SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1999 Commission File No. 000-29640
COMMUNITY FIRST BANCORPORATION
-------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 58-2322486
- --------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3685 BLUE RIDGE BOULEVARD
WALHALLA, SOUTH CAROLINA 29691
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(864) 638-2105
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and has
been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock, no par or
stated value, 1,800,898 Shares Outstanding on July 31, 1999.
Transitional Small Business Format (Check one): Yes _______ No X
<PAGE>
COMMUNITY FIRST BANCORPORATION
FORM 10-QSB
Index
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet ...................................................................... 3
Consolidated Statement of Income ................................................................ 4
Consolidated Statement of Comprehensive Income .................................................. 5
Consolidated Statement of Changes in Shareholders' Equity ....................................... 6
Consolidated Statement of Cash Flows ............................................................ 7
Notes to Unaudited Consolidated Financial Statements ............................................ 8
Item 2. Management's Discussion and Analysis ............................................................ 9-12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............................................. 13
Item 6. Exhibits and Reports on Form 8-K ................................................................ 13
SIGNATURE ......................................................................................................... 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
---- ----
(Dollars in thousands)
Assets
<S> <C> <C>
Cash and due from banks ........................................................... $ 2,791 $ 3,320
Federal funds sold ................................................................ 18,810 14,150
Securities available-for-sale ..................................................... 51,108 38,284
Other investments ................................................................. 382 345
Loans ............................................................................. 71,304 67,893
Allowance for loan losses ...................................................... (964) (955)
--------- ---------
Loans - net ................................................................ 70,340 66,938
Premises and equipment - net ...................................................... 3,120 2,871
Accrued interest receivable ....................................................... 1,102 830
Other assets ...................................................................... 949 389
--------- ---------
Total assets ............................................................... $ 148,602 $ 127,127
========= =========
Liabilities
Deposits
Noninterest bearing ............................................................ $ 15,512 $ 14,798
Interest bearing ............................................................... 118,440 97,698
--------- ---------
Total deposits ............................................................. 133,952 112,496
Accrued interest payable .......................................................... 1,090 966
Other liabilities ................................................................. 61 62
--------- ---------
Total liabilities .......................................................... 135,103 113,524
--------- ---------
Shareholders' equity
Common stock - no par value; 10,000,000 shares authorized;
issued and outstanding - 1,800,898 for 1999 and
1,793,792 for 1998 ............................................................. 10,624 10,569
Retained earnings ................................................................. 3,837 3,051
Accumulated other comprehensive income ............................................ (962) (17)
--------- ---------
Total shareholders' equity ................................................. 13,499 13,603
--------- ---------
Total liabilities and shareholders' equity ................................. $ 148,602 $ 127,127
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
COMMUNITY FIRST BANCORPORATION
Consolidated Statement of Income
<TABLE>
<CAPTION>
(Unaudited)
Period Ended June 30,
Three Months Six Months
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands, except per share)
Interest income
<S> <C> <C> <C> <C>
Loans, including fees ..................................... $1,565 $1,538 $3,096 $3,020
Securities - taxable
U. S. Treasury ............................................ 13 5 13 29
U. S. Agency .............................................. 692 441 1,341 801
