<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, 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 AUGUST 8, 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 - June 30, 1997 and
December 31, 1996
Consolidated Income Statements - Three Months ended June 30,
1997 and 1996; Six months ended June 30, 1997 and 1996.
Consolidated Statements of Cash Flows - Six months ended June
30, 1997 and 1996
Notes to Consolidated Financial Statements -
June 30, 1997
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
Signatures
<PAGE> 3
COMMUNITY FINANCIAL HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30 DECEMBER 31
------ ------- -----------
1997 1996
---- ----
<S> <C> <C>
Cash and Due from Banks $ 7,877,189 $ 8,282,683
Federal Funds Sold 0 8,050,000
Securities Available for Sale 15,028,531 14,590,571
Investment Securities (Market Value
of $20,822,442 June 30,1997 and
$18,213,864 at December 31, 1996) 21,106,563 18,137,427
Loans Held for Sale 1,502,536 1,304,840
Loans 78,093,494 72,387,490
Less: Allowance for Loan Losses (808,523) (738,353)
------------- -------------
Net Loans 77,284,971 71,649,137
Bank Premises and Equipment, Net 4,413,157 3,120,643
Accrued Interest Receivable 1,025,288 902,084
Deferred Tax Assets 91,908 88,320
Other Assets 679,141 401,614
------------- -------------
Total Assets $ 129,009,284 $ 126,527,319
============= =============
LIABILITIES
Demand Deposits $ 73,125,731 $ 70,910,844
Savings Deposits 17,824,572 17,266,946
Time Deposits 23,107,280 23,270,538
------------- -------------
Total Deposits 114,057,583 111,448,328
Accrued Interest Payable 599,681 584,769
Securities Sold Under Repurchase
Agreements 2,826,739 3,280,586
Other Liabilities 270,851 267,881
------------- -------------
Total Liabilities 117,754,854 115,581,564
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock $5 Par Value
Authorized 3,200,000 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 1,576,892 1,228,457
Less Treasury Stock, at Cost,
10,200 Shares (118,844) (118,844)
Unrealized Loss on Securities
Available for Sale (48,361) (8,601)
------------- -------------
Total Shareholders' Equity 11,254,430 10,945,755
------------- -------------
Total Liabilities &
Shareholders' Equity $ 129,009,284 $ 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
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $3,291,407 $2,938,633 $1,680,115 $1,480,303
Interest on Federal Funds Sold 70,891 107,117 37,195 66,710
Interest and Dividends on Investments 1,077,249 1,057,993 545,351 516,355
---------- ---------- ---------- ----------
Total Interest Income 4,439,547 4,103,743 2,262,661 2,063,368
---------- ---------- ---------- ----------
Interest Expense:
Interest on Demand Deposits 554,485 538,159 277,064 263,618
Interest on Savings Deposits 215,809 201,768 113,011 100,829
Interest on Time Deposits 602,693 575,690 304,025 279,404
Interest on Short Term Borrowings 26,956 63,130 16,331 28,017
---------- ---------- ---------- ----------
Total Interest Expense 1,399,943 1,378,747 710,431 671,868
---------- ---------- ---------- ----------
Net Interest Income 3,039,604 2,724,996 1,552,230 1,391,500
Provision for Loan Losses 165,000 145,000 90,000 90,000
---------- ---------- ---------- ----------
Net Int Income After Provision
for Loan Losses 2,874,604 2,579,996 1,462,230 1,301,500
---------- ---------- ---------- ----------
Other Income:
Service Charges on Deposit Accounts 279,052 239,017 142,452 123,127
Other Income, Service Charges and Fees 248,167 197,886 170,734 128,642
---------- ---------- ---------- ----------
Total Other Income 527,219 436,903 313,186 251,769
---------- ---------- ---------- ----------
Other Expenses:
Salaries, Wages and Employee Benefits 1,505,013 1,169,278 777,889 592,537
Occupancy and Equipment Expenses 505,582 375,388 262,345 183,980
Advertising Expense 90,000 72,000 45,000 36,000
Data Processing Expense 212,577 174,942 104,337 86,095
Other Operating Expenses 624,453 526,624 328,856 294,966
---------- ---------- ---------- ----------
Total Other Expenses 2,937,625 2,318,232 1,518,427 1,193,578
---------- ---------- ---------- ----------
Income Before Income Taxes 464,198 698,667 256,989 359,691
Income Tax Expense 115,763 209,764 49,250 112,764
---------- ---------- ---------- ----------
Net Income 348,435 488,903 207,739 246,927
========== ========== ========== ==========
</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>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 348,435 $ 488,903
Adjustments To Reconcile Net Income to Net Cash By
