<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 March 31, 1997.
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 52-1712224
(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 APRIL 30, 1997
----- --------------------------------
<S> <C>
Common Stock, $5.00 par value 978,774
</TABLE>
<PAGE> 2
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996
Consolidated Income Statements - Three Months ended March 31,
1997 and 1996.
Consolidated Statements of Cash Flows - Three months ended March
31, 1997 and 1996
Notes to Consolidated Financial Statements -
March 31, 1997
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
No Response Required
Signatures
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31 DECEMBER 31
------ ------------- -------------
1997 1996
---- ----
<S> <C> <C>
Cash and Due from Banks $ 8,893,182 $ 8,282,683
Federal Funds Sold 300,000 8,050,000
Securities Available for Sale
(Amortized Cost of $15,095,500 at
March 31, 1997 and $14,603,603
at December 31, 1996) 14,806,496 14,590,571
Investment Securities (Market Value
of $20,262,524 at March 31, 1997 and
$18,213,864 at December 31, 1996) 20,400,175 18,137,427
Loans Held For Sale 1,073,267 1,304,840
Loans 72,793,971 72,387,490
Less: Allowance for Loan Losses (732,478) (738,353)
------------- -------------
Net Loans 72,061,493 71,649,137
Bank Premises and Equipment, Net 3,663,213 3,120,643
Accrued Interest Receivable 877,682 902,084
Deferred Tax Assets 166,505 88,320
Other Assets 673,097 401,614
------------- -------------
Total Assets $ 122,915,110 $ 126,527,319
============= =============
LIABILITIES
Demand Deposits $ 68,055,886 $ 70,910,844
Savings Deposits 18,399,055 17,266,946
Time Deposits 23,818,196 23,270,538
------------- -------------
Total Deposits 110,273,137 111,448,328
Accrued Interest Payable 615,802 584,769
Securities Sold Under Repurchase
Agreements 902,174 3,280,586
Other Liabilities 222,111 267,881
------------- -------------
Total Liabilities 112,013,224 115,581,564
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock $5 Par Value
Authorized 1,600,000 Shares
Issued 988,974 Shares 1997
and 1996 4,944,870 4,944,870
Additional Paid In Capital 4,899,873 4,899,873
Retained Earnings 1,369,153 1,228,457
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Loss on Securities
Available for Sale (193,166) (8,601)
------------- -------------
Total Shareholders' Equity 10,901,886 10,945,755
------------- -------------
Total Liabilities &
Shareholders Equity $ 122,915,110 $ 126,527,319
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $1,611,292 $1,458,330
Interest on Federal Funds Sold 33,696 40,407
Interest and Dividends on Investments 531,898 541,638
---------- ----------
Total Interest Income 2,176,886 2,040,375
---------- ----------
Interest Expense:
Interest on Demand Deposits 277,421 274,541
Interest on Savings Deposits 102,798 100,939
Interest on Time Deposits 298,668 296,286
Interest on Short Term Borrowings 10,625 35,113
---------- ----------
Total Interest Expense 689,512 706,879
---------- ----------
Net Interest Income 1,487,374 1,333,496
Provision for Possible Loan Losses 75,000 55,000
---------- ----------
Net Interest Income After Provision
for Possible Loan Losses 1,412,374 1,278,496
---------- ----------
Other Income:
Service Charges on Deposit Accounts 136,600 115,890
Other Income, Service Charges and Fees 77,433 69,244
---------- ----------
Total Other Income 214,033 185,134
---------- ----------
Other Expenses:
Salaries, Wages and Employee Benefits 727,124 576,741
Occupancy and Equipment Expenses 243,237 191,408
Advertising Expense 45,000 36,000
Data Processing Expense 108,240 88,847
Other Operating Expenses 295,597 231,658
---------- ----------
Total Other Expenses 1,419,198 1,124,654
---------- ----------
Income Before Income Taxes 207,209 338,976
Income Tax Expense 66,513 97,000
---------- ----------
Net Income 140,696 241,976
========== ==========
</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 Three Months Ended March 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 140,696 $ 241,976
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED BY
OPERATING ACTIVITIES:
Depreciation and Amortization 84,917 58,615
Provision For Loan Losses 75,000 55,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net 800 (14,079)
Loss On Sale of Other Real Estate 0 9,180
Decrease In Accrued Interest Receivable 24,402 18,162
Increase In Deferred Tax Assets (78,185) (24,567)
Increase In Other Assets (271,483) (695,101)
Increase In Accrued Interest Payable 31,033 111,783
Increase (Decrease) In Other Liabilities (45,770) 47,887
------------ ------------
Total Adjustments (179,286) (433,120)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (38,590) (191,144)
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity Of Securities