Other investments ......................................... 6 6 13 8
Federal funds sold ........................................ 289 257 560 540
------ ------ ------ ------
Total interest income .................................. 2,565 2,247 5,023 4,398
------ ------ ------ ------
Interest expense
Time deposits $100,000 and over ........................... 510 338 945 652
Other deposits ............................................ 920 804 1,846 1,555
------ ------ ------ ------
Total interest expense ................................. 1,430 1,142 2,791 2,207
------ ------ ------ ------
Net interest income ............................................ 1,135 1,105 2,232 2,191
Provision for loan losses ...................................... 70 60 95 125
------ ------ ------ ------
Net interest income after provision ............................ 1,065 1,045 2,137 2,066
------ ------ ------ ------
Other income
Service charges on deposit accounts ....................... 106 89 189 173
Credit life insurance commissions ......................... 7 13 17 21
Other income .............................................. 55 40 99 78
------ ------ ------ ------
Total other income ..................................... 168 142 305 272
------ ------ ------ ------
Other expenses
Salaries and employee benefits ............................ 354 280 664 532
Net occupancy expense ..................................... 27 24 54 47
Furniture and equipment expense ........................... 55 46 113 100
Other expense ............................................. 187 169 396 325
------ ------ ------ ------
Total other expenses ................................... 623 519 1,227 1,004
------ ------ ------ ------
Income before income taxes ..................................... 610 668 1,215 1,334
Income tax expense ............................................. 214 238 429 475
------ ------ ------ ------
Net income ..................................................... $ 396 $ 430 $ 786 $ 859
====== ====== ====== ======
Per share*
Net income ................................................ $ 0.22 $ 0.24 $ 0.44 $ 0.48
Net income, assuming dilution ............................. 0.20 0.23 0.40 0.46
</TABLE>
- ------------------
* Per share information has been retroactively adjusted to reflect a two-for-one
stock split effective July 31, 1998.
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
COMMUNITY FIRST BANCORPORATION
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
(Unaudited)
Period Ended June 30,
Three Months Six Months
------------ ----------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income ......................................................... $ 396 $ 430 $ 786 $ 859
------- ------- ------- -------
Other comprehensive income (loss):
Change in unrealized holding gains and
losses on available-for-sale securities .................... (1,099) (55) (1,529) (21)
Income tax expense (benefit) on other
comprehensive income (loss) ................................ (429) (19) (584) (7)
------- ------- ------- -------
Total other comprehensive income (loss) ................ (670) (36) (945) (14)
------- ------- ------- -------
Comprehensive income (loss) ........................................ $ (274) $ 394 $ (159) $ 845
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
COMMUNITY FIRST BANCORPORATION
Consolidated Statement of Changes in Shareholder's Equity
<TABLE>
<CAPTION>
(Unaudited)
Common Stock
------------ Accumulated
Number of Retained Other Comprehensive
Shares* Amount Earnings Income Total
------- ------ -------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ......................... 1,772,280 $ 10,479 $ 1,387 $ (16) $ 11,850
Exercise of employee stock options ............... 6,116 30 - - 30
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income taxes ............... - - - (14) (14)
Net income ....................................... - - 859 - 859
--------- --------- --------- --------- ---------
Balance, June 30, 1998 ........................... 1,778,396 $ 10,509 $ 2,246 $ (30) $ 12,725
========= ========= ========= ========= =========
Balance, January 1, 1999 ......................... 1,793,792 $ 10,569 $ 3,051 $ (17) $ 13,603
Exercise of employee stock options ............... 7,106 55 - - 55
Change in unrealized holding gains
and losses on available-for-sale ..............
securities, net of income taxes ............... - - - (945) (945)
Net income ....................................... - - 786 - 786
--------- --------- --------- --------- ---------
Balance, June 30, 1999 ........................... 1,800,898 $ 10,624 $ 3,837 $ (962) $ 13,499
========= ========= ========= ========= =========
</TABLE>
* Adjusted for a two-for-one stock split effective July 31, 1998.
