UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number: 0-27930
Community Federal Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 64-0869537
(State or other jurisdiction (I.R.S. Employer
Of incorporation or organization) Identification No.)
P.O. Box F
333 Court Street
Tupelo, Mississipi 38802
(Address of principal (Zip Code)
Executive offices)
Registrant's telephone number, including
area code: (601) 842-3981
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
Common Stock, 4,527,250 shares
$.01 par value
COMMUNITY FEDERAL BANCORP, INC.
PART I. FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL 2
CONDITION AS OF MARCH 31, 1998 AND
SEPTEMBER 30, 1997
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR 3
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN
THE OPINION OF MANAGEMENT,ALL ADJUSTMENTS
NECESSARY FOR A FAIR PRESENTATION OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS FOR
THE PERIODS PRESENTED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION 12
SIGNATURES 13
Part I. Financial Information
Item 1. Financial Statements
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
unaudited
ASSETS
March 31, September 30,
1998 1997
CASH AND CASH EQUIVALENTS $10,685,106 $5,437,003
SECURITIES AVAILABLE FOR SALE, at fair value 99,459,471 73,976,278
SECURITIES HELD TO MATURITY,
fair values of $3,482,000 and
$4,122,000 respectively 3,496,417 4,156,732
LOANS RECEIVABLE, net 135,691,596 127,334,958
PREMISES AND EQUIPMENT 2,967,440 3,318,561
OTHER ASSETS 1,772,301 1,714,291
Total assets $254,072,332 $215,937,823
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $139,037,469 $132,718,390
FEDERAL HOME LOAN BANK ADVANCES 47,914,329 18,282,186
OTHER LIABILITIES 6,993,576 6,374,246
Total liabilities $193,945,374 $157,374,822
STOCKHOLDERS' EQUITY:
Preferred stock, no par, no shares issued,
2,000,000 authorized 0 0
Common stock, par $.01 per share,
4,628,750 issued and outstanding,
10,000,000 authorized 46,288 46,288
Additional paid-in capital 45,227,658 45,113,004
Retained earnings 14,455,096 13,714,336
Treasury Stock at cost, 101,500 and
0 shares, respectively (1,869,513) 0
Unrealized gain on securities
available for sale, net 7,833,719 5,687,696
Unearned compensation (5,566,291) (5,998,323)
Total stockholders' equity 60,126,957 58,563,001
Total liabilities and stockholders' equity $254,072,331 $215,937,823
The accompanying notes are an integral part of these statements
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
INTEREST INCOME:
Interest and fees on loans $2,630,220 $2,417,154 $5,225,486 $4,780,756
Interest on securities, HTM 53,250 68,735 112,310 141,408
Interest on securities, AFS 1,304,346 1,120,512 2,450,384 2,283,924
Total interest income 3,987,816 3,606,401 7,788,180 7,206,088
INTEREST EXPENSE:
Interest on deposits 1,746,628 1,627,248 3,476,815 3,293,192
Other interest expense 507,889 21,348 829,064 32,819
Total interest expense 2,254,517 1,648,596 4,305,879 3,326,011
PROVISION FOR LOAN LOSSES 15,000 5,000 25,000 10,000
Net interest income after
provision for loan losses 1,718,299 1,952,805 3,457,301 3,870,077
NONINTEREST INCOME:
Deposit fees 20,521 18,729 40,257 40,365
Loan servicing fees 108,853 63,299 177,909 103,752
Other income 203,459 17,916 216,344 21,838
Total noninterest income 332,833 99,944 434,510 165,955
NONINTEREST EXPENSE:
Compensation and benefits 596,331 373,791 1,161,478 695,173
Occupancy and equipment 41,930 28,264 101,504 54,159
Other operating expense 264,272 231,070 479,478 453,503
Total noninterest expense 902,533 633,125 1,742,460 1,202,835
Income before income taxes 1,148,599 1,419,624 2,149,351 2,833,197
PROVISION FOR INCOME TAXES 414,167 531,686 754,913 1,059,790
NET INCOME $734,432 $887,938 $1,394,438 $1,773,407
EARNINGS PER SHARE
BASIC $0.18 $0.21 $0.34 $0.41
DILUTED $0.17 $0.20 $0.32 $0.39
The accompanying notes are an integral part of these statements
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 1998 AND 1997
unaudited
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,394,438 $1,772,408
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 60,926 34,218
Amortization of premium / discounts, net 30,648 (18,664)
Amortization of Unearned Compensation 560,160 189,518