Available For Sale (AFS) 3,000,000 5,000,000
Proceeds From Maturities and Prepayments
Of Investment Securities 45,694 2,045,694
Purchases Of Securities AFS (3,406,521) (2,946,966)
Purchases Of Investment Securities (2,303,211) (45,694)
Repayments From (Loans Made To)
Customers, Net (255,783) 1,022,450
Premises And Equipment Expenditures (627,487) (17,533)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (3,547,308) 5,057,951
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits (1,175,191) 885,897
Net Decrease In Short
Term Borrowings (2,378,412) (34,574)
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (3,553,603) 851,323
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,139,501) 5,718,130
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 16,332,683 7,023,753
------------ ------------
CASH AND CASH EQUIVALENTS AS OF MARCH 31 $ 9,193,182 $ 12,741,883
============ ============
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $ 658,479 $ 475,184
Income Taxes 90,000 120,659
Non-Cash Items:
Change In Net Unrealized Gain/(Loss) From
Securities AFS (279,644) (7,815)
Change In Tax Effect Of Unrealized Gain/(Loss)
From Securities AFS (95,079) (2,657)
</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
March 31, 1997 and 1996 and the results of their operations for the three months
ended March 31, 1997 and 1996. 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, 1996, which
contains audited consolidated financial statements of the Corporation.
The results of operations for the three months ended March 31, 1997 and
1996 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 March 31, 1997 and 1996 weighted average number of common
shares gives retroactive recognition to a 5% stock dividend declared on November
7, 1996 payable to shareholders of record on December 1, 1996. The weighted
average numbers of shares used in the computation for the three months ended
March 31, 1997 and 1996 were 1,060,518 and 991,746, 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.
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 has not had and is not expected to have a material effect on the
Corporation's consolidated financial statements.
<PAGE> 7
NOTE 5. LOANS HELD FOR SALE
The Bank originates residential real estate loans and sells primarily
fixed rate loans to various investors such as mortgage companies and agencies.
The Bank has purchase commitments at par value for all loans held for sale. The
interest income earned from the loan closing date to the date of sale is
recorded in Interest and Fees On Loans.
<PAGE> 8
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Corporation reported net income for the first three months of 1997
of $141,000, a decrease of $101,000, or 41.9% when compared to the first three
months of 1996. The decrease in earnings was due primarily to an increase in
operating expenses related to four branch locations which were acquired in 1996.
The Corporation opened a branch in September 1996 and another in February 1997.
The Corporation plans to open two additional branches in 1997, one in the second
quarter and one in the third quarter. The increase in operating expenses were
partially offset by increases in net interest income and other income.
Net interest income for the first three months of 1997 was $1.5
million, an increase of $154,000 or 11.5% over the first three months of 1996.
Non-interest income for the first three months of 1997 was $214,000, an increase
of $29,000 or 15.6% over the first three months of 1996. The provision for loan
losses for the first three months of 1997 was $75,000, an increase of $20,000 or
36.4% from the provision for the first three months of 1996. Non-interest
expenses for the first three months of 1997 were $1.4 million, an increase of
$295,000 or 26.2% as compared to the first three months of 1996. Income tax
expense for the first three months of 1997 was $67,000, a decrease of $30,000
from 1996 primarily the result of a reduction in earnings.
Expressed on a per share basis (after giving retroactive effect to the
payment of a 5% stock dividend in 1996), net income for the first three months
of 1997 was $0.13 per share compared to $0.24 per share for the first three
months of 1996, an decrease of 45.8%. The decrease in earnings per share
reflects a decrease in earnings. Book value per share as of March 31, 1997 was
$11.14 a decrease of $0.04 from book value per share of $11.18 at December 31,
1996. The decrease in book value was due to an increase in the unrealized loss
on securities available for sale from $9,000 at December 31, 1996 to $193,000 at
March 31, 1997. The increase in the unrealized loss on securities available for
sale was due primarily to the short term nature of the available for sale
portfolio and the current nature of the interest rate environment.
