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 SEPTEMBER 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 X No
--- ---
As of September 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
--- ---
1
COMMUNITY FIRST BANCORP, INC.
MADISONVILLE, KENTUCKY
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003
(unaudited) and December 31, 2002 3 Consolidated Statements
of Operations - (Unaudited) for the three and nine months
ended September 30, 2003 and 2002 4
Consolidated Statements of Cash Flows - (Unaudited) for the
nine months ended September 30, 2003 and 2002 5
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 2003 and 2002 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operation
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 708,049 $ 733,126
Interest-bearing deposits with banks 25,000 25,000
------------ ------------
Total cash and cash equivalents 733,049 758,126
Securities, held-to-maturity 1,447,808 1,901,750
Securities, available-for-sale, at fair value 1,985,157 --
Loans, net of unearned interest 32,415,632 25,815,638
Allowance for loan losses (151,277) (105,868)
Accrued interest receivable 162,407 135,220
Premises and equipment, net 1,497,638 772,662
Stock in Federal Home Loan Bank, at cost 653,100 634,100
Deferred tax assets, net 59,504 --
Other assets 130,562 56,197
------------ ------------
Total assets $ 38,933,580 $ 29,967,825
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 32,356,205 $ 28,128,252
Advances from Federal Home Loan Bank 2,000,000 --
Accrued interest payable and other liabilities
240,878 90,707
------------ ------------
Total liabilities 34,597,083 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 September 30,
2003 and December 31, 2002, respectively 2,777 --
Additional paid-in capital 2,466,428 --
Retained earnings - substantially
restricted 1,885,469 1,748,866
Accumulated other comprehensive income (18,177) --
------------ ------------
Total stockholders' equity 4,336,497 1,748,866
------------ ------------
Total liabilities and stockholders' equity
$ 38,933,580 $ 29,967,825
============ ============
See notes to consolidated financial statements.
3
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Interest income:
Interest and fees on loans $ 524,321 $ 426,390 $ 1,513,665 $ 1,261,294
Interest on investment 31,517 40,944 85,757 139,836
securities
Federal Home Loan Bank 6,519 7,596 19,159 23,809
dividends
Other interest income -- 2,670 -- 3,621
----------- ----------- ----------- -----------
Total interest income 562,357 477,600 1,618,581 1,428,560
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 206,717 239,573 614,939 729,802
Interest on Federal Home 2,943 2,100 7,673 11,030
Loan Bank advances
Interest on other -- -- -- 568
borrowings
----------- ----------- ----------- -----------
Total interest expense 209,660 241,673 622,612 741,400
----------- ----------- ----------- -----------
Net interest income 352,697 235,927 995,969 687,160
Provision for loan losses 18,000 3,500 50,000 5,700
----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses 334,697 232,427 945,969 681,460
----------- ----------- ----------- -----------
Other income:
Service charges and fees 37,865 16,752 100,243 39,337
Loss on sale of fixed -- -- -- (3,600)
assets
Loss on sale of foreclosed -- (701) -- (4,463)
assets
Insurance commissions and 940 994 3,584 4,038
premiums
Other income 3,332 1,658 14,083 11,224
----------- ----------- ----------- -----------
42,137 18,703 117,910 46,536
----------- ----------- ----------- -----------
Other expenses:
Compensation and benefits 144,363 112,157 398,013 325,825
Directors fees 10,800 10,800 32,400 32,400
Occupancy expense 50,483 32,756 121,042 94,313
Insurance premiums 8,422 5,548 20,341 16,579
Data processing 45,989 39,861 135,230 117,976
Advertising 23,258 14,593 60,656 46,624
Office supplies and postage 21,518 13,873 50,740 37,217
Payroll and other taxes 18,112 15,001 53,696 45,323
Professional fees 11,572 6,928 29,027 19,618
Other operating expenses 26,596 16,364 75,567 34,731
----------- ----------- ----------- -----------
361,113 267,881 976,712 770,606
----------- ----------- ----------- -----------
Income (loss) before income 15,721 (16,751) 87,167 (42,610)
taxes
Income tax expense (benefit) 5,933 -- (49,435) --
----------- ----------- ----------- -----------
Net income (loss) $ 9,788 $ (16,751) $ 136,602 $ (42,610)
=========== =========== =========== ===========
Basic earnings (loss) per share $ 0.04 $ (0.06) $ 0.49 $ (0.15)
=========== =========== =========== ===========
See notes to consolidated financial statements.