Provision for loan losses 25,000 10,000
Gain on sale of securities AFS, net (196,069) 2,617
Changes in assets and liabilities:
Increase (Decrease) in other assets (58,010) 222,678
Decrease (Increase)in other liabilities (664,733) (1,496,400)
Total adjustments (242,078) (1,056,033)
Net cash provided by operating 1,152,360 716,375
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal
payments on securities, AFS 16,503,568 5,154,567
Proceeds from maturities and principal
payments on securities, HTM 654,962 139,151
Proceeds from sale of securities, AFS 222,096 2,990,156
(Purchase of) sale of property and
equipment 290,195 (1,030,690)
Loan (originations) and principal
repayments, net (8,381,638) (5,622,205)
Purchase of securities, AFS (38,607,997) (3,045,575)
Net cash used by investing activities (29,318,814) (1,414,596)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in customer deposits, net 6,319,079 200,723
Dividends paid (653,678) (644,333)
Purchase of Treasury Stock (1,869,513) 0
Purchase of Stock for stock plan trusts (13,474) 0
Proceeds(repayments) from FHLB advances 29,632,143 1,500,000
Net cash provided by financing
activities 33,414,557 1,056,390
Net increase in cash and cash
equivalents 5,248,103 358,169
CASH AND CASH EQUIVALENTS, beginning of year 5,437,003 4,205,679
CASH AND CASH EQUIVALENTS, end of period $10,685,106 $4,563,848
The accompanying notes are an integral part of these statements
COMMUNITY FEDERAL BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Community Federal Bancorp, Inc. (The "Company") was incorporated
in the State of Delaware on November 22, 1995, for the purpose of
becoming a holding company to own all of the outstanding capital
stock of Community Federal Savings Bank (the "Bank"), an existing
Stock Bank which was 100% owned by Community Federal Mutual
Holding Company (the "MHC"). Upon the conversion from a
federally chartered mutual holding company form of organization
to a federally chartered stock savings association (the
"Conversion"), the MHC was dissolved.
The accompanying unaudited condensed consolidated financial
statements as of March 31, 1998, and for the three and six month
periods then ended, include the accounts of the Company and the
Bank. All significant intercompany transactions and accounts
have been eliminated in consolidation.
The condensed consolidated financial statements were prepared by
the company without an audit, but in the opinion of management,
reflect all adjustments necessary for the fair presentation of
financial position and results of operations for the three and
six month periods ended March 31, 1998 and 1997. Results of
operations for the current interim period are not necessarily
indicative of results expected for the fiscal year ended
September 30, 1998. While certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange commission, management believes
that the disclosures herein are adequate to make the information
presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended
September 30, 1997. The accounting policies followed by the Bank
are set forth in the summary of significant accounting policies
in the Bank's September 30, 1997 consolidated financial
statements.
2. STOCK CONVERSION
On March 14, 1996, the Conversion to a federally chartered stock
savings bank through amendment of its charter, dissolution of the
MHC, and issuance of common stock to the company was completed.
Related thereto, the Company sold 4,628,750 shares of common
stock, par value $.01 per share, at an initial price of $10 per
share in subscription and community offerings. Costs associated
with the Conversion were approximately $1,300,000 including
underwriting fees. These conversion costs were deducted from the
gross proceeds of the sale of the common stock.
In connection with the Conversion, the Company has established an
employee stock ownership plan (the "ESOP"). The ESOP purchased
approximately 8%, or 363,200 shares, of the total shares of
common stock sold. The company lent $3,632,000 to the ESOP for
the purchase of the shares of common stock. Unearned
compensation for the ESOP was charged to stockholders' equity and
is reduced ratably in connection with principal payments under
the terms of the Plan.