The Corporations' assets totalled $122.9 million at March 31, 1997, a
decrease of $3.6 million or 2.9% from total assets of $126.5 million at December
31, 1996. The decrease was due primarily to a $2.4 million decrease in
repurchase agreements and a $1.2 million decrease in total deposits. The
decrease in deposits occurred primarily in demand deposits which decreased $2.9
million as compared to December 31, 1996. The decrease in demand deposits was
partially offset by an increase in savings and certificates of deposit which
grew $1.7 million from December 31, 1996. Total loans were $72.8 million at
March 31, 1997, an increase of $406,000 from $72.4 million at December 31, 1996.
Cash and cash equivalents, including federal funds sold, decreased $7.1 million
or 43.7% to $9.2 million at March 31, 1996 from $16.3 million at December 31,
1996. The investment portfolio was $35.2 million at March 31, 1997, an increase
of $2.5 million or 7.6% from $32.7 million at December 31, 1996.
Loans held for sale were $1.1 million at March 31, 1997, a decrease of
$232,000 or 17.7% as compared to $1.3 million at December 31, 1996. Loans held
for sale are mortgage loans which were originated by the Banks' residential
mortgage department and for which commitments for sale at par have been
obtained. Bank premises and equipment at March 31, 1997 were $3.7 million an
increase of $543,000 or 17.4% from $3.1 million at December 31, 1996. The
increase in bank premises is primarily related to improvements and renovations
at the branches which were purchased in 1996. Deferred tax assets increased
$78,000 from $88,000 at December 31, 1996 to $167,000 at March 31, 1997
primarily due to the tax effect of the increase in unrealized losses in the
available for sale securities portfolio. Other assets increased $271,000 or
67.6% from $402,000 at December 31, 1996. The increase in other assets occurred
primarily as a result of the
<PAGE> 9
Banks' purchase of additional mortgage servicing rights on March 1, 1997.
Mortgage servicing rights increased $264,000 from $61,000 at December 31, 1996
to $325,000 at March 31, 1997.
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 $1.5 million
for the three months ended March 31, 1997. This represents a 11.5% increase when
compared to net interest income of $1.3 million for the same period in 1996.
Average interest-earning assets for the first three months of 1997 were
$111.7 million, an increase of $8.1 million or 7.8% as compared to the first
three months of 1996. The most significant increase in average earning assets
occurred in the loan portfolio. The loan portfolio average balance for the first
three months of 1997 was $73.6 million, an increase of $10.7 million or 17.0% as
compared to the first three months of 1996. This increase was funded primarily
from an increase in deposits. Average deposits for the first three months of
1997 were $113.1 million, an increase of $11.2 or 11.0% as compared to $101.9
million in average deposits for the three month period ended March 31, 1996.
The positive impact on net interest income from increased
interest-earning assets was partially offset by an increase in interest-bearing
deposits. Average interest-bearing deposits for the first three months of 1997
were $81.3 million, an increase of $2.5 million or 3.1% as compared to the first
three months of 1996. The most significant increase in interest-bearing deposits
occurred in interest-bearing demand deposits, savings deposits and certificates
of deposit. The interest-bearing demand deposit average balance for the first
three months of 1997 was $39.4 million, an increase of $1.8 million or 4.7% over
the first three months of 1996. The savings deposit average balance for the
first three months of 1997 was $17.5 million, an increase of $2.0 million or
12.8% as compared to the first three months of 1996. The average balance for
certificates of deposit increased $1.0 million or 4.1% from $22.6 million for
the three months ended March 31, 1996 to $23.5 million for the three months
ended March 31, 1997. Partially offsetting the negative impact on net interest
income from the increase in average interest bearing deposits was a decrease in
average repurchase agreements. Average repurchase agreements decreased $2.2
million or 70.5% from $3.1 million for the first three months of 1996 to
$928,000 for the first three months of 1997.