4
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 136,602 $ (42,610)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
FHLB stock dividend (19,000) (21,300)
Provision for loan losses 50,000 5,700
Depreciation, amortization and accretion 63,036 58,960
Loss on sale of foreclosed assets -- 3,700
Deferred income tax benefit (50,140) 10,000
Change in assets and liabilities:
Accrued interest receivable and other assets (101,552) (16,679)
Accrued interest payable and other liabilities 150,172 24,967
----------- -----------
Net cash provided by
operating activities 229,118 22,738
----------- -----------
Cash flows from investing activities:
Net increase in loans (6,604,585) (1,267,163)
Proceeds from maturities/calls of held-to-maturity 439,914 1,439,223
securities
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 (772,584) (381,015)
----------- -----------
Net cash used in investing
activities (8,951,353) (703,617)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 4,227,953 1,558,307
Payments on short-term borrowings -- (1,000,000)
Proceeds from short-term borrowings 2,000,000 --
Net proceeds from issuance of common stock 2,469,205 --
----------- -----------
Net cash provided by financing activities 8,697,158 558,307
----------- -----------
Net decrease in cash and cash equivalents (25,077) (122,572)
Cash and cash equivalents, beginning of period 758,126 2,306,937
----------- -----------
Cash and cash equivalents, end of period $ 733,049 $ 2,184,365
=========== ===========
See notes to consolidated financial statements.
5
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2003 2002
-------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $622,612 $743,200
======== ========
NON-CASH TRANSACTIONS:
Loans transferred to foreclosed real estate -- $ 7,400
======== ========
Loans to facilitate the sale of foreclosed real estate -- $ 15,300
======== ========
See notes to consolidated financial statements.
6
COMMUNITY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
----------- -----------
Balance January 1 $ 1,748,866 $ 1,838,162
Net income 136,602 (42,610)
Issuance of common stock 2,469,205 --
Other comprehensive income (loss), net of tax (18,176) --
----------- -----------
Balance at end of period $ 4,336,497 $ 1,795,552
=========== ===========
See accompanying notes to condensed consolidated financial statements.
7
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 $2,469,205. Costs associated with the Conversion were
deducted from the proceeds from the sale of the common stock and
totaled $308,045.
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 accounting principles generally accepted
in the United States of America. 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 consolidated balance sheet
of the company as of December 31, 2002 has been derived from the
audited consolidated balance sheet of the company as of that date.
Certain information and note disclosures normally included in the
company's annual financial statements prepared in accounting principles
generally accepted in the United States of America have been condensed
or omitted. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the company's Form 10-KSB annual report for
2002 filed with the Securities and Exchange Commission. The statements
of operations for periods presented are not necessarily indicative of
the results which may be expected for the entire year.
8
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.
3. OTHER COMPREHENSIVE LOSS
Other comprehensive loss components and related taxes were as follows:
2003 2002
------- -----
Unrealized loss on available-
for-sale securities before
tax effect $27,541 $ --
Tax expense 9,364 --
------- -----
Other comprehensive loss $18,177 $ --
======= =====
4. 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).
2003 2002
--------- ---------
Nine months ended September 30:
Net income (loss) $ 136,602 $ (42,610)
Weighted average number of
common shares 277,725 277,725
--------- ---------
Basic Earnings (Loss)
per share $0.49 $(0.15)
===== ======
2003 2002
--------- ---------
Three months ended September 30:
Net income (loss) $ 9,788 $ (16,751)
Weighted average number of
common shares 277,725 277,725
--------- ---------
Basic Earnings (Loss)
per share $0.04 $(0.06)
===== ======
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS 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.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES. The Company's consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States and follow general practices within the financial services
industry. The most significant accounting policies followed by the Company are
presented in Note 1 to the consolidated financial statements in the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission. These policies, along with the disclosures presented in the other
financial statement notes and in this financial review, provide information on
how significant assets and liabilities are valued in the financial statements
and how those values are determined. Based on the valuation techniques used and
the sensitivity of financial statement amounts to the methods, assumptions, and
estimates underlying those amounts, management has identified the determination
of the allowance for loan losses to be the accounting area that requires the
most subjective or complex judgments, and as such could be most subject to
revision as new information becomes available.