The Management Recognition and Retention Plan Trust and the Stock
Option Plan (the "Plans") were approved by shareholders and was
effective April 1, 1997. Under the Management Recognition and
Retention Plan ("MRP"), employees and directors could be awarded
an aggregate amount of shares of common stock equal to 4% of the
shares issued in the Conversion (185,150 shares of common stock).
The aggregate fair market value of the shares purchased by the
MRP is considered unearned compensation at the time of purchase
and compensation is earned ratably over the stipulated vesting
period. Under the Company's Stock Option Plan, employees and
directors could be granted options to purchase an aggregate
amount of shares of common stock equal to 10% of the shares
issued in the Conversion (462,875 shares of common stock) at
exercise prices equal to the market price of the common stock on
the date of grant. The Company accounts for the Stock Option
Plan under the provisions of Accounting Principles Board Opinion
No 25, Accounting for Stock Issued to Employees.
3. EARNINGS PER SHARE
Basic earning per share were computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the three and six months ended March 31, 1998 and 1997.
Common stock outstanding consists of issued shares less treasury
stock, unallocated ESOP shares, and shares owned by the MRP and
Stock option plan trust. Diluted earnings per share for the
three and six months ended March 31, 1998 and 1997, were computed
by dividing net income by the weighted average number of shares
of common stock and the dilutive effect of the shares awarded
under the MRP and Stock Option plans, based on the treasury stock
method using an average fair market value of the stock during the
respective periods.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
effective December 15, 1997. As a result, the Company's reported
earnings per share for 1997 were restated. The following table
represents the earnings per share calculations for the three and
six months ended March 31, 1998 and 1997, accompanied by the
effect of this accounting change on previously reported earnings
per share:
Per Share
For the Three Months Ended Income Shares Amount
March 31, 1998
Net Income $734,432
Basic earnings per share:
Income available to
common shareholders $734,432 4,088,553 $0.18
Dilutive Securities
Management recognition
plan shares 140,120
Stock option plan shares 81,052
Diluted earning per share:
Income available to common
shareholders plus assumed
conversions $734,432 4,309,725 $0.17
March 31, 1997
Net Income $887,938
Basic earnings per share:
Income available to common
shareholders $887,938 4,282,339 $0.21
Dilutive Securities:
Management recognition plan
shares 174,545
Stock option plan shares 68,478
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversion $887,938 4,525,362 $0.20
Per Share
For the Six Months Ended Income Shares Amount
March 31, 1998
Net income $1,394,438
Basic earnings per share:
Income available to common
shareholders $1,394,438 4,108,008 $0.34
Dilutive Securities:
Management recognition
plan shares 140,120
Stock option plan shares 72,693
Diluted earning per share:
Income available to common
shareholders plus assumed
conversions $1,394,438 4,320,821 $0.32
March 31, 1997
Net income $1,772,408
Basic earnings per share:
Income available to common
shareholders $1,772,408 4,282,339 $0.41
Dilutive Securities:
Management recognition plan
shares 174,545
Stock option plan shares 48,494
Diluted earning per share:
Income available to common
shareholders plus assumed
conversions $1,772,408 4,505,378 $0.39
Changes in previously
report EPS:
For the Period ended March 31, 1997
Three Months Six Months
Earnings per share,
as reported: $.021 $0.41
Earnings per share,
as restated:
Basic $0.21 $0.41
Diluted $0.20 $0.39
4. PENDING ACCOUNTING PRONOUNCEMENTS
The AICPA has issued Statements of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use. This statement requires capitalization of external direct
costs of materials and services; payroll and payroll-related
costs for employees directly associated; and interests costs
during development of computer software for internal use
(planning and preliminary costs should be expensed). Also,
capitalized costs of computer software developed or obtained for
internal use should be amortized on a straight-line basis unless
another systematic and rational basis is more representative of
the software's use.
This statement is effective for financial statements for fiscal
years beginning after December 15, 1998 (prospectively) and is
not expected to have a material effect on the consolidated
financial statements.
