UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File Number 0-50322
COMMUNITY FIRST BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
MARYLAND 36-4526348
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
240 SOUTH MAIN STREET, MADISONVILLE, KENTUCKY 42431
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(270) 821-7211
- --------------------------------------------------------------------------------
(Issuer's telephone number)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 (2)
has been subject to such filing requirements for the past 90 days.
Yes __ No __X__
As of June 30, 2003, there were 277,725 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
Transitional Small Business Issuer Disclosure Format (check one):
Yes __ No __X__
COMMUNITY FIRST BANCORP, INC.
MADISONVILLE, KENTUCKY
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
- ------
Item 1. Financial Statements
Consolidated Statements of Condition as of June 30, 2003
(unaudited) and December 31, 2002 3
Consolidated Statements of Operations - (Unaudited)
for the three and six months ended June 30, 2003 and 2002 4
Consolidated Statements of Cash Flows - (Unaudited) for the
six months ended June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 9
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 185,488 $ 733,126
Time deposits 25,000 25,000
------------ ------------
Total cash and cash equivalents 210,488 758,126
Securities, held-to-maturity 1,461,835 1,901,750
Securities, available-for-sale, at fair value 2,008,935 --
Loans, net of unearned interest 29,819,225 25,815,638
Allowance for loan losses (137,179) (105,868)
Accrued interest receivable 147,238 135,220
Premises and equipment, net 1,191,992 772,662
Stock in Federal Home Loan Bank, at cost 646,600 634,100
Deferred tax assets, net 55,368 --
Other assets 116,335 56,197
------------ ------------
Total assets $ 35,520,592 $ 29,967,825
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 30,528,116 $ 28,128,252
Advances from Federal Home Loan Bank 500,000 --
Accrued interest payable and other liabilities 104,639 90,707
------------ ------------
Total liabilities 31,132,755 28,218,959
------------ ------------
Commitments and contingencies -- --
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares -- --
Common stock, $.01 par value: authorized,
5,000,000 shares; issued and outstanding
277,725 and no shares at June 30, 2003
and December 31, 2002, respectively 2,777 --
Additional paid-in capital 2,512,788 --
Retained earnings - substantially
restricted 1,875,680 1,748,866
Accumulated other comprehensive income (3,408) --
------------ ------------
Total stockholders' equity 4,387,837 1,748,866
------------ ------------
Total liabilities and stockholders' equity
$ 32,520,592 $ 29,967,825
============ ============
See notes to consolidated financial statements.
3
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Interest income:
Interest and fees on loans $ 505,799 $ 418,257 $ 989,344 $ 834,904
Interest on investment
securities 25,429 45,257 54,240 98,892
Federal Home Loan Bank
dividends 6,386 9,493 12,640 16,213
Other interest income -- 951 -- 951
---------- ---------- ---------- ----------
Total interest income 537,614 473,958 1,056,224 950,960
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 213,360 244,110 408,222 490,229
Interest on Federal Home
Loan Bank advances 2,306 3,705 4,730 8,930
Interest on other
borrowings -- 568 -- 568
---------- ---------- ---------- ----------
Total interest expense 215,666 248,383 412,952 499,727
---------- ---------- ---------- ----------
Net interest income 321,948 225,575 643,272 451,233
Provision for loan losses 13,000 -- 32,000 2,200
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 308,948 225,575 611,272 449,033
---------- ---------- ---------- ----------
Other income:
Service charges and fees 28,964 14,289 62,378 22,585
Loss on sale of fixed
assets -- -- -- (3,600)
Loss on sale of foreclosed
assets -- (3,762) -- (3,762)
Insurance commissions and
premiums 778 836 2,644 3,044
Other income 2,913 1,683 10,751 9,566
---------- ---------- ---------- ----------
32,655 13,046 75,773 27,833
---------- ---------- ---------- ----------
Other expenses:
Compensation and benefits 134,195 105,415 253,650 213,668
Directors fees 10,800 10,800 21,600 21,600
Occupancy expense 39,185 32,108 70,559 61,558
Insurance premiums 6,291 5,493 11,919 11,031
Data processing 49,858 40,528 89,241 78,115
Advertising 19,343 15,649 37,398 32,031
Office supplies and postage 14,862 12,923 29,222 23,344
Payroll and other taxes 18,451 15,080 35,584 30,322
Professional fees 10,219 6,574 17,455 12,689
Other operating expenses 25,139 6,202 48,971 18,367
---------- ---------- ---------- ----------
328,343 250,772 615,599 502,725
---------- ---------- ---------- ----------
Income (loss) before income
taxes 13,260 (12,151) 71,446 (25,859)
Income tax benefit 55,368 -- 55,368 --
---------- ---------- ---------- ----------
Net income (loss) $ 68,628 $ (12,151) $ 126,814 $ (25,859)
========== ========== ========== ==========
Basic earnings per share $ 0.25 N/A $ 0.46 N/A
========== ========== ========== ==========
See notes to consolidated financial statements.
