<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 September 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 NOVEMBER 8, 1996
----- ----------------------------------
<S> <C>
Common Stock, $5.00 par value 932,166
</TABLE>
<PAGE> 2
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION NO.
---
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 3
Consolidated Income Statements - Three Months ended
September 30, 1996 and 1995; Nine months ended September 30,
1996 and 1995. 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements -
September 30, 1996 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
No response required
Signatures 18
</TABLE>
<PAGE> 3
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
ASSETS 1996 1995
------ ----------- -----------
<S> <C> <C>
Cash and Due from Banks $ 7,877,369 $5,473,753
Federal Funds Sold 10,702,094 1,550,000
Securities Available for Sale 18,170,419 23,375,476
Investment Securities (Market Value
of $14,571,517 September 30, 1996 and
$15,888,289 at December 31, 1995) 14,505,347 15,684,985
Loans 71,012,028 63,137,885
Less: Allowance for Loan Losses (837,412) (595,593)
------------ ------------
Net Loans 70,174,616 62,542,292
Bank Premises and Equipment, Net 2,961,376 1,934,602
Accrued Interest Receivable 822,455 978,455
Deferred Tax Assets 89,221 45,085
Other Assets 1,886,482 1,260,465
------------ ------------
Total Assets $127,189,379 $112,845,113
============ ============
LIABILITIES
-----------
Demand Deposits $71,650,237 $60,762,250
Savings Deposits 17,225,600 15,752,883
Time Deposits 22,046,004 22,989,356
------------ ------------
Total Deposits 110,921,841 99,504,489
Accrued Interest Payable 547,661 471,805
Securities Sold Under Repurchase
Agreements 4,898,476 2,777,677
Other Liabilities 201,837 129,866
------------ ------------
Total Liabilities 116,569,815 102,883,837
------------ ------------
SHAREHOLDERS' EQUITY
--------------------
Common Stock $5 Par Value
Authorized 1,600,000 Shares
Issued 932,166 Shares 1996 and
884,637 Shares 1995 4,711,830 4,695,345
Additional Paid In Capital 4,340,577 4,327,162
Retained Earnings 1,729,146 1,015,080
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Gain/(Loss) on Securities
Available for Sale (43,145) 42,533
------------ ------------
Total Shareholders' Equity 10,619,564 9,961,276
------------ ------------
Total Liabilities &
Shareholders' Equity $127,189,379 $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 NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $4,525,153 $3,992,723 $1,586,520 1,336,074
Interest on Federal Funds Sold 244,435 235,436 137,318 112,623
Interest and Dividends on Investments 1,537,520 1,165,264 479,527 399,476
---------- ---------- ---------- ----------
Total Interest Income 6,307,108 5,393,423 2,203,365 1,848,173
---------- ---------- ---------- ----------
Interest Expense:
Interest on Demand Deposits 939,800 833,010 338,511 284,965
Interest on Savings Deposits 302,554 295,021 100,786 97,349
Interest on Time Deposits 855,648 706,641 279,958 273,548
---------- ---------- ---------- ----------
Total Interest Expense 2,098,002 1,834,672 719,255 655,862
---------- ---------- ---------- ----------
Net Interest Income 4,209,106 3,558,751 1,484,110 1,192,311
Provision for Loan Losses 265,000 180,000 120,000 30,000
---------- ---------- ---------- ----------
Net Int Income After Provision
for Loan Losses 3,944,106 3,378,751 1,364,110 1,162,311
---------- ---------- ---------- ----------
Other Income:
Service Charges on Deposit Accounts 368,450 364,151 129,433 117,878
Other Income, Service Charges and Fees 299,563 85,225 101,677 38,014
---------- ---------- ---------- ----------
Total Other Income 668,013 449,376 231,110 155,892
---------- ---------- ---------- ----------
Other Expenses:
Salaries, Wages and Employee Benefits 1,789,822 1,525,989 620,544 487,705
Occupancy and Equipment Expenses 565,316 517,068 189,928 176,310
FDIC Insurance Expense 1,500 84,493 0 0
Data Processing Expense 266,309 237,133 91,367 83,822
Other Operating Expenses 943,342 730,946 346,218 245,446
---------- ---------- ---------- ----------
Total Other Expenses 3,566,289 3,095,629 1,248,057 993,283
---------- ---------- ---------- ----------
Income Before Income Taxes 1,045,830 732,498 347,163 324,920
Income Tax Expense 331,764 227,600 122,000 107,600
---------- ---------- ---------- ----------
Net Income 714,066 504,898 225,163 217,320
========== ========== ========== ==========
</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 NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $714,066 $287,578
Adjustments To Reconcile Net Income to Net Cash By
Operating Activities:
Depreciation and Amortization 172,535 103,261
Provision For Loan Losses 265,000 150,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net (33,111) 16,568