Operating Activities:
Depreciation and Amortization 167,495 116,721
Provision For Loan Losses 165,000 145,000
Accretion (Amortization) of Discount
(Premium) on Securities, Net 4,323 (28,729)
Loss On Sale of Securities Available For Sale 0 5,127
Loss On Sale of Other Real Estate 0 17,488
Decrease (Increase) In Accrued Interest Receivable (123,204) 144,415
Increase In Deferred Tax Assets (3,588) (89,936)
Decrease (Increase) In Other Assets (277,527) 14,795
Increase In Accrued Interest Payable 14,912 81,731
Increase In Other Liabilities 2,970 108,594
------------ ------------
Total Adjustments (49,619) 515,206
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 298,816 1,004,109
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds From Maturity and Sales Of Securities
Available For Sale (AFS) 3,000,000 12,511,687
Proceeds From Maturities and Prepayments
Of Investment Securities 957,870 3,912,462
Purchases Of Securities AFS (3,500,000) (7,656,733)
Purchases Of Investment Securities (3,909,049) (1,344,863)
Loans Made To Customers, Net (5,998,530) (4,020,891)
Premises And Equipment Expenditures (1,460,009) (179,117)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (10,909,718) 3,222,545
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 2,609,255 3,714,555
Net Decrease In Short (453,847) (325,553)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,155,408 3,389,002
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (8,455,494) 7,615,656
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 16,332,683 7,023,753
------------ ------------
CASH AND CASH EQUIVALENTS AS OF JUNE 30 $ 7,877,189 $ 14,639,409
============ ============
SUPPLEMENTAL DISCLOSURE:
Cash Paid During The Year:
Interest $ 1,385,031 $ 1,235,123
Income Taxes 204,063 208,260
Non-Cash Items:
Net Change In Unrealized Loss From
Securities AFS (64,673) 200,076
Tax Effect Of Unrealized Loss
From Securities AFS (24,913) 132,050
Acquisition of Real Estate in Settlement of Loans 0 0
</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, 1997 and 1996 and the results of their operations for the three and six
months ended June 30, 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 and six months ended June 30,
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 June 30, 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 and six months
ended June 30, 1997 was 1,049,854 and 1,054,841, respectively. The weighted
average number of shares used in the computation for the three and six months
ended June 30, 1996 was 966,490 and 972,117, respectively.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per Share"
("EPS"). This statement, which supersedes APB Opinion No. 15, simplifies the
standards for computing EPS and makes them comparable to international
standards. SFAS No. 128 replaces the current "primary" and "fully diluted"
earnings per share with "basic" and "diluted" earnings per share. Basic EPS is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock,
or resulted in the issuance of common stock that then shared in the earnings of
the company. Diluted EPS is computed similarly to fully diluted EPS pursuant to
APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued
for the periods ending December 31, 1997. Early application is not permitted and
prior period restatement is required. Management does not believe application of
this standard will have a material impact on the Corporations reported EPS.
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
<PAGE> 7
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 $48,000 at
June 30, 1997 as compared to a loss of $9,000 at December 31, 1996. This
increase is primarily due to the current interest rate environment and the short
term nature of portfolio maturities.
NOTE 4. 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 the sale is
recorded as Interest And Fees On Loans.
NOTE 5. 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.
<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 1997 of
$348,000, a decrease of $140,000 or 28.7% when compared to the first six months
of 1996. The decrease in earnings was due primarily to an increase in operating
expenses associated with four branch locations which were acquired in 1996. The
Corporation opened branches in September 1996, February 1997 and another in May
1997. The Corporation plans to open its eighth branch location in October 1997.
The increase in operating expenses was partially offset by increases in net
interest income and fees and service charges.