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 5.28% to
5.53% for the three months ended March 31, 1997 and 1996, respectively. This
increase is primarily resultant from a decrease in the cost of average interest
bearing deposits from 3.61% to 3.44% for the first three months of 1997 as
compared to the first three months of 1996, a decrease of 17 basis points. The
most significant decrease in interest rates was in the rate paid for savings
balances and certificates of deposit. The average rate paid for savings balances
dropped 23 basis points from 2.61% to 2.38% and the average rate for
certificates of deposit decreased 12 basis points from 5.28% to 5.16% for the
three months ended March 31, 1995 and 1996, respectively. The average interest
rate paid for interest bearing demand deposits also decreased 8 basis points
from 2.94% for the first three months of 1996 to 2.86 for the first three months
of 1997. These decreases were offset partially by an increase in the average
rate paid for repurchase agreements which increased 15 basis points from 4.49%
for the first three months of 1996 to 4.64% for the first three months of 1997.
Net interest margin was also positively impacted by the yield earned on interest
earning assets which increased from 8.02% for the first three months of 1996 to
8.05% for the first three months of 1997.
<PAGE> 10
The table below illustrates the changes in interest rate margin and
interest rate spread based on average amounts outstanding for the three months
ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1996
----- -----
<S> <C> <C>
ASSETS
Securities 6.46% 6.06%
Fed Funds 5.46% 5.37%
Loans 8.88% 9.33%
----- -----
Total Earning Assets 8.05% 8.02%
===== =====
LIABILITIES
Demand Deposits 2.86% 2.94%
Savings Deposits 2.38% 2.61%
Time Deposits 5.16% 5.28%
Repurchase Agreements 4.64% 4.49%
----- -----
Total Int Bearing Liabilities 3.44% 3.61%
===== =====
Net Interest Rate Spread 5.57% 5.23%
Net Interest Rate Margin 5.53% 5.28%
</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 three months ending March
31, 1997 were 60.1% of average assets as compared to 55.5% of average assets for
the three months ending March 31, 1996. The average balance for certificates of
deposit and repurchase agreements, which are the highest yielding liabilities,
for the three months ending March 31, 1997 were 19.9% of average assets as
compared to 22.6% for the three months ending March 31, 1996. Average
non-interest bearing deposits for the three months ending March 31, 1997 were
25.9% of average assets as compared to 20.3% for the three months ended March
31, 1996. The average balance for non-interest bearing deposits was $31.8
million for the three months ended March 31, 1997 as compared to $23.1 million
for the three months ended March 31, 1996, an increase of $8.7 million or 37.6%.
NON-INTEREST INCOME
Non-interest income was $214,000 an increase of 15.6% or $29,000 for
the first three months of 1997 compared to $185,000 for the first three months
of 1996. A primary component of non-interest income is fee income generated by
the Banks' residential mortgage department. This fee income was $62,000 for the
first three months of 1997, compared to $52,000 for the first three months of
1996. Service charges on depositor accounts was $137,000 for the first three
months of 1997 an increase of $21,000 or 17.9% from $116,000 for the first three
months of 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. Management also
believed the "free-checking accounts" would enable greater access to new and
existing markets. The Corporation had 6,425 demand deposit accounts at March 31,
1996 and 9,223 demand deposit accounts at March 31, 1997, an increase of 2,728
accounts or 42.0%. Management also believed that non-interest bearing demand
deposits will increase resulting in lower average costs of funds. The
Corporation had $23.7 million of non-interest bearing demand deposits at March
31, 1996 and $29.7 million of non-interest bearing demand deposits at March 31,
1997, an increase of $6.0 million or 25.3%.
<PAGE> 11
NON-INTEREST EXPENSES
Non-interest expense increased $295,000 or 26.2% in the first three
months of 1997 compared to the first three months of 1996. 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 26.1% or $150,000 in the first three months of 1997
compared to the first three months of 1996. These increases were due primarily
to staff additions for the residential mortgage department, the addition of the
Cherry Hill and Collingswood branches as well as merit increases in salaries.
Occupancy and equipment expenses increased $52,000 or 27.1% in the first three
months of 1997 compared to the first three months of 1996. This increase was
primarily due to the branch expansion.
