentage of assets 0.65% 0.86%
</TABLE>
<PAGE> 14
One OREO property in the amount of $440,000 accounts primarily for the
non-performing assets. This loan was previously classified by the Bank and
included in management's analysis of the adequacy of the loan loss reserve. The
OREO at June 30, 1996 is one commercial property valued at $440,000 taken in
foreclosure The ratio of non-performing loans as a percentage of loans and OREO
decreased from 0.86% to 0.65% from December 31, 1995 to June 30, 1996. This
decrease was primarily due to the sale of OREO and decrease of total
non-performing loans. The amount of loans past due more than ninety days and
still accruing has decreased, the decrease is the result of several unrelated
loans. These loans were previously classified by Management and considered in
the reserve for loan loss analysis. When loans are placed on non-accrual,
accrued income form the current period is reversed from current earnings.
Consumer loans are charged off when principal or interest is 120 or more days
delinquent, or are placed on non-accrual if the collateral is sufficient to
recover the principal. All non-accrual loans are, in the opinion of management,
either adequately collateralized, in process of collection, or adequately
provided for in the Corporations' allowance for possible loan losses.
The Corporation's commercial loan portfolio is largely loans secured by
owner occupied commercial real estate with an average loan to value ratio under
75%. There is no significant concentration in the portfolio with any business or
industrial segment. The Corporation's consumer loan portfolio consists of home
equity, automobile, credit cards and personal loans. Approximately 50% of the
consumer portfolio consists of home equity loans. The average loan to value
ratio of these loans is under 75%. The Corporations' lending activity extends to
individuals and small and medium sized businesses within its primary service
area, which is predominantly Camden, Gloucester and Burlington counties, New
Jersey. The Corporation does not attempt to make significant loans outside its
primary service area. The primary service area is a diverse economic and
employment market with no significant dependence on any one industry or large
employer.
LIQUIDITY
Liquidity represents the ability to meet present and future financial
obligations through either the sale or maturity of existing assets or the
acquisition of additional funds through liability management. Liquid assets
include cash, federal funds sold, securities classified as available for sale,
and loans maturing within one year. As a result of the Corporations' management
of liquid assets, and the ability to generate liquidity through liability funds,
management believes that the Corporation maintains overall liquidity sufficient
to satisfy its deposit requirements and meet its customers' credit needs.
At June 30, 1996, cash, securities classified as available for sale,
and federal funds sold were 28.0% of total assets compared to 26.9% of total
assets at December 31, 1995. Asset liquidity is also provided by managing loan
and securities investment maturities. At June 30, 1996, approximately $21.8
million or 32.4% of loans would mature or reprice within a one year period. To
the extent possible, loans are funded with deposits or other funding with
coinciding maturity or repricing dates.
<PAGE> 15
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, changing competitive
conditions, economic forces and growth and expansion activities. The Corporation
seeks to maintain a capital base to support its growth and expansion activities,
to provide stability to current operations and to promote public confidence. On
June 16, 1994 the Corporation completed a sale of 450,000 shares of common stock
which improved capitalization of the Bank by approximately $4.1 million.
The Corporations' capital position continues to exceed regulatory
minimums. The primary indicators relied on by the Federal Reserve Board and
other bank regulators in measuring strength of capital position are the Tier 1
Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratio.
Tier 1 Capital consists of common and qualifying preferred stockholders equity
less goodwill. Total Capital consists of Tier 1 Capital, and a portion of the
allowance for possible loan losses. Risk-based capital ratios are calculated
with reference to risk weighted assets which consists of both on and off balance
sheet risks (such as letters of credit and unused lines of credit).
The Corporations' Tier 1 Risk Based Capital Ratio was 15.1% at June 30,
1996 compared to 15.8% at December 31, 1995. The Corporations' Total Risk Based
Capital Ratio was 16.2% at June 30, 1996 compared to 16.8% at December 31, 1995.
These ratios are in excess of the mandated minimum requirements of 4.0% and 8.0%
respectively. The Leverage Ratio consists of Tier 1 capital divided by quarterly
average assets. At March 31, 1996, the Corporations' Leverage Ratio was 9.0%
which exceeded the required minimum leverage ratio of 4.0%.