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
COMMUNITY FIRST BANCORPORATION
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
1999 1998
---- ----
(Dollars in thousands)
Operating Activities
<S> <C> <C>
Net income ...................................................................... $ 786 $ 859
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ................................................ 95 125
Depreciation ............................................................. 82 74
Amortization of net loan fees and costs .................................. 32 24
Securities accretion and premium amortization ............................ (15) (53)
Increase in interest receivable .......................................... (272) (112)
Increase in interest payable ............................................. 124 3
Decrease in prepaid expenses ............................................. 24 13
(Decrease) increase in other accrued expenses ............................ (1) 88
Disposals of premises and equipment ...................................... 9 -
Gain on sale of other real estate ........................................ (10) -
-------- --------
Net cash provided by operating activities ............................ 854 1,021
-------- --------
Investing activities
Purchases of available-for-sale securities ...................................... (21,022) (29,913)
Maturities of available-for-sale securities ..................................... 6,684 15,454
Purchases of other investments .................................................. (37) (10)
Net increase in loans made to customers ......................................... (3,529) (2,850)
Purchases of premises and equipment ............................................. (340) (88)
Proceeds from sale of other real estate ......................................... 10 -
-------- --------
Net cash used by investing activities ................................ (18,234) (17,407)
-------- --------
Financing activities
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts ............................ 1,643 10,558
Net increase in certificates of deposit and other
time deposits ................................................................ 19,813 3,460
Exercise of employee stock options .............................................. 55 30
-------- --------
Net cash provided by financing activities ............................ 21,511 14,048
-------- --------
Increase (decrease) in cash and cash equivalents ..................................... 4,131 (2,338)
Cash and cash equivalents, beginning ................................................. 17,470 11,344
-------- --------
Cash and cash equivalents, ending .................................................... $ 21,601 $ 9,006
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
COMMUNITY FIRST BANCORPORATION
Notes to Unaudited Consolidated Financial Statements
Accounting Policies - A summary of significant accounting policies is included
in the Company's Annual Report for the year ended December 31, 1998 on Form
10-KSB filed with the Securities and Exchange Commission.
Management Opinion - In the opinion of management, the accompanying unaudited
consolidated financial statements of Community First Bancorporation reflect all
adjustments necessary for a fair presentation of the results of the periods
presented. Such adjustments were of a normal, recurring nature.
Statement of Cash Flows - Interest paid on deposits and other borrowings
amounted to $2,667,000 for the six months ended June 30, 1999, and was
$2,204,000 for the six months ended June 30, 1998. Income tax payments of
$369,000 were made during the first six months of 1999, and income tax payments
of $415,000 were made in the 1998 period. Non-cash investment security valuation
adjustments decreased available-for-sale securities by $1,529,000 during the
1999 period, a related shareholders' equity account decreased by $945,000 and
the associated deferred income taxes changed by $584,000. During the 1998
period, non-cash valuation adjustments decreased available-for-sale securities
by $21,000, decreased shareholders' equity by $14,000 and changed deferred
income taxes by $7,000.
Nonperforming Loans - As of June 30, 1999, there were $286,000 in nonaccrual
loans and no loans 90 days or more past due and still accruing.
Earnings Per Share - Basic earnings per common share is computed by dividing net
income applicable to common shares by the weighted average number of common
shares outstanding. Diluted earnings per share is computed by dividing
applicable net income by the weighted average number of common shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive stock options are exercised at the beginning of
each period and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the period. All per share
information has been retroactively adjusted to give effect to stock dividends
and stock splits. Net income per share and net income per share, assuming
dilution, were computed as follows:
<TABLE>
<CAPTION>
(Unaudited)
Period Ended June 30,
Three Months Six Months
------------ ----------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income per share, basic
<S> <C> <C> <C> <C>
Numerator - net income ..................................... $ 396 $ 430 $ 786 $ 859
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ..................................... 1,798,019 1,776,986 1,795,955 1,776,160
========== ========== ========== ==========
Net income per share, basic .................. $ .22 $ .24 $ .44 $ .48
========== ========== ========== ==========
Net income per share, assuming dilution
Numerator - net income ..................................... $ 396 $ 430 $ 786 $ 859
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ..................................... 1,798,019 1,776,986 1,795,955 1,776,160