Loss On Sale of Securities Available For Sale 5,127 0
Loss On Sale of Other Real Estate 14,893 26,871
Decrease (Increase) In Accrued Interest Receivable 156,000 (292)
Decrease (Increase) In Deferred Tax Assets (44,136) 84,409
Increase In Other Assets (640,910) (379,162)
Increase In Accrued Int. Payable 75,856 123,107
Increase In Other Liabilities 71,971 21,815
----------- -----------
Total Adjustments 43,225 146,577
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 757,291 434,155
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 5,262,973 1,275,499
Purchases Of Securities AFS (7,371,444) 0
Purchases Of Investment Securities (4,076,182) (1,915,473)
Loans Made To Customers, Net (7,897,324) (4,169,455)
Premises And Equipment Expenditures (1,199,309) (166,401)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,769,599) (1,975,830)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 11,417,352 4,971,303
Net Increase (Decrease) In Short
Term Borrowings 2,120,766 (316,525)
Proceeds from Issuance of Common Stock Under
Director and Officer Stock Option Plan 29,900 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,568,018 4,654,778
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 11,555,710 3,113,103
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,023,753 7,527,626
----------- -----------
CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30 $18,579,463 $10,640,729
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Nine Months Ended September 30,:
Interest $1,878,547 $906,759
Income Taxes 315,582 96,000
Non-Cash Items:
Net Unrealized Loss From
Securities AFS 65,371 83,756
Tax Effect Of Unrealized Loss
From Securities AFS 22,226 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
September 30, 1996 and 1995 and the results of their operations for the three
and nine months ended September 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 nine months ended
September 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 September 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. In
addition, the computation of the September 30, 1996 weighted average number of
shares gives recognition to 3,297 options for common stock which were exercised
on August 8, 1996 by a former director under the Director and Officer Stock
Option Plan. The weighted average number of shares used in the computation for
the three and nine months ended September 30, 1995 was 944,520. The weighted
average number of shares used in the computation for the three and nine months
ended September 30, 1996 was 946,419 and 945,158, respectively.
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 $43,000 at
September 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. This property was sold on October 15,
1996 which resulted in a gain of $11,000.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation reported net income for the first nine months of 1996
of $714,000, an increase of $209,000, or 41.4% when compared to the first nine
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 the provision for loan losses and non-interest
expense.
The Corporation also reported net income of $225,000 for the three
months ended September 30, 1996, an increase of $8,000 or 3.6% when compared to
the three months ended September 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 nine months ended September 30, 1996 was
$4.2 million, an increase of $650,000 or 18.3% over the first nine months of
1995. Non-interest income for the first nine months of 1996 was $668,000, an
increase of $219,000 or 48.6% over the first nine months of 1995. The
provision for loan losses was $265,000 for the first nine months of 1996, an
increase of $85,000 or 47.2% over the first nine months of 1995. Non-interest
expense was $3.6 million for the first nine months of 1996, an increase of
$471,000 or 15.2% over the first nine months of 1995.
Net interest income for the three months ended September 30, 1996 was
$1.5 million, an increase of $292,000 or 24.5% over the three months ended
September 30, 1995. Non-interest income for the three months ended September
30, 1996 was $231,000, an increase of $75,000 or 48.3% over the three months
ended September 30, 1995. The provision for loan losses for the three months
ended September 30, 1996 was $120,000, an increase of $90,000 or 300.0% from
the provision for the three months ended September 30, 1995. The increase in
the provision for loan losses is predominantly the result of loan growth and is
consistent with management's analysis of the risk inherent in the loan
portfolio. Non-interest expenses for the three months ended September 30, 1996
were $1.2 million, an increase of $255,000 or 25.6% as compared to the three
months ended September 30, 1995.