The Corporation also reported net income of $208,000 for the three
months ended June 30, 1997, a decrease of $39,000 or 15.9% when compared to the
three months ended June 30, 1996. The decrease in earnings was due primarily to
an increase in operating expenses due primarily to additional branch locations.
The increase in operating expenses was partially offset by increases in net
interest income and fees and service charges.
Net interest income for the six months ended June 30, 1997 was $3.0
million, an increase of $315,000 or 11.5% over the first six months of 1996. The
provision for loan losses increased $20,000 or 13.8% from $145,000 for the first
six months of 1996 to $165,000 for the first six months of 1997. Non-interest
income for the first six months of 1997 was $527,000, an increase of $90,000 or
20.7% over the first six months of 1996. Non-interest expense was $2.9 million
for the first six months of 1997, an increase of $619,000 or 26.7% over the
first six months of 1996.
Net interest income for the three months ended June 30, 1997 was $1.6
million, an increase of $161,000 or 11.5% over the three months ended June 30,
1996. Non-interest income for the three months ended June 30, 1997 was $313,000,
an increase of $61,000 or 24.4% over the three months ended June 30, 1996.
Non-interest expenses for the three months ended June 30, 1997 were $1.5
million, an increase of $325,000 or 27.2% as compared to the three months ended
June 30, 1996.
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 six months of
1997 was $0.33 per share compared to $0.50 per share for the first six months of
1996, a decrease of 34.0%. Net income for the three months ended June 30, 1997
was $0.20 per share compared to $0.25 per share for the three months ended June
30, 1996, a decrease of 20.0%. Book value per share as of June 30, 1997 was
$10.67 an increase of 0.9% from book value per share of $10.57 at June 30, 1996.
The Corporations' assets totalled $129.0 million at June 30, 1997, an
increase of $2.5 million or 2.0% over total assets of $126.5 million at December
31, 1996. The increase was due primarily to growth in deposits which increased
$2.6 million or 2.3% from December 31, 1996 primarily from increased market
share in the Corporations' primary service area. The increase in deposits
occurred primarily in demand deposits which increased $2.2 million or 3.1% from
$70.9 million at December 31, 1996 to $73.1 million at June 30, 1997.
Total loans were $78.1 million at June 30, 1997 compared to $72.4
million at December 31, 1996, an increase of $5.7 million or 7.9%. Cash and cash
equivalents, including federal funds sold, decreased $8.5 million or 51.8% to
$7.9 million at June 30, 1997 from $16.3 million at December 31, 1996. The
investment portfolio was $36.1 million at June 30, 1997, an increase of $3.4
million or 10.4% from $32.7 million at December 31, 1996. The unrealized loss on
securities available for sale at June 30, 1997, net of taxes, was $48,000 an
increase of $40,000 from the loss of $9,000 at December 31, 1996. The increase
in the amount of loss on securities available for sale is due primarily to the
<PAGE> 9
short term maturities of the available for sale portfolio and the current nature
of the interest rate environment.
Loans held for sale were $1.5 million at June 30, 1997, an increase of
$198,000 or 15.1% as compared to $1.3 million at December 31, 1996. Loans held
for sale are residential mortgage loans originated by the Corporations'
subsidiary bank for which commitments for sale at par have been obtained. Bank
premises and equipment at June 30, 1997 were $4.4 million, an increase of $1.3
million or 41.4% from $3.1 million at December 31, 1996. The increase in bank
premises and equipment is primarily related to improvements and renovations at
the branches that were purchased in 1996. Other assets increased $278,000 or
69.1% from $402,000 at December 31, 1996 to $679,000 at June 30, 1997. The
increase in other assets occurred primarily as a result of the Banks' purchase
of mortgage servicing rights on March 1, 1997. Mortgage servicing rights
increased $264,000 from $61,000 at December 31, 1996 to $320,000 at June 30,
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 $3.0 million
for the six months ended June 30, 1997. This represents a 11.5% increase when
compared to net interest income of $2.7 million for the same period in 1996. Net
interest income for the three months ended June 30, 1997 was $1.6 million. This
represents an 11.6% increase when compared to net interest income of $1.4
million for the same period in 1996.