Effect of dilutive stock options ........................... 150,608 78,664 147,453 76,140
---------- ---------- ---------- ----------
Total shares ................................. 1,948,627 1,855,650 1,943,408 1,852,300
========== ========== ========== ==========
Net income per share,
assuming dilution ............................ $ .20 $ .23 $ .40 $ .46
========== ========== ========== ==========
</TABLE>
8
<PAGE>
Item 2. - Management's Discussion and Analysis
Forward Looking Statements
Statements included in Management's Discussion and Analysis which are
not historical in nature are intended to be, and are hereby identified as
"forward looking statements" for purposes of the safe harbor provided by Section
21E of the Securities Exchange Act of 1934, as amended. The Company cautions
readers that forward looking statements, including without limitation, those
relating to the Company's new office, its response to the Year 2000 problem,
future business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
Results of Operations
Community First Bancorporation (the "Company") recorded consolidated
net income of $396,000, or $.22 per share, for the second quarter of 1999 and
$786,000, or $.44 per share, for the first six months of 1999. During 1998, the
Company recorded net income of $430,000 or $.24 per share for the second
quarter, and $859,000, or $.48 per share, for the first six months. Net income
per share, assuming dilution, for the three and six month periods ended June 30,
1999 was $.20 and $.40, respectively. For the comparable 1998 periods, net
income per share, assuming dilution, was $.23 and $.46, respectively. Net income
per share figures have been retroactively adjusted to reflect a two-for-one
stock split effective July 31, 1998.
Comprehensive income incorporates into one measure all changes in the
Company's equity resulting from recognized transactions and other economic
events of the period other than transactions with owners in their capacities as
owners. The major components of the Company's comprehensive income include net
income (amounts stated above) and unrealized gains and losses on
available-for-sale investment securities. Changes in unrealized gains and losses
on investment securities primarily are a function of three variables: the size
of the investment portfolio, fluctuations in the levels of market interest rates
and the remaining maturity structure of the securities held. As the levels of
market interest rates change, the market values of investment securities move in
an inverse direction. If interest rates rise, the market values of securities
would be expected to decline. Conversely, if interest rates fall, market values
of securities would be expected to increase. Generally, the market values of
securities with longer remaining maturities rise or fall more, in absolute
dollar terms, than do securities with shorter remaining terms.
During the first six months of 1999, the Company invested heavily in
available-for-sale securities, market interest rates increased and the average
remaining maturity of the investment portfolio increased. The Company purchased
longer term instruments during the period in response to significant deposit
growth. As a result, the market values of the Company's investment securities
declined significantly thus far in 1999 and comprehensive income was
consequently decreased by $945,000 during the 1999 six-month period and by
$670,000 during the 1999 three-month period ended June 30. These other
comprehensive losses were more than sufficient to offset net income in both
periods. During the previous year, other comprehensive losses were much smaller
in amount due to a relatively more stable interest rate environment and totaled
$14,000 for the six months and $36,000 for the three months ended June 30, 1998.
Net Interest Income
Net interest income is the principal source of the Company's earnings.
For the second quarter of 1999, net interest income was $1,135,000, an increase
of $30,000 or 2.7% over the comparable 1998 period. For the first six months of
1999, net interest income was $2,232,000, an increase of $41,000 or 1.9% over
the first six months of 1998. The nominal increases in net interest income were
attributable to the offsetting of the positive effects of higher amounts of
interest earning assets in 1999 by the negative effects of lower interest rates
earned on those assets and increased amounts of interest bearing liabilities.
Average interest earning assets during the 1999 six-month period were
$138,972,000, an increase of $23,921,000 or 20.8% over the comparable period of
1998. Average investment securities for the 1999 six-month period were
$43,805,000, an increase of $16,292,000 or 59.2% over the average amount in the
same period of 1998. Average interest bearing liabilities during the 1999
six-month period were $116,070,000, representing an increase of $28,927,000 or
9
<PAGE>
33.2% over the amount for the same period of 1998. Average time deposits of
$100,000 and over increased to $34,078,000 for the 1999 six-month period from
$23,289,000 in the year earlier period. Average other time deposits increased
significantly, also, to $39,502,000 in the 1999 period, compared with
$28,267,000 in the 1998 period. The average interest rate spread (average yield
on interest earning assets less the average rate paid on interest bearing
liabilities) for the first six months of 1999 was 2.44%, a decrease of 16 basis
points from the 2.60% noted for the same period of 1998. Net yield on earning
assets (net interest income divided by average interest earning assets) was
3.24% for the first six months of 1999, a decrease of 60 basis points from the
3.84% for the first six months of 1998.