4
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 126,814 $ (25,859)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
FHLB stock dividend (12,500) (13,900)
Provision for loan losses 32,000 2,200
Depreciation, amortization and accretion 27,800 19,653
Loss on sale of fixed assets -- 3,600
Loss on sale of foreclosed assets -- 3,762
Deferred income tax benefit (55,368) --
Change in assets and liabilities:
Accrued interest receivable and other assets (70,155) 6,648
Accrued interest payable and other liabilities 13,932 3,056
----------- -----------
Net cash provided (used) by
operating activities 62,523 (840)
----------- -----------
Cash flows from investing activities:
Net increase in loans (4,004,276) (419,987)
Proceeds from maturities/calls of held-to-maturity
securities 439,914 789,243
Proceeds from maturities/calls of available-for-
sale securities -- 350,000
Purchases of held-to-maturity securities -- (500,000)
Purchases of available-for-sale securities (2,014,098) --
Proceeds from sale of foreclosed assets -- 5,338
Purchases of premises and equipment (447,130) (272,846)
----------- -----------
Net cash used by investing
activities (6,025,590) (48,252)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 2,399,864 501,482
Payments on short-term borrowings (1,500,000) (1,000,000)
Proceeds from short-term borrowings 2,000,000 1,000,000
Net proceeds from issuance of common stock 2,515,565 --
----------- -----------
Net cash provided by financing activities 5,415,429 501,482
----------- -----------
Net increase (decrease) in cash and cash equivalents (547,638) 452,390
Cash and cash equivalents, beginning of period 758,126 2,306,937
----------- -----------
Cash and cash equivalents, end of period $ 210,488 $ 2,759,327
=========== ===========
See notes to consolidated financial statements.
5
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
2003 2002
-------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $413,489 $569,180
======== ========
NONCASH TRANSACTIONS:
Federal Home Loan Bank Stock dividend received $ 12,500 $ 13,900
======== ========
Loans transferred to foreclosed real estate $ -- $ 7,400
======== ========
Loans to facilitate the sale of foreclosed real estate $ -- $ 15,300
======== ========
Decrease in unrealized gain on securities
available-for-sale $ (5,163) --
======== ========
See notes to consolidated financial statements.
6
COMMUNITY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. COMMUNITY FIRST BANCORP, INC.
In March 2003, Community First Bancorp, Inc. (the "Company") was
incorporated to facilitate the conversion of Community First Bank (the
"Bank") from a mutual savings bank to a stock savings bank (the
"Conversion"). In connection with the Conversion, the Company offered its
common stock to the depositors and borrowers of the Bank as of specified
dates. The Conversion was consummated on June 26, 2003, at which time the
Company became the holding company for the Bank and issued shares of its
stock to the general public.
The Company filed a Form SB-2 with the Securities and Exchange Commission
("SEC") on April 1, 2003, which as amended, was declared effective by the
SEC on May 14, 2003. The Bank filed a Form AC with the Office of Thrift
Supervision (the "OTS") on April 2, 2003, which as amended, along with
related offering and proxy materials, was conditionally approved by the OTS
on May 14, 2003. The Company also filed an Application H-(e)1-S with the
OTS on April 2, 2003, which was conditionally approved by the OTS on May
14, 2003. The members of the Bank approved the Plan of Conversion at a
special meeting held on June 23, 2003, and the subscription offering closed
on June 17, 2003.
On June 26, 2003, the Company became the holding company for the Bank upon
the consummation of the Conversion. The Conversion was accomplished through
the sale and issuance by the Company of 277,725 shares of common stock at
$10 per share. Net proceeds from the sale of common stock were $2,515,565.
Costs associated with the Conversion were deducted from the proceeds from
the sale of the common stock and totaled $261,685.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and therefore, do not
include all disclosures necessary for a complete presentation of the
statements of condition, statements of operations and statement of cash
flows in conformity with U.S. generally accepted accounting principles.
However, all adjustments (all of which are of a normal recurring nature)
which are, in the opinion of management, necessary for the fair
presentation of the interim financial statements have been included. The
statements of operations for periods presented are not necessarily
indicative of the results which may be expected for the entire year.
The unaudited consolidated financial statements include the accounts of the
Company and the Bank for the periods presented in 2003 and the accounts of
the Bank for the periods presented in 2002. All material intercompany
balances and transactions have been eliminated in consolidation.
7
3. EARNINGS PER SHARE
Earnings per share has been determined in accordance with Statements of
Financial Accounting Standards No. 128, "Earnings per Share." Earnings per
common share were computed by dividing net income by the number of shares
of common stock issued in the Bank's conversion to stock form as if such
shares had been outstanding for the entire period. Diluted earnings per
share is not presented since the Company did not have any outstanding
common stock equivalents.