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Election of Directors. Set forth below is information concerning
each matter submitted to a vote at the Corporation's Annual Meeting of
Shareholders on May 14,1996 (the "Annual Meeting"):
Each of the following persons was elected as a director of the
Corporation to serve until the Annual Meeting in the year indicated:
<TABLE>
<CAPTION>
TERM TO NUMBER OF VOTES
------- ---------------
NAME EXPIRE FOR AGAINST
---- ------ --- -------
<S> <C> <C> <C>
Michael G. Brennan 1999 745,096 0
Joseph A. Riggs 1999 744,457 0
Doris M. Damm 1999 741,718 0
</TABLE>
In addition, the following directors continued as directors with terms
expiring in the years indicated:
<TABLE>
<CAPTION>
NAME TERM TO EXPIRE
---- --------------
<S> <C>
Gerard M. Banmiller 1997
Elizabeth Burns 1998
Letitia Colombi 1998
Gerald DeFelicis 1998
Robert T. Pluese 1997
Frank Smith 1997
</TABLE>
(b) Auditors. Shareholders also ratified the appointment of KPMG Peat Marwick
as auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
<S> <C> <C> <C> <C>
KPMG Peat Marwick
as Independent
Auditors: 741,340 11,133 854 175,542
</TABLE>
ITEM 5 OTHER INFORMATION
The Corporation purchased three existing branch locations from
Pittsburgh National Bank for a total of $940,000 and anticipates rennovations to
total $500,000. These costs will be depreciated over the expected useful lives
of the buildings. In addition, the Corporation has assumed a lease for a fourth
branch location from Meridian Bank. The cost of the lease averages $54,000
annually over the next five years. The Corporation has the option to extend the
lease for four additional five year periods. The lease amount at the renewal
dates increases approximately 10%. The cost of improvements is anticipated to be
$75,000 which will be expensed over the lease period. The Corporation plans to
open the leased branch in September 1996. The other locations are anticipated to
be opened at the pace of one in each of the first three quarters of 1997. These
branches are located in the Corporations primary service areas or in areas
congruent to the primary service areas. The Corporations anticipates the
branches will be profitable within eighteen to twenty-four months after opening.
<PAGE> 17
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.
COMMUNITY FINANCIAL HOLDING CORPORATION
Date: August 12, 1996 By: /s/ Gerard M. Banmiller
--------------------------------------
Gerard M. Banmiller
President & Chief Executive Officer
Date: August 12, 1996 By: /s/ Kevin L. Kutcher
--------------------------------------
Kevin L. Kutcher
Executive Vice President/Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,237,315
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,402,094
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,042,206
<INVESTMENTS-CARRYING> 13,444,721
<INVESTMENTS-MARKET> 13,706,783
<LOANS> 67,137,653
<ALLOWANCE> 719,470
<TOTAL-ASSETS> 116,738,760
<DEPOSITS> 103,219,044
<SHORT-TERM> 2,452,124
<LIABILITIES-OTHER> 791,996
<LONG-TERM> 0
4,695,345
0
<COMMON> 0
<OTHER-SE> 5,580,251
<TOTAL-LIABILITIES-AND-EQUITY> 116,738,760
<INTEREST-LOAN> 2,938,633
<INTEREST-INVEST> 1,057,993
<INTEREST-OTHER> 107,117
<INTEREST-TOTAL> 4,103,743
<INTEREST-DEPOSIT> 1,378,747
<INTEREST-EXPENSE> 1,378,747
<INTEREST-INCOME-NET> 2,727,996
<LOAN-LOSSES> 145,000
<SECURITIES-GAINS> (5,127)
<EXPENSE-OTHER> 2,313,105
<INCOME-PRETAX> 698,667
<INCOME-PRE-EXTRAORDINARY> 698,667
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,903
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 8.00
<LOANS-NON> 292,000
<LOANS-PAST> 27,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 595,593
<CHARGE-OFFS> 38,042
<RECOVERIES> 16,919
<ALLOWANCE-CLOSE> 719,470
<ALLOWANCE-DOMESTIC> 719,470
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