The allowance for loan losses represents management's estimate of probable
credit losses inherent in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans, estimated losses on
loans based on historical loss experience, and consideration of current economic
trends and conditions, all of which may be susceptible to significant change.
10
The loan portfolio also represents the largest asset type on the consolidated
balance sheet. Note 1 to the consolidated financial statements in the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission describes the methodology used to determine the allowance for loan
losses, and a discussion of the factors driving changes in the amount of the
allowance for loan losses is included under Asset Quality below.
Loans that exhibit probable or observed credit weaknesses are subject to
individual review. Where appropriate, reserves are allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan given
the availability of collateral, other sources of cash flow and legal options
available to the Company. Included in the review of individual loans are those
that are impaired as provided in SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." The Company evaluates the collectibility of both
principal and interest when assessing the need for a loss accrual. Historical or
industry loss rates are applied to other loans not subject to reserve
allocations. These historical or industry loss rates may be adjusted for
significant factors that, in management's judgment, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs and nonaccrual
loans), changes in mix, asset quality trends, risk management and loan
administration, changes in internal lending policies and credit standards, and
examination results from bank regulatory agencies and our internal credit
examiners.
An unallocated reserve is maintained to recognize the imprecision in estimating
and measuring loss when evaluating reserves for individual loans or pools of
loans. Reserves on individual loans and historical or industry loss rates are
reviewed quarterly and adjusted as necessary based on changing borrower and/or
collateral conditions and actual collection and charge-off experience.
The Company has not substantively changed any aspect of its overall approach in
the determination of the allowance for loan losses. There have been no material
changes in assumptions or estimation techniques as compared to prior periods
that impacted the determination of the current period allowance.
Based on the procedures discussed above, management is of the opinion that the
reserve of $151,277 was adequate, but not excessive, to absorb estimated credit
losses associated with the loan portfolio at September 30, 2003.
DEFERRED INCOME TAXES. We have a deferred tax asset of $59,504. We evaluate this
asset on a quarterly basis. To the extent we believe it is more likely than not
that it will not be utilized, we establish a valuation allowance to reduce its
carrying amount to the amount we expect to be realized. At September 30, 2003,
there is no valuation allowance established. The deferred tax asset will be
utilized as we are profitable or as we carry back tax losses to periods in which
we paid income taxes. The estimate of the realizable amount of this asset is a
critical accounting policy.
11
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2003 AND 2002
NET INCOME. Net income for the quarter ended September 30, 2003 was $9,788
compared to a net loss of $(16,751) for the same period last year. Net income
for the nine months ended September 30, 2003 was $136,602 compared to a net loss
of $(42,610) for the nine months ended September 30, 2002. The Company's net
income for the three and nine months ended September 30, 2003 reflects
management's ongoing efforts to restore the Bank to profitability.
NET INTEREST INCOME. Net interest income increased $116,800 or 49.5% to $352,700
for the three months ended September 30, 2003 compared to $235,900 for the three
months ended September 30, 2002. Year-to-date net interest income was $996,000
compared to $687,200 for the nine months ended September 30, 2002, an increase
of $308,800, or 44.9%. 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 nine months ended September
30, 2003 was $562,400 and $1,618,600, respectively, an increase of $84,800 and
$190,000 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 nine months ended September 30, 2003, net
loans averaged $29.1 million for the period as compared to $22.5 million during
the first nine months of fiscal year 2002. While interest rates decreased during
this period, interest income increased by $190,000 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
$32,000 and $118,800, respectively, for the three and nine months ended
September 30, 2003 as compared to the prior year periods. The Bank's interest
rate spread increased to 3.48% for the nine months ended September 30, 2003
compared to 3.45% for the nine months ended September 30, 2002. Net interest
margin increased to 3.64% for the 2003 period compared to 3.35% for the 2002
period.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $18,000 and $50,000
for the three and nine months ended September 30, 2003, respectively, compared
to $3,500 and $5,700 for the three and nine months ended September 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
September 30, 2003, the Bank's allowance for loan losses was $151,300 or 0.47%
of the gross loan portfolio.
OTHER INCOME. Other income was $42,100 and $18,700 for the quarters ended
September 30, 2003 and 2002, respectively, and $117,900 and $49,700 for the nine
months ended September 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 from service charges and fees on deposit accounts.