Average interest-earning assets for the first six months of 1997 were
$113.3 million, an increase of $8.8 million or 8.4% as compared to the first six
months of 1996. The most significant increase in average earning assets occurred
in the loan portfolio. The loan portfolio average balance for the first six
months of 1997 was $75.0 million, an increase of $11.2 million or 17.5% as
compared to the first six months of 1996. This increase was funded primarily
from an increase in deposits.
Average interest-earning assets for the three months ended June 30,
1997 were $114.9 million, an increase of $9.5 million or 9.0% as compared to the
three months ended June 30, 1996. The most significant increase in average
earning assets also occurred in the loan portfolio. The loan portfolio average
balance for the three months ended June 30, 1997 was $76.3 million, an increase
of $17.9 million or 17.9% as compared to the three months ended June 30, 1996.
This increase was 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 1997 as compared to the
first six months of 1996 was partially offset by an increase in interest-bearing
liabilities. Average interest-bearing liabilities for the first six months of
1997 were $81.9 million, an increase of $2.9 million or 3.7% as compared to the
first six months of 1996. The most significant increase in interest-bearing
liabilities occurred in interest-bearing demand deposits and savings deposits.
The interest-bearing demand deposit average balance for the first six months of
1997 was $39.1 million, an increase of $1.2 million or 3.2% over the first six
months of 1996. The savings deposit average balance for the first six months of
1997 was $18.1 million, an increase of $2.0 million or 12.1% as compared to the
first six months of 1996.
The positive impact on net interest income from increased
interest-earning assets for the three months ended June 30, 1997 as compared to
the three months ended June 30, 1996 was also partially offset by an increase in
interest-bearing liabilities. Average interest-bearing liabilities for the three
months ended
<PAGE> 10
June 30, 1997 were $82.5 million, an increase of $3.4 million or 4.3% as
compared to the three months ended June 30, 1996. The most significant increase
in interest-bearing liabilities occurred in savings deposits and certificates of
deposit. The savings deposit average balance for the three months ended June 30,
1997 was $18.7 million, an increase of $1.9 million or 11.5% as compared to the
three months ended June 30, 1996. The certificates of deposit average balance
for the three months ended June 30, 1997 was $23.7 million, an increase of $2.3
million or 10.6% as compared to the three months ended June 30, 1996.
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 5.34% to
5.56% for the six months ended June 30, 1996 and 1997, respectively. This
increase is primarily resultant from the interest yield of interest-earning
assets which increased 7 basis points from 8.00% to 8.07% for the six months
ended June 30, 1996 and 1997, respectively. The most significant increase in
yield occurred in the investment portfolio. The yield from the investment
portfolio increased 46 basis points from 6.09% to 6.55%. In addition, the yield
from federal funds sold increased 18 basis points from 5.32% for the first six
months of 1996 to 5.50% for the first six months of 1997. These increases in
interest yields were partially offset by a decrease in the yield from loans
which declined 41 basis points from 9.26% to 8.85% for the six months ended June
30, 1996 and 1997, respectively. Average interest earning assets for the first
six months of 1997 increased $8.8 million or 8.4% from $104.5 million for the
first six months of 1996 also partially offsetting increases in interest yields.
The increased net interest margin was also resultant from the cost of
average interest bearing deposits which decreased 6 basis points to 3.45% for
the first six months of 1997 as compared to 3.51% for the first six months of
1996. The most significant decrease in interest rates was in the rate paid for
time deposit (savings and certificates of deposit) balances which decreased 16
basis points from 4.11% to 3.95% for the six months ended June 30, 1996 and
1997, respectively.