Increases in interest earning assets and interest bearing liabilities
resulted from the Company's continuing marketing strategies to increase its
market share in its local service areas in Anderson and Oconee Counties of South
Carolina. The Anderson County, South Carolina market represents a new
undertaking by the Company, which opened a branch office in a temporary facility
in the City of Anderson on January 4, 1999.
During the first six months of 1999, the majority of business obtained
from the new Anderson County operation has been the acquisition of deposit
liabilities. The Company has invested these deposits primarily in investment
securities because management continues to utilize prudent underwriting
practices in making credit decisions. Therefore, growth in deposits has been
much more rapid than has growth in the higher-yielding loan categories.
Management expects to continue to utilize such strategies during the remainder
of 1999.
Interest rates increased slightly near the end of the 1999 period due
to concerns that inflationary pressures may be re-emerging as a threat to the
country's economic stability. Late in the 1999 second quarter, the Federal
Reserve Bank's Open Market Committee revealed that it has adopted a slight bias
toward increasing rates as a means to curtail this threat. On this news, market
interest rates increased. The effects of these rate increases are not fully
reflected in the financial information presented in this report, and the
potential effects on future operating results are not readily apparent at this
time. However, the potential effects of the expected small increases are not
anticipated to cause any significant positive or adverse results for the
Company.
Provision and Allowance for Loan Losses
The provision for loan losses charged to expense was $70,000 for the
second quarter of 1999 compared with $60,000 for the second quarter of 1998, and
totaled $95,000 for the first six months of 1999 compared with $125,000 for the
comparable period of 1998. At June 30, 1999, the allowance for loan losses was
1.35% of loans, compared with 1.41% of loans at December 31, 1998. During the
1999 six-month period, net charge-offs totaled $86,000, compared with $9,000
charged off during the same period of 1998. As of June 30, 1999, there were
$286,000 in nonaccrual loans and no loans were over 90 days past due and still
accruing interest. The amount of nonaccrual loans at June 30, 1999 is $177,000
greater than the amount noted at June 30, 1998 and $80,000 less than the amount
of nonaccrual loans noted as of December 31, 1998. The majority of the
nonaccrual loans are secured by real estate or other collateral. When the
estimated realizable value of collateral associated with nonperforming loans is
believed to be insufficient to satisfy the debt, management generally
charges-off the excess amount of the debt.
Management believes that the allowance for loan losses is adequate to
absorb all estimated future risk of loss inherent in the loan portfolio as of
June 30, 1999.
10
<PAGE>
Noninterest Income
Noninterest income totaled $168,000 for the second quarter of 1999,
compared with $142,000 for the 1998 quarter. Noninterest income was $305,000 for
the first six months of 1999 and $272,000 for the same 1998 period. The higher
noninterest income in 1999 was attributable primarily to increased fees derived
from charges assessed against deposit accounts, fees for card-based services,
including credit card fees and fees for ATM usage and a $10,000 gain from the
sale of other real estate. There were no realized securities gains or losses in
either the 1999 or 1998 periods.