Expressed on a per share basis (after giving retroactive effect to the
payment of a 5% stock dividend in 1995 and the issuance of stock under the
Directors and Officers Stock Option Plan), net income for the first nine months
of 1996 was $0.76 per share compared to $0.53 per share for the first nine
months of 1995, an increase of 43.4%. Net income for the three months ended
September 30, 1996 was $0.24 per share compared to $0.23 per share for the
three months ended September 30, 1995, an increase of 4.3%. Book value per
share as of September 30, 1996 was $11.39 an increase of 4.8% from book value
per share of $10.87 at September 30, 1995.
The Corporation's assets totalled $127.2 million at September 30,
1996, an increase of $14.3 million or 12.7% over total assets of $112.8 million
at December 31, 1995. The increase was due primarily to growth in deposits
which increased $11.4 million or 11.5% from December 31, 1995 primarily from
increased market share in the Corporations' primary service area. Repurchase
Agreements also increased $2.1 million or 76.3% from December 31, 1995. The
increase in deposits funded an increase in total loans which were $71.0 million
at September 30, 1996 compared to $63.1 million at December 31, 1995, an
increase of $7.9 million or 12.5%. The remainder of the increase in deposits,
along with net maturities and sales of securities of $6.2 million and the
increase in Repurchase Agreements, is held as cash and cash equivalents which
includes federal funds sold. Cash and cash equivalents increased $11.6 million
or 164.5% to $18.6 million at September 30, 1996 from $7.0 million at December
30, 1995. The
<PAGE> 9
increase is primarily in interest bearing federal funds sold. Interest earning
federal funds sold total $10.7 million or 57.6% of total cash and cash
equivalents. The investment portfolio was $32.7 million at September 30, 1996,
a decrease of $6.4 million or 16.3% from $39.1 million at December 31, 1995.
The increase in Bank premises from December 31, 1995 to September 30,
1996 of $1.0 million is primarily the result of the Corporations' purchase on
July 19, 1996 of three existing branch locations for a total of $933,000. The
purchase was for physical locations only and did not include depositor
accounts. Renovations are expected to total approximately $600,000. These
costs will be depreciated over the expected useful lives of the buildings. In
addition, the Corporation has assumed a five year lease for a fourth branch.
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 was $53,000 which will be expensed over the
lease period. This branch opened on September 16, 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 area. The Corporation expects the branches will be profitable within
twenty-four to thirty months after opening.
The increase in other assets from December 31, 1995 to September 30,
1995 of $626,000 is primarily mortgages sold to investors for which funding is
not yet received. These mortgages are originated by the Residential Mortgage
Department and earn interest income from the purchasing investor.
The unrealized loss on securities available for sale at September 30,
1996, net of taxes, was $43,000. 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.
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 $4.2 million for the nine months ended September 30, 1996. This
represents a 18.3% increase when compared to net interest income of $3.6
million for the same period in 1995. Net interest income for the three months
ended September 30, 1996 was $1.5 million. This represents a 24.5% increase
when compared to net interest income of $1.2 million for the same period in
1995.
Average interest-earning assets for the first nine months of 1996 were
$106.5 million, an increase of $14.6 million or 15.8% as compared to the first
nine 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 nine months of 1996 was $65.3 million, an increase of
$8.6 million or 15.3% as compared to the first nine months of 1995. The
investment portfolio average balance for the first nine months of 1996 was
$35.1 million, an increase of $5.0 million or 16.7% over the average balance
for the first nine months of 1995. These increases were funded primarily from
an increase in deposits.
Average interest-earning assets for the three months ended September
30, 1996 were $110.6 million, an increase of $14.8 million or 15.5% as compared
to the three months ended September 30, 1995. The most significant increase in
average earning assets occurred in the loan portfolio and federal funds sold.