The following data show the amounts used in computing earnings per share
(EPS).
JUNE 30,
2003
--------
Net income $126,814
Weighted average number of common
shares used in basic EPS 277,725
========
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
GENERAL
The following discussion and analysis is intended to assist in understanding the
financial condition and results of operations of the Company.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this Quarterly Report on Form
10-QSB, the words or phrases "will likely result," "are expected to," will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Bank cautions readers not
to place undue reliance on any such forward-looking statements, which speak only
as of the date made, and advises readers that various factors, including
regional and national economic conditions, substantial changes in level of
market interest rates, credit and other risks of lending and investment
activities and competitive and regulatory factors could affect the Company's
financial performance and could cause the Bank's actual results for future
periods to differ materially from those anticipated or projected. The Company
does not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS
ENDED JUNE 30, 2003 AND 2002
NET INCOME. Net income for the quarter ended June 30, 2003 was $68,600 compared
to a net loss of $12,200 for the same period last year. Net income for the six
months ended June 30, 2003 was $126,800 compared to a net loss of $25,900 for
the six months ended June 30, 2002. The Company's net income for the three and
six months ended June 30, 2003 reflects management's ongoing efforts to restore
the Bank to profitability.
NET INTEREST INCOME. Net interest income increased $96,300 or 42.7% to $321,900
for the three months ended June 30, 2003 compared to $225,600 for the three
months ended June 30, 2002. Year-to-date net interest income was $643,300
compared to $451,200 for the six months ended June 30, 2002, an increase of
$192,100, or 42.6%. The increase in net interest income during the 2003 periods
was attributable to increased interest income and a reduction in interest
expense. Interest income for the three and six months ended June 30, 2003 was
$537,600 and $1,056,200, respectively, an increase of $63,600 and $105,300 over
the prior year. The increase in interest income reflects a higher volume of
interest-earning assets and a shift in interest-earning assets into
higher-yielding loans. During the six months ended June 30, 2003, net loans
averaged $28.1 million for the period as compared to $22.3 million during the
first six months of fiscal year 2002. While interest rates decreased during this
period, interest income increased by $105,300 primarily due to higher
outstanding loan balances. Net interest income also benefitted from reduced
deposit costs in the lower interest rate environment as higher costing
certificates of deposit matured. Accordingly, interest expense decreased by
$32,700 and $86,800, respectively, for the three and six months ended June 30,
2003 as compared to the prior year
9
periods. The Bank's interest rate spread increased to 3.87% for the six months
ended June 30, 2003 compared to 3.58% for the six months ended June 30, 2002.
Net interest margin increased to 3.85% for the 2003 period compared to 3.37% for
the 2002 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $13,000 and $32,000
for the three and six months ended June 30, 2003, respectively, compared to $0
and $2,200 for the three and six months ended June 30, 2002, respectively. The
Bank makes provisions for loan losses in amounts deemed necessary to maintain
the adequacy of the allowance for loan losses. At June 30, 2003, the Bank's
allowance for loan losses was $137,200 or 0.50% of the gross loan portfolio.
OTHER INCOME. Other income was $32,700 and $13,000 for the quarters ended June
30, 2003 and 2002, respectively, and $75,800 and $27,800 for the six months
ended June 30, 2003 and 2002, respectively. The increase in other income for the
most recent periods is reflective of management's ongoing efforts to enhance fee
income.
OTHER EXPENSES. Other expenses were $328,300 and $250,800 for the quarters ended
June 30, 2003 and 2002, respectively, and $615,600 and $502,700 for the six
months ended June 30, 2003 and 2002, respectively. The increase for the most
recent periods was due primarily to higher occupancy and compensation expense.
INCOME TAX BENEFIT. The Bank recorded an income tax benefit of $55,400 for the
three- and six-month periods ended June 30, 2003, compared to no income tax
benefit or expense for the three- and six-month periods ended June 30, 2002. The
Bank provides for both the current and deferred tax effects of the transactions
reported in its financial statements and establishes deferred tax assets and
liabilities for the temporary differences between the financial reporting and
tax bases of its assets and liabilities. The Bank, however, establishes
valuation allowances for its net deferred tax assets unless it is more likely
than not that these net deferred tax assets will be realized. Based on its
current earnings and other factors, the Bank determined in 2002 that it was
appropriate to establish a valuation allowance for its net deferred tax assets.
During the quarter ended June 30, 2003, the Bank determined that it was more
likely then not that some or all of net deferred tax assets would be realizable.