Advertising expense increased $9,000 or 25.0% from $36,000 for the
three months ended March 31, 1997 as compared to $45,000 for the three months
ended March 31, 1996 due primarily to increased promotional expenses associated
with the branch network expansion. Data Processing expenses increased $19,000 or
21.8% for the three months ended March 31, 1997 as compared to the three months
ended March 31, 1996 primarily to increased transaction volume.
A primary component in the $64,000 or 27.6% increase in other operating
expenses for the first three months of 1997 as compared to the first three
months of 1996 is a $42,000 increase in loan processing expenses due to the
timing of invoice payments and increased loan activity and a $10,000 increase in
expenses for supplies for the three months ending March 31, 1997 as compared to
the three months ending March 31, 1996.
INCOME TAXES
Income taxes decreased to $67,000 from $97,000 or 31.4% in the first
three months of 1997 and 1996, respectively. The increase resulted primarily
from the reduced level of pre-tax income. The effective tax rates for the first
three months of 1997 and 1996 were 32.1% and 28.6% respectively which closely
approximate federal tax code levels.
<PAGE> 12
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 $75,000 for the first three
months of 1997 as compared to a provision of $55,000 for the first three months
of 1996. The higher provision for the first three months of 1997 was due to
overall growth of the loan portfolio. The allowance for possible loan losses was
$732,000 at March 31, 1997 and $738,000 at March 31, 1996. The reduced reserve
reflects continuing improvement in overall credit quality. The Bank had net
charge-offs of $81,000 and $29,000 for the three months ended March 31, 1997 and
1996, respectively.
The following is a summary of the activity in the allowances for loan
losses for the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at the beginning of period $738,353 $595,593
Provision for loan losses 75,000 55,000
Recoveries 4,552 5,223
Losses charged against the allowance (85,427) (29,356)
-------- --------
Balance at March 31, $732,478 $626,460
======== ========
</TABLE>
The increase in the provision for loan losses in the first three month
period of 1997 reflects the increase in the loan portfolio which grew to $72.8
million at March 31, 1997 from $62.1 million at March 31, 1996. While the amount
of loans past due more than ninety days and still accruing has increased, the
increase is the result of several unrelated loans. Management has, through its
most recent analysis of the adequacy of the allowance for loan losses completed
as of March 31, 1997, 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
March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
MARCH 31 DEC 31
(DOLLARS IN THOUSANDS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Past due 90 days or more and
still accruing $120 $ 14
Non-Accrual loans 518 528
--- ---
Total non-performing loans 638 542
Other Real Estate owned 0 0
--- ---
Total Non-Performing Assets 638 542
=== ===
Non-performing loans as a
percentage of loans 0.88% 0.75%
Non-performing loans as a
percentage of loan and OREO 0.88% 0.75%
Non-performing assets as a
percentage of assets 0.52% 0.43%
</TABLE>
<PAGE> 13
When loans are placed on non-accrual, accrued income from 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 primarily within its primary
service area, which is predominantly Camden, Gloucester and Burlington counties,
New Jersey. 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 March 31, 1997, cash, securities classified as available for sale,
and federal funds sold were 19.5% of total assets compared to 24.4% of total
assets at December 31, 1996. Asset liquidity is also provided by managing loan
and securities investment maturities. At March 31, 1997, approximately $24.4
million or 33.6% of loans would mature within a one year period. At March 31,
1997, approximately $8.7 million or 24.7% of securities would mature within a
one year period. To the extent possible, loans are funded with deposits or other
funding with coinciding maturity or repricing dates.
<PAGE> 14
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.
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 15.3% at March
31, 1997 compared to 13.9% at December 31, 1996. The Corporations' Total Risk
Based Capital Ratio was 16.3% at March 31, 1997 compared to 14.8% at December
31, 1996. 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, 1997, the Corporations'
Leverage Ratio was 9.0% which exceeded the required minimum leverage ratio of
4.0%.
<PAGE> 15
PART II - OTHER INFORMATION
NO RESPONSE REQUIRED
<PAGE> 16
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: May 12, 1997 By: Gerard M. Banmiller
------------------------
Gerard M. Banmiller
President & Chief Executive Officer
Date: May 12, 1997 By: Kevin L. Kutcher
------------------------
Kevin L. Kutcher
Treasurer /Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,893,182
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 300,000
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0
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<NET-INCOME> 140,696
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