The net interest margin for the three months ended June 30, 1997 was
5.59%, an increase of 18 basis points from 5.41% for the three months ended June
30, 1996. This increase is primarily resultant from an increase in the interest
yield from interest earning assets of 12 basis points from 7.97% to 8.09% for
the three months ended June 30, 1996 and 1997, respectively. The most
significant increase in interest yield was in the securities portfolio which
increased 52 basis points from 6.13% to 6.65% for the three months ended June
30, 1996 and 1997, respectively. The interest yield from federal funds sold also
increased 24 basis points from 5.30% to 5.54% for the three months ended June
30, 1996 and 1997, respectively. Partially offsetting the increase in yield from
the securities portfolio and federal funds sold was the loan portfolio for which
the yield decreased 36 basis points from 9.19% to 8.83% for the three months
ended June 30, 1996 and 1997, respectively. Average interest-earning assets for
the three months ended June 30, 1997 increased $9.5 million or 9.0% from $105.4
for the three months ended June 30, 1996 also partially offsetting increases in
interest yields.
The net increased yield from interest earning assets was also
partially offset by an increase in the rate paid for interest bearing deposits
which increased 3 basis points from 3.42% for the three months ended June 30,
1996 to 3.45% for the three months ended June 30 1997. This increase was
primarily resultant from the rate paid for interest bearing demand deposits
which increased 9 basis points from 2.77% for the three months ended June 30,
1996 to 2.86% for the three months ended June 30, 1997.
<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, 1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
Securities 6.55% 6.09% 6.65% 6.13%
Fed Funds 5.50% 5.32% 5.54% 5.30%
Loans 8.85% 9.26% 8.83% 9.19%
----- ----- ----- -----
Total Earning Assets 8.07% 8.00% 8.09% 7.97%
===== ===== ===== =====
LIABILITIES
Demand Deposits 2.86% 2.85% 2.86% 2.77%
Savings Deposits 2.40% 2.51% 2.43% 2.42%
Time Deposits 5.15% 5.26% 5.13% 5.23%
Short Term Borrowings 5.08% 4.41% 5.39% 4.31%
----- ----- ----- -----
Total Int Bearing Liabilities 3.45% 3.51% 3.45% 3.42%
===== ===== ===== =====
Net Interest Rate Spread 4.62% 4.49% 4.64% 4.55%
Net Interest Rate Margin 5.56% 5.34% 5.59% 5.41%
</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, 1997 were 60.1% of average assets as compared to 55.9% of average assets for
the six months ending June 30, 1996. The average balance for certificates of
deposit and repurchase agreements, which are the highest yielding liabilities,
for the six months ending June 30, 1997 were 19.8% of average assets as compared
to 21.8% for the six months ending June 30, 1996. Average non-interest bearing
deposits for the six months ending June 30, 1997 were 24.9% of average assets as
compared to 21.3% for the six months ended June 30, 1996. The average balance
for non-interest bearing deposits was $31.0 million for the six months ended
June 30, 1997 as compared to $24.4 million for the six months ended June 30,
1996, an increase of $6.6 million or 27.1%.
Average loans for the three months ended June 30, 1997 were 60.2% of
average assets as compared to 56.3% of average assets for the three months ended
June 30, 1996. The average balance for certificates of deposit and repurchase
agreements for the three months ended June 30, 1997 was 19.7% of average assets
as compared to 20.9% for the three months ended June 30, 1996. Average
non-interest demand deposit balances for the three months ended June 30, 1997
were 25.7% of average assets as compared to 21.7% for the three months ended
June 30, 1996. The average balance for non-interest demand deposits was $32.5
million for the three months ended June 30, 1997 as compared to $25.0 million
for the three months ended June 30, 1996, an increase of $7.5 million or 30.1%.
NON-INTEREST INCOME
Non-interest income was $527,000, an increase of 20.7% or $90,000 for
the first six months of 1997 compared to $437,000 for the first six months of
1996. A significant component of non-interest income is fee income generated by
the Corporations' Residential Mortgage Department. This fee income was $194,000
for the first six months of 1997, compared to $112,000 for the first six months
of 1996. Service charges on depositor accounts, the primary component of
non-interest income, was $279,000 for the first six months of 1997 an increase
of 16.7% from $239,000 from the first six months of 1996.