Noninterest Expenses
Noninterest expenses totaled $623,000 for the second quarter of 1999,
compared with $519,000 for the 1998 period, representing an increase of $104,000
or 20.0%. Noninterest expenses were $1,227,000 for the first six months of 1999
compared with $1,004,000 for the first half of 1998. Salaries and employee
benefits for the 1999 quarter totaled $354,000, an increase of $74,000 or 26.4%
more than in the 1998 three month period. For the first six months of 1999,
salaries and employee benefits totaled $664,000 representing an increase of
$132,000 or 24.8% over the same period of 1998. This increase resulted largely
from wages, salaries and employee benefits costs associated with the opening of
the new branch office in Anderson, South Carolina. However, during the 1999
six-month period, only $10,000 was accrued toward year-end incentive bonuses,
compared with a $60,000 accrual in 1998. Occupancy and furniture and equipment
expenses for the second quarter of 1999 totaled $82,000, an increase of $12,000,
or 17.1% compared with the same period of 1998, primarily resulting from higher
depreciation, equipment maintenance and repair costs. Other expenses for the
1999 three-month period totaled $187,000 and were $18,000 more than in 1998. For
the 1999 six-month period, other expenses increased by $71,000, or 21.8%, over
the 1998 amount to $396,000. These expenses also increased primarily due to
expenses incurred to open and operate the new Anderson branch. In addition, the
Company recorded the effects that higher account volumes have on processing
costs including credit card and ATM card fees paid and costs associated with
obtaining internal operating supplies. Other increased expenses included higher
fees paid to the Company's Board of Directors (increase of $10,000 over the 1998
six-month expense amount) and expenses for the Company's Board of Directors and
personnel to attend other meetings and conventions (increase of $12,000 over the
1998 six-month amount).
Management anticipates that the opening of the new Anderson Branch
office will continue to result in higher amounts of noninterest expenses during
1999, and thus depress earnings performance as compared with 1998.
Liquidity
Liquidity is the ability to meet current and future obligations through
the liquidation or maturity of existing assets or the acquisition of additional
liabilities. The Company manages both assets and liabilities to achieve
appropriate levels of liquidity. Cash and short-term investments are the
Company's primary sources of asset liquidity. These funds provide a cushion
against short-term fluctuations in cash flow from both deposits and loans.
Securities available-for-sale are the Company's principal source of secondary
asset liquidity. However, the availability of this source is influenced by
market conditions. Individual and commercial deposits are the Company's primary
source of funds for credit activities.
As of June 30, 1999, the ratio of loans to total deposits was 53.2%,
compared with 60.4% as of December 31, 1998 and 64.6% as of June 30, 1998.
Deposits as of June 30, 1999 had increased by $21,456,000 or 19.1% over the
amount at December 31, 1998 and $27,644,000 or 26.0% greater than their levels
of June 30, 1998. Approximately one-half of the amount of the increase in
deposits during the 1999 period was attributable to the new Anderson branch,
which had deposits of $11,500,000 as of June 30, 1999. The decline in the
loan-to-deposit ratio for 1999 is generally the result of the volume of deposits
growing faster than loans, as expected, in the new office.
Management believes that the Company's liquidity sources are adequate
to meet its operating needs.
11
<PAGE>
Capital Resources
The Company's capital base decreased by $104,000 since December 31,
1998 as the result of net income of $786,000 for the first six months of 1999,
$55,000 added from the exercise of employee stock options, less the $945,000
change in unrealized holding gains and losses on available-for-sale securities,
net of deferred tax effects.
The Company and its banking subsidiary (the "Bank") are subject to
regulatory risk-based capital adequacy standards. Under these standards, bank
holding companies and banks are required to maintain certain minimum ratios of
capital to risk-weighted assets and average total assets. Under the provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the capital position of an affected institution was to fall below certain
levels, increasingly stringent regulatory corrective actions are mandated.