The loan portfolio average balance for the three months ended September 30,
1996 was $68.3 million, an increase of $10.6 million or 18.4% as compared to
the three
<PAGE> 10
months ended September 30, 1995. The average balance for federal funds sold
for the three months ended September 30, 1996 was $10.4 million, an increase of
$2.7 million or 35.6% as compared to the three months ended September 30, 1995.
These increases were funded primarily from an increase in deposits.
The positive impact on net interest income from increased
interest-earning assets for the first nine months of 1996 as compared to the
first nine months of 1995 was partially offset by an increase in
interest-bearing deposits. Average interest-bearing deposits for the first
nine months of 1996 were $80.3 million, an increase of $10.5 million or 15.1%
as compared to the first nine 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 nine months of 1996 was $39.0 million, an increase of $6.0
million or 18.1% over the first nine months of 1995. The average balance for
certificates of deposit for the first nine months of 1996 was $21.9 million, an
increase of $2.6 million or 13.7% over the first nine months of 1995.
The positive impact on net interest income from increased
interest-earning assets for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995 was also partially offset
by an increase in interest-bearing deposits. Average interest-bearing
deposits for the three months ended September 30, 1996 were $82.9 million, an
increase of $9.9 million or 13.6% as compared to the three months ended
September 30, 1995. The most significant increase in interest-bearing deposits
occurred in interest-bearing demand deposits and savings deposits. The
interest-bearing demand deposit average balance for the three months ended
September 30, 1996 was $41.1 million, an increase of $6.3 million or 18.1% as
compared to the three months ended September 30, 1995. The average balance for
savings deposits for the three months ended September 30, 1996 was $16.4
million, an increase of $1.6 million or 10.7% as compared to the three months
ended September 30, 1995.
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 5.30%
to 5.38% for the nine months ended September 30, 1995 and 1996, respectively.
This increase is primarily resultant from the interest yield of
interest-earning assets which increased 5 basis points from 7.96% to 8.01% for
the nine months ended September 30, 1995 and 1996, respectively. The most
significant increase in yield occurred in the investment portfolio. The yield
from the investment portfolio increased 61 basis points from 5.56% to 6.17% for
the nine months ended September 30, 1995 and 1996, respectively. The increase
in interest yield from the investment portfolio was partially offset by a
decrease in the yields from the loan portfolio and federal funds sold. The
yield from the loan portfolio decreased 17 basis points from 9.42% to 9.25% for
the nine months ended September 30, 1995 and 1996, respectively. The yield
from federal funds sold declined 65 basis points from 5.95% to 5.30% for the
nine months ended September 30, 1995 and 1996, respectively.
The increased yield from interest-earning assets was enhanced by the
cost of average interest-bearing deposits which decreased 3 basis points to
3.49% for the first nine months of 1996 as compared to 3.52% for the first nine
months of 1995. The most significant decrease in interest rates was in the
rate paid for interest-bearing demand deposits and savings deposits. The rate
paid for interest-bearing demand deposits decreased 17 basis points from 3.01%
to 2.84% for the nine months ended September 30, 1995 and 1996, respectively.
The rate paid for savings deposits decreased 14 basis points from 2.63% to
2.49% for the nine months ended September 30, 1995 and 1996, respectively.
These decreases were offset partially by an increase in the rate paid for
certificates of deposit which increased 31 basis points from 4.91% to 5.22% for
the first nine months of 1995 and 1996, respectively.
<PAGE> 11
The net interest margin for the three months ended September 30, 1996
was 5.45%, an increase of 38 basis points from 5.07% for the three months ended
September 30, 1995. This increase is primarily resultant from an increase in
the interest yield from interest-earning assets of 25 basis points from 7.79%
to 8.04% for the three months ended September 30, 1995 and 1996, respectively.
The most significant increase in interest yield was in the loan and investment
portfolios. The yield from the loan portfolio increased 5 basis points from
9.19% to 9.24% for the three months ended September 30, 1995 and 1996,
respectively. The yield from the investment portfolio increased 75 basis
points from 5.61% to 6.36% for the three months ended September 30, 1995 and
1996, respectively. Partially offsetting the increases in yield from the loan
and investment portfolios was the interest yield from federal funds sold which
declined 58 basis points from 5.85% to 5.27% for the three months ended
September 30, 1995 and 1996, respectively.