OTHER EXPENSES. Other expenses were $361,100 and $267,900 for the quarters ended
September 30, 2003 and 2002, respectively, and $976,700 and $773,300 for the
nine months ended September 30, 2003 and 2002, respectively. The increase for
the most recent periods was due primarily to higher occupancy, data processing,
and compensation expense. The Company anticipates that other expenses will
increase due to the planned opening of a new branch in the 1st quarter of 2004.
The Bank has begun hiring personnel for the new branch. The Bank also expects to
terminate its contract with its current
12
data processing provider and begin converting to a new data processor in the
fourth quarter. The Bank currently estimates that the aggregate expenses
associated with the termination and conversion could range as high as $190,000.
INCOME TAX EXPENSE (BENEFIT). The Bank recorded an income tax expense (benefit)
of $5,900 and ($49,400) for the three- and nine-month periods ended September
30, 2003, compared to no income tax benefit or expense for the three- and
nine-month periods ended September 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 BALANCE SHEETS AT SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
The Company's total assets as of September 30, 2003 were $38.9 million, an
increase of $8.9 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 $6.6 million, or 25.6%, which reflected our continued marketing efforts. The
Company's investment securities also increased by $1.5 million, or 80.5%, to
$3.4 million at September 30, 2003. The Bank invested a portion of the proceeds
from its stock conversion into investment securities.
Premises and equipment increased $725,000, or 93.8%, primarily due to the
acquisition of a new branch site and the purchase of equipment for the new
branch. The Company expects to make additional expenditures for the branch prior
to the opening in the first quarter of 2004.
Liabilities increased by $6.4 million, or 22.6%, to $34.6 million due primarily
to a $4.2 million, or 15.0%, increase in deposits as the Bank continued to
attract deposits locally at favorable rates.
Federal Home Loan Bank advances increased to $2.0 million at September 30, 2003
from $0 at December 31, 2002. The Bank has used proceeds from the advances to
help meet loan demand.
Stockholders' equity increased to $4.3 million at September 30, 2003 from $1.7
million at December 31, 2002. The increase in stockholders' equity 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 $136,600 in earnings during the period.
At September 30, 2003, the Bank was in compliance with all applicable regulatory
capital requirements with tangible and core capital equal to 10.98% of adjusted
total assets and total risk-based capital equal to 21.89% of risk-weighted
assets.
13
ASSET QUALITY
The following table sets forth information regarding the Bank's nonperforming
assets at the dates indicated.
SEPTEMBER 30, DECEMBER 31,
2003 2002
---- ----
(IN THOUSANDS)
Restructured loans $ -- $ --
Non-accrual loans -- --
Accruing loans past due 90 days or more -- 29
----- -----
Total non-performing loans -- 29
Foreclosed assets -- --
----- -----
Total non-performing assets $ -- $ 29
===== =====
At September 30, 2003, there were $28,000 in 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. The loan was current at
September 30, 2003 but the Bank has received information that the borrower on
this loan may file bankruptcy.
An analysis of the changes in the allowance for loan losses is as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2003 2002
--------- ---------
Balance, beginning of period $ 105,868 $ 105,000
Loans charged off (6,052) (26,506)
Loan recoveries 1,461 11,357
--------- ---------
Net charge-offs (4,591) (15,149)
50,000 5,700
Provision for loan losses
--------- ---------
Balance, end of period $ 151,277 $ 95,551
========= =========
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.
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
14
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 with
banks, and federal funds sold), as of September 30, 2003, totaled $733,000
compared to $2.2 million at September 30, 2002. The Bank's cash flows were
provided mainly by financing activities, including $4.2 million from net deposit
increases and $2.5 million in net proceeds from the stock conversion. Operating
activities provided $229,100 in cash for the nine months ended September 30,
2003 compared to $22,700 used in cash for the nine months ended September 30,
2002. The Bank used cash flows for its investing activities primarily to fund an
increase in gross loans of $6.6 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
September 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.
15
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 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) 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 September 30, 2003, the Registrant did
not file any current reports on Form 8-K.
16
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: November 14, 2003 /s/ William M. Tandy
--------------------------------------------
William M. Tandy, President
(Duly Authorized Representative)
Date: November 14, 2003 /s/ Michael D. Wortham
--------------------------------------------
Michael D. Wortham, Vice President
(Chief Financial Officer)
17