The June 30, 1999 risk based capital ratios for the Company and the
Bank are presented in the following table, compared with the "well capitalized"
and minimum ratios under the regulatory definitions and guidelines:
<TABLE>
<CAPTION>
Total
Tier 1 Capital Leverage
------ ------- --------
<S> <C> <C> <C>
Community First Bancorporation .......................................... 18.4% 19.6% 9.8%
Community First Bank .................................................... 17.9% 19.2% 9.5%
Minimum "well-capitalized" requirement .................................. 6.0% 10.0% 5.0%
Minimum requirement ..................................................... 4.0% 8.0% 3.0%
</TABLE>
Year 2000 Readiness Disclosure
The Company was on schedule and had substantially completed its Year
2000 Preparedness Plan as of June 30, 1999. The plan had five phases: (1)
Awareness, (2) Assessment, (3) Renovation, (4) Validation, and (5)
Implementation. These phases included the identification of critical systems and
equipment potentially vulnerable to the Year 2000 problem. This also included
identification of significant loan customers whose businesses could possibly be
adversely affected by the problem and communicating with them about their
progress in addressing the Year 2000 changeover. The renovation phase,
consisting of upgrading or replacing systems and equipment, had been completed
in large part before the end of the third quarter of 1998. The validation
portion of the plan calls for the actual testing of systems and equipment as of
certain critical dates. This testing was completed successfully, as scheduled,
by June 30, 1999. Finally, the implementation phase, which requires addressing
any problems encountered in the validation phase, along with continued review
and assessment of the Company's systems and equipment, is presently underway and
will continue until the Year 2000 has arrived.
Through June 30, 1999, the Company's costs to address the Year 2000
Problem, excluding the cost of Company employees' time that may have been
diverted from other activities, have been immaterial. Likewise excluded from the
Company's estimate of costs to address the Year 2000 Problem are the costs of
replacing or upgrading hardware or software items which were otherwise
substantially technologically obsolete.
The most reasonably likely worst case scenarios for the Company are
that customers and some service providers may experience Year 2000 problems that
make it difficult for them to meet their obligations to the Company in a timely
fashion. Management of the Company does not believe that such problems would
result in more than a temporary inconvenience.
Management is of the opinion that the Company's systems and equipment
are ready for the Year 2000 and anticipates no material adverse effect on the
Company's business. Management is not aware of any material expenditures to be
required in connection with its preparedness plan.
Nevertheless, the Company could be adversely affected by problems
encountered by its vendors, customers and providers of services in dealing with
their Year 2000 readiness, by difficulty in identifying all possible effects of
the Year 2000 problem and interrelationships between various mission critical
systems, and by the unavailability of skilled personnel to address Year 2000
problems that may arise.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders.
On Tuesday, April 29, 1999, the shareholders of Community First
Bancorporation held their regular annual meeting. At the meeting, one matter was
submitted to a vote with results as follows:
1. Election of four directors to hold office for three-year terms:
SHARES VOTED
------------
AUTHORITY
DIRECTORS FOR WITHHELD
--------- --- --------
R. Theo Harris, Sr. 1,218,161 0
James E. McCoy 1,218,161 0
James E. Turner 1,218,161 0
Charles L. Winchester 1,218,161 0
The following directors continue to serve until the expiration of their
terms at the annual meetings to be held in the years indicated and were not
voted on at the 1999 annual meeting: Larry S. Bowman - 2000, William M. Brown -
2000, John R. Hamrick - 2000, Frederick D. Shepherd, Jr. - 2000, Blake L.
Griffith - 2001, Robert H. Edwards, Sr. - 2001, Gary V. Thrift - 2001.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No.
from Item 601 of
Regulation S-B Description
--------------- ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
13
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMMUNITY FIRST BANCORPORATION
August 10, 1999 /s/ Frederick D. Shepherd, Jr.
- ----------------- --------------------------------------------
Date Frederick D. Shepherd, Jr., President
and Chief Executive Officer (also principal
accounting officer)
14
<PAGE>
EXHIBIT INDEX
Exhibits
Exhibit No.
from Item 601 of
Regulation S-B Description
- --------------- ----------------------
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet at June 30, 1999 and the unaudited
Consolidated Statement of Income for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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0
0
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