The increased yield from interest-earning assets was enhanced by a
decrease in the rate paid for interest-bearing deposits which decreased 12
basis points from 3.57% for the three months ended September 30, 1995 to 3.45%
for the three months ended September 30, 1996. This decrease was primarily
resultant from the rate paid for interest-bearing demand deposits and savings
deposits. The rate paid for interest-bearing demand deposits declined 15 basis
points from 2.96% for the three months ended September 30, 1995 to 2.81% for
the three months ended September 30, 1996. The rate paid for savings deposits
declined 16 basis points from 2.61% to 2.45% for the three months ended
September 30, 1995 and 1996, respectively. Partially offsetting these declines
in interest rates paid was the rate paid for repurchase agreements which
increased 63 basis points from 4.48% to 5.11% for the three months ended
September 30, 1995 and 1996, respectively. The rate paid for certificates of
deposit was essentially unchanged from 5.14% for the three months ended
September 30, 1995 to 5.15% for the three months ended September 30, 1996.
The table below illustrates the changes in interest rate margin and
interest rate spread based on average amounts outstanding for the nine and
three months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
Securities 6.17% 5.56% 6.36% 5.61%
Fed Funds 5.30% 5.95% 5.27% 5.85%
Loans 9.25% 9.42% 9.24% 9.19%
----- ----- ----- -----
Total Earning Assets 8.01% 7.96% 8.04% 7.79%
===== ===== ===== =====
LIABILITIES
Demand Deposits 2.84% 3.01% 2.81% 2.96%
Savings Deposits 2.49% 2.63% 2.45% 2.61%
Time Deposits 5.22% 4.91% 5.15% 5.14%
Repurchase Agreements 4.70% 4.82% 5.11% 4.48%
----- ----- ----- -----
Total Int Bearing Liabilities 3.49% 3.52% 3.45% 3.57%
===== ===== ===== =====
Net Interest Rate Spread 4.52% 4.44% 4.59% 4.22%
Net Interest Rate Margin 5.38% 5.30% 5.45% 5.07%
</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 nine months
ending September 30, 1996 were 56.1% of average assets as compared to 56.5% of
average assets for the nine months ending September 30, 1995. The average
balance for certificates of deposit and repurchase agreements, which are the
highest yielding liabilities, for the nine months ending September 30, 1996
were 21.5% of average assets as compared to 21.7% for the nine months ending
September 30, 1995. Average non-interest bearing deposits for the nine months
ending September 30, 1996 were 21.7% of average assets as compared to 18.5% for
the nine months ended September 30, 1995. The average balance for non-interest
bearing deposits was $25.3 million for the nine months ended September 30, 1996
as compared to $18.5 million for the nine months ended September 30, 1995, an
increase of $6.8 million or 36.6%.
<PAGE> 12
Average loans for the three months ended September 30, 1996 were 56.4%
of average assets as compared to 55.1% of average assets for the three months
ended September 30, 1995. The average balance for certificates of deposit and
repurchase agreements for the three months ended September 30, 1996 was 21.0%
of average assets as compared to 22.3% for the three months ended September 30,
1995. Average non-interest demand deposit balances for the three months ended
September 30, 1996 were 22.4% of average assets as compared to 20.9% for the
three months ended September 30, 1995. The average balance for non-interest
demand deposits was $27.1 million for the three months ended September 30, 1996
as compared to $21.8 million for the three months ended September 30, 1995, an
increase of $5.2 million or 24.0%.
NON-INTEREST INCOME
Non-interest income was $668,000, an increase of 48.6% or $219,000 for
the first nine months of 1996 compared to $449,000 for the first nine months of
1995. A primary component of non-interest income is fee income generated by the
Corporations' Residential Mortgage Department. This fee income was $187,000
for the first nine months of 1996, compared to $48,000 for the first nine
months of 1995. The remainder of the increase relates to various general
banking activities such as check sales, safe deposit box rentals, early
redemption penalty for time deposits and an $11,000 gain from the sale of Other
Real Estate. Service charges on depositor accounts, a component of
non-interest income, was $368,000 for the first nine months of 1996 an increase
of 1.2% from $364,000 for the first nine months of 1995.