Non-interest income was $313,000, an increase of 24.4% or $61,000 for
the three months ended June 30, 1997 compared to $252,000 for the three months
ended June 30, 1996. Fee income from the Residential Mortgage Department was
$131,000 for the three months ended June 30, 1997 as compared to $60,000 for the
three months ended June 30, 1996. Service charges on depositor accounts was
$142,000 for the three months ended June 30, 1997 an increase of $19,000 or
15.7% from $123,000 for the three months ended June 30, 1996.
<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. The Corporation had 9,927 demand deposit accounts at June 30,
1997, an increase of 2,800 accounts or 39.3% from June 30, 1996. Management also
believes that non-interest bearing deposits will increase which will help
maintain a relatively lower average cost of funds. The Corporation had $34.9
million of non-interest bearing demand deposits at June 30, 1997, an increase of
$4.5 million or 14.7% from $30.4 million at June 30, 1996.
NON-INTEREST EXPENSES
Non-interest expense increased $619,000 or 26.7% in the first six
months of 1997 compared to the first six months of 1996. Non-interest expense
increased $324,000 or 27.2% for the three months ended June 30, 1997 as compared
to the three months ended June 30, 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
28.7% or $336,000 in the first six months of 1997 compared to the first six
months of 1996. Salaries and benefits increased 31.3% or $185,000 for the three
months ended June 30, 1997 as compared to the three months ended June 30, 1996.
These increases were due primarily to staff additions for the residential
mortgage department, the addition of three branch locations as well as merit
increases in salaries.
Occupancy and equipment expenses increased $130,000 or 34.7% in the
first six months of 1997 compared to the first six months of 1996. Occupancy and
equipment expenses increased $78,000 or 42.6% for the three months ended June
30, 1997 as compared to the three months ended June 30, 1996. These increases
were primarily due to the branch expansion.
Data Processing expense increased $38,000 or 21.5% for the six months
ended June 30,1997 as compared to the six months ended June 30, 1996. Data
processing expense increased $18,000 or 21.2% for the three months ended June
30, 1997 as compared to the three months ended June 30, 1996. These increases
were primarily the result of increased transaction processing costs associated
with growth of the depositor base.
Advertising expenses increased $18,000 or 25.0% to $90,000 for the six
months ending June 30, 1997 as compared to $72,000 for the six months ending
June 30, 1996. Advertising expenses also increased $9,000 or 25.0% to $45,000
for the three months ending June 30, 1997 as compared to $36,000 for the three
months ending June 30, 1996. These increases are due primarily to increased
promotional activities associated with the branch expansion.
A primary component in the $98,000 or 18.6% increase in other operating
expenses for the first six months of 1997 as compared to the first six months of
1996 is loan processing expenses which for the first six months of 1997
increased $41,000 from the first six months of 1996 due to increased loan
activity. Audit expenses also increased $18,000 with implementation of an
internal audit function during 1996. Expenses for supplies increased $27,000 for
the six months ending June 30, 1997 as compared to the six months ending June
30, 1996 primarily as a result of additional branch locations and growth of the
Bank.
INCOME TAXES
Income taxes decreased $94,000 or 81.2% to $116,000 from $210,000 in
the first six months of 1997 and 1996, respectively and decreased $64,000 from
$113,000 for the three months ending June 30, 1996 to $49,000 for the three
months ending June 30, 1997. The decrease resulted primarily from a lower level
of pre-tax income along with a higher level of non-taxable income. Non-taxable
<PAGE> 13
income, primarily from local municipal Bond Anticipation Notes, was $208,000 for
the first six months of 1997, an increase of $99,000 from $108,000 for the first
six months of 1996. The effective tax rates for the first six months of 1997 and
1996 were 24.9% and 30.0% respectively.
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 $165,000 for the first six
months of 1997 as compared to a provision of $145,000 for the first six months
of 1996. The higher provision for the first six months of 1997 was due to growth
of the loan portfolio. The allowance for possible loan losses was $808,000 at
June 30, 1997 and $738,000 at June 30, 1996. The Bank had net charge-offs of
$95,000 and $21,000 for the six months ended June 30, 1997 and 1996,
respectively.