Part 1
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
On March 25, 1996, Community Federal Bancorp, Inc. (The
"Company") completed the sale of 4,628,750 shares of its common
stock in an initial public offering at a price of $10.00 and
simultaneously acquired the shares of common stock of Community
Federal Savings Bank (the "Bank") in connection with the mutual
to stock conversion (the "Conversion"). Costs associated with
the conversion were approximately $1,300,000. Prior to March 25,
1996, the Company had not issued any stock, had no assets or
liabilities, and had not engaged in any business activities other
than of an organizational nature. Accordingly, the financial
data for periods prior to March 24, 1996 included herein reflect
the operations of the Bank only.
Comparisons of Financial Conditions at March 31, 1998 and
September 30, 1997
Total assets increased by $38.1 million, or 17.7%, from $215.9
million at September 30, 1997 to $254.1 million at March 31,
1998. The increase in total assets was primarily attributed to a
$25.5 million increase in securities, available for sale, $8.4
million increase in loans receivable and a $5.2 million increase
in cash and cash equivalents.
Equity increased $1.6 million since September 30, 1997, which was
primarily attributed to a $2.1 million increase in the unrealized
gain on securities available for sale, and $1.9 million in net
income for the six month period, which was partially offset by
the purchase of $1.9 million in treasury stock and the
declaration of dividends of $732,000.
Comparison of Results of Operations for the Three Months Ended
March 31, 1998 and 1997
The company reported net income for the three months ended March
31, 1998 of $734,000 as compared to $888,000 for the three months
ended March 31, 1997. The decrease in income for the three
months ended March 31, 1998 was due mainly to an increase in
interest expense related to the increase in FHLB advances used to
fund the special dividend paid in May 1997 as well as the
Company's loan growth.
Net Interest Income
Net interest income after provision for loan losses for the three
months ended March 31, 1998 amounted to $1.7 million as compared
to $2.0 million for the three months ended March 31, 1997. Total
interest income increased $382,000 during the quarter ended March
31, 1998 as compared to the same three month period of the prior
year. This increase resulted primarily from increased interest
and fees on the higher average balance in interest earning assets
discussed above. Total interest expense increased $606,000 during
the second quarter 1998 compared to the same three month period
of the previous year. The above resulted from the increase in
FHLB advances to fund the $10.4 million special dividend the
Company paid during the third quarter of fiscal 1997 and the loan
volume produced by the Company's consumer and commercial lending
departments as well as the lag in deposits repricing verses
mortgage loan refinancing activity.
Provision for Loan Losses
A $15,000 provision for loan losses was made during the second
quarter of 1998 to correspond with the volume in the mortgage
and consumer loan portfolio, as compared to the $5,000 provision
for loan losses during the comparable 1997 second quarter. This
adjustment reflects management's estimates which took into
account historical experience, the amount of nonperforming
assets, and general economic condition. Total nonperforming
assets at March 31, 1998 were $1.0 million, compared to $731,000
at March 31, 1997. The allowance for loan losses at March 31,
1998 was $605,000 compared to $580,000 at March 31, 1997.
Noninterest Income
Noninterest income increased $233,000 from $100,000 for the three
months ended March 31, 1997 to $333,000 for the three months
ended March 31, 1998. This increase was primarily attributable
to realized gains on sales of securities available for sale which
are included in other income.
Noninterest Expense
Noninterest expense increased $269,000 from $633,000 for the
three months ended March 31, 1997 to $903,000 for the three
months ended March 31, 1998. Chief reasons for the increase were
the increase in compensation expense associated with
establishment of the benefit plans approved by shareholders at
the 1996 annual meeting, adding new loan officers, raising
personnel levels to staff the Company's new branch as well as
operational cost associated with the new branch.
Provision for Income Tax
Income tax expense for the three months ended March 31, 1998
decreased $118,000 to $414,000 as compared to income tax expense
of $532,000 for the three months ended March 31, 1997. This
decrease is the result of the decrease in income before income
taxes.
Comparisons of Results of Operations for the Six Months Ended
March 30, 1998 and 1997.