Non-interest income was $231,000, an increase of 48.2% or $75,000 for
the three months ended September 30, 1996 compared to $156,000 for the three
months ended September 30, 1995. Fee income from the Residential Mortgage
Department was $90,000 for the three months ended September 30, 1996 as
compared to $35,000 for the three months ended September 30, 1995, an increase
of $54,000. Service charges on depositor accounts was $129,000 for the three
months ended September 30, 1996 an increase of $12,000 or 9.8% from $118,000
for the three months ended September 30, 1995. This increase is primarily the
result of increased account activity such as return item fees as the number of
demand deposit accounts has increased from 6,200 to 7,800 from September 30,
1995 to September 30, 1996.
In February 1996, the Corporation announced that monthly charges for
demand deposit accounts would be discontinued. Management expected the
discontinuance of monthly charges to reduce non-interest income. Non-interest
income has not declined, however, primarily as a result of new accounts
attracted by the pricing change and associated income producing activities.
Management also believes the "free-checking accounts" has enabled greater
access to new and existing markets. Management also believes that non-interest
bearing deposits will increase which will help continue to maintain a
relatively lower average cost of funds.
NON-INTEREST EXPENSES
Non-interest expense increased $471,000 or 15.2% to $3.6 million for
the first nine months of 1996 compared to $3.1 million for the first nine
months of 1995. Non-interest expense increased $255,000 or 25.6% to $1.2
million for the three months ended September 30, 1996 as compared to $993,000
for the three months ended September 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 17.3% or $264,000 in the first nine months of 1996 as
compared to the first nine months of 1995. Salaries and benefits increased
27.2% or $133,000 for the three months ended September 30, 1996 as compared to
the three months ended September 30, 1995. These increases were due primarily
to staff additions for the residential mortgage department and a new branch as
well as merit increases in salaries.
<PAGE> 13
Occupancy and equipment expenses increased $48,000 or 9.3% in the
first nine months of 1996 compared to the first nine months of 1995. This
increase was primarily due rental expense for the new leased branch location,
depreciation expense and repair and maintenance expenses, the most significant
of which was for snow removal.
There was minimal expense for FDIC insurance for the nine months ended
September 30, 1996 as compared to $84,000 for the nine 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 $29,000 or 12.3% for the nine months
ended September 30, 1996 as compared to the nine months ended September 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 $212,000 or 29.1% increase in other
operating expenses for the first nine months of 1996 as compared to the first
nine months of 1995 relates to Other Real Estate Owned (OREO). There is a loss
of $17,000 on the sale of OREO properties and expenses related to OREO
properties increased $45,000 for the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1995. These were residential
properties taken in foreclosure and sold. Legal fees, primarily related to
Securities and Exchange Commission filings and debt collection, increased
$39,000 for the first nine months of 1996 as compared to the first nine months
of 1995. In addition, audit expenses increased $23,000 with implementation of
an internal audit function. Expenses for supplies increased $9,000 for the
nine months ending September 30, 1996 as compared to the nine months ending
September 30, 1995.
INCOME TAXES
Income taxes increased $104,000 or 45.8% to $332,000 from $228,000 in
the first nine 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 nine months of 1996 and 1995 were 31.7% and 31.1% respectively.
Income taxes increased $14,000 or 13.4% to $122,000 from $107,600 for
the three months ended September 30, 1996 and 1995, respectively. The increase
also resulted primarily from the higher level of pre-tax income. The effective
tax rates for the three months ended September 30, 1996 and 1995 were 35.1% and
33.1%, respectively.