Accordingly, the corresponding deferred tax valuation allowance was reversed.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 AND DECEMBER 31, 2002
The Company's total assets as of June 30, 2003 were $35.5 million, an increase
of $5.5 million from December 31, 2002's level of $30.0 million. The increase
was due to growth in the loan portfolio. Net loans receivable increased by $4.0
million, or 15.5%, which reflected our continued marketing efforts. The
Company's investment securities also increased by $1.6 million, or 82.5%, to
$3.5 million at June 30, 2003. The Bank invested a portion of the proceeds from
its stock conversion into investment securities.
Liabilities increased by $2.9 million, or 10.3%, to $31.1 million due primarily
to a $2.4 million, or 8.5%, increase in deposits as the Bank continued to
attract deposits locally at favorable rates.
Stockholders' equity increased to $4.4 million at June 30, 2003 from $1.75
million at December 31, 2002. The increase in stockholders' equity
10
principally reflects the Company's sale of 277,725 shares of common stock, at
$10 per share, as part of the Bank's conversion to stock form. Stockholders'
equity also benefitted from $126,800 in earnings during the period.
At June 30, 2003, the Bank was in compliance with all applicable regulatory
capital requirements with tangible and core capital equal to 11.96% of adjusted
total assets and total risk-based capital equal to 21.96% of risk-weighted
assets.
ASSET QUALITY
The following table sets forth information regarding the Bank's nonperforming
assets at the dates indicated.
JUNE 30, DECEMBER 31,
2003 2002
------- -----------
(IN THOUSANDS)
Restructured loans $ -- $ --
Non-accrual loans -- --
Accruing loans past due 90 days or more 28 29
----- -----
Total non-performing loans 28 29
Foreclosed assets -- --
----- -----
Total non-performing assets $ 28 $ 29
===== =====
At June 30, 2003, there were no loans outstanding not reflected in the above
table as to which known information about possible credit problems of borrowers
caused management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms.
An analysis of the changes in the allowance for loan losses is as follows:
SIX MONTHS ENDED JUNE 30,
---------------------------
2003 2002
--------- ---------
Balance, beginning of period $ 105,868 $ 105,000
Loans charged off (1,584) (19,389)
Loan recoveries 895 11,297
--------- ---------
Net charge-offs (689) (8,092)
Provision for loan losses 32,000 2,200
--------- ---------
Balance, end of period $ 137,179 $ 99,108
========= =========
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no operating business and does not have material
funding needs. In the future, the Company may require funds for dividends and
tax payments for which it will rely on dividends and other distributions from
the Bank. The Bank is subject to various regulatory restrictions on the payment
of dividends.
11
The Bank's sources of funds for lending activities and operations are deposits
from its primary market area, advances from the FHLB of Cincinnati, principal
and interest payments on loans, interest received on other investments and
federal funds purchased. Its principal funding commitments are for the
origination of loans, the payment of maturing deposits, and principal and
interest payments on advances from the FHLB. Deposits are considered a primary
source of funds supporting the Bank's lending and investment activities.
Cash and cash equivalents (cash due from banks, interest-bearing deposits in
other financial institutions, and federal funds sold), as of June 30, 2003,
totaled $210,500 compared to $2.8 million at June 30, 2002. The Bank's cash
flows were provided mainly by financing activities, including $2.4 million from
net deposit increases and $2.5 million in net proceeds from the stock
conversion. Operating activities provided $62,500 in cash for the six months
ended June 30, 2003 compared to $800 used in cash for the six months ended June
30, 2002. The Bank used cash flows for its investing activities primarily to
fund an increase in gross loans of $4.0 million.
As a federal savings bank, the Bank is subject to regulatory capital
requirements of Office of Thrift Supervision ("OTS"). In order to be well
capitalized under OTS regulations, the Bank must maintain a leverage ratio of
Tier I Capital to average assets of at least 5% and ratios of Tier I and total
capital to risk-weighted assets of at least 6% and 10% respectively. At June 30,
2003, the Bank satisfied the capital requirements for classification as well
capitalized under OTS regulations.
ITEM 3. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
12
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are either being filed with or incorporated by
reference in this quarterly report on Form 10-QSB:
NUMBER DESCRIPTION
------ -----------
3.1 Articles of Incorporation *
3.2 Bylaws *
4 Form of Common Stock Certificate *
10.1 Employment Agreement with William M. Tandy *
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32 Section 1350 Certification
_______________
*Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 (File No. 333-104226).
(b) During the quarter ended June 30, 2003, the Registrant did not file
any current reports on Form 8-K.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMUNITY FIRST BANCORP, INC.
Date: 8-13-03 /s/ William M. Tandy
--------------------------------------------
William M. Tandy, President
(Duly Authorized Representative)
Date: 8-13-03 /s/ Michael D. Wortham
--------------------------------------------
Michael D. Wortham, Vice President
(Chief Financial Officer)
14