The Company reported net income for the six month ended March 31,
1998 of $1.4 million as compared to $1.8 million for the six
months ended March 31, 1997. The decrease in income for the six
months ended March 31, 1998 was due mainly to an increase in
interest expense related to the increase in FHLB advances used to
fund the special dividend paid in May 1997 as well as the
Company s loan growth.
Net Interest Income
Net interest income after provision for loan losses for the six
months ended March 31, 1998 amounted to $3.5 million as compared
to $3.9 million for the six months ended March 31, 1997. Total
interest income increased $582,000 during the six months ended
March 31, 1998 as compared to the same six month period of the
prior year. This increase resulted primarily from increased
interest and fees on the higher average balance in interest
earning assets. Total interest expense for the six month period
ended March 31, 1998 increased $980,000 compared to the same six
month period of the prior year. The above resulted from the
increase in FHLB advances to fund the $10.4 million special
dividend the Company paid in the third quarter of fiscal 1997 and
the loan volume produced by the Company's consumer and commercial
department and the lag in deposit repricing verses mortgage loan
refinancing activity.
Provisions for Loan Losses
A $25,000 provision for loan losses was made during the six
months ended March 31, 1998 to correspond with the volume in the
mortgage and consumer loan portfolio, compared to the $10,000
provision made during the six months ended March 31, 1997. This
adjustment reflects management's estimates which took into
account historical experience, the amount of nonperforming
assets, and general economic conditions.
Noninterest Income
Non-interest Income increased $269,000 from $166,000 for the six
months ended March 31, 1997 to $435,000 for the six months ended
March 31, 1998. This increase was attributable to the gain on
the sale of securities available for sale.
Noninterest Expense
Noninterest expense increased by $538,000 from $1.2 million for
the six months ended March 31, 1997 to $1.7 million for the six
months ended March 31, 1998. The increase was primarily due to
an increase in compensation expense associated with the
establishment of the benefit plans approved by the shareholders
at the 1996 annual meeting, adding loan officers, and raising
personnel levels to staff the Company's new Branch, as well as
operational costs associated with the new Branch.
Provision for Income Tax
Income tax expense for the six months ended March 31, 1998
decreased by $305,000 to $755,000 as compared to the income tax
expense of $1.1 million for the six months ended March 31, 1997.
This decrease was due to the overall decrease in income before
income taxes.
Capital Resources
The Bank's primary sources of funds are customer deposits,
repayments of loan principal, and interest from loans and
investments. While scheduled principal repayments on loans and
mortgage-backed securities are relatively predictable source of
funds, deposit flows and loan prepayments are greatly influenced
by general interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a
desired deposit balance. In addition, the Bank invests in short
term interest-earning assets which provide liquidity to meet
lending requirements.
The Bank is required to maintain certain levels of regulatory
capital. At March 31, 1998, the Bank was in compliance with all
regulatory capital requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At March 31, 1996, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which any
of their property was subject, which were expected by management
to result in a material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on January
22, 1998, in Tupelo, Mississippi, the shareholders
elected directors and ratified the appointment of
Arthur Andersen, LLP as Community Federal's independent
auditors for 1998. The following is a tabulation of
all votes timely cast in person or by proxy by
shareholders of Community Federal for the annual
meeting:
To elect directors to three-year terms:
Nominee For Withheld
Charles V. Imbler, Sr. 3,174,887 18,900
Medford M. Leake 3,173,887 19,900
Michael R. Thomas 3,157,057 36,730
To ratify the appointment of Arthur Andersen, LLP as
Community Federal's independent auditors for 1998.
For 3,168,897
Against 5,400
Abstain 19,490
Item 5: Other Information
Not applicable
Item 6: Exhibits and Reports on Form 8-K
Not applicable
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 FEDERAL BANCORP, INC.
Date: May 14, 1998 (s)Jim Ingram
Jim Ingram, President
and Chief Executive Officer
Date: May 14, 1998 (s)Sherry McCarty
Sherry McCarty, Controller
and Chief Financial Officer
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