<PAGE> 14
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 loan losses were $265,000 for the first nine
months of 1996 as compared to a provision of $180,000 for the first nine months
of 1995. Provisions for loan losses were $120,000 for the three months ended
September 30, 1996 as compared to $30,000 for the three months ended September
30, 1995. The higher provision was due primarily to overall growth of the loan
portfolio. The allowance for possible loan losses was $837,000 at September
30, 1996 and $611,000 at September 30, 1995. The Bank had net charge-offs of
$23,000 and $173,000 for the nine months ended September 30, 1996 and 1995,
respectively.
The following is a summary of the activity in the allowances for loan
losses for the nine months ended September 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 265,000 180,000
Recoveries 42,889 17,410
Losses charged against the allowance (66,070) (190,114)
-------- --------
Balance at September 30, 1996 $837,412 $611,350
======== ========
</TABLE>
Management has, through its most recent analysis of the adequacy of
the allowance for loan losses completed as of September 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 September 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
SEPTEMBER 30 DEC 31
(DOLLARS IN THOUSANDS) 1996 1995
---------------------- ---- ----
<S> <C> <C>
Past due 90 days or more and
still accruing $ 28 $ 10
Non-Accrual loans 388 320
---- ----
Total non-performing loans 416 330
Other Real Estate Owned 440 638
---- ----
Total Non-Performing Assets $856 $968
==== ====
Non-performing loans as a
percentage of loans 0.59% 0.52%
Non-performing loans as a
percentage of loans and OREO 0.58% 1.52%
Non-performing assets as a
percentage of assets 0.67% 0.86%
</TABLE>
<PAGE> 15
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 September 30, 1996 is one commercial property valued at $440,000
taken in foreclosure. This property was sold on October 15, 1996 resulting in
a gain of $11,000. The ratio of non-performing loans as a percentage of loans
and OREO decreased from 0.86% to 0.58% from December 31, 1995 to September 30,
1996. This decrease was primarily due to the sale of OREO. The amount of
loans past due more than ninety days and still accruing and non-accrual loans
has slightly increased as 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 September 30, 1996, cash, securities classified as available for
sale, and federal funds sold were 28.9% 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 September 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> 16
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 14.1% at
September 30, 1996 compared to 15.8% at December 31, 1995. The Corporations'
Total Risk Based Capital Ratio was 15.2% at September 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 September 30, 1996, the
Corporations' Leverage Ratio was 8.8% which exceeded the required minimum
leverage ratio of 4.0%.
<PAGE> 17
PART II - OTHER INFORMATION
NO RESPONSE REQUIRED
<PAGE> 18
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: November 12, 1996 By: /s/ GERARD M. BANMILLER
-------------------------------
Gerard M. Banmiller
President & Chief Executive Officer
Date: November 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> SEP-30-1996
<CASH> 7,877,369
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,702,094
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,170,419
<INVESTMENTS-CARRYING> 14,505,347
<INVESTMENTS-MARKET> 14,571,517
<LOANS> 71,012,028
<ALLOWANCE> 837,412
<TOTAL-ASSETS> 127,189,379
<DEPOSITS> 110,921,841
<SHORT-TERM> 4,898,476
<LIABILITIES-OTHER> 749,498
<LONG-TERM> 0
0
0
<COMMON> 4,711,830
<OTHER-SE> 5,907,734
<TOTAL-LIABILITIES-AND-EQUITY> 127,189,379
<INTEREST-LOAN> 4,525,153
<INTEREST-INVEST> 1,537,520
<INTEREST-OTHER> 244,435
<INTEREST-TOTAL> 6,307,108
<INTEREST-DEPOSIT> 2,098,002
<INTEREST-EXPENSE> 2,098,002
<INTEREST-INCOME-NET> 4,209,106
<LOAN-LOSSES> 265,000
<SECURITIES-GAINS> (5,127)
<EXPENSE-OTHER> 3,566,289
<INCOME-PRETAX> 1,045,830
<INCOME-PRE-EXTRAORDINARY> 1,045,830
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 714,066
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 8.01
<LOANS-NON> 388,000
<LOANS-PAST> 28,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 595,593
<CHARGE-OFFS> 66,070
<RECOVERIES> 42,889
<ALLOWANCE-CLOSE> 837,412
<ALLOWANCE-DOMESTIC> 837,412
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