The following is a summary of the activity in the allowances for loan
losses for the six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at the beginning of period $ 738,353 $595,593
Provision for loan losses 165,000 145,000
Recoveries 40,758 16,919
Losses charged against the allowance (135,588) (38,042)
--------- --------
Balance at June 30 $ 808,523 $719,470
========= ========
</TABLE>
Management has, through its most recent analysis of the adequacy of the
allowance for loan losses completed as of June 30, 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
June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
JUNE 30 DEC 31
(DOLLARS IN THOUSANDS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Past due 90 days or more and
still accruing $ 65 $ 14
Non-Accrual loans 484 528
---- ----
Total non-performing loans 549 542
Other Real Estate Owned 0 0
---- ----
Total Non-Performing Assets $549 $542
==== ====
Non-performing loans as a
percentage of loans 0.70% 0.75%
Non-performing loans as a
percentage of loans and OREO 0.70% 0.75%
Non-performing assets as a
percentage of assets 0.42% 0.43%
</TABLE>
<PAGE> 14
The amount of non-performing loans has decreased as a percentage of
loans and as a percentage of assets. The decrease is the result of the charge
off of several unrelated loans 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, 1997, cash, securities classified as available for sale,
and federal funds sold were 17.7% 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 June 30, 1997, approximately $17.6
million or 22.5% of loans would mature within a one year period. Also, at June
30, 1997 approximately $9.2 million or 25.5% 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.
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).
<PAGE> 15
The Corporations' Tier 1 Risk Based Capital Ratio was 13.4% at June 30,
1997 compared to 13.9% at December 31, 1996. The Corporations' Total Risk Based
Capital Ratio was 14.3% at June 30, 1997 compared to 16.7% 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 June 30, 1997, the Corporations' Leverage Ratio was 8.9%
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 13, 1997 (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>
Robert T. Pluese 2000 748,780 0
Gerard M. Banmiller 2000 750,692 0
Frank B. Smith 2000 752,532 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>
Michael G. Brennan 1999
Elizabeth Burns 1998
Letitia Colombi 1998
Doris M. Damm 1999
Gerald DeFelicis 1998
Joseph A. Riggs 1999
Marvin Samson 1998
</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: 753,710 715 3,599 220,751
</TABLE>
(c) Other. Shareholders voted to increase the number of authorized shares of the
Corporations' common stock from 1,600,000 to 3,200,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS NON-VOTES
<S> <C> <C> <C> <C>
Increase
Authorized
Shares to
3,200,000 712,554 42,295 3,173 220,751
</TABLE>
<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, 1997 By: Gerard M. Banmiller
-------------------
Gerard M. Banmiller
President & Chief Executive Officer
Date: August 12, 1997 By: 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,877,189
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,028,531
<INVESTMENTS-CARRYING> 21,106,563
<INVESTMENTS-MARKET> 20,822,442
<LOANS> 79,596,030
<ALLOWANCE> 808,523
<TOTAL-ASSETS> 129,009,284
<DEPOSITS> 114,057,583
<SHORT-TERM> 2,826,739
<LIABILITIES-OTHER> 870,532
<LONG-TERM> 0
0
0
<COMMON> 4,944,870
<OTHER-SE> 6,309,560
<TOTAL-LIABILITIES-AND-EQUITY> 129,009,284
<INTEREST-LOAN> 3,291,407
<INTEREST-INVEST> 1,077,249
<INTEREST-OTHER> 70,891
<INTEREST-TOTAL> 4,439,547
<INTEREST-DEPOSIT> 1,372,987
<INTEREST-EXPENSE> 1,399,943
<INTEREST-INCOME-NET> 3,039,604
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,937,625
<INCOME-PRETAX> 464,198
<INCOME-PRE-EXTRAORDINARY> 464,198
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348,435
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 8.07
<LOANS-NON> 484,000
<LOANS-PAST> 65,000
<LOANS-TROUBLED> 32,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 738,353
<CHARGE-OFFS> 135,588
<RECOVERIES> 40,758
<ALLOWANCE-CLOSE> 808,523
<ALLOWANCE-DOMESTIC> 808,523
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
